Planning, Organizing, Leading, and Controlling

A manager’s primary challenge is to solve problems creatively. While drawing from a variety of academic disciplines, and

to help managers respond to the challenge of creative problem solving, principles of management have long been

categorized into the four major functions of planning, organizing, leading, and controlling (the P-O-L-C framework). The

four functions, summarized in the P-O-L-C figure, are actually highly integrated when carried out in the day-to-day

realities of running an organization. Therefore, you should not get caught up in trying to analyze and understand a

complete, clear rationale for categorizing skills and practices that compose the whole of the P-O-L-C framework.

It is important to note that this framework is not without criticism. Specifically, these criticisms stem from the

observation that the P-O-L-C functions might be ideal but that they do not accurately depict the day-to-day actions of

actual managers (Mintzberg, 1973; Lamond, 2004). The typical day in the life of a manager at any level can be

fragmented and hectic, with the constant threat of having priorities dictated by the law of the trivial many and

important few (i.e., the 80/20 rule). However, the general conclusion seems to be that the P-O-L-C functions of

management still provide a very useful way of classifying the activities managers engage in as they attempt to achieve

organizational goals (Lamond, 2004).

Figure 1.7 The P-O-L-C Framework

Planning

Planning is the function of management that involves setting objectives and determining a course of action for achieving

those objectives. Planning requires that managers be aware of environmental conditions facing their organization and

forecast future conditions. It also requires that managers be good decision makers.

Planning is a process consisting of several steps. The process begins with environmental scanning which simply means

that planners must be aware of the critical contingencies facing their organization in terms of economic conditions, their

competitors, and their customers. Planners must then attempt to forecast future conditions. These forecasts form the

basis for planning.

Planners must establish objectives, which are statements of what needs to be achieved and when. Planners must then

identify alternative courses of action for achieving objectives. After evaluating the various alternatives, planners must

make decisions about the best courses of action for achieving objectives. They must then formulate necessary steps and

ensure effective implementation of plans. Finally, planners must constantly evaluate the success of their plans and take

corrective action when necessary.

There are many different types of plans and planning.

Strategic planning involves analyzing competitive opportunities and threats, as well as the strengths and weaknesses of

the organization, and then determining how to position the organization to compete effectively in their environment.

Strategic planning has a long time frame, often three years or more. Strategic planning generally includes the entire

organization and includes formulation of objectives. Strategic planning is often based on the organization’s mission,

which is its fundamental reason for existence. An organization’s top management most often conducts strategic

planning.

Tactical planning is intermediate-range (one to three years) planning that is designed to develop relatively concrete and

specific means to implement the strategic plan. Middle-level managers often engage in tactical planning.

Operational planning generally assumes the existence of organization-wide or subunit goals and objectives and specifies

ways to achieve them. Operational planning is short-range (less than a year) planning that is designed to develop specific

action steps that support the strategic and tactical plans.

Organizing

Organizing is the function of management that involves developing an organizational structure and allocating human

resources to ensure the accomplishment of objectives. The structure of the organization is the framework within which

effort is coordinated. The structure is usually represented by an organization chart, which provides a graphic

representation of the chain of command within an organization. Decisions made about the structure of an organization

are generally referred to as organizational designdecisions.

Organizing also involves the design of individual jobs within the organization. Decisions must be made about the duties

and responsibilities of individual jobs, as well as the manner in which the duties should be carried out. Decisions made

about the nature of jobs within the organization are generally called “job design” decisions.

Organizing at the level of the organization involves deciding how best to departmentalize, or cluster, jobs into

departments to coordinate effort effectively. There are many different ways to departmentalize, including organizing by

function, product, geography, or customer. Many larger organizations use multiple methods of departmentalization.

Organizing at the level of a particular job involves how best to design individual jobs to most effectively use human

resources. Traditionally, job design was based on principles of division of labor and specialization, which assumed that

the more narrow the job content, the more proficient the individual performing the job could become. However,

experience has shown that it is possible for jobs to become too narrow and specialized. For example, how would you like

to screw lids on jars one day after another, as you might have done many decades ago if you worked in company that

made and sold jellies and jams? When this happens, negative outcomes result, including decreased job satisfaction and

organizational commitment, increased absenteeism, and turnover.

Recently, many organizations have attempted to strike a balance between the need for worker specialization and the

need for workers to have jobs that entail variety and autonomy. Many jobs are now designed based on such principles

as empowerment, job enrichment and teamwork. For example, HUI Manufacturing, a custom sheet metal fabricator, has

done away with traditional “departments” to focus on listening and responding to customer needs. From company-wide

meetings to team huddles, HUI employees know and understand their customers and how HUI might service them best

(Huimfg, 2008).

Leading

Leading involves the social and informal sources of influence that you use to inspire action taken by others. If managers

are effective leaders, their subordinates will be enthusiastic about exerting effort to attain organizational objectives.

The behavioral sciences have made many contributions to understanding this function of management. Personality

research and studies of job attitudes provide important information as to how managers can most effectively lead

subordinates. For example, this research tells us that to become effective at leading, managers must first understand

their subordinates’ personalities, values, attitudes, and emotions.

Studies of motivation and motivation theory provide important information about the ways in which workers can be

energized to put forth productive effort. Studies of communication provide direction as to how managers can effectively

and persuasively communicate. Studies of leadership and leadership style provide information regarding questions, such

as, “What makes a manager a good leader?” and “In what situations are certain leadership styles most appropriate and

effective?”

Figure 1.8

Quality control ensures that the organization delivers on its promises.

International Maize and Wheat Improvement Center – Maize seed quality control at small seed company Bidasem – CC

BY-NC-SA 2.0.

Controlling

Controlling involves ensuring that performance does not deviate from standards. Controlling consists of three steps,

which include (1) establishing performance standards, (2) comparing actual performance against standards, and (3)

taking corrective action when necessary. Performance standards are often stated in monetary terms such as revenue,

costs, or profits but may also be stated in other terms, such as units produced, number of defective products, or levels

of quality or customer service.

The measurement of performance can be done in several ways, depending on the performance standards, including

financial statements, sales reports, production results, customer satisfaction, and formal performance appraisals.

Managers at all levels engage in the managerial function of controlling to some degree.

The managerial function of controlling should not be confused with control in the behavioral or manipulative sense. This

function does not imply that managers should attempt to control or to manipulate the personalities, values, attitudes, or

emotions of their subordinates. Instead, this function of management concerns the manager’s role in taking necessary

actions to ensure that the work-related activities of subordinates are consistent with and contributing toward the

accomplishment of organizational and departmental objectives.

Effective controlling requires the existence of plans, since planning provides the necessary performance standards or

objectives. Controlling also requires a clear understanding of where responsibility for deviations from standards lies.

Two traditional control techniques are budget and performance audits. An audit involves an examination and

verification of records and supporting documents. A budget audit provides information about where the organization is

with respect to what was planned or budgeted for, whereas a performance audit might try to determine whether the

figures reported are a reflection of actual performance. Although controlling is often thought of in terms of financial

criteria, managers must also control production and operations processes, procedures for delivery of services,

compliance with company policies, and many other activities within the organization.

The management functions of planning, organizing, leading, and controlling are widely considered to be the best means

of describing the manager’s job, as well as the best way to classify accumulated knowledge about the study of

management. Although there have been tremendous changes in the environment faced by managers and the tools used

by managers to perform their roles, managers still perform these essential functions.

Developing An Operations Plan: 5 Key Elements

Most organizations are familiar with strategic plans, outlining strategy over a three to five year period and establishing a

stable long-term vision. But these same organizations often lack operations plans.

What is an operations plan? In short, it lays out the who, what, when, and how of your daily operations over the course

of the next year. It is meant to define how human, financial, and physical resources will be allocated to achieve short-

term goals that support your larger strategic objectives. On a day-to-day basis, your operations plan will answer

questions like:

Who should be working on what?

How will we allocate resources on a given task?

What risks do we face at present?

How can we mitigate those risks?

Put simply, your operations plan is a manual for operating your organization – designed to ensure that you accomplish

your goals. It’s a key piece of the puzzle for any goal-oriented team. So what steps can you take to develop a strong

operations plan?

1) Start with your strategic plan.

Ultimately, an operation plan is a tool for carrying out your strategic plan. It’s important, then, to make sure that you

have a strong strategic plan already in place, and that everyone involved in your efforts understands it. Without this

guidance, writing an operations plan will be like trying to plan a vacation without knowing where you’re going.

If you can’t identify how an element of your operations plan helps you achieve a specific strategic objective, then it

shouldn’t be part of your plan.

2) Focus on your most important goals.

There’s a simple rule when it comes to operations plans – the more complex they are, the less likely it is that a team will

follow them successfully.

In order to avoid writing a tangled tome of a plan, focus on the goals that truly matter. Before you even set down to

create your operations plan, break your strategic plan down into one-year objectives. Then determine the key initiatives

that will help you achieve those goals. They might be:

New organizational structures

Quality control measures

Faster delivery times

More employee time spent on professional development

…along with many other possibilities. Choose between three and five initiatives that will drive success in your long-term

goals, and then identify metrics that will help you measure your progress. These key performance indicators (or KPIs)

will be among your most powerful tools for success.

3) Use leading – not lagging – indicators.

Your KPIs will play an important role in your operations plan’s success – so it’s critical to choose the right ones. The most

effective metrics are leading indicators: predictive measures that show you what to expect in the future and allow you

to adjust course accordingly. By contrast, lagging indicators show you that your progress is falling short only after it’s

too late.

If your goal is to reach a certain sales threshold, for example, sales meetings or calls-per-week might be a strong leading

indicator. Based on your past experience, you may be able to calculate how many calls it takes, on average, to complete

a sale. This will allow you to use calls to determine whether you’re on track to meet sales goals. If you were to simply

measure sales, however, you wouldn’t know where you stood relative to goals and projections until you were already

there.

4) Don’t develop your KPIs in a vacuum.

The KPIs you choose will guide the work of everyone in your organization for the next year. With this in mind, you should

draw on a wide variety of perspectives within your team as you develop those KPIs.

If your organization is made up of 15 people or less, you may want to hold an annual planning session where everyone

collaborates to craft the KPIs for the coming year. Larger organizations may wish to restrict participation to their

leadership teams. In either case, the key is to include a range of perspectives in the planning process – but not so many

that effective decision-making becomes difficult.

5) Communication is paramount.

At the beginning of the year, set aside time to share and discuss your KPIs with your entire organization. It’s essential for

everyone to understand why you’ve chosen these specific metrics, why they matter, how they will help your

organization achieve its goals, and what each individual’s role may be in working toward success.

The importance of buy-in and communication among your team is hard to overstate. Hold regular meetings – ideally

weekly – to communicate organizational progress on your KPIs and discuss any issues that may have emerged. Whether

through meetings, dashboards, or some other means, team members should be able to track their personal progress

and performance on a weekly basis.

With a strong operations plan in place, your organization should have everything you need to tackle your priorities

successfully – and ultimately achieve the goals that will drive your strategic vision.

An operations doesn’t necessarily include projects. It defines organizational structure, how different branches within a

company run and what steps they’ll take to reach one-year goals that are in line with the strategic plan. Once the

strategic and operations plans are in place, then you develop project plans that can help you achieve those specific

goals.

The Basics of Key Performance Indicators (KPI)

Key performance indicators, also known as KPI or Key Success Indicators, help managers and employees gauge the

effectiveness of various functions and processes important to achieving organizational goals.

Some Examples of KPI

KPIs are intrinsically linked to a firm's strategic goals and are used to help managers assess whether they're on target as

they work towards those goals.

A sales team might track new revenue, total revenue, new customer capture, average deal size, and deal pipeline size to

assess progress toward corporate revenue targets.

A customer support team might measure the average on-hold time for customers, as well as the percentage of calls that

result in a high post-call survey rating and overall customer satisfaction.

A marketing group will look at the contribution of marketing generated sales leads to total revenue over time to gauge

their effectiveness.

Other areas of the business will look at the efficiency of processes and various quality metrics.

Human resources will look at employee engagement, employee turnover, time-to-fill open positions and other related

metrics.

Managers and key stakeholders will monitor these indicators over time and adjust plans and programs as needed to

improve the KPIs in support of the firm's strategic goals.

Leading and Lagging Performance Indicators

There's both art and science to the development of proper performance indicators. The objective is always to identify

those measures that meaningfully communicate accomplishment of or progress toward key goals.

Some indicators are lagging indicators and simply tell you how you've performed. Financial metrics are classic examples

of these types of measures. They simply indicate results of past programs and campaigns. They have no value in

predicting future performance.

Other measures are leading indicators offering guidance on future results. For example, an improvement in employee

engagement is likely to forecast improvement in many key indicators, including customer satisfaction, innovation and

overall participation in running the business.

The goal is to have the right balance of both leading and lagging KPIs.

Six Big Challenges in Developing Key Performance Indicators

It takes considerable effort to develop a high-quality set of performance indicators. Managers and functional experts

work together to propose a set of measures and to debate the relative importance of the various measures. A number

of key challenges include:

If the firm's strategy and key objectives are not clear, measures tend to focus on just financial outcomes.

Too much reliance on financial indicators offers a very imbalanced and incomplete view on the health of a business.

Measures deemed important by one area may not be viewed as important by others.

If compensation is tied to key targets for the performance indicators, this introduces a conflict of interest and

considerable bias into the process.

Identifying leading indicators is a difficult process.

The ability to accurately measure and report on the identified measures may be difficult or impossible given internal

reporting system limitations.

A healthy process for identifying and implementing key performance indicators involves the managers and contributors

regularly revisiting and revising the measures.

This fine-tuning process takes time and diligence by all parties.

The Proper Use of Key Performance Indicators:

A properly developed and implemented KPI program incorporates regular review processes where managers and other

stakeholders assess the meaning of the results. Improvement in employee engagement and customer satisfaction

measures are positive, but diligent managers will assess the causes and impact of the improvements then decide how to

continue to strengthen in these areas.

Similarly, a decline in sales results from the prior period or same period last year might be reasonably assessed as

negative. However, the measures alone don't tell you what happened or how to improve. A set of proper sales-focused

KPIs will include measures that showcase where conditions deteriorated and how likely they are to improve.

Armed with these insights, sales team members can take action to strengthen the leading indicators and drive improved

future results.

The Bottom Line:

KPIs are much like instruments that measure temperature and barometric pressure. It might be interesting to know that

the temperature increased or decreased, but it's more critical to know whether a storm is imminent. The measures work

together to provide a much more complete picture of the total situation.

Programme and project management tools and techniques

Tools and techniques

Some of the tools and techniques that can be used in programme and project management are outlined below.

SWOT - Strengths, Weaknesses, Opportunities, Threats

SWOT analysis diagram

A SWOT analysis can be used to draw out the threats and opportunities facing a programme or project. It has the

advantage of being quick to implement and is readily understood. Analysis of the strengths, weaknesses, opportunities

and threats brings together the results of internal business analysis and external environmental analysis. Common and

beneficial applications of SWOT are gaining a greater understanding and insight into competitors and market position.

A similar and related form of analysis is known as PEST - examining Political, Economic, Social and Technological factors.

RACI - Responsible, Accountable, Consulted, Informed

Table comparing tasks with roles to show those responsible, accountable, consulted and informed

Role 1 Role 2 Role 3 Role 4 Role 5 Role 6

Task A C C I A, R

Task B A C I R

Task C A R I

Task D R C A

Task E R A

Task F A R C I

A RACI diagram is used to describe the roles and responsibilities of the participants in a business or project activity in

terms of producing predetermined deliverables. RACI is an acronym formed from the four participatory roles which are:

responsible - those who undertake the activity or the resources

accountable - those who take the credit for success or accountability for failure or the activity manager; and there must

be at least one for each activity

consulted - those whose opinions are sought

informed - those who are kept advised of progress

An expanded version, RACI-VS, can also be used, adding the roles of:

verifies - the party who checks whether the product meets the quality criteria set out in the product description

signs off - the party who approves the verification decision and authorises the product handover

Stakeholder matrix

Stakeholder matrix

A stakeholder matrix is used to map stakeholders in terms of their importance and potential impact on programme or

project activity. Stakeholders are the individuals or groups who will be affected by an activity, programme or project.

They could include:

senior managers whose business areas are directly or indirectly involved

end-users including customers outside the organisation

suppliers and partners

Effective management of the stakeholders’ interests includes the resolution of conflicting objectives and representation

of end-users who may not be directly involved in the activity. Stakeholders’ interests can be managed through

stakeholder meetings and specific user panels providing input to a requirement specification. The key objective is to

capture, align, record, sign off and deliver stakeholder objectives. One way of prioritising this activity is to use a

stakeholder matrix.

Cause and effect diagram

Cause and effect diagram

Also known as fish-bone diagram, a cause and effect diagram can be used to represent event causes and potential

impacts. It is a graphical representation of the causes of various events that lead to one or more impacts. Each diagram

may possess several start points (A points) and one or more end points (B points).

Construction of the diagram may begin from an A point and work towards a B point or extrapolate backwards from a B

point. This is largely a matter of preference.

Risk map

Risk map with RAG status

This is a simple representation of risk in terms of likelihood and impact. It requires that the probability of a risk occurring

is classified as low, medium or high - with a similar classification for the impact if the risk materialises.

A combined risk classification of high probability and high impact if the risk occurs is clearly an important risk. The

classification can be extended to include very low and very high.

Summary risk profile

Summary risk profile

A summary risk profile is a simple mechanism to increase the visibility of risks. It is a graphical representation of

information normally found on an existing risk register. In some industry sectors it is referred to as a risk map.

The project manager or risk manager needs to update the risk register on a regular basis and then regenerate the graph,

showing risks in terms of probability and impact with the effects of mitigating action taken into account. It is essential

for the graph to reflect current information as documented in the risk register. The profile must be used with extreme

care and should not mislead the reader. If an activity has over 200 risks it will be impractical to illustrate all of the risks -

it will be more appropriate to illustrate the top 20 risks, for example, making it clear what is and is not illustrated.

A key feature is the risk tolerance line. It shows the overall level of risk that the organisation is prepared to tolerate in a

given situation. If exposure to risk is above this line, managers can see that they must take prompt action. Setting the

risk tolerance line is a task for experienced risk managers. It reflects the organisation’s attitudes to risk in general and to

a specific set of risks within a particular project. The parameters of the risk tolerance line should be agreed at the outset

of an activity and regularly reviewed.

The use of RAGB (red, amber, green, blue) status can be useful for incorporating the status reporting from risk registers

into risk profiles, and can provide a quick and effective means of monitoring.

Decision tree

Example of a simple decision tree

A decision tree is a useful tool for enabling choice between several courses of action. It provides a highly effective

structure within which options can be explored and possible outcomes can be investigated. It also helps to form a

balanced picture of the risks and rewards associated with each possible course of action.

A decision tree is particularly useful when choosing between different strategies, projects or investment opportunities -

particularly when resources are scarce.

Radar chart

An example of a radar chart

Also known as a spider chart, a radar chart is a diagram that is used to show the number of risks that different projects

are exposed to. Initially, the data is placed in a table that is subsequently converted into a chart. In a radar chart, a point

close to the centre on any axis indicates a low value and a point near the edge is a high value.

Risk analysis can be defined in many different ways, and much of the definition depends on how risk analysis relates to

other concepts. Risk analysis can be "broadly defined to include risk assessment, risk characterization, risk

communication, risk management, and policy relating to risk, in the context of risks of concern to individuals, to public-

and private-sector organizations, and to society at a local, regional, national, or global level." A useful construct is to

divide risk analysis into two components: (1) risk assessment (identifying, evaluating, and measuring the probability and

severity of risks) and (2) risk management (deciding what to do about risks). Some books take a slightly different

approach and define risk management as the overarching concept, where risk analysis is the component that seeks to

identify and measure the risks and risk mitigation is determining what to do about the risks.

Risk analysis can be qualitative or quantitative. Qualitative risk analysis uses broad terms (e.g., moderate, severe,

catastrophic) to identify and evaluate risks or presents a written description of the risk, while quantitative risk

analysis calculates numerical probabilities over the possible consequences.

Quantitative risk analysis

Quantitative risk analysis seeks to numerically assess probabilities for the potential consequences of risk, and is often

called probabilistic risk analysis or probabilistic risk assessment (PRA). The analysis often seeks to describe the

consequences in numerical units such as dollars, time, or lives lost. PRA often seeks to answer three questions:

What can happen? (i.e., what can go wrong?)

How likely is it that it will happen?

If it does happen, what are the consequences?

Thus, risk R can be described as a set of triplets, R={<si,pi,ci>}, i=1,2,...,N where si is scenario i, pi is the probability of

scenario i, ciare the consequences if scenario i occurs, and N is the total number of scenarios. This type of analysis

typically results in a probability distribution over the consequences.

Although actuarial science has used probabilities to measure risk for more than a hundred years, PRA as a specific mode

of inquiry was initially developed to analyze engineering risks such as nuclear power plants and the space

shuttle.[7] More recently, it has also been applied to other areas, such as business, climate change, health risks, food

safety and security. Especially with the increasing importance of terrorism, game theory has become a quantitative tool

to analyze the risks of intelligent adversaries who seek to do harm against a system or people. These game-theoretic

techniques may be probabilistic or deterministic.

Qualitative risk assessment

Qualitative risk assessment, in absence of precise values for likelihood and consequences, assigns relative and broad

classifications to the likelihood and consequences for each risk and does not build a precise mathematical model of risk

as suggested by PRA. A common qualitative model is the risk matrix, which cross-references classifications of likelihood

of occurrence with classifications of severity of consequences of occurrence to determine a broad classification of risk

level, under the general principle that greater probability and greater severity each imply greater risk. A risk matrix is

sometimes called a pseudo-quantitative method because the classifications may be determined from numbers (for

example, the likelihood category Unlikely may correspond to a probability of occurrence between 0.1 and 0.3).

Qualitative, pseudo-quantitative, or scoring methods have been heavily criticized because they do not obey

mathematical rules and may not correctly rank risks. They have the appearance of being rigorous but provide a false

sense of security to those organizations that rely on them to manage risks. Undertaking a full quantitative approach

provides a more rigorous analysis and a better foundation for making good risk management decisions than relying on

pseudo-quantitative methods.

Strategic Planning

In the past, human resource management (HRM) was called the personnel department. In the past, the personnel

department hired people and dealt with the hiring paperwork and processes. It is believed the first human resource

department was created in 1901 by the National Cash Register Company (NCR). The company faced a major strike but

eventually defeated the union after a lockout. After this difficult battle, the company president decided to improve

worker relations by organizing a personnel department to handle grievances, discharges, safety concerns, and other

employee issues. The department also kept track of new legislation surrounding laws impacting the organization. Many

other companies were coming to the same realization that a department was necessary to create employee satisfaction,

which resulted in more productivity. In 1913, Henry Ford saw employee turnover at 380 percent and tried to ease the

turnover by increasing wages from $2.50 to $5.00, even though $2.50 was fair during this time period (Losey, 2011). Of

course, this approach didn’t work for long, and these large companies began to understand they had to do more than

hire and fire if they were going to meet customer demand.

More recently, however, the personnel department has divided into human resource management and human resource

development, as these functions have evolved over the century. HRM is not only crucial to an organization’s success, but

it should be part of the overall company’s strategic plan, because so many businesses today depend on people to earn

profits. Strategic planning plays an important role in how productive the organization is.

Table 2.1 Examples of Differences between Personnel Management and HRM

Personnel Management Focus HRM Focus

Administering of policies Helping to achieve strategic goals through people

Stand-alone programs, such as training HRM training programs that are integrated with company’s mission

and values

Personnel department responsible for

managing people

Line managers share joint responsibility in all areas of people hiring

and management

Creates a cost within an organization Contributes to the profit objectives of the organization

Most people agree that the following duties normally fall under HRM. Each of these aspects has its own part within the

overall strategic plan of the organization:

Staffing. Staffing includes the development of a strategic plan to determine how many people you might need to hire.

Based on the strategic plan, HRM then performs the hiring process to recruit and select the right people for the right

jobs.

Basic workplace policies. Development of policies to help reach the strategic plan’s goals is the job of HRM. After the

policies have been developed, communication of these policies on safety, security, scheduling, vacation times, and

flextime schedules should be developed by the HR department. Of course, the HR managers work closely with

supervisors in organizations to develop these policies. Workplace policies will be addressed throughout the book.

Compensation and benefits. In addition to paychecks, 401(k) plans, health benefits, and other perks are usually the

responsibility of an HR manager.

Retention. Assessment of employees and strategizing on how to retain the best employees is a task that HR managers

oversee, but other managers in the organization will also provide input.

Training and development. Helping new employees develop skills needed for their jobs and helping current employees

grow their skills are also tasks for which the HRM department is responsible. Determination of training needs and

development and implementation of training programs are important tasks in any organization. Succession planning

includes handling the departure of managers and making current employees ready to take on managerial roles when a

manager does leave.

Regulatory issues and worker safety. Keeping up to date on new regulations relating to employment, health care, and

other issues is generally a responsibility that falls on the HRM department..

In smaller organizations, the manager or owner is likely performing the HRM functions (de Kok & Uhlaner, 2001). They

hire people, train them, and determine how much they should be paid. Larger companies ultimately perform the same

tasks, but because they have more employees, they can afford to employ specialists, or human resource managers, to

handle these areas of the business. As a result, it is highly likely that you, as a manager or entrepreneur, will be

performing HRM tasks, hence the value in understanding the strategic components of HRM.

HRM vs. Personnel Management

Human resource strategy is an elaborate and systematic plan of action developed by a human resource department. This

definition tells us that an HR strategy includes detailed pathways to implement HRM strategic plans and HR plans. Think

of the HRM strategic plan as the major objectives the organization wants to achieve, and the HR plan as the specific

activities carried out to achieve the strategic plan. In other words, the strategic plan may include long-term goals, while

the HR plan may include short-term objectives that are tied to the overall strategic plan. As mentioned at the beginning

of this chapter, human resource departments in the past were called personnel departments. This term implies that the

department provided “support” for the rest of the organization. Companies now understand that the human side of the

business is the most important asset in any business (especially in this global economy), and therefore HR has much

more importance than it did twenty years ago. While personnel management mostly involved activities surrounding the

hiring process and legal compliance, human resources involves much more, including strategic planning, which is the

focus of this chapter. The Ulrich HR model, a common way to look at HRM strategic planning, provides an overall view of

the role of HRM in the organization. His model is said to have started the movement that changed the view of HR; no

longer merely a functional area, HR became more of a partnership within the organization. While his model has changed

over the years, the current model looks at alignment of HR activities with the overall global business strategy to form a

strategic partnership (Ulrich & Brockbank, 2005). His newly revised model looks at five main areas of HR:

Strategic partner. Partnership with the entire organization to ensure alignment of the HR function with the needs of the

organization.

Change agent. The skill to anticipate and respond to change within the HR function, but as a company as a whole.

Administrative expert and functional expert. The ability to understand and implement policies, procedures, and

processes that relate to the HR strategic plan.

Human capital developer. Means to develop talent that is projected to be needed in the future.

Employee advocate. Works for employees currently within the organization.

According to Ulrich (Ulrich, 2011), implementation of this model must happen with an understanding of the overall

company objectives, problems, challenges, and opportunities. For example, the HR professional must understand the

dynamic nature of the HRM environment, such as changes in labor markets, company culture and values, customers,

shareholders, and the economy. Once this occurs, HR can determine how best to meet the needs of the organization

within these five main areas.

Figure 2.1

To be successful in writing an HRM strategic plan, one must understand the dynamic external environment.

HRM as a Strategic Component of the Business

David Ulrich discusses the importance of bringing HR to the table in strategic planning.

Keeping the Ulrich model in mind, consider these four aspects when creating a good HRM strategic plan:

Make it applicable. Often people spend an inordinate amount of time developing plans, but the plans sit in a file

somewhere and are never actually used. A good strategic plan should be the guiding principles for the HRM function. It

should be reviewed and changed as aspects of the business change. Involvement of all members in the HR department

(if it’s a larger department) and communication among everyone within the department will make the plan better.

Be a strategic partner. Alignment of corporate values in the HRM strategic plan should be a major objective of the plan.

In addition, the HRM strategic plan should be aligned with the mission and objectives of the organization as a whole. For

example, if the mission of the organization is to promote social responsibility, then the HRM strategic plan should

address this in the hiring criteria.

Involve people. An HRM strategic plan cannot be written alone. The plan should involve everyone in the organization.

For example, as the plan develops, the HR manager should meet with various people in departments and find out what

skills the best employees have. Then the HR manager can make sure the people recruited and interviewed have similar

qualities as the best people already doing the job. In addition, the HR manager will likely want to meet with the financial

department and executives who do the budgeting, so they can determine human resource needs and recruit the right

number of people at the right times. In addition, once the HR department determines what is needed, communicating a

plan can gain positive feedback that ensures the plan is aligned with the business objectives.

Understand how technology can be used. Organizations oftentimes do not have the money or the inclination to research

software and find budget-friendly options for implementation. People are sometimes nervous about new technology.

However, the best organizations are those that embrace technology and find the right technology uses for their

businesses. There are thousands of HRM software options that can make the HRM processes faster, easier, and more

effective. Good strategic plans address this aspect.

HR managers know the business and therefore know the needs of the business and can develop a plan to meet those

needs. They also stay on top of current events, so they know what is happening globally that could affect their strategic

plan. If they find out, for example, that an economic downturn is looming, they will adjust their strategic plan. In other

words, the strategic plan needs to be a living document, one that changes as the business and the world changes.

Figure 2.2

A good HRM strategic plan acknowledges and addresses the use of software in HRM operations.

Howard Russell – Lefroy House – CC BY-NC-ND 2.0.

Human Resource Recall

Have you ever looked at your organization’s strategic plan? What areas does the plan address?

The Steps to Strategic Plan Creation

As we addressed in HRM strategic plans must have several elements to be successful. There should be a distinction

made here: the HRM strategic plan is different from the HR plan. Think of the HRM strategic plan as the major objectives

the organization wants to achieve, while the HR plan consists of the detailed plans to ensure the strategic plan is

achieved. Oftentimes the strategic plan is viewed as just another report that must be written. Rather than jumping in

and writing it without much thought, it is best to give the plan careful consideration.

The goal of is to provide you with some basic elements to consider and research before writing any HRM plans.

Conduct a Strategic Analysis

A strategic analysis looks at three aspects of the individual HRM department:

Understanding of the company mission and values. It is impossible to plan for HRM if one does not know the values and

missions of the organization. As we have already addressed in this chapter, it is imperative for the HR manager to align

department objectives with organizational objectives. It is worthwhile to sit down with company executives,

management, and supervisors to make sure you have a good understanding of the company mission and values.

Another important aspect is the understanding of the organizational life cycle. You may have learned about the life cycle

in marketing or other business classes, and this applies to HRM, too. An organizational life cycle refers to the

introduction, growth, maturity, and decline of the organization, which can vary over time. For example, when the

organization first begins, it is in the introduction phase, and a different staffing, compensation, training, and

labor/employee relations strategy may be necessary to align HRM with the organization’s goals. This might be opposed

to an organization that is struggling to stay in business and is in the decline phase. That same organization, however, can

create a new product, for example, which might again put the organization in the growth phase. Table 2.2 “Lifecycle

Stages and HRM Strategy” explains some of the strategies that may be different depending on the organizational life

cycle.

Understanding of the HRM department mission and values. HRM departments must develop their own departmental

mission and values. These guiding principles for the department will change as the company’s overall mission and values

change. Often the mission statement is a list of what the department does, which is less of a strategic approach.

Brainstorming about HR goals, values, and priorities is a good way to start. The mission statement should express how

an organization’s human resources help that organization meet the business goals. A poor mission statement might read

as follows: “The human resource department at Techno, Inc. provides resources to hiring managers and develops

compensation plans and other services to assist the employees of our company.”

A strategic statement that expresses how human resources help the organization might read as follows: “HR’s

responsibility is to ensure that our human resources are more talented and motivated than our competitors’, giving us a

competitive advantage. This will be achieved by monitoring our turnover rates, compensation, and company sales data

and comparing that data to our competitors” (Kaufman, 2011). When the mission statement is written in this way, it is

easier to take a strategic approach with the HR planning process.

Understanding of the challenges facing the department. HRM managers cannot deal with change quickly if they are not

able to predict changes. As a result, the HRM manager should know what upcoming challenges may be faced to make

plans to deal with those challenges better when they come along. This makes the strategic plan and HRM plan much

more usable.

Table 2.2 Lifecycle Stages and HRM Strategy

Life Cycle

Stage Staffing Compensation

Training and

Development

Labor / Employee

Relations

Introduction Attract best technical and

professional talent.

Meet or exceed labor

market rates to

attract needed talent.

Define future skill

requirements and

begin establishing

career ladders.

Set basic employee-

relations philosophy of

organization.

Growth

Recruit adequate numbers

and mix of qualifying

workers. Plan

management succession.

Manage rapid internal

labor market movements.

Meet external market

but consider internal

equity effects.

Establish formal

compensation

structures.

Mold effective

management team

through management

development and

organizational

development.

Maintain labor peace,

employee motivation,

and morale.

Maturity

Encourage sufficient

turnover to minimize

layoffs and provide new

openings. Encourage

mobility as reorganizations

shift jobs around.

Control compensation

costs.

Maintain flexibility

and skills of an aging

workforce.

Control labor costs and

maintain labor peace.

Improve productivity.

Decline

Plan and implement

workforce reductions and

reallocations; downsizing

and outplacement may

occur during this stage.

Implement tighter

cost control.

Implement retraining

and career consulting

services.

Improve productivity

and achieve flexibility

in work rules.

Negotiate job security

and employment-

adjustment policies

Identify Strategic HR Issues

In this step, the HRM professionals will analyze the challenges addressed in the first step. For example, the department

may see that it is not strategically aligned with the company’s mission and values and opt to make changes to its

departmental mission and values as a result of this information.

Many organizations and departments will use a strategic planning tool that identifies strengths, weaknesses,

opportunities, and threats (SWOT analysis) to determine some of the issues they are facing. Once this analysis is

performed for the business, HR can align itself with the needs of the business by understanding the business

strategy. for an example of how a company’s SWOT analysis can be used to develop a SWOT analysis for the HR

department.

Once the alignment of the company SWOT is completed, HR can develop its own SWOT analysis to determine the gaps

between HR’s strategic plan and the company’s strategic plan. For example, if the HR manager finds that a department’s

strength is its numerous training programs, this is something the organization should continue doing. If a weakness is

the organization’s lack of consistent compensation throughout all job titles, then the opportunity to review and revise

the compensation policies presents itself. In other words, the company’s SWOT analysis provides a basis to address

some of the issues in the organization, but it can be whittled down to also address issues within the department.

Table 2.3 Sample HR Department SWOT Analysis for Techno, Inc.

Strengths

Hiring talented people

Company growth

Technology implementation for business processes

Excellent relationship between HRM and management/executives

Weaknesses

No strategic plan for HRM

No planning for up/down cycles

No formal training processes

Lacking of software needed to manage business processes, including go-to-market staffing strategies

Opportunities

Development of HRM staffing plan to meet industry growth

HRM software purchase to manage training, staffing, assessment needs for an unpredictable business

cycle

Continue development of HRM and executive relationship by attendance and participation in key

meetings and decision-making processes

Develop training programs and outside development opportunities to continue development of in-

house marketing expertise

Threats

Economy

Changing technology

Prioritize Issues and Actions

Based on the data gathered in the last step, the HRM manager should prioritize the goals and then put action plans

together to deal with these challenges. For example, if an organization identifies that they lack a comprehensive training

program, plans should be developed that address this need. An important aspect of this step is the involvement of the

management and executives in the organization. Once you have a list of issues you will address, discuss them with the

management and executives, as they may see other issues or other priorities differently than you. Remember, to be

effective, HRM must work with the organization and assist the organization in meeting goals. This should be considered

in every aspect of HRM planning.

Draw Up an HRM Plan

Once the HRM manager has met with executives and management, and priorities have been agreed upon, the plans are

ready to be developed. Sometimes companies have great strategic plans, but when the development of the details

occurs, it can be difficult to align the strategic plan with the more detailed plans. An HRM manager should always refer

to the overall strategic plan before developing the HRM strategic plan and HR plans.

Even if a company does not have an HR department, HRM strategic plans and HR plans should still be developed by

management. By developing and monitoring these plans, the organization can ensure the right processes are

implemented to meet the ever-changing needs of the organization. The strategic plan looks at the organization as a

whole, the HRM strategic plan looks at the department as a whole, and the HR plan addresses specific issues in the

human resource department.

Advantages & Disadvantages of Excess Inventory

Inventory control is a strategy companies use to keep an appropriate level of materials, supplies and finished

products on hand. Excessive amounts of inventory have advantages and disadvantages for a business, which

makes inventory control a delicate balancing act. Weighing the pros and cons can help small business owners

determine the appropriate levels of inventory to stock.

Inventory Cost

When a company holds a high level of inventory, it ties up business funds that the company could use in other areas such as

research and development or marketing. New product development and marketing can bring additional business to the

company, but holding high inventory levels does not. The cost of the inventory is not recouped by the organization until the

company sells the inventory or uses it to build customer orders.

Warehousing

Warehousing is another cost of holding excess inventory in a business. The cost of warehousing can include the warehouse

space, utilities and maintenance of the storage area. Some supplies may require additional maintenance, such as temperature

control to preserve the quality of the material. Companies that reduce inventory levels can store materials in a smaller area in

the business and use the extra space for new product development.

Quality

Storing excess inventory can lead to quality problems such as degradation and potential obsolescence. Companies may stock

high levels of inventory in anticipation of demand or for an existing order, but customers may change specifications or require

different materials for future products. In this situation, the company must purchase new materials and supplies to build

according to the new customer specifications. Businesses can identify and isolate quality problems easily with a smaller

inventory quantity, as well.

Buffer

An excess inventory of finished goods can provide a buffer for increases in customer demand. The business is taking a risk by

building and storing finished products in anticipation of customer demand, but it can reduce the lead time and improve customer

satisfaction.

Bulk Purchase Savings

Small businesses can obtain a savings when purchasing some supplies in bulk quantities. Suppliers may give discounts to

customers who order larger quantities. The business can also save on shipping costs for one large order instead of multiple

shipments of smaller quantities.