Ahsan Ali AshrafLecturer Lahore Leads University

Gary Dessler

Part 1 IntroductionChapter 2

Strategic Human ResourceManagement and the HR Scorecard

After studying this chapter,you should be able to:

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4.

Outline the steps in the strategic managementprocess.

Explain and give examples of each type ofcompanywide and competitive strategy.

Explain what a high performance work system isand why it is important.

Illustrate and explain each of the seven steps inthe HR Scorecard approach to creating HRsystems.

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© 2005 Prentice Hall Inc. All rights reserved. 3–91

HR’s Strategic Challenges

Strategic plan– A company’s plan for how it will match its internalstrengths and weaknesses with externalopportunities and threats in order to maintain acompetitive advantage.

Three basic challenges– The need to support corporate productivity andperformance improvement efforts.

– That employees play an expanded role inemployers’ performance improvement efforts.

– HR must be more involved in designing—not justexecuting—the company’s strategic plan.

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The Strategic Management Process

Strategic management– The process of identifying and executing theorganization’s mission by matching its capabilitieswith the demands of its environment.

Strategy– A strategy is a course of action.– The company’s long-tem plan for how it willbalance its internal strengths and weaknesses withits external opportunities and threats to maintain acompetitive advantage.

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Business Mission and Its Vision

Vision– A general statement of its intended direction thatevokes emotional feelings in organizationmembers.

Mission– Spells out who the company is, what it does, andwhere it’s headed.

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Strategic Management Process (cont’d)

Strategic management tasks

– Step 1: Define the Business and Its Mission

– Step 2: Perform External and Internal Audits

– Step 3: Translate the Mission into Strategic Goals

– Step 4: Formulate a Strategy to Achieve theStrategic Goals

– Step 5: Implement the Strategy

– Step 6: Evaluate Performance

Overview of Strategic Management

Figure 3–1

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Figure 3–2

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A SWOT Chart

SWOT AnalysisThe use of a SWOT chartto compile and organizethe process of identifyingcompany

Strengths,Weaknesses,Opportunities, andThreats.

Figure 3–3

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Company

Dell

eBay

General Electric

Southwest Airlines

Vanguard

Wal-Mart

Strategies in Brief

Strategic Principle

Be direct

Focus on trading communities

Be number one or number two in everyindustry in which we compete, or get out

Meet customers’ short-haul travel needsat fares competitive with the cost ofautomobile travel

Unmatchable value for the investor-owner

Low prices, every day

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Types of Strategic Planning

Corporate-level strategy

– Identifies the portfolio of businesses that, in total,comprise the company and the ways in whichthese businesses relate to each other.

• Diversification strategy implies that the firm will expandby adding new product lines.

• Vertical integration strategy means the firm expandsby, perhaps, producing its own raw materials, or sellingits products direct.

• Consolidation strategy reduces the company’s size

• Geographic expansion strategy takes the companyabroad.

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Types of Strategic Planning (cont’d)

Business-level/competitive strategy

– Identifies how to build and strengthen thebusiness’s long-term competitive position in themarketplace.

• Cost leadership: the enterprise aims to become thelow-cost leader in an industry.

• Differentiation: a firm seeks to be unique in its industryalong dimensions that are widely valued by buyers.

• Focus: a firm seeks to carve out a market niche, andcompete by providing a product or service customerscan get in no other way.

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Types of Strategic Planning (cont’d)

Functional strategies– Identify the basic courses of action that eachdepartment will pursue in order to help thebusiness attain its competitive goals.

Relationships Among Strategiesin Multiple- Business Firms

Figure 3–4

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Achieving Strategic Fit

Michael Porter– Emphasizes the ―fit‖ point of view that all of thefirm’s activities must be tailored to or fit itsstrategy, by ensuring that the firm’s functionalstrategies support its corporate and competitivestrategies.

Gary Hamel and C. K. Prahalad– Argue for ―stretch‖ in leveraging resources—supplementing what you have and doing morewith what you have—can be more important thanjust fitting the strategic plan to current resources.

The SouthwestAirlines’ ActivitySystem

Figure 3–5

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HR and Competitive Advantage

Competitive advantage– Any factors that allow an organization todifferentiate its product or service from those ofits competitors to increase market share.

– Superior human resources are an importantsource of competitive advantage

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Strategic Human Resource Management

Strategic Human Resource Management

– The linking of HRM with strategic goals andobjectives in order to improve businessperformance and develop organizational culturesthat foster innovation and flexibility.

– Formulating and executing HR systems—HRpolicies and activities—that produce the employeecompetencies and behaviors the company needsto achieve its strategic aims.

Linking Corporate and HR Strategies

Figure 3–6

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HR’S Strategic Roles

HR professionals should be part of the firm’sstrategic planning executive team.

– Identify the human issues that are vital tobusiness strategy.

– Help establish and execute strategy.

– Provide alternative insights.

– Are centrally involved in creating responsive andmarket-driven organizations.

– Conceptualize and execute organizational change.

HR Involvement in Mergers

Figure 3–7

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HR’s Strategy Execution Role

The HR department’s strategies, policies, andactivities must make sense in terms of thecompany’s corporate and competitivestrategies, and they must support thosestrategies.

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HR’s Strategy Formulation Role

HR helps top management formulate strategyin a variety of ways by.– Supplying competitive intelligence that may beuseful in the strategic planning process.

– Supplying information regarding the company’sinternal human strengths and weaknesses.

– Build a persuasive case that shows how—inspecific and measurable terms—the firm’s HRactivities can and do contribute to creating valuefor the company.

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Creating a Strategy-oriented HR System

Components of the HR process– HR professionals who have strategic and otherskills

– HR policies and activities that comprise the HRsystem itself

– Employee behaviors and competencies that thecompany’s strategy requires.

The Basic Architecture of HR

Figure 3–8

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The High-Performance Work System

High-performance work system (HPWS)practices.– High-involvement employee practices (such as jobenrichment and team-based organizations),

– High commitment work practices (such asimproved employee development,communications, and disciplinary practices)

– Flexible work assignments.– Other practices include those that foster skilledworkforces and expanded opportunities to usethose skills.

Figure 3–9

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TranslatingStrategy intoHR Policyand Practice

Basic Model ofHow to AlignHR Strategyand Actionswith BusinessStrategy

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The HR Scorecard Approach

HR scorecard– Measures the HR function’s effectiveness andefficiency in producing employee behaviorsneeded to achieve the company’s strategic goals.

Creating an HR scorecard– Must know what the company’s strategy is.– Must understand the causal links between HRactivities, employee behaviors, organizationaloutcomes, and the organization’s performance.

– Must have metrics to measure all the activities andresults involved.

Strategic HR Relationships

Figure 3–10

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HRActivities

EmergentEmployeeBehaviors

StrategicallyRelevant

OrganizationalOutcomes

OrganizationalPerformance

AchieveStrategic

Goals

Figure 3–11

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The HRScorecardApproachtoFormulatingHR Policies,Activities,andStrategies

Source: Copyright © Gary Dessler, Ph.D.

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Using the HR Scorecard Approach

Step 1: Define the Business Strategy

Step 2: Outline the Company’s Value Chain

Step 3: Identify the Strategically RequiredOrganizational Outcomes

Step 4: Identify the Required WorkforceCompetencies and Behaviors

Step 5: Identify the Strategically Relevant HRSystem Policies and Activities

Step 6: Design the HR Scorecard MeasurementSystem

Step 7: Periodically Evaluate the MeasurementSystem

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Outlining the Company’s Value Chain

Value chain analysis– A tool for identifying, isolating, visualizing, andanalyzing the firm’s most important activities andstrategic costs.

– Identifying the primary and crucial activities thatcreate value for customers and the related supportactivities.

• Each activity is part of the process of designing,producing, marketing, and delivering the company’sproduct or service.

– Shows the chain of essential activities.– Prompts future questions.

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SimpleValueChain for―the HotelParis‖

Figure 3–12

Source: Copyright © Gary Dessler, Ph.D.

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HR Scorecard forthe Hotel ParisInternationalCorporation*

Note:*(An abbreviated example showingselected HR practices and outcomes aimed atimplementing the competitive strategy, ―To usesuperior guest services to differentiate theHotel Paris properties and thus increase thelength of stays and the return rate of guests,and thus boost revenues and profitability‖).

Figure 3–13

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Key Terms

competitive advantage

HR Scorecard

leveraging

metrics

mission strategic control

strategic human resource

manager

strategic management

strategic plan

strategy

SWOT analysis

value chain analysis

vision