MASTER OF INTERNATIONAL BUSINESS (MIB) __________________________

HUMAN RESOURCE MANAGEMENT (TPM516M)

TOPIC 1 THE STRATEGIC PROCESS

Topic 1: THE STRATEGIC PROCESS

I. WHAT IS STRATEGIC MANAGEMENT
A. Strategic Management: Definition B. Strategy: Description C. Characteristics of successful strategy D. Effective Strategic Managers ought to have knowledge, skills and vision E. Analysing the company F. Analysing the environment G. The current strategic position H. Developing strategies

II. STRATEGIC HRM

A. Introduction B. Strategic HRM Models C. Strategy Formulation D. Strategy Implementation E. Strategic Types F. Directional Strategies G. Strategy Evaluation and Control H. The Role of HR in providing additional strategic competitive advantage
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I.

WHAT IS STRATEGIC MANAGEMENT

A. Strategic Management: Definition

type of management through which the company obtains a sustainable long-term excellent fit with its environment, and the quality of this fit is reflected in superior performance concerned with long-run, fundamental and often irreversible decisions about the companys mission, scale of operations and spread of activities
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WHAT IS STRATEGIC MANAGEMENT (Continued)

B.

Strategy: Description
Determines the direction in which the organization is going in relation to its environment Is the process of defining intentions (strategic intent) and allocating or matching resources to opportunities and needs (resources based strategy) Its goal is to deploy and allocate resources (physical, human, and organizational) in a way that gives it competitive advantage Includes the ability to formulate strategic goals, to develop and implement strategic plans Is emergent and flexible it never exists at the present time Is not only realized by formal statements but also comes about by actions and reactions Is a description of a future directed action which is always directed towards change
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WHAT IS STRATEGIC MANAGEMENT (Continued)

C. Characteristics of Successful Strategy

Time Scale: the time scale for strategic decisions is many years concerned with the long-run nature of the company and its activities Scope: the scope of strategic decisions is company-wide concerned with the totality of the company rather than individual parts Reversibility: strategic decisions normally will be extremely difficult if not impossible to reverse Level: strategic decisions are normally taken by the top management of companies Importance: strategic decisions are very important as an incorrect decision may ruin a company
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WHAT IS STRATEGIC MANAGEMENT (Continued)

D. Effective Strategic Managers ought to have the knowledge, skills and vision necessary to:
understand the total company, i.e. its mission, goals, objectives, culture, strategies, and the activities of the different functional areas and the resources available understand the environment in which the company is operating, with particular reference to opportunities and threats that are (or will be) present develop strategies that are appropriate to the company and its environment implement chosen strategies control, evaluate and amend as appropriate, the strategies that have been selected

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WHAT IS STRATEGIC MANAGEMENT (Continued)

E.

Analysing the Company

An analysis of the elements below will be used to provide a picture of the strategic health and potential of the company
The first step is to understand the companys mission and goals an examination of who the top decision-makers and stakeholders in the company are and the value systems that drive them Leadership is assessed not according to style, but according to its appropriateness and consequent effectiveness Values and attitudes that pervades the company and binds organization members together The formal structure of a company can have profound effects upon its performance A methodology for assessing the relative strengths and weaknesses in the principle functions that most companies have, i.e. finance, marketing, production, personnel, etc. is set out.
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Mission and goals

Leadership

Culture

Organisational Structure

Functional Composition

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WHAT IS STRATEGIC MANAGEMENT (Continued)

F.

Analysing the Environment

Successful strategies are ones where the company adapts to its environment Companies that fail to adapt to their environment will in the long-run disappear The environment can be segmented into the forces set out below

1)

Market Forces
Market forces determine whether the products or services offered by a company will be ultimately purchased, at an acceptable price by consumers Market forces include the size and affluence of the market; the number of competitors and their sizes; the growth rate of the market; the influences on buying decisions prices, product features, methods of distribution, and methods of promotion

2)

Competitive Forces
The threat of new entrants The threat from substitutes The power of buyers The power of suppliers The degree of rivalry

I. F.
3) 4) 5)

WHAT IS STRATEGIC MANAGEMENT (Continued) Analysing the Environment (Continued)

Economic Forces The economic context global and national in which the company operates is examined and its impact assessed Legal / Government Forces A companys current and future operations are affected by legislation Social Trends Assess how social trends affect or will affect the company e. g. social change in western countries about health and fitness provided market opportunities for industries and companies Technological Change Companies must be cognizant of technological changes and keep abreast of them Geographical Location Industry in general becomes less restricted in its choice of manufacturing location Industrys location is increasingly determined by a whole range of factors of competitive advantage or necessity which include human resources with particular skills, resident scientific infrastructure of appropriate types and access to sophisticated suppliers Other Forces Any other environmental forces that are not captured in any of the other categories are addressed here
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6) 7)

8)

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WHAT IS STRATEGIC MANAGEMENT (Continued)

G. The Current Strategic Position (The following perspectives are considered):

an overall assessment, which presents a qualitative perspective of the companys strategic position the financial analyses are provided through income statements, cashflow statement, balance sheets, funds flow statements, etc key strategic ratios, which show the companys performance and its competitive position corporate portfolio position, which shows how a strategic business unit or division is performing from a corporate perspective product market portfolio (plotting the movements of products over time), which shows the balance of the portfolio of products a company has products moving in an ideal sequence reflect a well-managed portfolio (low relative market share high market growth high relative market share, i.e. the stronger the company is in terms of these coordinates, the stronger will be its strategic competitive position)

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WHAT IS STRATEGIC MANAGEMENT (Continued)

H. Developing Strategies Here, building upon the companys current strategic position, a future strategy is formulated. First select the fundamental strategy 1) Fundamental strategy Conservative growth strategy: company growth rate is similar to industry average / historical performance; it continuous to serve the same or related markets with similar or related products High growth strategy: growth rate significantly greater than industry average / historical performance; previous performance measures need adjustment Neutral strategy: no significant deviation from past strategy (no change); the goals achieved, the companys activities and its current competitive position have been historically satisfactory and similar achievements in the future would also be considered satisfactory Recovery strategy: it is appropriate when the company is not performing satisfactorily, but there is not a prospect of immediate collapse, i.e., it is in a crisis that is not going to cause immediate failure, but will certainly cause failure to occur if remedial action is not taken fairly quickly; the aim is to minimise the losses that are occurring, and, if possible, to change a declining company into one achieving satisfactory returns and developing a long-term sustainable competitive position. Reduction strategy: if the causes of the company decline are due to economic recession, the appropriate strategy would be to reduce the scale of operations, which could include reduction in the range of activities, range of products, range of markets, assets and personnel to match the reduced economic circumstances. Alternatively, if the recession just applied to the company domestic market, then new sales could be sought in foreign markets.
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WHAT IS STRATEGIC MANAGEMENT (Continued)

H. Developing strategies (cont.)

2) Generic strategy

Once a fundamental strategy has been selected, decide upon a generic strategy the company should follow. The two strategy types should complement each other and together should enable the company to achieve its goals. There are three generic strategies that will enable a company to gain competitive advantage.
High volume / low cost: this strategy seeks to gain competitive advantage through having lower costs and higher volumes than competitors Product differentiation: this strategy seeks to gain competitive advantage through differentiating the product from lower prized offerings on the basis of some non-prize factor such as quality and performance, e.g.. BMW Focus: this strategy seeks to gain competitive advantage through serving just one very narrow customer group or market segment, and not attempting to serve any others , e.g. families. The competitive advantage arises out of tailoring ones strategy to the requirements of a relatively small niche in the market.

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A.

STRATEGIC HRM

Introduction

Is concerned with the relationship between human resource management and strategic management in the firm Is an integrated approach to the development of HR strategies that will enable the organization to achieve its goals Has to do with planned human resource deployments and activities Addresses broad organizational issues relating to organizational effectiveness and performance, changes in structure and culture, matching resources to future requirements, the development of distinctive capabilities, knowledge management and management of change Is concerned with both meeting human capital requirements and the development of process capabilities (ability to get things done effectively) Focuses on actions that differentiate a company from its competitors According to Hendry and Pettigrew (1986) is about:
The use of planning A coherent approach to the design and management of personnel systems, based on an employment policy and manpower strategy Matching HRM activities and policies to some explicit business strategy Seeing the people of the organization as a strategic resource for the achievement of competitive advantage

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1)

STRATEGIC HRM (cont.)

B. Strategic HRM Models

High Performance Management

High performance management involves the development of a number of interrelated processes that together make an impact on the performance of a company through its people in such areas as productivity, quality, levels of customer service, growth, profits, and ultimately the delivery of increased shareholder value The starting point is leadership, vision and benchmarking to create a sense of momentum and direction The main drivers, support systems and culture are: Decentralized devolved decision-making made by those closest to the customer so as to constantly renew and improve the offer to customers Development of people capacities through learning at all levels, with particular emphasis on self-management and team capabilities to enable and support performance improvement and organizational potential Performance, operational and people management processes aligned to organizational objectives to build trust, enthusiasm and commitment to the direction taken by the organization Fair treatment for those who leave the organization as it changes, and engagement with the needs of the community outside the organization this is an important component of trust and commitment-based relationships both within and outside the organization

High performance management practices include rigorous recruitment and selection procedures, extensive and relevant training and management development activities, incentive pay systems and performance management processes The strategy may be expressed as a drive to develop a performance culture in an organisation
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2)

STRATEGIC HRM (cont.)

B. Strategic HRM Models (Continued)

High Commitment Management

High commitment management is a form of management which is aimed at eliciting a commitment so that behaviour is primarily selfregulated rather than controlled by sanctions and pressures external to the individual, and relations within the organization are based on high levels of trust The approaches to creating a high commitment organization are: The development of career ladders and emphasis on trainability and commitment as highly valued characteristics of employees at all levels of the organization A high level of functional flexibility with the abandonment of potentially rigid job descriptions The reduction of hierarchies and the ending of status differentials A heavy reliance on team structure for disseminating information (team briefing), structuring work (team performance) and problem solving (quality circles) Job design as something management consciously does in order to provide jobs that have a considerable level of intrinsic satisfaction A policy of no compulsory lay-offs or redundancies and permanent employment guarantees, with the possible use of temporary workers to cushion fluctuations in the demand for labour New forms of assessment and payment systems and more specifically, merit pay and profit sharing

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STRATEGIC HRM (cont.)

B. Strategic HRM Models (Continued)

3)

High Involvement Management

This model involves treating employees as partners in the enterprise whose interests are respected and who have a voice on matters that concern them The aim is to create a climate in which there is a continuing dialogue between managers and the members of their teams in order to define expectations and share information on the organisations mission, values and objectives The following five high involvement practices have been identified:
On-line work teams Off-line employee involvement activities and problem solving groups Job rotation Suggestion programmes Decentralization of quality efforts

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STRATEGIC HRM (cont.)

C. Strategy Formulation

1) Five major components of the strategic management process are relevant to strategy formulation
The mission: a statement for of the organisations reason for existence Goals: are what the company hopes to achieve in the medium to longterm future; they reflect how the mission will be operationalised External analysis: consists of examining the organisations operating environment to identify the strategic opportunities and threats; Examples of opportunities are markets that are not being served, technological advances that can aid the company, and labour pools that have not been tapped; Threats include new competitors entering the market, and competitors technological advances Internal Analysis: identifies the organisations strengths and weaknesses; It focuses on the quantity and quality of resources available to the organization financial, capital, technological, and human resources After the SWOT Analysis the strategic planning team has all the information it needs to generate a number of strategic alternatives: the strategic managers compare the ability of these alternatives to attain the organisations strategic goals, and then make a strategic choice; the strategic choice describes the ways the organization will attempt to fulfill its mission and achieve its long-term goal

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C. 2)

STRATEGIC HRM (cont.)

Strategy Formulation (cont.) ROLE OF HRM IN STRATEGY FORMULATION

The strategic choice consists of addressing issues such as where to compete, how to compete, and with what to compete Each component of the strategy formulation process involves people-related business issues; therefore the HRM function needs to be involved in each of those components Four levels of integration exists between the HRM function and the strategic management function, i. e.

Administrative Linkage
This is the lowest level of integration and the HRM functions attention is focused on day-to-day activities The companys strategic business planning function exists without any input from the HRM department The HRM department is completely divorced from the strategic management process in both strategy formulation and strategy implementation

One-Way Linkage
The firms strategic business planning function develops the strategic plan and then informs the HRM function of the plan The role of the HRM function is to design systems an/or programmes that implement the strategic plan This level of integration precludes the company from considering human resource issues while formulating the strategic plan
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C. 2)

STRATEGIC HRM (cont.)

Strategy Formulation (cont.) ROLE OF HRM IN STRATEGY FORMULATION (Continued) Two-Way Linkage Allows for consideration of human resources issues during the strategy formulation process First, the strategic planning team informs the HRM function of the various strategies the company is considering HRM executives then analyse the human resource implications of the various strategies and present the results of the analyses to the strategic planning team Finally, after the strategic decision has been made, the strategic plan is passed on to the HR executive, who develops programmes to implement it Integrative Linkage It is dynamic and multifaceted, based on continuing rather than sequential interaction The HR Executive is an integral part of the senior management team Companies have their HR functions build right into the strategy formulation and implementation process The HRM executive gives strategic planners information about the companys human resource capabilities This information helps top managers choose the best strategy because they can consider how well each strategic alternative would be implemented Once the strategic choice has been determined, the role of HRM changes to the development and alignment of HRM practices that will 19 give the company employees (having the necessary skills) to implement the strategy

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STRATEGIC HRM (cont.)

D. Strategy Implementation 1) Five important variables determine success in overall strategy implementation: Organisational structure Task design Selection, training, and development of people Reward systems Types of information and information systems 2) Primary responsibilities for strategic HRM implementation First, for strategy to be successfully implemented, the tasks must be designed and grouped into jobs in a way that is efficient and effective (through processes of job analysis and job design). Second, the organization must be staffed with people who have the necessary knowledge, skill and ability to perform their part in implementing the strategy (through recruitment, selection and placement, training, development, and career management). Third, a performance management and reward system must be developed that lead employees to work for and support the strategic plan. Thus, the role of the HRM function is (i) to ensure that the company has the proper number of employees with the right levels and types of skills required by the strategic plan and (ii) to develop control systems that ensure that those employees act in ways that promote the achievement of the strategic plan.

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D.

STRATEGIC HRM (cont.)

Strategy Implementation (cont.)

3)

HRM PRACTICES IMPORTANT FOR STRATEGY IMPLEMENTATION

Job Analysis and design Jobs work tasks that are grouped together jobs range from those that are simplified and require a limited range of skills to those that require multiple skills (enhance innovation) Job analysis process of getting detailed information about jobs Job design addresses what tasks should be grouped into a particular job is an important strategic tool because strategy requires either new and different tasks or different ways of performing the same tasks also, new technologies can impact the way work is performed

Employee Recruitment and Selection

Recruitment Process through which the organization seeks applicants for potential employment Selection Process used to identify applicants with the necessary knowledge, skills, abilities, etc. The strategy a company is pursuing will have a direct impact on the types and numbers of employees it seeks to recruit and select 21

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STRATEGIC HRM (cont.)

D. Strategy Implementation (cont.)

3) HRM PRACTICES IMPORTANT FOR STRATEGY IMPLEMENTATION (Continued)
Employee Training and Development Training Refers to a planned effort to facilitate the learning of job-related knowledge, skills and behaviours Development Involves acquiring knowledge, skills, and behaviour that improves employees ability to meet the challenges of a variety of jobs Changes in strategies often require changes in the types, levels and mixes of skills E. g. to adopt a strategy to emphasize quality in products might mean engaging in total quality management (TQM) programmes and other skills that ensure quality Performance Management Used to ensure that employees activities and outcomes are congruent with the organisations objectives Entails specifying those activities and outcomes that will result in the firms successfully implementing its strategy
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D.
3)

STRATEGIC HRM (cont.)

Strategy Implementation (cont.)

HRM PRACTICES IMPORTANT FOR STRATEGY IMPLEMENTATION (Continued)
Pay Structures, Incentives, and Benefits A high level of pay and / or benefits relative to that of competitors can ensure that a company attracts and retains high quality employees A company that ties pay to performance can elicit specific activities and levels of performance from employees Labour and Employee Relations Relations with employees can strongly affect a companys potential for gaining competitive advantage E. g. Lee Iacocca turning around Chrysler Corporation (1970s) from bankruptcy to record profitability Decisions companies make as regards the treatment of employees can result in achieving / not achieving their goals
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STRATEGIC HRM (cont.)

E. STRATEGIC TYPES
Cost Strategy Focuses on becoming the lowest cost producer in an industry Differentiation Strategy Focuses on a product or service that is different from that of others in the industry Differentiation can come from creating a brand image, from technology, from unique customer service etc. HRM Needs in Strategic Types Each of the different strategies requires different types of employees with different types of behaviours and attitudes E.g. companies engaged in a cost strategy require employees to have a high concern for quantity and a short-term focus These companies specifically define the skills they require and invest in training employees in these skill areas These employees are expected to exhibit role behaviors that are relatively repetitive Employees in companies with a differentiation strategy need to be highly creative, cooperative, have a long term-focus, be tolerant for ambiguity and be risk takers Employees in these companies are expected to exhibit role behaviours that 24 include cooperating with others and developing new ideas.

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1)

STRATEGIC HRM (cont.)

F. DIRECTIONAL STRATEGIES
Concentration Strategies Strategies emphasizing market share or operating costs Companies focus on what it does best within its established markets Companies maintain the current skills that exist in the organization Companies provide training programmes as a means of keeping those skills Companies focus on compensation programmes aimed at retaining people with those skills

2) Internal Growth Strategies Strategies focusing on market development, product development, innovation, or joint ventures Companies channel their resources toward building on existing strengths Companies constantly hire, transfer and promote individuals, and expansion into different markets may change the necessary skills that prospective employees must have Training will focus on knowledge of each market if the organization seeks to expand its markets Training will be of a more technical nature when the company is seeking innovation or product development (also focusing on team building) 25

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STRATEGIC HRM (cont.)

F. DIRECTIONAL STRATEGIES (cont.)

3) Mergers and Acquisitions Those attempting to integrate vertically or horizontally or to diversify are exhibiting an external growth strategy, usually through mergers and acquisitions Strategy attempts to expand a companys resources or to strengthen its market position through acquiring or creating new business HRM has a role in both evaluating a merger opportunity and in the actual implementation of a merger or acquisition Training in conflict resolution techniques is necessary when joint ventures are considered due to problems associated with different organizational cultures 4) Downsizing A downsizing or divestment strategy is made up of retrenchment, divestitures or liquidation These strategies are observed among companies facing serious economic difficulties Downsizing presents both challenges and opportunities for HRM Challenges are cutting back on workers who are less valuable in their performance and to boost the morale of remaining employees Opportunities include getting rid of dead-wood, changing an organisations culture, and demonstrating the companys resources to its ultimate success

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STRATEGIC HRM (cont.)

G. STRATEGY EVALUATION AND CONTROL

It is very important for a firm to constantly monitor the effectiveness of both the strategy and implementation process This monitoring makes it possible for the company to identify problem areas and either revise existing structures and strategies or to devise new ones
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H.

STRATEGIC HRM (cont.)

THE ROLE OF HR IN PROVIDING ADDITIONAL STRATEGIC COMPETITIVE ADVANTAGE

1)

2)

Emergent Strategies Intended strategies Result of a rational decision-making process by top management It is a plan that integrates an organisations major goals, policies and action sequences into a cohesive whole Emergent strategies Evolve from what organizations actually do Identified by those lower in the organizational hierarchy who provide ideas for new markets, new products, and new strategies HRM facilitates communication that allows for effective emergent strategies Enhancing Firm Competitiveness Develop a human capital pool that gives the company the unique ability to adapt to an ever-changing environment This gives rise to the idea of a Learning Organisation in which people continually expand their capacity to achieve the results they desire Thus, there is a need to constantly monitoring the environment, assimilating information, making decisions and flexibly restructuring to compete
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STRATEGIC HRM (cont.)

H. THE ROLE OF HR IN PROVIDING ADDITIONAL STRATEGIC COMPETITIVE ADVANTAGE (cont.)

3) Strategic Human Resources Executives Previously, HRM played a largely administrative role Now, HRM are called on to become the source of people expertise in the company Basic competencies for HR professionals to become partners in the strategic management process
(i) They need business competence knowing the companys business and understanding its economic financial capabilities HR Executives must be able to calculate the costs and benefits of each alternative in terms of dollar impact, as well as considering the non-monetary impact (social and ethical issues) (ii) HR Professionals will need professional-technical knowledge of state-of-the-art HRM practices in areas such as staffing, development, rewards, organizational design, and communication They will get to learn about new selection techniques, performance appraisal methods, training programmes and incentive plans are constantly being developed (iii) They must be skilled in the management of change processes such as diagnosing problems, implementing organizational changes, and evaluating results HR Executive must have the skills to oversee change that might result in conflict, resistance, and confusion among people (iv) HR Professionals must also have integration competence the ability to integrate the three other competencies to increase the companys value This requires specialist knowledge and a generalist perspective in making decisions, including recognizing that changes in any one part of HRM are likely to require changes in other parts of HRM 29