Chapter 2, Strategy and Human Resources Planning
SWOT analysis
A comparison of one's strengths, weaknesses, opportunities, and threats for strategy formulation purposes.
Corporate Strategy
A firm's corporate strategy includes the markets in which it will compete, against whom, and how. Some firms choose a concentration strategy that focuses on only a portion of the industry. Visteon Corporation specializes in electronics, climate, and powertrain technologies for the automotive industry. In contrast, Henry Ford at one time owned everything from the ore mines needed to make steel for his cars, all the way down to the showrooms in which they were sold.
Customers
A firm's strategy should focus on creating value for customers, who often want different things. For example, in the hotel industry, business travelers may want convenient locations with meeting facilities. Vacationers may want resort locations with swimming pools, golf courses, and luxury spas. Other travelers may just want an inexpensive room next to the highway. The point is that increasingly "one size does not fit all," so organizations need to know how they are going to provide value to customers. That is the foundation for strategy, and it influences the kinds of skills and behaviors needed from employees.
balanced scorecard (BSC)
A measurement framework that helps managers translate strategic goals into operational objectives.
Markov analysis
A method for tracking the pattern of employee movements through various jobs in a firm.
quality of fill
A metric designed to measure how well new hires that fill positions are performing on the job.
trend analysis
A quantitative approach to forecasting labor demand based on a factor such as sales.
strategic vision
A statement about where the company is going and what it can become in the future.
staffing table
A table that shows a firm's jobs, along with the numbers of employees currently occupying those jobs and future (monthly or yearly) employment requirements.
Step Five: Executing a Firm's Strategy
Alignment. Alignment occurs in an organization when it has a clear strategic intent, its staff has shared performance expectations, and are accountable for the results. We will talk about alignment more later in the chapter. Agility. Execution is not a "one and done event." It's also about competing tomorrow. The key to execution increasingly depends on being agile, nimble, and proactive in the face of change. As the great former hockey player Wayne Gretsky used to say, "I don't skate to where the puck is. I skate to where the puck is going to be." Architecture. A firm's architecture consists of its structures, processes, and systems. Ideally, they should be simple and streamlined so as to propel the firm to success. But too often a firm's architecture can end up being complicated and entangle a firm like a straightjacket. Ability. As we have explained, products and processes are easy to duplicate. Talent is not. Strategy execution (and ultimately growth, and profitability) depend on a firm's talent capacity—a talented group of leaders, managers, and employees working together in an engaged and collaborative way.
Substitutes
At times, the biggest opportunity or threat in an industry does not come from direct competition but from buyers substituting other products. For example, people are increasingly disconnecting their cable-TV service and instead using streaming services such as Netflix and Hulu. That implies that firms may need to adjust their employee skill bases to support different technologies, or they may need to think about how they will compete in different ways.
cultural audits
Audits of the culture and quality of work life in an organization.
Complementary (External) Partners
Complementary partners are external people and firms with skills that are unique and specialized but not directly related to a company's core strategy. Attorneys on retainer, consultants hired on a contract basis, and external companies that work with the firm, such as research and development firms, for example, are complementary partners. Although a company perhaps cannot justify their internal employment given their indirect link to the firm's strategy, these individuals have skills that are specialized and not readily available to all firms. As a consequence, companies tend to establish longer-term alliances and partnerships with them and nurture an ongoing relationship focused on mutual learning. Considerable investment is made in the exchange of information and knowledge with these people.
competitive environment
Consists of a firm's specific industry, including the industry's customers, rival firms, new entrants, substitutes, and suppliers.
Growth and Diversification
Emerging and growing companies execute their strategies differently than mature companies or those in decline. As companies grow, they often formulate geographic, volume, and product-expansion strategies. HR planning is vital to these decisions because achieving growth requires three related elements: increased employee productivity, a greater number of employees, and employees developing or acquiring new skills.
business environment
Factors in the external environment that a firm cannot directly control but that can affect its strategy and performance.
Skill inventories
Files of personnel education, experience, interests, skills, and so on that allow managers to quickly match job openings with employee backgrounds.
Horizontal Fit/Alignment
In addition to vertical alignment, or fit, managers need to ensure that their HR practices are all aligned with one another internally to establish a configuration that is mutually reinforcing. The entire range of the firm's HR practices—from its job design to staffing, training, performance appraisal, and compensation—need to focus on the same objectives. Too often, one HR practice will emphasize one objective, whereas another HR practice will emphasize another. Charles Schwab & Co. faced this situation. The company has a reputation in the financial services industry for developing a culture of teamwork that has been important to its strategy. However, when it changed its compensation strategy to provide more rewards to its high-performing brokers, the firm sent mixed signals to its employees. Which is more important: teamwork or individual high flyers?Footnote Figure 2.13 shows an example of how organizations can assess the horizontal fit of their HR practices. There are essentially three steps. First, managers need to identify the key workforce objectives they hope to achieve. The objectives might include loyalty, customer service, productivity, and creativity. Second, managers would identify each of the HR practices used to elicit or reinforce those workforce objectives (job design, staffing, training, appraisal, compensation, and so on). Third, managers would evaluate each HR practice on a scale of -5 (not supportive) to 5 (supportive). By tallying up the ratings across managers, organizations can get a very clear idea of which HR practices are working together to achieve the workforce objectives and which are not.
core capabilities
Integrated knowledge sets within an organization that distinguish it from its competitors and deliver value to customers.
replacement charts
Listings of current jobholders and people who are potential replacements if an opening occurs.
New Entrants
New companies can sometimes enter an industry and compete well against established firms, and sometimes they cannot. To protect their positions, companies often try to establish entry barriers to keep new firms out of their industries. However, when new firms do enter an industry it is often because they have a different—and perhaps better—way to provide value to customers. When Virgin America entered the airlines market, the company's goal was not just to sell cheap tickets. It promised to make "flying good again" by offering, among other perks, in-flight live concerts, free Wi-Fi, USB plugs at every seat, mood lighting, and top-notch customer service.Footnote New entrants such as this can change the "rules of the game" in an industry.
Strategic Alignment and the Balanced Scorecard
One of the tools for mapping a firm's strategy to ensure strategic alignment is the balanced scorecard (BSC). Developed by Harvard professors Robert Kaplan and David Norton, the BSC is a framework that helps managers translate their firms' strategic goals into operational objectives. The model has four related cells: financial, customer, processes, and learning.
Suppliers
Organizations rarely create everything on their own but instead have suppliers that provide them with key inputs. These inputs can include raw materials for production, money (from banks and stockholders), information, and people. This last factor—people, or labor as it is historically called—has direct implications for strategic planning and human resources planning.
Rival Firms
Perhaps the most obvious element of industry analysis is examining the nature of competition. Who is the competition? Often the answer is clear to everyone, but sometimes it is not. For many years, Toys "R" Us viewed its main competitors to be other toy stores such as FAO Schwarz. However, other retailers such as Target and Walmart soon moved into this space very successfully. This had a direct effect on human resources planning for Toys "R" Us. While in the past, Toys "R" Us had been successful with a volume-based approach, bigger retailers like Walmart were even better at that game. As a consequence, Toys "R" Us had to modify its strategy to compete more on customer service and the expertise of its employees.
strategic planning
Procedures for making decisions about the organization's long-term goals and strategies.
5 forces Framework (Michael Porter)
Rival firms, surrounded by, new entrants, customers, substitutes, suppliers
Management forecasts
The opinions (judgments) of supervisors, department managers, experts, or others knowledgeable about the organization's future employment needs.
Strategic human resources management
The pattern of human resources deployments and activities that enable an organization to achieve its strategic goals.
Human resources planning (HRP)
The process of anticipating and providing for the movement of people into, within, and out of an organization.
human capital readiness
The process of evaluating the availability of critical talent in a company and comparing it to the firm's supply.
succession planning
The process of identifying, developing, and tracking key individuals for executive positions.
Benchmarking
The process of looking at your practices and performance in a given area and then comparing them with those of other companies.
core values
The strong and enduring beliefs and principles that guide a firm's decisions and are the foundation of its corporate culture.
Core Employees
This group of employees has skills that are quite valuable to a company but not particularly unique or difficult to replace (such as salespeople in a department store or truckdrivers for a courier service). These workers tend to be employed in traditional types of jobs. Because their skills are transferable, it is quite possible that they could leave to go to another firm. As a consequence, managers frequently invest less to train and develop these employees and focus more on paying them for their short-term performance achievements.
Strategic Knowledge Workers
This group of employees tends to have unique skills directly linked to the company's strategy and are difficult to replace (such as research and development scientists in a pharmaceuticals company or computer scientists in a software development company). These employees typically are engaged in knowledge work that involves considerable autonomy. Companies tend to make long-term commitments to these employees, investing in their continuous training and development, and perhaps giving them an equity stake in the organization.
Supporting Workers
This group of workers typically has skills that are less central to creating customer value and generally available in the labor market (such as clerical workers, customer service representatives, and manufacturing, operations, and distribution employees). Individuals in these jobs are often hired from external agencies on a contract basis to support the strategic knowledge workers and core employees. The scope of their duties tends to be limited, and their employment relationships tend to be transaction based and focused on rules and procedures. Less investment is made in their development.
Vertical Fit/Alignment
Vertical fit (or vertical alignment) focuses on the connection between the business's objectives and the major initiatives undertaken by HR. On the one hand, as we noted earlier, if a company's strategy focuses on achieving low cost, its HR policies and practices need to encourage employees to work more efficiently and be more productive. On the other hand, if the organization competes through innovation and new product development, then its HR policies and practices would be more aligned with the notion of fostering creativity and flexibility. When ensuring alignment, firms have to ask themselves whether or not their capabilities, including those of its employees, are aligned with its value proposition. Most observers would agree that Tom Monahan, founder of Domino's, was able to change the pizza industry not because he created a better product but because he was able to offer a different value proposition—delivery in 30 minutes or the pizza was free—and then created the capability to "deliver" against that promise. Case Study 2 discusses Domino's alignment in more detail.
value creation
What a firm adds to a product or service by virtue of making it; the amount of benefits provided by the product or service once the costs of making it are subtracted.
Forecasting
forecasting the demand for labor, forecasting the supply of labor, and balancing supply and demand considerations.
Organizations can achieve a sustained competitive advantage if they have resources—particularly people—that meet the following criteria:
he resources must be valuable. People are a source of competitive advantage when they improve the efficiency or effectiveness of the company. Value is increased when employees find ways to decrease costs, provide something unique to customers, or some combination of the two. To improve the bottom line, REI and Southwest Airlines are among the companies that empower and motivate their workers to spark their creativity. The resources must be rare. People are a source of competitive advantage when their knowledge, skills, and abilities are not equally available to competitors. Companies such as Facebook, Four Seasons Hotels, and Virgin America therefore invest a great deal to hire and train the best and the brightest employees to gain an advantage over their competitors. The resources must be difficult to imitate. People are a source of competitive advantage when the capabilities and contributions of a firm's employees cannot be copied by others. Disney and Starbucks are each known for creating unique cultures that get the most from employees (through teamwork) and are difficult to imitate. The resources must be organized. People are a source of competitive advantage when their talents can be combined and deployed to work on new assignments at a moment's notice. As you learned in Chapter 1, companies such as IBM, GE, and Procter & Gamble closely "track" employees and their talents. As a result, these firms are able to quickly reassign talent to different areas of their companies and the world as needed.
Coordination agility
is the ability to rapidly reallocate resources to new or changing needs. Through HRP, managers can anticipate upcoming events, keep abreast of changes in legal regulations, forecast economic trends, spot competitors' moves, and the like. With advance notice, managers can move people into and out of jobs, retrain them for new skill requirements, and modify the kinds of incentives they use. The use of a contingency workforce composed of part-timers, temporary employees, and complementary partners also helps achieve coordination flexibility.
Resource agility
on the other hand, results from having resources that can be used in different ways and people who can perform different functions in different ways. Cross-training employees, rotating them into different jobs, and using teams are all efforts that focus on building a flexible workforce.
talent reviews
strategic meetings to determine if a company has the human resources it needs to compete in the future.
Stakeholders
Stakeholders are key people and groups that have an interest in a firm's activities and can either affect them or be affected by them. A firm's primary stakeholders include its investors, employees, customers, suppliers, and creditors. Primary stakeholders have a direct stake in the firm and its success. A firm's secondary stakeholders have less of a stake but can nonetheless affect or be affected by the company. Secondary stakeholders include the community in which the firm operates, the government, business groups, and the media. Firms have to analyze and balance the interests of their various stakeholders. For example, laying off employees will often result in lower costs for a firm, at least in the short term. But if the cuts are too severe and affect a firm's service, for instance, customers are likely to suffer as will investors and creditors. The community could suffer as well. One way a firm attempts to balance the interests of their shareholders is by determining how a strategic action is likely to impact each group. For which group is the action critical? For which group is the action less critical? As Figure 2.3 shows, the firm may want to involve or at least consult primary shareholders in major strategic actions. In contrast, secondary stakeholders can be monitored and informed. So, for example, if a firm is considering developing a new product, its suppliers, creditors, and employees should definitely be involved and consulted about the move. Secondary stakeholders, such as the community and the media, can merely be informed about the new strategy when appropriate and their responses monitored.
Environmental scanning
Systematic monitoring of the major external forces influencing the organization.
mission
The basic purpose of the organization as well as its scope of operations.