Part 1: Nature of Human Resource Management: Chapter 2: Strategic HR Management and Planning

Part 1: Nature of Human Resource Management
Chapter 2: Strategic HR Management and Planning
Prepared by Linda Eligh, University of Western Ontario
21
Copyright 2008 by Nelson, a division of Thomson Canada Limited.
Learning Objectives
After you have read this chapter, you should be able to:
1. Explain strategic HR management and how it is linked to organizational strategies. 2. Define HR planning and outline the HR planning process. 3. Describe the process for forecasting HR supply and demand including forecasting methods.
4. Discuss the importance surrounding the retention of employees.

5. Describe the process of developing and using a strategic HR plan including the action to be taken when there is a surplus of employees or a shortage.
6. Identify why HR metrics must consider both strategic and operational HR measures.
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Nature of Strategic Human Resources Management

Strategic Human Resources Management
The process of linking the HR function with the strategic objectives of the organization in order to improve performance.
Organizational Strategy
The pattern of decisions in a company that determines and reveals its objectives, purposes or goals, and produces the principle policies and plans for achieving those goals.
23
Strategic HR Management Process
Fig. 2-1
24
Linkage of Organizational and HR Strategies
Porters Competitive Strategies

Cost Leadership
Competition on the basis of low price and high quality of product or service. Relies on building employees to fit specialized needs and requires a longer HR planning horizon approach
25
Porters Competitive Strategies (cont.)

Differentiation
Competition through offering distinctively different products or services or establishing an exclusive image for quality products and services. Relies on hiring needed skills. Needs a shorter planning time frame in order to be responsive to dynamic environments.
26
Porters Competitive Strategies (cont.)

Focused Strategy
Occurs when a firm concentrates effort on serving a distinctively defined market that may include some combination of a portion of a product line, customer segment, geographic area or distribution channel.
27

Miles and Snows Strategy Typology
View of the organization as a complete and integrative system, in dynamic interaction with its environment. Competing firms within a single industry can be categorized into four basic types:

Defenders Prospectors Analyzers Reactors
28
Human Resource Planning

Human Resource (HR) Planning
The process of analyzing and identifying the need for and availability of human resources so that the organization can meet its objectives.
HR Planning Responsibilities
Top HR executive and subordinates gather information from other managers to use in the development of HR projections for top management to use in strategic planning and setting organizational goals
29
Purpose of Strategic HR Planning
Fig. 2-2
210
Typical Division of HR Responsibilities: HR Planning Fig. 2-3
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Human Resource Planning

Small Business and HR Planning Issues
Attracting and retaining qualified outsiders Management succession between generations of owners Evolution of HR activities as business grows Family relationships and HR policies
212
HR Planning Process
Fig. 2-4
213
HR Planning Process
HR Strategies
The means used to anticipate and manage the supply of and demand for human resources.
Provide
overall direction for the way in which HR activities will be developed and managed.
Overall Strategic Plan Human Resources Strategic Plan HR Activities

214
Scanning the External Environment

Environmental Scanning
The process of studying the environment of the organization to pinpoint opportunities and threats.
Environmental Changes Impacting HR

Governmental Influences Economic conditions Geographic and competitive concerns Workforce composition
215
Assessing the Internal Workforce

Jobs and Skills Audit
What jobs exist now? How many individuals are performing each job? What are the reporting relationships of jobs? How essential is each job? What jobs will be needed to implement future organizational strategies? What are the characteristics of anticipated jobs?
216
Assessing the Internal Workforce

Organizational Capabilities Inventory
HRIS databasessources of information about employees knowledge, skills, and abilities (KSAs) Components of an organizational capabilities inventory
Individual
employee demographics Individual employee career progression Individual job performance data
217
Forecasting HR Supply and Demand

Forecasting
The use of information from the past and present to identify expected future conditions.
Forecasting Periods
Short-termless than one year Intermediateup to five years Long-rangemore than five years
218
HR Forecasting
Fig. 2-5
219

Forecasting the Demand for Human Resources
Organization-wide estimate for total demand Unit breakdown for specific skill needs by number and type of employee Develop decision rules (fill rates) for positions to be filled internally and externally. Develop additional decision rules for positions impacted by the chain effects of internal promotions and transfers.
220
Methods for Forecasting Demand

Quantitative (Mathematical)
Trend analysis Ratio analysis Scatter plot Regression analysis Simulation models
Qualitative (Judgmental)
Management forecasts
Delphi technique
Nominal group technique
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Forecasting HR Supply
Forecasting External HR Supply
Factors affecting external supply
Net
migration for an area entering and leaving the workforce graduating from schools and colleges
Individuals Individuals
Changing
Economic
workforce composition and patterns

forecasts developments and shifts
Technological Actions
of competing employers regulations and pressures
Government Other
circumstances affecting the workforce

222
Forecasting HR Supply
Forecasting Internal HR Supply
Review skills inventories Examine organizational charts or staffing tables Utilize a Markov analysis Replacement charts Implement succession planning
The
process of identifying longer-term plan for the orderly replacement of key employees.
223
Markov Analysis for a Hypothetical Sales Office
Fig. 2-6
224
Executive Replacement Chart for Hypothetical Company Fig. 2-7
225
Estimating Internal Labour Supply for a Given Unit Fig. 2-8
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Retention of Human Resources

Why People Stay or LeaveLinks, Fit, and Sacrifice
Culture and Values
A
positive, distinctive company culture aids retention by creating a great work environment a firm is not effectively managed, employees may be turned off by ineffective responses and inefficiencies they deal with in their jobs. Visionary leadership is important.
Management and Retention

If
Job Security
The
extent to which high-caliber top performers are retained by the company is a key issue with other employees who view high turnover in this group as a negative.
227
Drivers of Retention
Fig. 2-9
228
Keys to Managing Retention Fig. 2-10
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Managing Retention
Retention Measurement and Assessment
Employee Surveys Exit Interviews
Determining Retention Management Actions

Retention Evaluation and Followup
Regular
review of turnover data Tracking of intervention results and adjustment of intervention efforts
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Developing and Using a Strategic HR Plan

The ultimate purpose of the plan is to enable managers to match the supply of labour with the demand expected, given the strategies of the organization.
Managing a Human Resources Surplus
Outplacement Services
HR Planning in Mergers and Acquisitions Managing Shortages of Labour
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Workforce Reductions and Legislation
Employment Standards Acts and Canada Labour Code sets out employer requirements for advance notice of a layoff or facility closing.
Sufficient notice to employees and the local community before a layoff or facility closing involving more than 50 people. Also covers part-time or seasonal workers in Canada
232

Workforce Downsizing
Downsizing, Rightsizing, and Reduction in Force (RIF) all mean reducing the number of employees in an organization. Causes
Economicweak
product demand, loss of market share to
competitors Structuraltechnological change, mergers and acquisitions
233
Managing a Human Resource Surplus

Workforce Downsizing (contd)
Positive consequences
Increased
competitiveness Increased productivity
Negative consequences
Cannibalization
of HR resources Loss of specialized skills and experience Surviving employees feel overburdened and demoralized
Managing survivors
Provide
explanations for actions and the future Involve survivors in transition/regrouping activities
234

Attrition and hiring freezes
Not replacing departing employees and not hiring new employees
Voluntary Separation Programs

Early retirement buyouts offer incentives to encourage senior employees to leave the organization early.
Layoffs
Employees are placed on unpaid leave until called back to work when business conditions improve. Employees are selected for layoff on the basis of their seniority or performance or a combination of both. Employees cannot be laid off indefinitely
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Terminations
Legislation requires that a certain amount of notice must be provided based and severance may also have to be paid depending on years of service.
Reducing Hours
Reducing an employees hours until such time that things can get back to normal. Options include working fewer days in the week, job sharing and changing to part time status.
236

Outplacement Services
provided to displaced employees to give them support and assistance:
Personal
career counseling Resume preparation and typing services Interviewing workshops Referral assistance Severance payments Continuance of medical benefits Job retraining
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Making Downsizing More Effective
Fig. 2-11
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Managing Shortages of Labour

Canadas aging population a lack of skilled labour will result in more labour shortages than surplus situations. Overtime Hiring temporary employees External recruitment
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Measuring HR Effectiveness Using HR Metrics

HR Metrics
Specific measures tied to HR performance indicators.
Development
and use of metrics that can better demonstrate HRs value and track its performance.
Characteristics of good HR metrics:

Accurate
data can be collected. Measures are linked to strategic and operational objectives. Calculations can be clearly understood. Measures provide information expected by executives. Results can be compared both externally and internally. Measurement data drives HR management efforts.
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Measures of Strategic HR Effectiveness

Return on Investment (ROI)
Calculation showing the value of expenditures for HR activities.
C ROI A B
A = Operating costs for a new or enhance system for the time period B = One-time cost of acquisition and implementation C = Value of gains from productivity improvements for the time period
241
Measures of Strategic HR Effectiveness

Economic Value Added (EVA)
A firms net operating profit after the cost of capital (required return) is deducted. Cost of capital is the benchmark for returns for all HR activities.
HR and the Balanced Scorecard

Financial Internal business processes Customer Learning and growth
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HR Metrics: Measuring Absenteeism

Measuring Absenteeism
Sample formula for measuring or computing absenteeism:
Number of person - days lost through job absence during period 100 (Average number of employees) (Number of work days)
Other Measures of Absenteeism:

Incidence ratethe number of absences per 100 employees/day Inactivity ratethe percentage of time lost to absenteeism Severity rateThe average time lost per absent employee during a specified period of time
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HR Metrics: Measuring Absenteeism

Calculations of the costs of absenteeism should usually include:
Lost wages Benefits Overtime for replacements Fees for temporary employees, if incurred Supervisors time Substandard production Overstaffing necessary to cover absences
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HR Metrics: Measuring Turnover

Ways to Measure Turnover:
Job and job levels Department, units, and location Reason for leaving Length of service Demographic characteristics Education and training Knowledge, skills and abilities Performance ratings/levels.
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HR Metrics: Measuring Turnover

Computing the Turnover Rate:
Number of employee separations during the month 100 Total number of employees at midmonth
Costs of Turnover
Separation costs Replacement costs Training costs Hidden costs
246
Simplified Turnover Costing Model
Fig. 2-13
$20,000
40% $28,000
20 3 $ 3,500 $70,000
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HR Measurement and Benchmarking

Benchmarking
Comparing specific measures of performance against data on those measures in other best practice organizations
Common Benchmarks
Total compensation as a percentage of net income before taxes Percent of management positions filled internally Dollar sales per employee Benefits as a percentage of payroll cost
248
Performance Benchmarking
Fig. 2-14
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Assessing HR Effectiveness
HR Audit
A formal research effort that evaluates the current state of HR management in an organization Audit areas:
Legal
compliance (e.g. Employment Equity, OH&S) Current job specifications and descriptions Valid recruiting and selection process Compensation and benefits system Employee handbook Absenteeism and turnover control Grievance resolution process Orientation, training and development Performance management system
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Part 1: Nature of Human Resource Management

Chapter 2: Strategic HR Management and Planning

Prepared by Linda Eligh, University of Western Ontario

4. Discuss the importance surrounding the retention of employees.

Nature of Strategic Human Resources Management

Strategic HR Management Process

Linkage of Organizational and HR Strategies

Porters Competitive Strategies

Linkage of Organizational and HR Strategies

Porters Competitive Strategies (cont.)

Linkage of Organizational and HR Strategies

Porters Competitive Strategies (cont.)

Linkage of Organizational and HR Strategies

Defenders Prospectors Analyzers Reactors

Human Resource Planning

Purpose of Strategic HR Planning

Typical Division of HR Responsibilities: HR Planning Fig. 2-3

Human Resource Planning

Overall Strategic Plan Human Resources Strategic Plan HR Activities

Scanning the External Environment

Environmental Changes Impacting HR

Assessing the Internal Workforce

Assessing the Internal Workforce

Forecasting HR Supply and Demand

Forecasting HR Supply and Demand

Forecasting HR Supply and Demand

Methods for Forecasting Demand

workforce composition and patterns

of competing employers regulations and pressures

circumstances affecting the workforce

Copyright 2008 by Nelson, a division of Thomson Canada Limited.

Markov Analysis for a Hypothetical Sales Office

Executive Replacement Chart for Hypothetical Company Fig. 2-7

Estimating Internal Labour Supply for a Given Unit Fig. 2-8

Retention of Human Resources

Management and Retention

Copyright 2008 by Nelson, a division of Thomson Canada Limited.

Keys to Managing Retention Fig. 2-10

Determining Retention Management Actions

Developing and Using a Strategic HR Plan

Managing a Human Resources Surplus

Managing a Human Resources Surplus

product demand, loss of market share to

competitors Structuraltechnological change, mergers and acquisitions

Managing a Human Resource Surplus

competitiveness Increased productivity

Managing a Human Resource Surplus

Voluntary Separation Programs

Managing a Human Resource Surplus

Managing a Human Resource Surplus

Making Downsizing More Effective

Managing Shortages of Labour

Measuring HR Effectiveness Using HR Metrics

Characteristics of good HR metrics:

Measures of Strategic HR Effectiveness

Measures of Strategic HR Effectiveness

HR and the Balanced Scorecard

HR Metrics: Measuring Absenteeism

Other Measures of Absenteeism:

HR Metrics: Measuring Absenteeism

HR Metrics: Measuring Turnover

HR Metrics: Measuring Turnover

Simplified Turnover Costing Model