Integrating HR Strategy with

Strategic
HRM strategy
Business

Strategic management
Strategy: the companies long term plan for

how it will balance its internal strengths and

weakness with its external opportunities and
threats to maintain a competitive advantage.
Strategic

management:

refers to the
process of crafting strategies , their
implementation and evaluation of their
effectiveness.
Strategies bridge where the company is now ,
with where it wants to be tomorrow.

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Strategic Management Process

Environmental

Scanning
Strategy Formulation
Corporate level
Business unit level
Functional level
Strategy

Implementation
Strategy Evaluation

The Strategic Management

Process
External Analysis
opportunities
threats

Identify the
organization's
current mission, goals,

SWOT Analysis

Formulate

Implement

Evaluate

Strategies

Strategies

Results

and strategies

Internal Analysis
strengths
weaknesses

FIGURE 36

Worksheet for Environmental Scanning

35

About
Surf excel
Launched in 1954
Oldest detergent used in more then 20 countries
Very strong brand communication
Available in wide variety and product size. (surf excel blue, matic,
quick wash, comfort in 5 kg, 2kg, 250grm)
Solid base company of Unilever (HUL) , employee 2lks, operated in
100 countries, $868 m in R&D;
Strong competitors, (tide, nirma, ariel, oxycean, sundry)
Substitute products (liquid detergent, bars)
Lack of control in supply chain mgmt
No famous brand ambassador
High price of product
Changing life style
Applying tactics and surprise
Explore new geographical market
Political effects, economical effect, legislative effect;environmental
effect
Chances of price war

86

FIGURE 37

SWOT Matrix, with Generic Examples

37

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FIGURE 38

Type of Strategy at Each Company Level

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Inc. publishing as Prentice Hall

39

Organizational Strategies
Corporate

Strategies

Top managements overall plan for the

entire organization and its strategic
business units
Types

of Corporate Strategies

Growth: expansion into new products and

markets
Stability: maintenance of the status quo
Renewal: redirection of the firm into new
markets
811

Corporate-Level Strategies
Growth

Strategy (within the same

industry)
Seeking to increase the organizations business
by expansion into new products and markets.

Types

of Growth Strategies

Concentration
Vertical integration
Horizontal integration
Diversification (growth outside present
business/ industry)

812

Growth Strategies
Concentration

Focusing on a primary line of business and

increasing the number of products offered or
markets served.
Vertical

Integration

Backward vertical integration: attempting to

gain control of inputs (become a self-supplier).
Forward vertical integration: attempting to gain
control of output through control of the
distribution channel and/or provide customer
service activities (eliminating intermediaries).
813

Growth Strategies (contd)

Horizontal

Integration

Combining operations with another competitor in the

same industry to increase competitive strengths and
lower competition among industry rivals.
Related

Diversification

Expanding by merging with or acquiring firms in

different, but related industries that are strategic
fits.
Unrelated

Diversification

Growing by merging with or acquiring firms in

unrelated industries where higher financial returns
are possible.
814

Concentration Strategy

Integration Strategy

Stability Strategy
A strategy that seeks to maintain the
status quo to deal with the uncertainty of
a dynamic environment, when the industry
is experiencing slow- or no-growth
conditions, or if the owners of the firm
elect not to grow for personal reasons.
Eg. Continuing to serve same clients by
offering same product, maintaing market
share, sustaining an organizations current
business operations.

817

Retrenchment Strategies
Turnaround strategy emphasizes the improvement of
operational efficiency when the corporations problems
are pervasive but not critical
Divestment: Sale of a division with low growth potential
Liquidation: Management terminates the firm

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Business Strategy

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publishing as Prentice Hall

1-19

Competitive Advantage,
Value Creation, and Profitability
How profitable a company becomes
depends on three basic factors:

1. Value or utility the customer gets from

owning the product
2. Price that a company charges for its
products
3. Costs of creating that product
Consumer surplus is the excess utility
a consumer captures beyond the price
paid

Basic Principle: the more utility that consumers

get from a companys products or services, the
more pricing options the company has.
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3 | 20

Business-Level Strategy
A successful business model results from
business-level strategies that create a
competitive advantage over its rivals.

Firms must decide/evaluate:

1. Customer needs
WHAT is to be satisfied

2.

Customer groups

3.

Distinctive competencies

WHO is to be satisfied

HOW customers are to be satisfied

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Implementing the Business Model

To develop a successful business
model, strategic managers must devise
a set of strategies that determine:
How to DIFFERENTIATE their product
How to PRICE their product
How to SEGMENT their markets

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Building Blocks
of Competitive Advantage

Figure 3.6

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Competitive Positioning and

the Value Creation Frontier
Value Creation Frontier represents the maximum
amount of value that the
products of different
companies inside an industry
can give customers at any
one time by using different
business models.
Companies on the value
creation frontier have the
most successful strategy
in a particular industry.

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rights reserved.

5 | 24

Types of Competitive
Strategies
Business-Level
Competitive Strategies

Cost leadership

Differentiation

Focus/Niche

325

Business strategies

Strategic Target

Strategic Advantage

Industry wide

Particular
Segment Only

Uniqueness Perceived
by the Customer

Low Cost Position

DIFFERENTIATION

OVERALL
COST LEADERSHIP

FOCUS

Source: Porter (1980)

Generic Business-Level Strategies

1.

Cost Leadership
Lowest cost structure vis--vis competitors allowing
price flexibility & higher profitability

2.

Focused Cost Leadership

Cost leadership in selected market niches where it
has a local or unique cost advantage

3.

Differentiation
Features important to customers & distinct from
competitors that allow premium pricing

4.

Focused Differentiation
Distinctiveness in selected market niches where it
better meets the needs of customers than the broad
differentiators
5 | 27

Functional-Level Strategies
Functional-level strategies are strategies aimed
at improving the effectiveness of a companys
operations.
Functional-level strategies aim to give a firm
superior:

Efficiency
Quality
Innovation
Customer responsiveness

This leads to a competitive advantage

and superior profitability and profit growth.
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The Roots of Competitive

Advantage : Functional level
competencies shape
strategies theDistinctive
functional-level strategies that
a company can pursue.

Function-level strategies can build

resources and capabilities to
enhance a companys distinctive
competencies.
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Resources and Capabilities

Resources
Inputs into a firms
production process
Capital equipment
Skills of individual
employees
Patents
Finances
Talented managers

Capabilities
Refer to company's
skill at coordinating
its resources and
putting them to
productive use
Product of
organization
structure, process,
control systems,
hiring systems

130

Types of Resources :
Tangible/Intangibles resources

Distinctive Competencies
Valuable

Competencies

Rare

Competitive
Advantage

Costly to
Imitate

Value Creation

Nonsubstitutabl
e

Above Average
Returns
132

Efficiency

Measured by the quantity of inputs

it takes to produce a given output:
Efficiency = Outputs / Inputs

Productivity leads to greater

efficiency and lower costs:

Employee productivity

Capital productivity

Superior efficiency helps a company

attain a competitive advantage
through a lower cost structure.

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Achieving Superior Efficiency

Economies of scale
Unit cost reductions associated with a large scale of output
Ability to spread fixed costs over a large production
volume
Ability of companies producing in large volumes to
achieve a greater division of labor and specialization

Learning

Effects

are cost savings that come from learning by doing.

Labor productivity
Learn by repetition how to best carry out the task
Management efficiency
Learn over time how to best run the operation

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Human Resource Strategy for

superior efficiency

Goal: to improve employee productivity.

Hiring strategy
Assures that the people a company hires have the
attributes that match the strategic objectives of the
company

Institute Employee training programs to

build skill

Upgrades employee skills to perform tasks faster and

more accurately

Implement Self-managing teams

Members coordinate their own activities and make their

own hiring, training, work, and reward decisions

Implement Pay for performance

Linking pay to individual and team performance can help

to increase employee productivity
4 | 35
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Quality

Quality products are goods and services that are:

Reliable and
Differentiated by attributes that customers
perceive to have higher value
A perception of quality allows a firm to
differentiate its products in the eyes of its
customers.

Superior quality = customer perception

of greater value in a products attributes
Form, features, performance, durability, reliability, style, design
.

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Achieving Superior Quality

Quality can be thought of in terms of two

dimensions:
1. Quality as reliability

They do the jobs they were designed for and do it

well

2. Quality as excellence

Perceived by customers to have superior attributes

A strong reputation for quality allows a

company to differentiate its products.
Eliminating defects or errors reduces
waste, increases efficiency, and lowers
the cost structure increasing
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4 | 37

Improving Quality as Reliability

Six Sigma methodology: the principal tool

now used to increase reliability, which is a direct

descendant of Total Quality Management (TQM)

Human Resource Strategy for superior

Reliability :
Institute quality improvement training
programs
Identify and train black belts
Organize employees into quality teams

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Improving Quality as attributes

Table 4.3

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rights reserved.

4 | 39

Innovation
Innovation is the act of creating
new products or new processes
Product innovation
Creates products that customers
perceive as more valuable and
Increases the companys pricing options

Process innovation
Creates value by lowering production costs

Successful innovation can be a major

source of competitive advantage
by giving a company something unique.

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Achieving Superior Innovation

Building distinctive competencies that result in
innovation is the most important source of
competitive advantage.

Innovation can:
Result in new products that better satisfy
customer needs
Improve the quality of existing products
Reduce costs

Innovation can be imitated So it must be continuous

Successful new product launches are

major drivers of superior profitability.
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4 | 41

Human Resource Strategy for

superior innovation :
Hire

talented scientists and

engineers

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1-42

Customer Responsiveness
Identifying and satisfying customers
needs better than the competitors do.

Enhanced customer responsiveness:

Customer response time, design,
service, after-sales service and support

Superior responsiveness to
customers differentiates a companys
products and services and leads to
brand loyalty and premium pricing.

3 | 43

Achieving Superior
Responsiveness to Customers
Customer responsiveness: giving customers what

they want, when they want it, and at a price they are willing
to pay - as long as the companys long-term profitability is
not compromised.

Focusing on the customer

Satisfying customer needs

Customization (Tailor to
unique needs of groups
of customers)
Response time (increased
speed; premium pricing)

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Human Resource Strategy for

superior Customer Responsiveness
Shaping

employee attitudes

Develop

training programs that gets

employees to think like customers
themselves

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publishing as Prentice Hall

1-45

FIGURE 311 Basic Model of How to Align HR Strategy

and Actions with Business Strategy

346

Porters Business Unit Strategies

Cost

leadership

HR emphasis on efficient, low-cost production,

highly structured procedures, and discourages
creativity and innovation

Differentiation - HR emphasis on innovation, flexibility, and

renewal of the workforce by attracting new talent

from other firms

Focus

HR emphasis would be cross between those

described for low-cost producers and
differentiators

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Selected HR Strategies That Fit Porters

Three Major Types of Business
Strategies
Common Organizational
Business
Strategy

Characteristics

Overall
cost
leadership

Sustained capital
investment and access
to capital
Intense supervision of
labor
Tight cost control
requiring frequent,
detailed control reports
Low-cost distribution
system
Structured organization
and responsibilities
Products designed for
ease in manufacture

HR Strategies

Efficient production
Explicit job descriptions
Detailed work planning
Emphasis on technical
qualifications and skills
Emphasis on job-specific
training
Emphasis on job-based
pay
Use of performance
appraisal as a control
device

Selected HR Strategies That Fit Porters

Three Major Types of Business Strategies
Common Organizational
Characteristics

Business
Strategy
Differentiation

Strong marketing
abilities
Product engineering
Strong capability in
basic research
Corporate reputation for
quality or technological
leadership
Amenities to attract
highly skilled labor,
scientists, or creative
people.

HR Strategies

Emphasis on innovation
and flexibility
Broad job classes
Loose work planning
External recruitment
Team-based training
Emphasis on individualbased pay
Use of performance
appraisal as
development tool

Summary
Strategy

management

SWOT
Types

of Corporate Strategy
Types of Business Strategy
Four building blocks of Functional
strategies
Role of HRM in aligning with Business
strategy
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