Chapter 2 HRIR

© 2008 Thomson/South-Western All rights reserved. CHAPTER 2 Strategic HR Management and Planning © 2008 Thomson/South-Western. All rights reserved. 2? Chapter Objectives Explain strategic HR management and how it is linked to organizational strategies. Discuss two possible contributors to competitive advantage and how HR contributes to each. Describe how legal, political, cultural, and economic factors affect global HR management. Define HR planning and outline the HR planning process. Describe the means for assessing the external and internal environments of HR management. After you have read this chapter, you should be able to: © 2008 Thomson/South-Western. All rights reserved. 2? Chapter Objectives (cont?d) Discuss several ways of managing a surplus and a shortage of human resources. Identify why HR metrics must consider both strategic and operational HR measures. After you have read this chapter, you should be able to: © 2008 Thomson/South-Western. All rights reserved. 2? Nature of Strategy and HR Management © 2008 Thomson/South-Western. All rights reserved. 2? FIGURE 2-1 Strategic HR Management Process © 2008 Thomson/South-Western. All rights reserved. 2? Strategic Success with HR Practices Recognized HR Best Practices Employment security Selective recruiting High wages/incentives Information sharing/participation Training/cross training Promotion from within Measurement © 2008 Thomson/South-Western. All rights reserved. 2? FIGURE 2-2 Common Areas for HR Strategies © 2008 Thomson/South-Western. All rights reserved. 2? Operationalizing HR Strategy Thinking Strategically Understand the business Focus on key business goals Know what to measure Prepare for the future © 2008 Thomson/South-Western. All rights reserved. 2? FIGURE 2-3 Possible HR Areas for Core Competencies © 2008 Thomson/South-Western. All rights reserved. 2? HR As Organizational Contributor HR Contributions to Organization Effectiveness Organization productivity Customer service and quality Financial contributions © 2008 Thomson/South-Western. All rights reserved. 2? Organizational Productivity Productivity Measure of the quantity and quality of work done, considering the cost of the resources used. Unit labor cost Computed by dividing the average cost of workers by their average levels of output. © 2008 Thomson/South-Western. All rights reserved. 2? FIGURE 2-4 Approaches to Improving Organizational Productivity © 2008 Thomson/South-Western. All rights reserved. 2? HR Effectiveness and Financial Performance Effectiveness The extent to which goals have been met. Efficiency The degree to which operations are done in an economical manner. © 2008 Thomson/South-Western. All rights reserved. 2? Global Competitiveness and Strategic HR Types of Global Organizations Importing and exporting Multi-national enterprise Global organization © 2008 Thomson/South-Western. All rights reserved. 2? Hofstede?s Dimensions of Culture Inequality of Power Individualism/ Group Orientation Masculinity/ Femininity Long-term/ Short-term Orientation Uncertainty Avoidance Culture © 2008 Thomson/South-Western. All rights reserved. 2? FIGURE 2-5 Hourly Compensation Costs for Manufacturing Production Workers Source: U.S. Bureau of Statistics, www.bls.gov. © 2008 Thomson/South-Western. All rights reserved. 2? 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. © 2008 Thomson/South-Western. All rights reserved. 2? Purpose of HR Planning Effective HR Planning Right people Right capabilities Right time Right place © 2008 Thomson/South-Western. All rights reserved. 2? HR Forecasting © 2008 Thomson/South-Western. All rights reserved. 2? FIGURE 2-6 Typical Division of HR Responsibilities: HR Planning © 2008 Thomson/South-Western. All rights reserved. 2? Small Businesses and HR Planning HR Planning Issues in Small Businesses Attracting and retaining qualified outsiders Management succession between generations of owners Family relationships and HR policies Evolution of HR activities as the business grows © 2008 Thomson/South-Western. All rights reserved. 2? FIGURE 2-7 HR Planning Process © 2008 Thomson/South-Western. All rights reserved. 2? Scanning the External Environment Environmental Scanning The process of studying the environment of the organization to pinpoint opportunities and threats. HR Planning Government Influences Economic Conditions Geographic and Competition Concerns Workforce Composition © 2008 Thomson/South-Western. All rights reserved. 2? 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? © 2008 Thomson/South-Western. All rights reserved. 2? Assessing the Internal Workforce (cont?d) Organizational Capabilities Inventory HRIS databases?sources of information about employees? knowledge, skills, and abilities (KSAs) Components of an organizational capabilities inventory Individual employee demographics Individual career progression Individual job performance data © 2008 Thomson/South-Western. All rights reserved. 2? Forecasting HR Supply and Demand Forecasting The use of information from the past and present to identify expected future conditions. Types of Forecasts HR Demand Internal Supply External Supply Forecasting Periods Short-term?less than one year Intermediate?up to five years Long-range?more than five years © 2008 Thomson/South-Western. All rights reserved. 2? HR Forecasting Methods Judgmental Estimates Rules of thumb Delphi Technique Nominal Groups Mathematical Statistical regression analysis Simulation models Productivity ratios Staffing ratios © 2008 Thomson/South-Western. All rights reserved. 2? Forecasting HR Demand Organization-Wide Estimate for Total HR 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. © 2008 Thomson/South-Western. All rights reserved. 2? Forecasting HR Supply Forecasting External HR Supply Factors affecting external supply: Net migration for an area Individuals entering and leaving the workforce Individuals graduating from schools and colleges Changing workforce composition and patterns Economic forecasts Technological developments and shifts Actions of competing employers Government regulations and pressures Other circumstances affecting the workforce © 2008 Thomson/South-Western. All rights reserved. 2? FIGURE 2-8 Estimating Internal Labor Supply for a Given Unit © 2008 Thomson/South-Western. All rights reserved. 2? Forecasting HR Supply (cont?d) Succession Planning The process of identifying a long-term plan for the orderly replacement of key employees. © 2008 Thomson/South-Western. All rights reserved. 2? Workforce Realignment Issues in Matching the Supply of Labor with the Demand for Labor Managing a Human Resources Surplus Outplacement Services HR Planning in Mergers and Acquisitions © 2008 Thomson/South-Western. All rights reserved. 2? Managing a Human Resources Surplus Workforce Reductions and the WARN Act Workforce Downsizing Attrition and Hiring Freezes Voluntary Separation Programs Layoffs Human Resource Surplus © 2008 Thomson/South-Western. All rights reserved. 2? Managing a Human Resource Surplus (cont?d) Outplacement services are 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 © 2008 Thomson/South-Western. All rights reserved. 2? FIGURE 2-9 Making Downsizing More Effective © 2008 Thomson/South-Western. All rights reserved. 2? Managing a Shortage of Employees Use overtime Add contingent workers Bring back recent retirees Outsource work Reduce turnover Human Resource Shortage © 2008 Thomson/South-Western. All rights reserved. 2? HR Planning in Mergers and Acquisitions Cultural Compatibility The extent to which such factors as decision-making styles, levels of teamwork, information-sharing philosophies, and the formality of the two organizations are similar. HR?s Role in Mergers and Acquisitions Communicating decisions Revising the organization structure Merging HR activities © 2008 Thomson/South-Western. All rights reserved. 2? Key Factors in Cultural Fit Degree of internal integration Autonomy Adaptability Employee trust Diversity Cultural Fit in Mergers and Acquisitions © 2008 Thomson/South-Western. All rights reserved. 2? Measuring Effectiveness Using HR Metrics HR Metrics Specific measures tied to HR performance indicators. Development and use of metrics that can better demonstrate HR?s value and track its performance. Characteristics of good HR metrics: Are accurate. Are linked to strategic and operational objectives. Have clearly understood calculations. Meet information needs. Can be compared internally and internally. Can be used to drive HR management efforts. © 2008 Thomson/South-Western. All rights reserved. 2? FIGURE 2-10 Examples of Strategic and Operational HR Metrics Note: An FTE is a measure equal to one employee working full-time for one year. Strategic Operational Revenue generated per FTE Net income before taxes per FTE Ratio of managers to non-managers Labor costs as percentage of total operating costs ROI of human capital expenditures HR department expenses as percentage of total expenses Payroll/benefits costs as percentage of revenues Annual turnover rate Benefits costs as percentage of payroll Training expenditures per FTE Average time to fi ll openings Workers? compensation costs per FTE Number of applicants per opening Absenteeism by employee level/department © 2008 Thomson/South-Western. All rights reserved. 2? Measures of Strategic HR Effectiveness Return on Investment (ROI) Calculation showing the value of expenditures for HR activities. 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 © 2008 Thomson/South-Western. All rights reserved. 2? Measures of Strategic HR Effectiveness (cont?d) Economic Value Added (EVA) A firm?s 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 © 2008 Thomson/South-Western. All rights reserved. 2? FIGURE 2-11 Revenue and Income per FTE *Data not reliable. Source: Human Capital Benchmarking Study (Alexandria, VA: SHRM, 2006). © 2008 Thomson/South-Western. All rights reserved. 2? 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 © 2008 Thomson/South-Western. All rights reserved. 2? Assessing HR Effectiveness HR Audit A formal research effort that evaluates the current state of HR management in an organization Audit areas: Legal compliance Administrative processes Recordkeeping Employee retention Benefits Absenteeism and turnover control Performance management system