CHAPTER 2:

THE HUMAN RESOURCE ENVIRONMENT

Intended Learning Outcomes

By the end of this topic, you must be able to:

1. Describe the differences between strategy formulation and strategy implementation.

2. List the Components of the strategic management process.
3. Discuss the role of the HRM function in strategy formulation.
4. Describe the linkages between HRM and Strategy formulation.
5. Discuss the more popular typologies of generic strategies and the various HRM practices
associated with each.
6. Describe the different issues and practices associated with various directional strategies.

In today’s competitive market, organizations must engage in strategic planning to survive

and prosper. The goal of strategic management in an organization is to deploy and allocate
resources in a way that gives it a competitive advantage.
Two of the three classes of resources (organizational and human) are directly tied to the
HRM function. To be maximally effective, the HRM function must be integrally involved in the
company’s strategic management process. This means that HRMs should
1. have input into the strategic plan, both in terms of people-related issues and the ability of
the human resource pool to implement particular strategic alternatives;
2. have specific knowledge of the organization’s strategic goals;
3. know what types of employee skills, behaviors, and attitudes are needed to support the
strategic plan; and
4. develop programs to ensure that employees have those skills, behaviors, and attitudes.

The Goal of strategic management is to deploy and allocate resources in a way that gives
an organization competitive advantage. HRM function must be integrally involved in the
company’s strategic management process.

Business Model Accounting Concepts

A business model is how the firm will create value for customers profitably.
• Fixed cost - are generally considered the costs that are incurred regardless of the number
of units produced.
• Variable costs - this are those costs that vary directly with the units produced.
• Margins - the difference between what you charge for your product and the variable
costs of that products.
• Contributing margins- what contributes to your ability to cover your fixed costs.
 • Gross margin - the total amount of margin you made and is calculated as the number of
units sold times the contribution margin.

A. What is Strategic Management?

Strategic human resource management (SHRM) is the pattern of planned HR activities
and deployments intended to enable an organization to achieve its goals.
Strategic management is a process to address the organization’s competitive
challenges by integrating goals, policies and action sequences into a cohesive whole.
Strategic Management is a process for analyzing a company's competitive situation,
developing the company's strategic goals, and devising a plan of action and allocation of
resources that will help a company achieve its goals.
Strategy comes from the Greek word “strategos,” which has its roots in military
language. It refers to a general’s grand design behind a war or battle Webster’s New American
Dictionary defines strategy as the “skillful employment and coordination of tactics” and as
“artful planning and management.”
To take a strategic approach to HRM, first understand the role of HRM in the strategic
management process. HR managers should be trained to identify the competitive issues the
company faces with regard to human resources and think strategically about how to respond.
Strategic HRM is the pattern of planned HR deployments and activities intended to enable an
organization to achieve its goals.

2 Phases of Strategic Management

1. Strategy Formulation: Strategic planning groups decide on a strategic direction by
defining the company’s mission and goals, its external opportunities and threats, and its
internal strengths and weaknesses.
2. Strategy Implementation: The organization follows through on the strategy that has
been chosen. This includes structuring the organization, allocating resources, ensuring
that the firm has skilled employees in place, and developing reward systems that align
employee behavior with the strategic goals. This process entails a constant cycling of
information and decision making.
Strategic Management Model

Reference:: https://slideplayer.com/slide/7643113/
This presents the Strategic Management Process Model. The success of the strategic
management process depends largely on the extent to which the HRM function is involved. The
mission, goals and strategic choice, along with an external and internal analysis, encompass the
strategy formulation that precedes strategy implementation. HR needs shapes the HR practices
based on HR capabilities and actions that ultimately determine the firm’s performance.

Strategy - Decisions about Competition

Questions to ask:
• Where to compete? In what markets (industries, products, etc.) will we compete?
• How to compete? On what criteria or differentiating characteristics will we compete?
Cost? Quality? Reliability? Delivery?
• With what will we compete? What resources will allow us to beat our competition? How
will we acquire, develop, and deploy those resources?

Strategic Planning and HRM Linkages

1. Administrative linkage - the lowest level of interaction. HRM function’s attention is
focused on day-to-day activities.
2. One-way Linkage - firm’s strategic business planning function develops the strategic
plan then informs the HRM function of the plan.
3. Integrative Linkage - companies have their HRM functions built right into the strategy
formulation and implementation processes.
4. Two-way linkage- allows for consideration of HR issues during the strategy formulation
process.
Strategic Formulation

Reference: https://slideplayer.com/slide/7643113/

SHRM-Strategy Formulation
• Mission is a statement of the organization’s reason for being; it usually specifies the
customers served, the needs satisfied and/or the values received by the customers, and
the technology used.
• Goals are what it hopes to achieve in the medium- to long-term future; they reflect how
the mission will be operationalized.
• External analysis consists of examining the organization’s operating environment to
identify the strategic opportunities and threats. Examples of opportunities are
customer markets that are not being served, technological advances that can aid the
company, and labor pools that have not been tapped.
• Threats include potential labor shortages, new competitors entering the market,
pending legislation that might adversely affect the company, and competitors’
technological innovations.
• Internal analysis attempts to identify the organization’s strengths and weaknesses. It
focuses on the quantity and quality of resources available to the organization—
financial, capital, technological, and human resources. Organizations have to accurately
assess each resource to decide whether it is a strength or a weakness.
Strategy Implementation Variables

Reference : https://slideplayer.com/slide/7643113/25/images/13/Strategy+Implementation+Variables.jpg

The variables that determine success in strategy implementation: organizational

structure, task design, selection, training and development of people and reward systems, and
types of information and information systems.

HRM’s 3 Implementation Variables

HRM has primary responsibility for three implementation variables: task, people, and
reward systems. HRM can affect the two remaining variables: structure and information and
decision processes.
Strategic Implementation

Reference: https://slideplayer.com/slide/7643113/25/images/15/Strategic+Implementation.jpg

This figure presents the strategic management process from strategic choice to firm
performance, illustrating the relationships among HR needs, practices, capability and actions.

B. HRM Practices
HRM function can be thought of as having six menus of HRM practices, from which
companies can choose the most appropriate for implementing their strategy. Each of these
menus refers to a particular functional area of HRM: job analysis, design, recruitment,
selection, training and development, performance management, pay structure, incentives, and
benefits, and labor-employee relations.
Job analysis - the process of getting detailed information about jobs.
Recruitment - the process through which the organization seeks applicants.
Job design - making decisions about what tasks should be grouped into a particular job.
Selection - identifying the applicants with the appropriate knowledge, skills, and ability.
Development - the acquisition of knowledge, skills, and behavior that improve
employees' ability to meet the challenges of future jobs.
Performance management is the means through which managers ensure that
employees’ activities and outputs are congruent with the organization’s goals.
• Pay structure, incentives, and benefits.
• Labor and employee relations.
Porter’s Strategies Cost Differentiation
According to Michael Porter, competitive advantage stems from a company’s being
able to create value in its production process. Value can be created in one of two ways, either
reducing costs or differentiating product or service in such a way that it allows the company to
charge a premium price relative to its competitors.

5 Categories of Directional Strategies

Companies have used five possible categories of directional strategies to meet objectives:
external growth, concentration, internal growth, mergers and acquisitions, and downsizing.
1. Concentration Strategy- A strategy focusing on increasing market share, reducing
costs, or creating and maintaining a market niche for products and services.
2. Internal Growth Strategy A focus on new market and product development, innovation,
and joint ventures.
3. External Growth Strategy- An emphasis on acquiring vendors and suppliers or buying
businesses that allow a company to expand into new markets.
4. Downsizings - the planned elimination of large numbers of personnel, designed to
enhance organizational effectiveness.
5. Mergers and acquisitions. HR needs to be involved in mergers and acquisitions.
Role Behaviors are the behaviors required of an individual in his or her role as a job
holder. Different role behaviors are required for different strategies.

HR’s Role - Strategic Competitive Advantage

HR can provide a strategic competitive advantage in two additional ways: through
emergent strategies and through enhancing competitiveness.
1. Emergent strategies consist of the strategies that evolve from the grassroots of the
organization and can be thought of as what organizations actually do, as opposed to
what they intend to do.
2. Enhancing competitiveness is achieved in a variety of ways such as adapting to a
changing and learning environment, developing a human capital pool, assimilating
information, making decisions, and flexibly restructuring to compete.
References:

Human Resource Environment. Business Management Ideas.

https://www.businessmanagementideas.com/human-resource-management-
2/humanresource-environment/20383

Noe, R., Hollenbeck, J.,Gerhart, B. and Wright, P. 2015. Human Resource Management. 9th
Edition. McGraw Hill.

Strategic Human Resource Management Chapter 2, 2016. Slideplayer.

https://slideplayer.com/slide/7643113/

Strategic Human Resource Management, (2017). iEduNote.

https://www.iedunote.com/strategichuman-resource-management

Strategic Human Resource Management: Meaning, Benefits and Other Details | HRM. Your
Article Library. https://www.yourarticlelibrary.com/hrm/strategic-human-
resourcemanagement-meaning-benefits-and-other-details-hrm/35236