Strategy formulation

Strategic Concepts and Definitions

 Strategic Human Resource Management

 Strategic human resources management is largely about
integration and adaptation. Its concern is to ensure that: (1)
human resources (HR) management is fully integrated with the
strategy and the strategic needs of the firm; (2) HR policies cohere
both across policy areas and across hierarchies; and (3) HR
practices are adjusted, accepted, and used by line managers and
employees as part of their everyday work.
 the pattern of planned human resource deployments and activities
intended to enable an organization to achieve its goals.
SHRM Theoretical Framework
 SHRM Theoretical Framework

 This framework presents six theoretical influences,

four of which provide explanations for practices
resulting from strategy considerations.
 The first, the resources-based view , explains
practices that provide competitive advantage, such as
the unique allocation of the firm’s resources,
organizational culture, and distinctive competence.
 The second influence, a behavioral view , based on
contingency theory, explains practices designed to
control and influence attitudes and behaviors. It stresses
the instrumentality of such practices in achieving
strategic objectives.
 The third draws on cybernetics systems . This view
explains the adoption or abandonment of practices
resulting from feedback on contributions to strategy.
When viewed from this perspective, training programs
might be adopted to help the organization pursue a
strategy and would be updated according to feedback.
 SHRM Theoretical Framework

 The fourth, an agency/transaction cost view ,

explains why companies use control systems, such as
performance evaluation and reward systems. In the
absence of performance evaluation systems linked to
reward systems, strategies might not be pursued.
 The other two theories provide explanations for
personnel practices that are not driven by strategy
considerations.
 SHRM Theoretical Framework

 Resource dependence and power theories explain

practices caused by power and political influences
such as legislation, unionization, control of
resources, and expectations of social responsibility.
 The final influence, institutional theory , explains
that practices, such as the use of inappropriate
performance evaluation dimensions, may exist
because of organizational inertia rather than
conscious or rational decision making
 Strategy

 A strategy is the pattern or plan that integrates an

organization’s major goals, policies, and action
sequences into a cohesive whole. Thus, strategy deals
with providing direction, coordinating, and
providing a decisional framework.
 Strategy is the concentration of resources on selected
opportunities for competitive advantage.
 Thus, strategy performs directional, coordinating,
decision-making, and resource allocation functions.
 Strategic Planning

 Definitions of strategic planning, also called the strategy

formulation process ,differ in their emphasis on
rationality and formality.
 “The rational/comprehensive process, frequently
advocated in strategic planning texts and apparently by
many practitioners, emphasizes purposeful activity
through a logical formulation of goals, examination of
alternatives, and delineation of plans prior to actions. It
tends to have a long-term orientation and focuses on
measurable forces affecting the firm, as well as on
quantitative activities and procedures.”
 Process of formal strategic planning

1. Development of organizational philosophy and

mission statement
2. Environmental scanning
3. Analysis of strengths, weaknesses, opportunities,
and threats (SWOT analysis)
4. Formulation of strategic objectives
5. Generation of alternative strategies for achieving
objectives
6. Evaluation and selection of strategies
 Informal Strategic Planning

 In contrast to formal/comprehensive strategic planning,

informal/incremental strategic planning emphasizes the
emergent and temporal nature of strategy and has a
shorter term orientation.
 To a certain extent the managed or logical incremental
approach represents an adaptive process, making
changes and adjustments to strategy on the basis of new
information. Such planning is not “muddling through,”
“disjointed,” or “unconscious.”
 Although the two types of strategic planning differ, their
use is not mutually exclusive as companies tend to
employ both approaches.
 Functions of Strategic Planning

1. Periodic forward scanning

2. Analysis based on longer time frame
3. Communication about goals and resource allocation
4. Framework for short-term plan evaluation and
integration
5. Institutionalization of longer-term time horizons
necessary for investments such as in research and
development
6. Decisional criteria framework for short-term decision
making
 Strategy in Strategic Business Units

 Cost leadership, differentiation and focus strategies.

 Human resource is a secondary activity in the value
chain.
 Human resource management can also play an
important role in strategic planning at the level of the
strategic business unit.
 As a part of the planning process, representatives from
the functional areas such as production, finance, and
human resources make inputs on the strengths,
weaknesses, and resource requirements. Human
resource management would be expected to provide an
analysis of the staffing implications of each alternative.
The Value Chain
 HR Strategy

 HR strategies are essentially plans and programs to address

and solve fundamental strategic issues related to human
resources management.
 Human resource strategy focuses on the alignment of the
organization’s human resource practices, policies, and
programs with corporate and strategic business unit plans.
 Companies generally try to avoid excessive emphasis on
achieving a fit between their strategies and human resource
policies and practices.
 Too much fit between a company’s human resources and its
strategies may unnecessarily restrict the range of employee
skills, detract from innovation, and limit the capacity to
change.
 HR Planning

 Human resource planning provides input into higher-

level strategic planning processes.
 The process of human resource planning , in sequential
order, includes environmental scanning and an interface
with strategic planning, forecasting human resource
demand, inventorying the organization’s current stock of
human resources, forecasting both internal and external
supplies of labor, comparing supply and demand
forecasts, developing plans for dealing with shortages
and surpluses, and feeding back these results in a
strategic planning interface.
 International Strategy

 Companies use different strategies to produce

products and services that enable them to compete in
the global marketplace.
 These strategies include multinational strategies,
global strategies, transnational strategies, strategic
alliances, and hybrid strategies.
 International Strategy

 With a multinational strategy , companies operate in

countries chosen for their individual profit potential. All
activities related to design, production, and marketing are
then performed in each of these countries.
 Multi-domestic strategies customize the product and its
marketing to the unique preferences of each country.
 In contrast, global strategies produce standardized products,
with different activities such as design and production being
located in different countries, depending on labor costs, skills,
or other strategic advantages.
 With transnational strategies , companies compete in the
global marketplace through the use of networks and strategic
alliances
 Implications of international strategies on HRM

 Multinational or multi-domestic strategies provide a power

advantage in dealing with unionized workers, because labor
difficulties or other production problems only shut down
production and revenue flows from one country’s operations
or a small set of countries.
 . A human resource implication of the global strategy is that
there is concentration of resources and talent on a smaller set
of activities. Thus, with the global strategy, it is important to
locate each of the value-chain activities where there is world
class labor, in terms of cost or skills.
 Another human resource implication is that with a global
strategy, a company would probably be particularly vulnerable
to strikes or labor relations problems at any link in the value
chain, since the whole process is dependent on each link.
Implications of international strategies on HRM

 A growing area of strategic importance is the

recruitment, selection, and development of globally
competent managers who have global
understandings of business and broad cultural
knowledge.
 Decisions regarding the location of production
facilities and related questions of labor cost and
labor productivity provide particularly intriguing
strategy-related questions.
 Strategy Driven Role Behaviors and Practices

 Competitive strategies require different human

resource practices and different role behaviors.
 Different employee behaviors are needed for
successful implementation of different strategies.
These behaviors are roles that go beyond skills,
knowledge, and abilities.
 For each of the different sets of strategies and role
behaviors, different human resource practices are
required.
 Strategy Driven Role Behaviors and Practices

 It has been hypothesized that under innovation

strategies , the appropriate role behaviors will be
more likely to obtained with:
 group-oriented, long-term appraisal systems;
 generalized skill development and broad career paths;
 compensation approaches accentuating internal equity;
 flexible compensation packages including stock ownership
 Strategy Driven Role Behaviors and Practices

 It has been hypothesized that under quality

enhancement strategies , the appropriate role
behaviors will be more likely to obtained with:
 employment security guarantees,
 extensive training programs, and
 participative decision making
 Strategy Driven Role Behaviors and Practices

 It has been hypothesized that under cost reduction

strategies , the appropriate role behaviors will be
more likely to obtained with:
 performance appraisal systems emphasizing results in the
short term,
 virtually no training programs,
 very specialized jobs,
 narrow and specialized career paths,
 procedures for continual tracking of wage rates in the labor
market
Strategic Typology of Human Resource Activities

 The role of human resource activities can be categorized

on the basis of two dimensions in a 2x2 matrix.
1. the extent to which such activities are relational or transactional
2. whether they have high or low strategic value

 At one end of the transactional and relationship

continuum are transactional activities that are mostly
administrative and impersonal.
 At the other end of the continuum are activities that
require high levels of interpersonal skill, political
awareness, and sensitivity.
Strategic Typology of Human Resource Activities

 For the strategic-value dimension, at one end of the

continuum are activities that have direct business
impact on the firm’s ability to implement its
competitive strategies.
 At the other end of the continuum are activities that
have a more indirect or less strategic impact.
Strategic Typology of Human Resource Activities
Strategic Typology of Human Resource Activities

 Examples of activities in the low strategic value/transactional

quadrant include such tasks as payroll, benefits
administration, employee records, and relocation
administration.
 These activities do not have immediate impact on the firm’s
ability to implement various strategies, such as those
emphasizing new product innovation, exceptional product
quality, or low costs.
 Human resource departments must ensure that the activities
in this quadrant are performed well before they can take on
more strategic roles.
 In many instances, these activities are good candidates for
outsourcing, which enables human resource departments to
shift their focus and staff resources to a more strategic venue
Strategic Typology of Human Resource Activities

 Activities in the high strategic value/relationship

quadrant have a more direct impact on the firm’s
ability to successfully implement its competitive
strategy.
 Because excellence in these activities can provide
firms with a source of competitive advantage and
some are based on trusting relationships developed
over time, they are unlikely to be outsourced.
 In contrast to executives, the firm’s other employees
are less likely to attach as much importance to these
activities.
Strategic Typology of Human Resource Activities

 Several planning-related or design activities fall

within the high strategic value/transactional
quadrant. These activities potentially affect the firm’s
ability to implement strategies in the future.
 For example, staffing planning or human resource
planning probably falls within this category. Such
planning is necessary to ensure the availability of key
people to implement the firm’s strategies in the
future.
Strategic Typology of Human Resource Activities

 he last quadrant, low strategic value/relationship, may

include activities such as employee assistance programs.
These activities or programs require substantial
relationship skills such as trust, confidentiality, and
genuine concern for employees’ welfare.
 However, except for the long-term preservation of the
firm’s investments in valuable employees, positive
contributions to employee morale, and good corporate
citizenship, such an activity has little immediate impact
on the firm’s ability to implement its strategies.
 Classifying Human Resource Types

 Systematic differences in utilization of human

resource practices may be explained by a typology of
career systems developed by Jeffrey Sonnenfeld and
Maury Peiperl.
 Companies in this typology are classified as (1) clubs
, (2) baseball teams , (3) academies , and (4)
fortresses .
Strategic Staffing Policies
 Club

 When the strategy is to be the low-cost producer, the

focus is on cost control. With cost control as the guiding
principle, predictability and a short-term focus are
valued.
 Companies in this category compete by increasing their
efficiency in controlling costs, maintaining quality, and
providing customer service.
 Club personnel policies emphasize development and
training, as employees are hired in only at entry level,
talent is developed within the organization, and higher-
level vacancies are filled by promotions from within.
 Baseball Team

 Companies in this category pursue an innovation

strategy.
 When innovation is the strategy, those organizational
conditions that foster risk taking, cooperation, creativity,
and a long-term perspective are valued.
 Accordingly, companies pursuing an innovation strategy
invest in training their employees and managers. In
addition to providing more training, they also tend to
train their employees in skills that apply beyond their
present jobs.
 The baseball team brings in talent at any level within the
organization and does not place much emphasis on
development. Instead, there is a “buy” approach to talent.
 Academy

 Academies are somewhat of a hybrid in that they are

both product innovators and competitors in long-run
production roles.
 The personnel policies of the academy, which follows
a focused strategy, fall between the two extremes of
clubs and baseball teams. In this category, there is
substantial emphasis on development but some
outsiders are hired to fill higher-level positions.
 Fortress

 Companies in this category are in highly competitive

markets and are at the mercy of their environments.
Examples of the types of companies in this category
include those in hotels, retailing, publishing, textiles,
and natural resources.
 Because companies in this category are essentially
reactive, there are few systematic strategic
implications.