Strategic Management Module

What is Strategic Management?Is there such a thing as Non-Strategic

Management?More about the Management of Company

Competitive Position than People Management

© SHRM 1-1

Synonyms for Strategic

Long termBig Picture

Competitive Positioning

1-2 © SHRM

Module 1: Strategic Management

12% PHR (27 questions)29% SPHR (65 questions)

1-3© SHRM

Any student use of these slides is subject to the same License Agreement that governs the student’s use of the SHRM Learning System materials.

HR Roles

Historical roles are still important, but roles have broadened into today’s more strategic focus.

Historical:• Advice• Service• Control

Current: • Strategic• Operational• Administrative

1-4© SHRM

• Workforce composition

• Globalization

• Emphasis on ethics

• Flexible organizational boundaries

• Require:– Strategic HR perspective

– Alignment of human capital and corporate strategy

– Technology

Changes in the HR Profession

1-5© SHRM

(things your predecessors spent less time dealing with…)

Off shoring Mergers and Acquisitions

Project Mgmt Change MgmtOutsourcing Technology

1-6© SHRM

Key Trends in HR

Key Trend: Offshoring

• Domestic HR challenges– Displaced workers

– Increased HR workload

– Decline in employee morale

– Shortage of employees in positions vulnerable to offshoring

SPHR only

1-7© SHRM

• International HR challenges– Recruiting, managing, and

motivating the new workforce

– Communication and coordination across time zones

− Cultural issues

Key Trend: Mergers, Acquisitions, and Divestiture

1. Identify issues, form and train teams, and prepare for change.

2. Investigate cultural, structural, technological, financial, and legal risks.

3. Develop plans to address key issues.

4. Measure activity of new organization against benchmarks.

HR in the M&A Process

Perform due diligence

Planintegration

Prepare for M&A

Implement and measure

1 2 3 4

1-8© SHRM

SPHR only

Management Functions

ForecastSet goals

DesignAssist

ScheduleImplement

Measure

Planning Organizing Directing Controlling

1-9© SHRM

Project Management Steps

RolesInformational• Communicator• Information disseminator

Decisional• Conflict resolver• Resource allocator

Interpersonal• Leader• Liaison

Conception

1 2 3 4

Planning, scheduling, monitoring, and control

Completion Evaluation

1-10© SHRM

Project Planning Tool: Gantt Chart

• Also known as horizontal bar chart, milestone chart, or activity chart.

• Plots the sequential steps of a project against time.

January February March MayApril

Development of RFP for new medical insurance plan

Identification of possible providers

Issuance of RFP

Evaluation of proposals

Company presentations

Selection

Presentation of new plan to employees

Development of plan

1-11© SHRM

Project Planning Tool: PERT Chart

• An arrow diagram or road map identifying all major events

• Shows how much time is needed to complete a project.

Numbers = Weeks

Legend:

Event

Critical Path

F

Activity

15

2

2

2

2

BA

C

D

E

1-12© SHRM

Change Management Model

1. Determine the need or desire forchange.

2. Prepare tentative plans.

3. Discuss alternatives andprobable reactions.

4. Make a final decision.

5. Establish a project planand a timetable.

6. Communicate the change.

7. Implement and evaluatethe change.

HR challenge: To maintain the level of intensity and consistency of effort throughout the change process

1-13© SHRM

A company must immediately downsize its workforce by 15% due to shrinking markets. What important role will HR play during the process?

A. Form new work teams based on the gaps created by the layoffs.

B. Summarize industry trends and communicate them to employees.

C. Ensure that top management regularly communicates with employees.

D. Launch a new quality initiative to preserve customer satisfaction.

Answer: C1-14© SHRM

The Outsourcing Process

1. Analyze needs and define goals.

2. Define budget.

3. Create RFP.

4. Send RFPs to contractors.

5. Evaluate contractor proposals.

6. Choose contractor.

7. Negotiate contract.

8. Implement and monitor.

9. Evaluate.

1-15© SHRM

Managing Technology Trends

1-16© SHRM

Strategic Planning Process

• Defines where the organization is now, where it wants to be, and how it will get there.

• Gathers internal and external information.

• Develops alternative strategies.

• Selects appropriate strategies.

• Implements a plan.

• Evaluates and revises the plan as needed.

Strategy

Implementa-

tion

Phase 3

Strategy

Development

Phase 2

Strategy

Formulation

Phase 1

Strategy

Evaluation

Phase 4

1-17© SHRM

Phase 1: Strategy Formulation

Must understand:• What business the

company is in.• When to change the

mission and alter strategy.

• How and when to communicate the mission.

Strategy Formulation

• Develop vision and mission statements.

• Define organizational values.

1-18© SHRM

Phase 2: Strategy Development

S = Internal strengths

W = Internal weaknesses

O = External opportunities

T = External threats

Strategy Development

• Conduct a SWOT analysis, including environmental scan.

• Establish long-term objectives (three to five years).

• Identify corporate, unit, and functional strategies.

1-19© SHRM

Phase 3: Strategy Implementation

Resources needed toachieve objectives:

• Financial

• Physical

• Human

• Technological

Strategy Implementation

• Establish short-term objectives (six months to a year).

• Develop action plans.• Allocate resources.• Motivate employees.

1-20© SHRM

Phase 4: Strategy Evaluation

• Assess strategies by noting changes in:– Internal strengths and

weaknesses.

– External opportunities and threats.

• Take corrective action when changes have occurred.

Strategy Evaluation

• Review strategies at planned intervals.

• Measure performance.• Take corrective action.

1-21© SHRM

Which of the following activities best prepares HR to participate in the strategic planning process?

A. Evaluating a new HRIS system

B. Restructuring HR’s recruiting system

C. Training line managers on interviewing techniques

D. Reviewing the company’s key financial data

Answer: D1-22© SHRM

Understanding the Internal Environment

InformationTechnology

Operations

Finance andAccounting

Employees

Marketingand Sales

HR

• Understand the perspective of your business partners.

• Create communication and collaboration.

• Identify internal needs and emerging issues.

1-23© SHRM

Finance and Accounting

• Finance helps business units with financial needs.– Pricing products

– Creating financial models

• Accounting balances the checkbook of the company.– Accounts receivable

– Accounts payable

1-24© SHRM

Budgeting Methods

1-25© SHRM

Balance Sheet

• Basic form of the sheet is:

Assets = Liabilities + Equity.

• Every financial transaction is an exchange, and both sides are recorded.

• Only records transactions measured in money.

Summarizes the firm’s financial position.

1-26© SHRM

Balance Sheet

AssetsCurrent assets

Fixed assets

Investments

Total assets

Liabilities and equityCurrent liabilities

Equity

Total liabilities and equity

$310,000

$70,000

$20,000

$400,000

$145,000

$255,000

$400,000

1-27© SHRM

Income Statement

• Basic form of the statement is:

Revenues – Expenses = Net income.

• Some expenses are never cash outflows (depreciation).

• Some expenses may be paid partly in one period and partly in another (cost of goods sold).

• Owner withdrawals are distributions, not operating expenses.

Explains revenues, expenses, and profits over a specified period of time.

1-28© SHRM

Income Statement

Gross sales $360,000Less cost of goods sold $240,000Gross profit $120,000Less expenses: $50,000

Salaries $20,000Rent $18,000Utilities $7,200Depreciation $1,800Interest $3,000

Income less expenses $70,000Income tax expense $28,000Net income $42,000

1-29© SHRM

Marketing and Sales

Promotion

Price

Place

ProductMarketing:Plan, price, promote, and distribute goods and services.

Sales:Sell the organization's product to the marketplace.

1-30© SHRM

Operations

Control

Inventory Scheduling

Standards

Capacity

Keyconcepts

• Goal: To provide goods and services to customers.

• Focuses on productivity, quality, cost, delivery, and performance.

• Affected by supply chain management.

1-31© SHRM

A company commits to answering all phone calls within 15 seconds. Which operational concept deals with observing and documenting actual results?

A. Capacity

B. Inventory

C. Scheduling

D. Control

Answer: D1-32© SHRM

Information Technology

Enables an organization to use information to support its strategic objectives.• Strategic information systems are

designed to achieve competitive superiority.− Airline reservation systems

• Operational systems focus on reducing costs or improving productivity.− Remote access systems that allow

telecommuting

1-33© SHRM

Employees

1-34© SHRM

Evolution of Organizations

HR Focus:Staffing Compensation, HR planning,

training

Introduction

Staffing andtraining

Change managementOutplacementCross-training

Growth Maturity Decline

Crisis: Leadership

Need:Creativity

Crisis: Delegation

Need: Clear direction

Need:Formal systems

Crisis: Bureaucracy

Crisis: Change resistance

Need:• Streamlined

decision making• Flexibility• Small-company

thinking

1-35© SHRM

Cost Leadership Strategy

• Requires:

– Exploitation of all sources of cost advantage.

– Efficiency and productivity.

– Sharing of information.

– Centralized decision making.

– Cross-training and job rotation.

– Process improvements.

Goal: To be the low-cost producer

1-36© SHRM

Differentiation Strategy

• Requires:– Reduced costs in areas not related to differentiation.

– Strong research and development and marketing.

– Product knowledge and quality training.

– Decentralized decision making for quicker speed to market.

Goal: Attempt to set the product apart from its competition by giving it unique characteristics for which customers will pay a premium price

1-37© SHRM

Other Strategies

1-38© SHRM

Specialization and Departmentalization

• Specialization: Degree to which processes are divided into tasks and grouped into jobs– Balances need for productivity with employee

satisfaction

• Departmentalization: The way an organization groups jobs so work can be coordinated– Functional, divisional, or matrix

1-39© SHRM

Functional Structure

1-40© SHRM

Divisional Structure

1-41© SHRM

Matrix Structure

1-42© SHRM

Authority and Reporting Issues

Chain of Command• Line of authority

within an organization

• Defines the boundaries within which a manager can make decisions

Span of Control• Number of individuals

who report to a supervisor– Narrow span (“tall”

organization)

– Wide span (“flat” organization)

1-43© SHRM

Centralization and Decentralization

Decision Making

Centralization

Authority resides with upper management.

Decentralization

Authority is shared with lower levels.

Formalization: Degree of discretion individuals have over the way in which they do their jobs.

1-44© SHRM

STOP

1-45© SHRM

Environmental Scanning

• Interprets data related to external opportunities and threats.

• Prepares HR to participate in strategic planning.

• Examines seven key factors:– Demographic – Political

– Economic – Social

– Employment – Technological

– International

1-46© SHRM

Demographic Factors

1-47© SHRM

• Age

• Gender

• Generational differences

• Population shifts

• Ethnicity

• Unskilled labor

• Nontraditional labor force

Economic Factors

Interestrates

InflationDisposable

income

CPI

GDP

EconomicFactors

1-48© SHRM

Employment Factors

1-49© SHRM

• Attitude toward careers

• Immigration

• Occupational and industry shifts

• Recruitment

• Unions

• Unemployment

• Turnover

• Relocation

International Factors

• European Union

• Wage comparisons

• Trade agreements

• International labor law

• Globalization

1-50© SHRM

Other Factors

1-51© SHRM

ROI

Measures the economic return on a project or investment.

ROI = Value of benefits received

Costs to produce benefits

1-52© SHRM

Cost-Benefit Analysis

• Determines the financial impact that programs have on company profitability.

• Presents data as a ratio.

-Value of projected benefits

Cost benefit ratio =Cost

1-53© SHRM

Break-Even Analysis

Determines the point in time at which total revenue associated with an HR program is equal to the total cost of the program.

-Cost

Break even point = × Time*Savings

* Time = The period of time for which the return is being analyzed.

1-54© SHRM

HR is launching a company-wide training initiative. How can HR determine when the anticipated revenue return will exceed the cost of developing the program?

A. Calculate gross margin.

B. Calculate return on investment.

C. Conduct a cost-benefit analysis.

D. Conduct a break-even analysis.

Answer: D

1-55© SHRM

Balanced Scorecard

• Aligns business function measures with organizational strategies.

• Measures the effectiveness of a department or the entire company.

• Considers perspective of all stakeholders.

Finance

Learningand

growth

Businessprocesses

Customers

MissionVisionValues

MissionVisionValues

1-56© SHRM

For a balanced scorecard system to be implemented effectively, it shouldA. be introduced simultaneously to all divisions and

departments.

B. start at the bottom of the organization and work its way to the top.

C. focus on specific measures that support business strategies.

D. concentrate on tracking and reporting financial results.

Answer: C1-57© SHRM

HR Audit

• Analyzes effectiveness and efficiency of HR programs.

• Keeps executives current on HR activities.

• Allows HR managers to cut or enhance programs and address noncompliance.

• Conducted by HR staff or a third-party contractor.

1-58© SHRM

Other Measurement Methods

• Organization’s most important issues (e.g., dollar sales per employee or percentage of workforce that is unionized)

• Human capital ROI

• Turnover cost

• Compensation as a percentage of operating expense

• Training investment factor

• Time to start

• Cost per hire

1-59© SHRM

Inductive and Deductive Reasoning

• Inductive (from specific to general)– Looks at a set of

observations and designs a rule.

– Joe, John, and Mary are top salespeople and have accounting backgrounds. Therefore, for this job accounting background indicates success.

• Deductive (from general to specific)− Starts with a general rule and

deduces specific instances.

− Research shows that units led by controlling managers have decreased morale. John is a controlling manager. His unit will suffer morale problems.

1-60© SHRM

Primary and Secondary Research

Primary(data gathered firsthand)

Secondary(data gathered by others)

• Experimental

• Pilot projects

• Surveys

• Interviews

• Focus groups

• Direct observation

• Testing

• Secondhand reports

• Historical data

• Purchased data

• Professional publications

• Benchmarking

• Best-practices reports

1-61© SHRM

Scientific Method

1-62© SHRM

Step 1: Problem Analysis

• State the problem as a question.

• Identify key factors that contribute to the problem.– “Why are there so many

voluntary terminations?”

1-63© SHRM

Step 2: Hypothesis Formulation

• Restate problem as a testable prediction.– “Voluntary terminations

are high because of low job satisfaction.”

• State the relationship between two factors that can be tested.

1-64© SHRM

Step 3: Experimental Design (Classic)

• Subjects are randomly assigned to two equal groups.

• Experimental group is exposed to the variable; control group is not exposed to the variable.

Experimental group R O X O

Control group R O O

1-65© SHRM

Step 3: Experimental Design(Quasi-Experimental)

• Subjects are not assigned at random.

• Experimental group is exposed to the variable; control group is not exposed to the variable.

Experimental group O X O

Control group O O

1-66© SHRM

Steps 4 and 5: Data Collection and Analysis

Step 4: Data Collection• Data is gathered through primary and secondary research

methods.

Step 5: Data Analysis

1-67© SHRM

• Data is analyzed and placed into a useful context.– Quantitative analysis: Based on facts and statistics

– Qualitative analysis: Based on attitudes, opinions, and feelings

Descriptive Statistics:Measures of Central Tendency

Mean = Average = 10.33

Median = Point above and below which 50% of scores lie = 12

Mode = Most frequently occurring score = 12

4668

1010101212121213131314

15 scores for a total of 155 points

1-68© SHRM

Given the following data, what is the mode?

A. 3B. 4C. 5D. 6

Answer: C

2 3 3 4 5 5 5 6 6

1-69© SHRM

Descriptive Statistics:Measures of Variation

1-70© SHRM

• Provide an indicator of variation around central tendency values.– Range: Distance between highest and lowest

scores.

– Percentile: Specific point that has a given percentage of cases below it.

– Standard deviation: How much scores are spread out around a mean.

Descriptive Statistics: Measures of Association—Correlation

Shows the relationship between two variables.

Negative Relationship

As the value of one variable increases, the other decreases.

Example: The higher one's satisfaction, the lower his or her intention to quit.

No Relationship Positive Relationship

As the value of one variable increases, so does the other.

Example: The higher one's satisfaction, the higher his or her intention to remain with the company.

–1.00 0.00 1.00

1-71© SHRM

Descriptive Statistics:Measures of Association—Regression

• Refers to a statistical method used to predict a variable from one or more predictor variables.

• Determines whether a relationship exists between variables and the strength of the relationship.

• Causal relationship exists when two variables are related in some way.

1-72© SHRM

Inferential Statistics

• Form a conclusion by studying a sample of the population.

– Population: Entire group (all employees).

– Sample: Part of the population (20 random employees).

– Normal distribution: Expected distribution given a random sampling of a large population.

1-73© SHRM

Qualitative Analysis

• Most useful for:– Depth of information.

– Brainstorming and idea generation.

– Discovering underlying motivation, feelings, values, attitudes, and perceptions.

1-74© SHRM

• Gathered from:– Interviews.

– Surveys and questionnaires.

– Observation, file studies, testing.

Reliability

• Ability of an instrument to measure consistently.

• Test A scores are more consistent.

• This test is considered reliable.

Test A Test B

Candidate Form 1 Form 2 Form 1 Form 2

1 90 92 87 95

2 89 90 79 86

3 92 94 81 93

1-75© SHRM

Validity

• Ability of an instrument to measure what it is intended to measure.

• Answers the questions:– What does the instrument measure?

– How well does it measure it?

• A reliable instrument is not always valid.

• A valid instrument is always reliable.

1-76© SHRM

Ethics

• System of moral principles and values that establish appropriate conduct.– Ethics is not synonymous with legality.

• HR assumes a key role in creating an ethical organization by:– Participating in the creation of an ethics policy.

– Determining supportive procedures and training.

– Creating a culture that values ethics.

– Conducting investigations and applying discipline.

1-77© SHRM

Which of the following would NOT be an ethical violation for an HR manager?

A. Recommending a qualified friend for an open position

B. Telling a friend in private that layoffs will occur

C. Having ownership in an outside firm under contract to the organization

D. Allowing surveillance of locker room areas

Answer: A

1-78© SHRM

Ethical Issues

• Board of directors’ training

• Workplace privacy

• Whistleblowing

• Conflict of interest

• Bribes, payoffs, and kickbacks

• Insider trading• Cultural clashes• Copyrights• Corporate responsibility

1-79© SHRM

Legislative and Regulatory Environment

• Laws are actions passed by Congress and state legislatures.

• Regulations reflect how laws will be implemented and often have the force of law.– Regulatory agencies may issue guidelines that

interpret how regulations will be enforced.

1-80© SHRM

Rule-Making Process

The public may comment via public hearings, conversation, e-mail, or letter for a specified time period.

1-81© SHRM

Laws are made by legislatures, and rules are made by agencies.