a methodology for the development of a human resource...
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A METHODOLOGY FOR THE DEVELOPMENTOF A HUMAN RESOURCE STRATEGY
Arnoldo C. HaxSloan School of Management
M.I.T.
March 1985 WP # 1638-85
A METHODOLOGY FOR THE DEVELOPMENT OF A HUMAN RESOURCE STRATEGY
Abstract
A human resource strategy is a critical component of the firm's
corporate and business strategies, comprising a set of well-coordinaed
objectives and action programs aimed at securing a long-term,
sustainable advantage over the firm's competitors. A human resource
strategy should be consistent with the firm's corporate and business
strategies, as well as with the other managerial functional strategies.
A process and a structured methodology for designing such a human
resource strategy is presented. This methodology has been success-
fully tested in actual business environments.
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Introduction
Most top managers whom I have encountered, when asked what is
the central priority of their offices and the activity which attracts
most of their attention respond that it is the proper identification,
development, promotion and reward of their people. Jack Welch, the
current chairman of General Electric, said to a group of students
at the Harvard Business School that if you define the right task,
put the appropriate person in charge of it, and back it up with
the right kind of reward system you don't need to be a good manager
to obtain excellent performance.
The undeniable importance of human resources for every organi-
zation has been intensified in American firms due to the develop-
ment of a number of firms requiring a broader, strategic oriented
treatment of human resources. Beer et al [21 summarize these
recent pressures as follows:
- Increasing international competition, particularly from
the Far East.
- Increasing complexity and size of organizations.
- Slower growth or declining markets in a great many
industries.
- Greater government involvement in human resources practices.
- Increasing education of the work force.
- Changing values of the work force.
- More concern with career and life satisfaction.
- Changes in work force demographics.
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These concerns have prompted a great deal of attention to the
need of managing human resources in a strategic manner: that is, in
a way which may allow the firm to establish and sustain a long-term
advantage over its competitors. Excellent literature sources which
discuss that subject have recently been published, particularly
Barocci and Kochan [1], Beer et al [2], Fobrum et al [5], and Skinner
[9]. However, in spite of all these considerations, strategic manage-
ment of human resources is far from being a reality in most American
enterprises. Although the formulation of corporate and business
strategies is becoming commonplace, human resource issues do not
seem to be addressed with an appropriate sense of priority. Rather,
the personnel requirements of those strategies are identified after
the fact, and pass along to the personnel managers for them to supply
the necessary manpower at the various skill levels demanded by the
strategic plans.
This practice not only diminishes the strategic role of human
resources, but also fails to recognize that the accountability for
human resource effectiveness involves every line manager in the
organization and it is not a staff activity to be relegated
exclusively to the personnel function.
This paper describes a methodology we designed for a major
American corporation to facilitate the development of a human
resource strategy in consonance with corporate and business strategies,
as well as the other functional strategies of the firm. The
proposed methodology is an extension of the work we have done for
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the formulation of corporate and business strategies (Hax and Majluf
[6] and [7]), and, particularly, for the development of a manu-
facturing strategy (Fine and Hax [3]).
The Proposed Methodology for the Development of a Human Resource
Strategy
We recognize that any methodology to support the development of
human resource strategies should be tailor-made to accomodate the
idiosyncrasies of a given firm, the characteristics of its industry
and competitive environment, and the managerial style and culture
of the organization. However, we find there are enough common issues
in the formulation-of a human resource strategy that it is possible
to generate a useful, general-purpose process to guide managerial
thinking in this area. Moreover, we want to be as structured as
possible in the specification of this methodology to allow managers
to translate the basic concepts and principles of human resource
strategy into pragmatic and concrete action programs.
The basic steps of the methodology we propose are summarized
in Figure 1. Each step will be revised, with occasional presentation
of some of the forms we use to facilitate the reporting of the
results of a given step. Obviously, strategic planning is not a
form-filling exercise and there are significant dangers in over-
specifying the planning process with detailed forms. We use
those forms judiciously and we include them in here simply to allow
for a more explicit understanding of the objectives of each step of
_·____irj____�_l___IIX__X_�_II__ ^III.__._. __ �_..
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Figure 1: A Methodology for Structuring the Development of a Human
Resource Strategy
our methodology.
A Framework for Strategic Decision Making in Human Resources
The foundation of a human resource strategy is the conceptual
framework that organizes the thought processes of the managers
involved in the articulation of that strategy. The framework we
use consists of, first, defining the major categories of human
resource strategic decision making and, second, identifying the
performance measures to address the objectives of the human resource
strategy.
1. Provide a framework for strategic decision making in human
resource management.
2. Assure linkage between corporate, business, and human
resource strategies.
3. Conduct an initial strategic audit of the human resource
management function
(a) To assess the availability of human resources/personnel
data.
(b) To assess the impact of human resources/personnel consider-
ations on strategy formulation.
(c) To detect strengths and weaknesses in the current human
resource strategy by each decision category.
4. DeVelop human strategies for each strategic business unit (SBU).
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A human resource strategy must be comprehensive, in the sense
of addressing all the diverse personnel and human resource activities
central to the long-term development of the businesses of the firm.
We chose to encompass the totality of these activities within five
major decision-making categories:
- Selection, promotion and placement: managing the flow of
people in, through, and out of the organization.
- Appraisal: evaluation of the performance of peple within
the organization.
- Rewards: providing adequate compensation, fringe benefits
and motivational support to employees at all levels.
- Management development: creating mechanisms to enhance
skills, promotional opportunities and career paths.
- Labor/Employee Relations and Voice: establishing a cooperative
climate between managers and employees.
The definition of these strategic categories linked to human
resource management, as well as their corresponding strategic issues
and strategic choices are summarized in Figure 2. The way in which
these decisions are affected by the various stages in the business
life cycle is presented in Figure 3.
The second element of our framework consists of identifying
effective measures of performance associated with human resource
strategies. This is a particularly difficult subject to resolve,
since there is no clear concensus on appropriate measurements to
use. Beer et al [2] recommend what they refer to as the four Cs:
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Process Definition
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commitment, competence, cost effectiveness, and congruence. We
found them to be rather ambiguous and difficult to assess. Instead,
we proposed two different sets of measurements: one dealing with
organizational outcomes and the other, with individual outcomes.
We believe this taxonomy to be a useful one since human resource
management basically attempts to seek congruency between organiza-
tional and individual objectives.
The performance measurements of organizational outcomes we
cnose in the application of this framework were conditioned to the
characteristids of the firm involved in our analysis and were the
following:
- Cost (unit cost, total cost, life cycle cost)
- Delivery (percentage of on-time shipments, predictability of
delivery dates, response time to demand changes)
- Quality (return rate, product reliability, cost and rate of
field repairs, cost of quality)
- Flexibility (product substitutability, product options or
variants, response to product or volume changes).
The performance measurements for individual outcomes
selected were:
- Job satisfaction
- Job performance
- Turnover
- Absenteeism
- Motivation
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- Job security
- Career prospects
- Psychological stress
- Safety/health conditions
- Income.
Obviously, these performance measures could be expanded or
modified to fit more closely the strategic position of a firm and
its individual circumstances.
Linking Corporate and Business Strategies with Human Resource Strategies
The essence of strategy is to achieve a long-term sustainable
advantage over the firm's competitors in every business in which the
firm chooses to participate.
The corporate strategic planning process is a disciplined and
well-defined organizational effort aimed at the complete specification
of corporate, business, and functional strategies. It identifies
all the major tasks to be addressed in setting up these strategies
and the sequence in which they must be completed. These tasks are
briefly described in Figure 4. (For a comprehensive discussion of
this subject, the reader is referred to Hax and Majluf [6] and [7]).
For the purpose of strategy formulation, we can concentrate on the
front-end of the planning process.
First, the corporate level articulates the vision of the firm
and its strategic posture; next, the business managers develop
business strategies in consonance with the corporate thrusts and
I111
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c0C,
Cac
.S:
1. The vision of the firm: corporate philosophy, mission of the firm, and
identification of strategic business units (SBUs) and their interactions.
2. Strategic posture and planning guidelines: corporate strategic thrusts,
corporate performance objectives, and planning challeng3es.
3. The mission of the business: business scope, and identification of product-
market segments.4. Formulation of business strategy and broad action programs.
5. Formulation of functional strategy: Participation in business planning,
concurrence or non-concurrence to business stra:agy proposals, broad
action programs.6. Consolidation of business and functional strategies.
7. Definition and evaluation of specific action programs at the business level.
.8. Definition and evaluation of specific action programs at the functional level.
9. Resource allocation and definition of performance measurements for management
control.10. Budgeting at the business level.
11 Budgeting at the functional level.
12. Budgeting consolidations, and approval of strategic and operational funds.
Figure 4: The Formal Corporate Strategic Planning Process
(Source: Hax and Majluf 6] and [7])
challenges; and finally, the functional managers provide the necessary
functional strategic support.
It is important, therefore, to assure the proper linkage between
the business strategies and the resulting human resource strategy.
To accomplish this, we start by identifying the human resource
requirements imposed by the set of broad action programs of each
strategic business unit (SBU). Figure 5 displays a form for
this purpose. The collection of human resource requirements
Less Frequent tanAnnual Revew ; Ar.uail Review
Hierarchl .cal .
Levers of Struc.urat Str:egy S;raegc j Slratec:c andPF!ann;ng Conlt;oners Formuiaton Prorarr..;ng i Operatonal BudqetJng
Corporate. oe I 1 2rX
usiness ..... ... . -G ', ,-
Functional .L V0 0
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SBU BROAD ACTION ROGRAk'S I HUMIAN ESOURCE REQUIREMENTS
I_ .... ._.,~~~~~~~~I
Figure 5: Requirements Placed on Human Resources by SBU's Broad
Action Programs
represents the demands placed by the business managers on the human
resource or personnel function. Occasionally, disagreements might
occur between business and personnel managers as to the effective-
ness or even feasibility of some of these human resource requirements.
If concurrence cannot be reached by a direct process of negotiation,
the nonconcurrence issues escalate to higher levels of the organiza-
tion for resolution.
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Strategic Audit of the Human Resource Management Functions
We feel it is important to conduct a broad strategic audit of
the human resource function prior to developing its functional
strategies. This initial audit has several objectives. First,
to assess the availability and use of human resource data in the
organization; second, to measure the impact of human resource
considerations on strategy formulation; and, third, to detect the
extent to which human resource activities are used and should be
used in strategy implementation to accomplish these purposes, we
use the forms presented in Figures 6, 7, and 8, respectively.
SYSTEMATI CALLYNOT AVAILABLE AVA LABLE
NOT USED GREATLY USED
1 2 3 4 . 5
1. EXTERNAL MANPOWERSTUDIES
2. INVENTORY OFMANAGERIAL TALENTS
3,. FORECASTS OF INVEN-TORY OF FUTURE TALENT
4. INVENTORY OFTECHNICAL TALENT
5. HUMAN RESOURCE AUDIT OFCONSIDERED ACQUISITIONS
6. SUCCESSION PLANS FORTOP .A.r.AG1ENT
O = DATA AVAILABILITY
0 = DATA USAGE
Figure 6: Availability and Use of Human Resource Data
(Source: Fombrum, Tichy and Devanna [10, Chapter 7])
2
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TO LITTLE ORNO EXTENT
1 3
TO A MODERATEEXTENT
4 5 6
TO A GREATEXTENT
7
O = IMPACT THEY HAVE
0 = IMPACT THEY SHOULD HAVE
Figure 7: Impact of Human Resource Considerations on Strategy Formulation
(Source: Fombrum, Tichy and Devanna 10, Chapter 7])
NOT USEDSHOULDN'T BE USED
1 9
USED GREATLYSHOULD BE GREATLY USED
4 Si
1. MATCHING EXECUTIVES TOSTRATEGIC PLANS
2. IDENTIFICATION OF MANAGERIALCHARACTERISTICS TO RUN FIRM INLONG TERM.
3. MODIFYING REWARD SYSTEM TODRIVE MANAGERS TOWARD LONGTERM STRATEGIC OBJECTIVES.
4. CHANGING STAFFING PATTERNSTO HELP IMPLEMENT STRATEGIES.
5. APPRAISING KEY PERSC;NEL FORTHEIR FUTURE I;1 CARRYING OUTSTRATEGIC GOALS.
6. CONiUCTING DEVELOPMENTPRCSAiAMS DE;;: E TO SUPPORTSTPATEcGC -.'A5ES. |
7. CC:.UCTI:;G CAREER PLANNINTO HELP DEVELOP KEY PERSONNELFOR STRATEGIC PLANS
O = EXTENT TO WHICH HR ACTIVITIES SHOULD BE USED
Q = EXTENT TO *;:;!CH HR ACTIVITIES ARE USED
Figure 8: The Extent to Which Human Resource Activities are Used inStrategy Implementation and the Extent to Which They
Should be Used
(Source: Fombrum, Tichy and Devanna [10, Chapter 7])
I
III
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These forms were taken from a survey conducted by Fombrum, Tichy
and Devanna [10, Chapter 2], which facilitates the comparisons of
our business managers against the sample reported in the Fombrum
study. Finally, the audit attempts to identify the strengths and
weaknesses of the existing human resource policies in each of the
five strategic categories. Figure 9 presents a format for this
evaluation.
PERSONN;EL UNIT
DECISION CATEGORY DESCRIPTION OF POLICY STRENGThS WEAKNESSES
SELECTION,PROMOTIONAND PLACEMENT
APPRAISAL
REWARDS
DEVELOPMENT
LABOR/EMPLOYEERELATIONS, VOICE
NOTE: IN THE ASSESSMENT OF STRENGTHS AND WEAKNESSES TRY TO HAVE RELEVANT COMPETITORSIN MIND AND USE PROPER ORGANIZATIONAL AND INDIVIDUAL OUTCOMES.
Figure 9: Characterize Your Present Personnel Policies Regarding the Major
Decision Making Categories
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Development of Human Resource Strategies
The preceding analysis gives the necessary understanding of
the basic issues involved in setting up a human resource strategy.
The next step is to state strategic objectives, articulated through
broad action programs, for each of the human resource strategic
decision categories. Figure 10 is helpful for performing this task.
SBU
OBJECTIVESDECISION OBJECTIVES BROAD ACTION PROGRAMSCATEGORY LONG RANGE SHORT RANGE
SELECTION,PROMOT I ON,& PLACEMENT
APPRAISAL
REWARDS
DEVELOPMENT
LABOR/EMPLOYEERELAT IONS,VOICE
Figure 10: Define Broad Action Programs for Each Human Resource StrategicDecision aking Category
. In~~~~~~~ .. .._.II. _ . __
III
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Each broad action program has to be supported by a set of specific
action programs that can be monitored easily and whose contributions
are measurable. Thus, for each human resource decision category,
we suggest spelling out the information pertaining to its correspond-
ing specific action programs, as indicated in Figure 11.
DECISION CATEGORY
PROGRAM ESCRIPTIO PRICRITV l COST l Fi - I S T RES^OCNi;!ti-r !
ABSQLU POSTPONEMENT WIL SGNIICANLY HURT OR P- i IB if - POSTPONEENT ILL AVERSELY AFFECT OUR POSIT N TH ARKET,,C PEIRAILE - IF FUNDS WERE TO BE BE AVAILBLE TO ENHAN'I OUR PSITIONFigure : DefineS . Support Each of the
Figure 11: Define Specific Action Programs to Support Each of theBroad Action Programs Related to the Personnel StrategicDecision Category
Conclusion
Human resources can be a formidable weapon to achieve competitive
superiority. In this paper, we have attempted to provide a conceptual
framework as well as a set of pragmatic methodological guidelines to
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design a human resource strategy for a business firm. For the sake
of brevity, we have covered only the essential elements of this
methodology. We recognize that much more sophistication is needed
to embrace the details of strategy formulation and implementation
in a complex, specific business environment.
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References
[1] Barocci, T. A., & Kochan, T A. (1985). Human Resource
Management and Industrial Relations. Boston: Little
Brown and Company.
[2] Beer, M., Spector, B., Lawrence, P. R., Mills, D. Q., &
Walton, R. E. (1984). Managing Human Assets. New York:
The Free Press.
[3] Fine, C. H., & Hax, A. C. (1985). Designing a Manufacturing
Strategy, Working Paper, Sloan School of Management, to
appear in Interfaces, 1985.
[4] Fombrum, C. J., & Tichy, N. M. (1982). Strategic Planning and Human
Resource Management: At Rainbow's End. - In R. B. Lamb (Ed.),
Competitive Strategic Management. Englewood Cliffs, NJ:
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