copyright © 2008 by nelson, a division of thomson canada limited. 2–12–1 part 1: nature of...

Copyright © 2008 by Nelson, a division of Thomson Canada Limited.

2–1

Part 1: Nature of Human Resource Part 1: Nature of Human Resource Management Management

Part 1: Nature of Human Resource Part 1: Nature of Human Resource Management Management

Chapter 2: Strategic HR Management and Planning

Prepared by Linda Eligh, University of Western Ontario


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Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

After you have read this chapter, you should be able to:

1. Explain strategic HR management and how it is linked to organizational strategies.

2. Define HR planning and outline the HR planning process.

3. Describe the process for forecasting HR supply and demand including forecasting methods.

4. Discuss the importance surrounding the retention of employees.

5. Describe the process of developing and using a strategic HR plan including the action to be taken when there is a surplus of employees or a shortage.

6. Identify why HR metrics must consider both strategic and operational HR measures.


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Nature of Strategic Human Resources ManagementNature of Strategic Human Resources ManagementNature of Strategic Human Resources ManagementNature of Strategic Human Resources Management

• Strategic Human Resources ManagementThe process of linking the HR function with the

strategic objectives of the organization in order to improve performance.

• Organizational StrategyThe pattern of decisions in a company that

determines and reveals its objectives, purposes or goals, and produces the principle policies and plans for achieving those goals.


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Strategic HR Management Process Strategic HR Management Process Fig. 2-1Fig. 2-1Strategic HR Management Process Strategic HR Management Process Fig. 2-1Fig. 2-1


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Linkage of Organizational and HR StrategiesLinkage of Organizational and HR StrategiesLinkage of Organizational and HR StrategiesLinkage of Organizational and HR Strategies

Porter’s Competitive StrategiesCost Leadership

Competition on the basis of low price and high quality of product or service. Relies on “building” employees to fit specialized needs and requires a longer HR planning horizon approach


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Porter’s Competitive Strategies (cont.)Differentiation

Competition through offering distinctively different products or services or establishing an exclusive image for quality products and services. Relies on hiring needed skills. Needs a shorter planning time frame in order to be responsive to dynamic environments.


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Porter’s Competitive Strategies (cont.)Focused Strategy

Occurs when a firm concentrates effort on serving a distinctively defined market that may include some combination of a portion of a product line, customer segment, geographic area or distribution channel.


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Miles and Snow’s Strategy Typology View of the organization as a complete and integrative

system, in dynamic interaction with its environment. Competing firms within a single industry can be

categorized into four basic types:

Defenders Prospectors Analyzers Reactors


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Human Resource PlanningHuman Resource PlanningHuman Resource PlanningHuman Resource Planning

• Human Resource (HR) PlanningThe process of analyzing and identifying the need for

and availability of human resources so that the organization can meet its objectives.

• HR Planning ResponsibilitiesTop 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


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Purpose of Strategic HR Planning Purpose of Strategic HR Planning Fig. 2-2Fig. 2-2Purpose of Strategic HR Planning Purpose of Strategic HR Planning Fig. 2-2Fig. 2-2


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Typical Division of HR Responsibilities: Typical Division of HR Responsibilities: HR Planning HR Planning Fig. 2-3Fig. 2-3

Typical Division of HR Responsibilities: Typical Division of HR Responsibilities: HR Planning HR Planning Fig. 2-3Fig. 2-3


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Human Resource PlanningHuman Resource PlanningHuman Resource PlanningHuman Resource Planning

• Small Business and HR Planning IssuesAttracting and retaining qualified outsidersManagement succession between generations of

ownersEvolution of HR activities as business growsFamily relationships and HR policies


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HR Planning Process HR Planning Process Fig. 2-4Fig. 2-4HR Planning Process HR Planning Process Fig. 2-4Fig. 2-4


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HR Planning ProcessHR Planning ProcessHR Planning ProcessHR Planning Process

• HR StrategiesThe means used to anticipate and manage the supply

of and demand for human resources. Provide overall direction for the way in which HR activities

will be developed and managed.

Overall Overall Strategic PlanStrategic Plan

Human Resources Human Resources Strategic PlanStrategic Plan

HR ActivitiesHR Activities


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Scanning the External EnvironmentScanning the External EnvironmentScanning the External EnvironmentScanning the External Environment

• Environmental ScanningThe process of studying the environment of the

organization to pinpoint opportunities and threats.

• Environmental Changes Impacting HRGovernmental InfluencesEconomic conditionsGeographic and competitive concernsWorkforce composition


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Assessing the Internal WorkforceAssessing the Internal WorkforceAssessing the Internal WorkforceAssessing 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?


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Assessing the Internal WorkforceAssessing the Internal WorkforceAssessing the Internal WorkforceAssessing the Internal Workforce

• Organizational Capabilities InventoryHRIS databases—sources of information about

employees’ knowledge, skills, and abilities (KSAs)Components of an organizational capabilities

inventory Individual employee demographics Individual employee career progression Individual job performance data


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Forecasting HR Supply and DemandForecasting HR Supply and DemandForecasting HR Supply and DemandForecasting HR Supply and Demand

• ForecastingThe use of information from the past and present to

identify expected future conditions.

• Forecasting PeriodsShort-term—less than one year Intermediate—up to five yearsLong-range—more than five years


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HR Forecasting HR Forecasting Fig. 2-5Fig. 2-5HR Forecasting HR Forecasting Fig. 2-5Fig. 2-5


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• Forecasting the Demand for Human ResourcesOrganization-wide estimate for total demandUnit breakdown for specific skill needs by number and

type of employeeDevelop 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.


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Quantitative

(Mathematical)Trend analysis

Ratio analysis

Scatter plot

Regression analysis

Simulation models

Qualitative

(Judgmental)

Management forecasts

Delphi technique

Nominal group technique

Methods for Forecasting Demand


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Forecasting HR SupplyForecasting HR SupplyForecasting HR SupplyForecasting HR Supply

• Forecasting External HR SupplyFactors 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


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Forecasting HR SupplyForecasting HR SupplyForecasting HR SupplyForecasting HR Supply

• Forecasting Internal HR SupplyReview skills inventoriesExamine organizational charts or staffing tablesUtilize a Markov analysisReplacement charts Implement succession planning

The process of identifying longer-term plan for the orderly replacement of key employees.


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Markov Analysis for a Markov Analysis for a Hypothetical Sales Office Hypothetical Sales Office Fig. 2-6Fig. 2-6

Markov Analysis for a Markov Analysis for a Hypothetical Sales Office Hypothetical Sales Office Fig. 2-6Fig. 2-6


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Executive Replacement Chart for Hypothetical Executive Replacement Chart for Hypothetical Company Company Fig. 2-7Fig. 2-7

Executive Replacement Chart for Hypothetical Executive Replacement Chart for Hypothetical Company Company Fig. 2-7Fig. 2-7


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Estimating Internal Labour Supply Estimating Internal Labour Supply for a Given Unit for a Given Unit Fig. 2-8Fig. 2-8

Estimating Internal Labour Supply Estimating Internal Labour Supply for a Given Unit for a Given Unit Fig. 2-8Fig. 2-8


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Retention of Human ResourcesRetention of Human ResourcesRetention of Human ResourcesRetention of Human Resources

• Why People Stay or Leave—Links, Fit, and SacrificeCulture and Values

A positive, distinctive company culture aids retention by creating a “great work environment”

Management and Retention If a firm is not effectively managed, employees may be

“turned off” by ineffective responses and inefficiencies they deal with in their jobs. Visionary leadership is important.

Job Security The extent to which high-caliber top performers are retained

by the company is a key issue with other employees who view high turnover in this group as a negative.


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Drivers of Drivers of Retention Retention

Fig. 2-9Fig. 2-9

Drivers of Drivers of Retention Retention

Fig. 2-9Fig. 2-9


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Keys to Managing Keys to Managing Retention Retention Fig. 2-10Fig. 2-10

Keys to Managing Keys to Managing Retention Retention Fig. 2-10Fig. 2-10


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Managing RetentionManaging RetentionManaging RetentionManaging Retention

• Retention Measurement and AssessmentEmployee SurveysExit Interviews

• Determining Retention Management ActionsRetention Evaluation and Followup

Regular review of turnover data Tracking of intervention results and adjustment of

intervention efforts


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Developing and Using a Strategic HR PlanDeveloping and Using a Strategic HR PlanDeveloping and Using a Strategic HR PlanDeveloping and Using a Strategic HR Plan

• The ultimate purpose of the plan is to enable managers to match the supply of labour with the demand expected, given the strategies of the organization.

Managing a Human Resources Surplus

Outplacement Services

HR Planning in Mergers and Acquisitions

Managing Shortages of Labour


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Managing a Human Resources SurplusManaging a Human Resources SurplusManaging a Human Resources SurplusManaging a Human Resources Surplus

• Workforce Reductions and LegislationEmployment Standards Acts and Canada Labour

Code sets out employer requirements for advance notice of a layoff or facility closing.

Sufficient notice to employees and the local community before a layoff or facility closing involving more than 50 people.

Also covers part-time or seasonal workers in Canada


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Managing a Human Resources SurplusManaging a Human Resources SurplusManaging a Human Resources SurplusManaging a Human Resources Surplus

• Workforce Downsizing “Downsizing”, “Rightsizing”, and “Reduction in Force”

(RIF) all mean reducing the number of employees in an organization.

Causes Economic—weak product demand, loss of market share to

competitors Structural—technological change, mergers and acquisitions


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Managing a Human Resource SurplusManaging a Human Resource SurplusManaging a Human Resource SurplusManaging a Human Resource Surplus

• Workforce Downsizing (cont’d)Positive consequences

Increased competitiveness Increased productivity

Negative consequences Cannibalization of HR resources Loss of specialized skills and experience Surviving employees feel overburdened and demoralized

Managing survivors Provide explanations for actions and the future Involve survivors in transition/regrouping activities


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• Attrition and hiring freezes Not replacing departing employees and not hiring new employees

• Voluntary Separation Programs Early retirement buyouts offer incentives to encourage senior

employees to leave the organization early.

• Layoffs Employees are placed on unpaid leave until called back to work

when business conditions improve. Employees are selected for layoff on the basis of their seniority or

performance or a combination of both. Employees cannot be laid off indefinitely


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• Terminations Legislation requires that a certain amount of notice must be

provided based and severance may also have to be paid depending on years of service.

• Reducing Hours Reducing an employee’s hours until such time that things can

get back to normal. Options include working fewer days in the week, job sharing and changing to part time status.


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• Outplacement Services 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


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Making Downsizing More Effective Making Downsizing More Effective Fig. 2-11Fig. 2-11Making Downsizing More Effective Making Downsizing More Effective Fig. 2-11Fig. 2-11


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Managing Shortages of LabourManaging Shortages of LabourManaging Shortages of LabourManaging Shortages of Labour

• Canada’s aging population a lack of skilled labour will result in more labour shortages than surplus situations. Overtime

Hiring temporary employees

External recruitment


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Measuring HR Effectiveness Measuring HR Effectiveness Using HR MetricsUsing HR Metrics

Measuring HR Effectiveness Measuring HR Effectiveness Using HR MetricsUsing HR Metrics

• HR MetricsSpecific 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: Accurate data can be collected. Measures are linked to strategic and operational objectives. Calculations can be clearly understood. Measures provide information expected by executives. Results can be compared both externally and internally. Measurement data drives HR management efforts.


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Measures of Strategic HR EffectivenessMeasures 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

B A

C

ROI


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Measures of Strategic HR EffectivenessMeasures of Strategic HR Effectiveness

• 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 ScorecardFinancial Internal business processesCustomerLearning and growth


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HR Metrics: Measuring AbsenteeismHR Metrics: Measuring AbsenteeismHR Metrics: Measuring AbsenteeismHR Metrics: Measuring Absenteeism

• Measuring AbsenteeismSample formula for measuring or computing absenteeism:

100days) work of(Number employees) ofnumber (Average

period during absence jobgh lost throu days-person ofNumber

• Other Measures of Absenteeism:Incidence rate—the number of absences per 100 employees/dayInactivity rate—the percentage of time lost to absenteeismSeverity rate—The average time lost per absent employee during

a specified period of time


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HR Metrics: Measuring AbsenteeismHR Metrics: Measuring AbsenteeismHR Metrics: Measuring AbsenteeismHR Metrics: Measuring Absenteeism

• Calculations of the costs of absenteeism should usually include:Lost wagesBenefitsOvertime for replacementsFees for temporary employees, if incurredSupervisor’s timeSubstandard productionOverstaffing necessary to cover absences


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HR Metrics: Measuring TurnoverHR Metrics: Measuring TurnoverHR Metrics: Measuring TurnoverHR Metrics: Measuring Turnover

• Ways to Measure Turnover:Job and job levelsDepartment, units, and locationReason for leavingLength of serviceDemographic characteristicsEducation and trainingKnowledge, skills and abilitiesPerformance ratings/levels.


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HR Metrics: Measuring TurnoverHR Metrics: Measuring TurnoverHR Metrics: Measuring TurnoverHR Metrics: Measuring Turnover

• Computing the Turnover Rate:

100 midmonthat employees ofnumber Total

month theduring sseparation employee ofNumber

• Costs of Turnover Separation costs Replacement costs Training costs Hidden costs


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Simplified Turnover Costing Model Simplified Turnover Costing Model Fig. 2-13Fig. 2-13Simplified Turnover Costing Model Simplified Turnover Costing Model Fig. 2-13Fig. 2-13

$20,000

40%$28,000

20

3

$ 3,500

$70,000


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HR Measurement and BenchmarkingHR Measurement and BenchmarkingHR Measurement and BenchmarkingHR Measurement and Benchmarking

• BenchmarkingComparing specific measures of performance against

data on those measures in other “best practice” organizations

• Common BenchmarksTotal compensation as a percentage of net income

before taxesPercent of management positions filled internallyDollar sales per employeeBenefits as a percentage of payroll cost


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Performance Benchmarking Performance Benchmarking Fig. 2-14Fig. 2-14Performance Benchmarking Performance Benchmarking Fig. 2-14Fig. 2-14


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Assessing HR EffectivenessAssessing HR EffectivenessAssessing HR EffectivenessAssessing HR Effectiveness

• HR AuditA formal research effort that evaluates the current

state of HR management in an organizationAudit areas:

Legal compliance (e.g. Employment Equity, OH&S) Current job specifications and descriptions Valid recruiting and selection process Compensation and benefits system Employee handbook Absenteeism and turnover control Grievance resolution process Orientation, training and development Performance management system

copyright © 2008 by nelson, a division of thomson canada limited. 2–12–1 part 1: nature of...

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