Module 1: Strategic Management

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

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HR Roles

Historical: Advice Service Control

Current: Strategic Operational Administrative

Historical roles are still important, but roles have broadened into todays more strategic focus.
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Changes in the HR Profession

Workforce composition Globalization Emphasis on ethics Flexible organizational boundaries Require:
Strategic HR perspective Alignment of human capital and corporate strategy Technology

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Key Trend: Offshoring

SPHR only
Domestic HR challenges
Displaced workers Increased HR workload Decline in employee morale Shortage of employees in positions vulnerable to offshoring

International HR challenges
Recruiting, managing, and motivating the new workforce Communication and coordination across time zones Cultural issues

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Key Trend: Mergers, Acquisitions, and Divestiture

SPHR only
HR in the M&A Process 1
Prepare for M&A

Perform due diligence

Plan integration

Implement and measure

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.

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Management Functions

Planning

Organizing

Directing

Controlling

Forecast Set goals

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Design Assist

Schedule Implement

Measure

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Project Management Steps

Conception

Planning, scheduling, monitoring, and control

Completion

Evaluation

Roles
Interpersonal Leader
Liaison

Informational Communicator
Information disseminator

Decisional Conflict resolver

Resource allocator

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1-7

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 Development of RFP for new medical insurance plan Identification of possible providers Issuance of RFP Evaluation of proposals Company presentations Selection Development of plan Presentation of new plan to employees February March April May

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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.
5

C D
2

Legend:
Event Activity Critical Path
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B
2

Numbers = Weeks

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Change Management Model

1. Determine the need or desire for change. 2. Prepare tentative plans.

7. Implement and evaluate the change. 6. Communicate the change.

5. Establish a project plan and a timetable.

3. Discuss alternatives and probable reactions.

4. Make a final decision.

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

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Managing Technology Trends

Business process integration

E-procurement

Electronic record keeping

Electronic signatures

Application service providers (ASPs)

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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.
Phase 1
Strategy Formulation

Phase 2
Strategy Development

Phase 3
Strategy Implementation

Phase 4
Strategy Evaluation

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Phase 1: Strategy Formulation

Strategy Formulation
Develop vision and mission statements. Define organizational values.

Must understand: What business the company is in. When to change the mission and alter strategy. How and when to communicate the mission.
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Phase 2: Strategy Development

Strategy Development
Conduct a SWOT analysis, including an environmental scan. Establish long-term objectives (three to five years). Identify corporate, unit, and functional strategies.

S
W O

= Internal strengths
= Internal weaknesses = External opportunities = External threats

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Phase 3: Strategy Implementation

Strategy Implementation
Establish short-term objectives (six months to a year). Develop action plans. Allocate resources. Motivate employees.

Resources needed to achieve objectives: Financial Physical Human Technological

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Phase 4: Strategy Evaluation

Strategy Evaluation
Review strategies at planned intervals. Measure performance. Take corrective action.

Assess strategies by noting changes in:

Internal strengths and weaknesses. External opportunities and threats.

Take corrective action when changes have occurred.

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Which of the following activities best prepares HR to participate in the strategic planning process?
A. Evaluating a new HRIS system B. Restructuring HRs recruiting system C. Training line managers on interviewing techniques D. Reviewing the companys key financial data Answer:
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Understanding the Internal Environment

Employees

Finance and Accounting

HR
Information Technology Marketing and Sales

Operations

Understand the perspective of your business partners. Create communication and collaboration. Identify internal needs and emerging issues.

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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

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Budgeting Methods
Prior budget and newly identified needs are the basis for funding.

Incremental

Formula

Usually stated as a percentage of increase or decrease to general funding.

Zero-based

All objectives and operations are ranked and funds are allocated according to rank. Budgets start at zero; all expenses must be justified.

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Balance Sheet
Summarizes the firms financial position. 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.

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1-23

Balance Sheet
Assets
Current assets Fixed assets Investments Total assets
$310,000 $70,000 $20,000 $400,000

Liabilities and equity

Current liabilities Equity Total liabilities and equity
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$145,000 $255,000 $400,000

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Income Statement
Explains revenues, expenses, and profits over a specified period of time.
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.
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Income Statement
Gross sales (revenues) Less cost of goods sold Gross profit Less expenses: Salaries Rent Utilities Depreciation Interest Subtotal of expenses: Income less expenses Income tax expense Net income
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$360,000 $240,000 $120,000 $50,000 $20,000 $18,000 $7,200 $1,800 $3,000

$50,000 $70,000 $28,000 $42,000

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Marketing and Sales

Product

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

Place

Promotion

Key elements

Price

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

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Operations
Goal: To provide goods and services to customers. Focuses on productivity, quality, cost, delivery, and performance. Affected by supply chain management.
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Capacity

Control

Standards

Key concepts

Inventory

Scheduling

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A company commits to answering all phone calls within 15 seconds. Which operational concept deals with observing and documenting actual results?
A. B. C. D. Capacity Inventory Scheduling Control

Answer:
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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

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Employees

Engagement
Employees willingness to go the extra mile How employees describe the organization Whether employees choose to remain How employees work

Human Capital
Combined knowledge, skills, and experience of employees Leads to creativity and competitive advantage.

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Evolution of Organizations

HR Focus: Staffing

Staffing and Compensation, HR planning, training training

Crisis: Bureaucracy

Change management, outplacement, crosstraining

Crisis: Change resistance

Crisis: Delegation Crisis: Leadership Need: Creativity

Need: Formal systems

Need: Clear direction

Need: Streamlined decision making Flexibility Small-company thinking

Introduction

Growth

Maturity

Decline

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Cost Leadership Strategy

Goal: To be the low-cost producer
Requires: Exploitation of all sources of cost advantage. Efficiency and productivity. Sharing of information. Centralized decision making. Cross-training and job rotation. Process improvements.
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Differentiation Strategy
Goal: Attempt to set the product apart from its competition by giving it unique characteristics for which customers will pay a premium price 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.

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Other Strategies
Another generic Porter strategy that places emphasis on a buyer group, a segment of the product line, or a specific market within an industry

Focus

Human capital advantage

Investment in people

Customer intimacy

Emphasis on understanding customer needs and helping them get the most out of their products

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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
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Functional Structure

Info-Tech President

HR

Operations

IT

Accounting

Marketing

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Divisional Structure
Info-Tech President

Electronic Publishing

Office Automation

Virtual Reality

HR

Operations IT Accounting Marketing HR

Operations IT Accounting Marketing HR

Operations IT Accounting Marketing HR

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Matrix Structure

President

Director, Product Operations

Design Vice President

Manufacturing Vice President

Marketing Vice President

Controller

Procurement Manager

Product Manager A Product Manager B Product Manager C Product Manager D

Location of a twoboss employee

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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)

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Centralization and Decentralization

Centralization
Decision Making 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.
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Environmental Scanning
Interprets data related to external opportunities and threats. Prepares HR to participate in strategic planning. Examines seven key factors:
Demographic Economic Employment International Political Social Technological

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Demographic Factors
Age Gender Generational differences Population shifts Ethnicity Unskilled labor Nontraditional labor force

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Economic Factors

GDP

Interest rates

CPI

Economic Factors

Inflation

Disposable income

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Employment Factors
Attitude toward careers Immigration Occupational and industry shifts Recruitment Unions Unemployment Turnover Relocation

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International Factors
European Union Wage comparisons Trade agreements International labor law Globalization

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Other Factors

Political Legislation and regulatory guidelines

Social Changing definition of families Strain on health-care systems

Technological Advances Skills Digital divide Process changes

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ROI
Measures the economic return on a project or investment.
Value of benefits received ROI = Costs to produce benefits

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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

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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.
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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. B. C. D. Calculate gross margin. Calculate return on investment. Conduct a cost-benefit analysis. Conduct a break-even analysis.

Answer:
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Balanced Scorecard

Customers

Finance

Mission Vision Values

Business processes

Learning and growth

Aligns business function measures with organizational strategies. Measures the effectiveness of a department or the entire company. Considers perspective of all stakeholders.
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SHRM

For a balanced scorecard system to be implemented effectively, it should

A. 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: C
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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.
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Other Measurement Methods

Organizations 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

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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.

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Primary and Secondary Research

Primary
(data gathered firsthand) Experimental Pilot projects Surveys Interviews Focus groups Direct observation Testing

Secondary
(data gathered by others) Secondhand reports Historical data Purchased data Professional publications Benchmarking Best-practices reports

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Scientific Method

Problem analysis Hypothesis formulation Experimental design Data collection Data analysis

2
3

4
5
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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?

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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.

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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 Control group R R O O X O O

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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

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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

Data is analyzed and placed into a useful context.
Quantitative analysis: Based on facts and statistics Qualitative analysis: Based on attitudes, opinions, and feelings

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Given the following data, what is the mode? 2

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

Answer:
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Descriptive Statistics: Measures of Variation 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.

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Descriptive Statistics: Measures of AssociationCorrelation

Shows the relationship between two variables.

1.00
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.

0.00
No Relationship

1.00
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.

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Descriptive Statistics: Measures of AssociationRegression

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.

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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.

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Qualitative Analysis
Most useful for:
Depth of information. Brainstorming and idea generation. Discovering underlying motivation, feelings, values, attitudes, and perceptions.

Gathered from:
Interviews. Surveys and questionnaires. Observation, file studies, testing.

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Reliability
Ability of an instrument to measure consistently. Test A scores are more consistent. This test is considered reliable.
Candidate

Test A
90 89 92 92 90 94

Test B
Form 2

Form 1 Form 2 Form 1

1 2 3

87 79 81

95 86 93

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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.

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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.

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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:

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Ethical Issues
Board of directors training Workplace privacy Whistleblowing Conflict of interest Bribes, payoffs, and kickbacks Insider trading Cultural clashes Copyrights Corporate responsibility

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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.

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Rule-Making Process
Laws are made by legislatures, and rules are made by agencies.
1. Rule is proposed. 2. Public comment is invited. 3. Final rule is issued.

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