Chapter 2 - Aligning HR with Strategy Flashcards
What is Human Resources Management?
An umbrella term that encompasses the following:
Overarching HR >philosophies< that specify the values that inform an organization’s policies and practices
> Formal HR >policies< that direct and partially constrain the development of specific practices
> Specific HR >practices
What is strategic HRM?
Interrelated philosophies, policies, and practices to enable the achievement of the organizational strategy
What are the primary HR strategic management theories?
- Resource Based view
- The contingency perspective > Human capital theory
- The contingency perspective > Behavioral Theory
What is the Human Resources Resource-Based View?
a riff on VRIO
> A resource that provides a sustained competitive advantage, because its culture is valuable, rare, and very difficult to imitate or substitute
> Human resources can be difficult for competitors to imitate
> The best human resources are rare
> The value of human resources can be hard to substitute
Sketch out the VRIO frameowork
as per saved pic
What are contingency perspectives?
Management effectiveness is contingent, or dependent, upon the interplay between the application of management behaviors and specific situations – One size doesn’t fit all
Refers to the need to modify HR strategies relative to its business and organizational strategies
The contingency perspective is explained by the human capital and behavioral theories
What is Human Capital?
The collective sum of employees’ attributes, experience, knowledge, and commitment invested in the organization
Human capital also includes: Knowledge Education Vocational qualifications Professional certifications Work-related experience Competence
Where is human capital theory derived from?
Adam Smith defined four types of fixed capital (which is characterized as that which affords a revenue or profit without circulating or changing masters.
Useful machines or instruments of the trade
Buildings as a means of procuring revenue
Improvements of Land
Human Capital (physical, Intellectual and Psychological) and the productive power of labour
Classical economists view the firm as having control over three types of resources in the production of goods and services:
Land
Labour or human capital
Capital
What are Human Capital Effectiveness Metrics?
Human Capital Effectiveness Metrics
Human Resource (HR) metrics are measurements used to determine the value and effectiveness of HR initiatives, typically including such areas as turnover, training, return on human capital, costs of labor, and expenses per employee.
What is revenue factor?
Revenue Factor:
Is a basic measure of HC effectiveness and is the aggregate result of all of the drivers of Human Capital Management (HCM) that influence employee behavior.
It conceptually links the time and effort associated with the firm’s human capital to its revenue output by indicating employee productivity. It simply measures the revenue generated for each employee. The formula for this metric is
Revenue / Headcount
What is expense factor?
Expense Factor:
It conceptually links the time and effort associated with the firm’s human capital to its operating expense output.
The formula is: Operating Expense / Headcount
What is income factor?
Income Factor:
Is calculated by taking the operating income and dividing it by the total headcount of the organization.
It conceptually links the time and effort associated with the firm’s human capital to its operating income output.
The formula is: Operating Income / Headcount
What is the EBITDA factor?
EBITDA Factor:
Is calculated by taking the EBITDA and dividing it by the total headcount of the organization.
It conceptually links the time and effort associated with the firm’s human capital to its operations’ profitability without the potentially distorting effects of changes in depreciation, amortization, interest and tax. The formula is: EBITDA / Headcount
What is Human Capital ROI?
Human Capital Return on Investment (HCROI):
It calculates the return on investment on a company’s employees. This is equivalent to calculating the value added of investing in the organization’s human assets.
HCROI is calculated by dividing the adjusted profit figure to human capital costs (except for training). It directly shows the amount of profit derived for every dollar invested in labor cost – in effect the leverage on labor cost.
The value added of human capital investments or the human capital return on investment (ROI) can be calculated:
Total revenue - (operating expenses - total compensation costs) / Total compensation costs
What is Behavioral theory?
Different HR strategies are required to influence the diverse behaviors of employees
HR’s role is to reinforce certain behaviors via HR practices such as recruitment, selection, training, compensation, and performance
What is a more traditional approach to HR planning?
Traditional view of HR Planning
KSAs and broad organizational outcomes
Use of Statistical techniques
Mere labor shortages and surpluses
What are the 5 levels on the workforce planning continuim?
- Ad hoc - no workforce planning / hire as needed
- Head count planning - head count analysis and basic labour costing
- workforce forecasting analytics - Historical lagginf performance indicators/descriptive workforce analytics
- Strategic workforce planning - workforce segmentation/workforce planning to support projected business needs?
- Human capital planning - Enterprise level workforce planning/workforce risk management and mitigation planning
Why is strategic HR planning important?
> HR planning is the most important long-term HR priority for Canadian organizations
Perceived value to real value
Employees help an organization achieve success because they are its strategic resources
Results in improved goal attainment
> the value of employees as a resource must be placed within a strategic framework. In other words, a strategy can become obsolete, making current employee skills obsolete.
> HR planning ensures that human assets are managed and matched to the organizational strategy
Keeping employees’ skills current
Ensuring employees’ skills will enable the organization to implement its strategy
How can strategic HR improve goal attainment?
Using Strategic HRM to improve an organization’s performance
Focus of the employees on important missions and goals of the organization
What are some practical barriers to HR planning?
Leaders lack planning and business insight Multiple planning Horizons Organizations Silos Moving Targets Union restrictions Budget priorities No data available Not enough time-competing priorities
What are some perception and attitude barriers to HR planning?
Important but not urgent Resistance to Change Lack of Holistic Approach Success measurement is hard seen as too daunting to change considered to lack credibility
How can HR strategy align with corporate strategy?
Aligning HR strategy with business strategy can be done in one of these ways:
- Start with organizational strategy and then create HR strategy
- Start with HR competencies and then craft corporate strategies based on these competencies
> or Do a combination of both in a form of reciprocal relationship
How would a company with a low cost strategy align HR program regarding the employee?
Narrow Jobs with limited scope Least job – interdependence Short-term focus Capitalize on EOS Doing more with fewer employees Structured No Risk/No unique response system Elimination of possible management layers
How would a company with a differentiation strategy align HR program regarding the employee?
Open Jobs with wider scope Broad employee skills Need Creative behavior with long term focus Greater Employee involvement Unpredictable environment Employee Feedback
How would a company with a low cost strategy align HR program regarding HR planning?
Minimum Succession @ entry level, Feeder line to the next level
Keep a close eye on labor market
Availability and use of fringe workers
Executive level Succession Planning is important
How would a company with a differentiation strategy align HR program regarding HR planning?
People First
HRP is critical (What and How)
Succession Planning is critical (unique job requirements)
Skill development
Long-term job security and reciprocal loyalty are the norms
How would a company with a low cost strategy align HR program regarding selection?
Recruitment is made at entry level and through WOM
Application forms are available on-site
Internal promotions
Narrow Career Paths
How would a company with a differentiation strategy align HR program regarding selection?
Need Employees with broad range of skills and abilities
Innovative environment for self motivation
Selection basis are wide which require comprehensive selection methods
Selection through Reputation/Graduate Schools
How would a company with a low cost strategy align HR program regarding compensation?
Lower Wages but with careful eye on competitor
Lag Strategy in terms of wages
Movement of production from highly unionized to smaller non-unionized cities
Cost reduction /part time workers
Pay cuts @ cost of bonuses
How would a company with a differentiation strategy align HR program regarding compensation?
Compensation plan directly affects employee behavior
Profits Vs enhanced expenses/innovation
Slightly low pay rates with enhanced growth opportunities, commission, bonuses and Stock options etc.
Egalitarian pay structures are associated with product/service quality
Individual & team-based incentives
How would a company with a low cost strategy align HR program regarding training?
Minimal
Efficiency and job specialization
No/least development
Lean training staff/OTJ by supervisors
How would a company with a differentiation strategy align HR program regarding training?
Strong training teams
Skill and attitude development focus
Training for new idea generation
Development Experiences/efforts are encouraged
Value working in multiple domains and units
Learning is must
How would a company with a low cost strategy align HR program regarding performance evaluation?
Standardized criteria
Short-term results
Immediate feedbacks with specific individual behavior
One way feedback/Simplex
How would a company with a differentiation strategy align HR program regarding performance evaluation?
Long term behavioral implications Innovations are rewarded They way innovations are achieved Appraise attitudes, empowerment, diversity sensitivity and team work Working beyond the job 360 Degree feedback
How would a company with a low cost strategy align HR program regarding labour relations?
Prevent Unionization/part-timers
High turnover as advantage
How would a company with a differentiation strategy align HR program regarding labour relations?
Role of unions is renewed Collective approach (Union – Management Relationship) Shared Relationships/Share responsibilities
What is another HR approach, where HR competencies lead to business strategy?
Organization cannot implement a strategy if it does not have the necessary human capital
Yet this “skills determine strategy” outlook relies too heavily on employee capabilities and not enough on environmental analysis.
Small businesses are more in tune with this approach because the impact of human capital has a greater effect.
What is reciprocal interdependency?
A reciprocal interdependency exists between HR strategy and business strategy
Both strategies influence each other
Changes to one type of strategy will require changes to the other type
HR should build its strategy by acknowledging the main issues facing the business
How can HR Become a Business Partner?
Requires concurrent strategy formulation
HR professionals play a more strategic role, moving from outsider to insider status
HR managers must appreciate marketing, financial, and operational issues
What are four elements/areas of A Strategic Vision for HR?
Corporate HR - HR director on the executive team
Services - Three levels of service for compensation and benefits administration—training and education administration, staffing administration, and records management
Solutions - HR subject-matter experts who are responsible for creating solutions to organizational problems and for preparing the organization to achieve its strategic intents
Organization Capability Consultants - HR professionals in this unit are dispersed throughout the organization, providing guidance and assistance to operating units, with the goal of improving the effectiveness of the organization
What is HR Strategy Differentiation?
Firms with more than one business strategy are likely to have more than one approach to HR strategy
Different divisions are responsible for realizing different aspects of the strategy; employees in different divisions may be encouraged to display different behaviors through appropriate HR practices
How are Canadian companies segmenting workers into categories?
Hot skills: Skills that are in short supply and high demand in the labour market
Mission critical skills: capabilities needed within an occupation
mission critical roles: these are highly skilled, highly trained individuals who drive organizational value
key job positions: these workers are well trained on core organization processes, but are more easily replaced
contingent labour: temporary, demand based and project based workers
What are the Characteristics of an Effective HR Strategy?
- External fit: HR programs must align with or fit the overall strategy of the organization
- Internal fit: HR must fit with other functional areas, such as marketing, and among all HR programs
- Focus on results: Results must be measured and tracked.
This chain must be in place:
HR program → employee human capital and behaviors
→ organizational strategy → organizational outcome
