NOTE: This Study Guide is Supposed to Facilitate the Textbook Navigation, and is Not,

by Any Means, Replacing It

Chapter 3

Human Resource Management Strategy and

Performance

The Strategic Management Process

Employers can’t intelligently design their human resource policies and practices without understanding
the role these policies and practices are to play in achieving their companies’ strategic goals.

The Management Planning Process

The basic management planning process consists of five steps: setting objectives, making basic
planning forecasts, reviewing alternative courses of action, evaluating which options are best, and then
choosing and implementing your plan.

A plan shows the course of action for getting from where you are to the goal. Planning is always “goal-
directed” (such as, “double sales revenue to $16 million in fiscal year 2020”).

In companies, it is traditional to view the goals from the top of the firm down to front-line employees
as a chain or hierarchy of goals. Figure 3-1 illustrates this.

At the top, the president sets long-term or “strategic” goals (such as “double sales revenue to $16 million
in fiscal year 2020”). His or her vice presidents then set goals for their units that flow from, and make
sense in terms of accomplishing, the president’s goal (see Figure 3-1). Then their own subordinates set
goals, and so on down the chain.

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Policies and procedures provide day-to-day guidance employees need to do their jobs in a manner that
is consistent with the company’s plans and goals.

Policies set broad guidelines delineating how employees should act. For example, “It is the policy of
this company to comply with all laws, regulations, and principles of ethical conduct.”

Procedures spell out what to do if a specific situation arises. For example: Any employee who believes
this policy has been violated must report this belief to the employee’s immediate supervisor. If that is
not practical, the employee should file a written report with the Director of Human Resources. There is
to be no retaliation in any form.

Employers write their own policies and procedures, or adapt ones from existing sources (or both). For
example, most employers have employee manuals listing the company’s human resource policies and
procedures.

What Is Strategic Planning?

Setting goals for the company usually starts at the top, by formulating an overall strategic plan for the
company. A strategic plan is the company’s overall plan for how it will match its internal strengths and
weaknesses with its external opportunities and threats in order to maintain a competitive position. The
strategic planner asks, “Where are we now as a business, and where do we want to be?” He or she then
formulates a strategic plan to help guide the company to the desired end point.

A strategy is a course of action. Both PepsiCo and Coca-Cola face the same basic problem—people are
drinking fewer sugared drinks. However, they each chose different strategies to deal with this. PepsiCo
diversified by selling more food items like chips. Coca-Cola concentrated on sweet beverages, and on
boosting advertising to (hopefully) boost Coke sales.

Finally, strategic management is the process of identifying and executing the organization’s strategic
plan by matching the company’s capabilities (strengths and weaknesses) with the demands of its
environment (its competitors, customers, and suppliers, for instance).

The Strategic Management Process

Figure 3-2 summarizes the strategic management process.

Go back to the textbook for a detailed explanation for various elements of this process

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Types of Strategies
Managers engage in three types or levels of strategic planning

Level 1: Corporate Strategy

The corporate strategy answers the question, “What businesses will we be in?” Specifically, the
corporate-level strategy identifies the portfolio of businesses that, in total, comprise the company and
how these businesses relate to each other. Following are some corporate strategies:

- A concentration (single-business) corporate strategy, the company offers one product or

product line, usually in one market.
- A diversification corporate strategy means the firm will expand by adding new product lines.
Here product scope is wider.
- A vertical integration strategy means the firm expands by, perhaps, producing its own raw
materials, or selling its products directly.
- A consolidation strategy, the company reduces its size. With geographic expansion, the
company grows by entering new territorial markets, for instance, by taking the business abroad.

Level 2: Competitive Strategy

The competitive strategy identifies how to build and strengthen the business’s competitive position in
the marketplace. It answers the question, for instance, how should Pizza Hut compete with Papa John’s?
Once the manager decides what businesses to be in, each business needs a basis on which to compete.
Managers build their competitive strategies around their businesses’ competitive advantages.
Competitive advantage means any factors that allow a company to differentiate its product or service
from those of its competitors to increase market share.

Managers typically adopt one or more of three standard competitive strategies

- Cost leadership: means becoming the low-cost leader in an industry.

- Differentiation: the firm seeks to be unique in its industry along dimensions that are widely
valued by buyers.
- Focus: carve out a market niche.

Level 3: Functional Strategy

Functional strategies identify what each department must do to help the business accomplish its
strategic goals. Each department should operate within the framework of its business’s competitive
strategy. Production, marketing, sales, and human resource departments must engage in activities that
are consistent with this unit’s high-quality mission.

Managers’ Roles in Strategic Planning …

Devising the firm’s overall strategic plan involves frequent discussions among and between top and
lower-level managers. The top managers then use this information to hammer out their strategic plan.

For example, the human resource manager is in a can provide details regarding competitors’ incentive
plans, employee opinion surveys about customer complaints. Human resource managers should also be
the masters of information about their own firms’ employees’ strengths and weaknesses.

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Strategic Human Resource Management
The company’s top managers choose overall corporate strategies, and then choose competitive
strategies for each of the company’s businesses. Then departmental managers within each of these
businesses formulate functional strategies for their departments. Their aim should be to have functional
strategies that will support the competitive strategy and the company-wide strategic aims. Therefore,
the human resource management (“HR”) department would have human resource management
strategies.

What Is Strategic Human Resource Management?

Strategic human resource management means formulating and executing human resource policies and
practices that produce the employee competencies and behaviors the company needs to achieve its
strategic aims.

For example, a 5-Stars will have different employee selection, training, and pay policies than will a
small roadside motel because the 5-Stars customers expect exceptional service

The basic idea of strategic human resource management is this: the manager should formulate policies
that produce the employee skills and behaviors that the company needs to achieve its strategic goals.
the manager should determine where each HR activity (recruiting, and so on) is now, and where it
should be in order to support the employer’s strategic aims.

The key to success is to think through how the manager is going to transform the various HR activities
so that they align with and support the company’s strategic priorities. The bottom line is that the
manager should design any HR activities after full and clear understanding of the business’s strategic
needs, and how to align the HR activities with those strategic needs.

Strategic Human Resource Management Tools

Managers use several tools to translate the company’s strategic goals into human resource
management policies and practices. These tools include:

- Strategy Map: The strategy map summarizes how each department’s performance contributes
to achieving the company’s overall strategic goals. It helps the manager and each employee
visualize and understand the role his or her department plays in achieving the company’s
strategic plan.
- HR scorecard: A process for assigning financial and nonfinancial goals or metrics to the human
resource management– related chain of activities required for achieving the company’s

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 strategic aims and for monitoring results. The idea is to take the strategy map and to quantify
it. Managers use special scorecard software to facilitate this.
- Digital dashboard presents the manager with desktop graphs and charts, showing a
computerized picture of how the company is doing on all the metrics from the HR scorecard
process.

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HR Metrics, Benchmarking, and Data Analytics
Strategic human resource management means formulating HR policies and practices that produce the
employee competencies and behaviors the company needs to achieve its strategic goals. Being able to
measure results is essential to this process. For Human resource managers use many such measures (or
“human resource metrics”). HR metrics refers to the quantitative gauge of a human resource
management activity, such as employee turnover, hours of training per employee, or qualified
applicants per position. For example, human resource management metrics may include:
- Employment Data (Number of Positions Filled, Time-to-Fill, Cost-Per-Hire, Employee
Tenure, annual voluntary and involuntary turnover rate)
- HR Department Data (Total HR Staff, HR-to-Employee Ratio)
- HR Expense Data (HR Expenses, HR Expense to Operating Expense Ratio)
- Compensation Data (Annual Salary Increase, Salaries as a Percentage of Operating
Expense)

Benchmarking

Just measuring how one is doing is rarely enough for deciding what to change. Instead, most managers
want to know “How are we doing in relation to something”? The manager may want to benchmark
the results—compare high performing companies’ results to their own, to understand what makes them
better. The Society for Human Resource Management’s (SHRM’s) benchmarking service enables
employers to compare their own HR metrics with those of other companies.

Strategy-Based Metrics

Benchmarking shows how your human resource management system’s performance compares to the
competition. However, it may not reveal the extent to which your firm’s HR practices are supporting
its strategic goals. Thus, if the strategy calls for doubling profits by improving customer service, to what
extent are our new training practices helping to improve customer service?

Managers use strategy-based metrics to answer such questions. Strategy-based metrics: Metrics that
specifically focus on measuring the activities that contribute to achieving a company’s strategic aims.

For instance, the strategic HR metrics might include 100% employee testing, 80% guest returns,
incentive pay as a percent of total salaries, and sales up 50%. If changes in HR practices such as
increased training have their intended effects, then strategic metrics like guest returns should also rise.

What Are HR Audits?

Human resource managers often assess matters like employee turnover and safety via human resource
audits. An HR audit is an analysis of the completeness, efficiency, and effectiveness of the
organization’s HR functions, including its HR policies, practices, processes, and relevant metrics.

HR audits vary in scope. Typical areas audited include:

1. Roles and headcount (including job descriptions, and employees categorized by exempt/nonexempt
and full- or part-time)
2. Compliance with related legislation
3. Recruitment and selection (including use of selection tools, background checks, and so on)
4. Compensation (policies, incentives, survey procedures, and so on)
5. Employee relations (union agreements, performance management, disciplinary procedures,
employee recognition)
6. Mandated benefits (Social Security, unemployment insurance, workers’ compensation, and so on)

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7. Group benefits (insurance, time off, flexible benefits, and so on)
8. Documentation and record keeping.
9. Training and development (new employee orientation, development, technical and safety, career
planning, and so on)
10. Employee communications (employee handbook, newsletter, recognition programs)
11. Termination and transition policies and practices

High-Performance Work Systems

One reason to measure, benchmark, and scientifically analyze HR practices is to promote high-
performance work practices. A high-performance work system (HPWS) is a set of human resource
management policies and practices that together produce superior employee performance.

Examples of How Recruitment, Selection, Training, Appraisal, Pay, and Other Practices Differ in High-
Performance and Low-Performance Companies

An aim of the high-performance recruiting, screening, training, and other human resources practices is
to nurture an engaged, involved, informed, empowered, and self-motivated workforce.