CHAPTER -3 SHRM

72 Part I Introduction

The rnain purpose of this chapter is to show you how to dcvclopan HR system that
supports, and tnakcs scn.scin tertns of, the ccnnpany'sstrategic goals. We'll explain
the strategicnyanagcmentprocess,how to clcvclopa strategic plan, and the HR man-
agcr's role in the sti%ltcgictnanagcmcnt process. Wc discuss how to crcatc a strategy-
oriented IIR system, and explain the step-by-step "HR Scorecardapproach" to creating
a strategy-oriented HR system.

HR'S STRATEGIC CHALLENGES

The central challenge facing human resource management is always to provide a set of
strategic plan services that make sense in terms of the company's strategic plan. A strategic plan is the
A planfor how it will
match its internal strengths and company's plan for how it will match its internal strengths and weaknesses with external
weaknesses with external opportunities and threats in order to maintain a competitive advantage. The basic strate-
opportunities and threats in order
to maintain a competitive
gic planning process involves asking, "Where are we now as a business, and where do we
advantage. want to be?"The manager then formulates specific (HR and other) strategies to take the
company from where it is now to where he or she wants it to be. A strategy is thus a
course of action. The company's various strategies—its HR, sales, finance, and manufac-
turing strategies, for instance—need to support the company&strategic plan. Suppose
the strategicplan calls for improving the quality of the 'company's products (such as
Ford's former plan to "Make Quality Job 1"). Then one HR strategy might be to "boost
employee quality consciousness through improved screening and training.
Consider another example. The essence of Dell Computer's strategic plan has
always been to be what strategic planners call a "low-cost leader," by using the Internet
and the phone to sell PCs directly to end users at prices competitors cannot match. The
firm's HR managers have devised various HR strategies to support the firm's
low-cost strategy. For example, Dell now delivers most of its HR services via
the Web. A Manager Tools section on Dell's intranet contains about 30 auto-
mated Web applications (including executive search reports, hiring tools, and
automated employee referrals). This allows managers to perform HR tasks
that previously required costly participation by HR department personnel.
The intranet also lets Dell employees administer their own 401(k) plans,
check job postings, and monitor their total compensation statements. This
dramatically reduces the number of HR people required to adrnimster these
activities, and thus the cost of doing so.
In formulating their HR strategies, HR managers must address three
basic challenges. One (as at Dell) is the need to support corporateproductivity
andperformanceimprovementefforts.With the globalization of the world
economy, competition has soared, and with it the need to continually improve
organizational performance. Second is that employeesplay an expanded role in
employers'performance improvement efforts. Indeed, all the elements we associ-
4 ate with high-performance organizations—such as technology-based pro-
duction and team-based organizations—require extraordinarily high
levels Of
employee competence andaommitment. These two challenges mean that
HR's attention increasingly focuses on boosting competitiveness,
on manag-
Bertha Renteria is con•puterbuilder ing employee performance, and, in general, on building high-performing
Coniputer Corp., in Austin. Oen organizations and being measured on its ability to do so.
know HR must support corporate productivity The third challenge (stemming from the first two) is that,
perforiiianco iliipvos•enient efforts by rcr.rt:iting given its
and hiring
more central role in managing performance, HR must he more
and con•anitted involved in
Hiring ejnployecs fiicc Berth) is one of the reasons designing—not just executing—the company'sstrategic plan.
Strategy formula-
Dellhas been able to tn€et its strategic tion was traditionally a job for the company's operating
maint.un its low-cost teadcr positi0':.
(line) managers. The
president and his or her staff might decide to enter new
markets, drop prod-

4.
 Chapter 3 Z Strategic Human Resource Management and the HR Sco

that uct lines, or entbark on a five-yearcost-cutting plan. Then the president would
.•xplatn less entrust the personnel implications of that plan (hiring or firing new workers,
man- outplacement firms iVorthose fired, and so on) to HR management.
•ategy- Today's emphasis on gaining competitivc advantagc through people makes such
reating arrangetncnt inadequate.In formulating its strategy, top management needs the input of
the managers charged with hiring, training, and compensating the firm's cmployees. HR
professionals thcrcförc need to understand the basics of strategic planning.

01
Outlinethe Steps The Strategic ManagementProcess
in the strategic
t set of management process.
Strategic planning is part of the firm's strategic managementprocess. As Figure 3-1
is the shows, strategic planning includes the first four strategic management tasks. It includes
Sternal evaluating the firm's internal and external situation, defining the business and develop-
strate- ing a mission, translatingthe mission into strategicgoals, and crafting a strategy or
do we course of action. In its simplest sense, however, strategic planning is simple: Decide what
Ike the business you're in now and which ones you want to be in, formulate a strategy for getting
thus a strategic management there, and execute your plan. Strategic management includes the implementation
The process Of idenufying and
nufac- executing the organization'smission phase. It is the process of identifying and executing the organization's mission, b
Ippose by matching its capabilitieswith the matching the company's capabilities with the demands of its environment.
demandsof its environment.
ach as The strategic management process consists of severalrelated tasks (see Figure 3-1).
"boost Let's look at the main ones.

has
Step 1: Define the Business and Its Mission The fundamental strategic decisions managers
Iternet
face are these: "Where are we now in terms of the business we're in, and what
h. The business do we want to be in, given our company's opportunities and threats, and
firm's
its strengths and weaknesses?"Managers then choose strategies—courses of
ces Via
action such as buying competitors or expandingoverseas—toget the company
auto-
from where it is today to where it wants to be tomorrow.
. Is, and
tasks Figure 3-1 Feedback
)nnel. Overview of Strategic
Alans, Management Process
. This Source:Adapted from Fred David.
StrotepcMonogement(Upper Saddle
these
Paver.NJ: Prentice Hall. 2001).p. 77.

-z: three
z.. fitnty

•orld Implement
Define the
•rove Business, Implement Strategies—
Establish Strategies— Marketing, Measure
Develop Evaluate.
Strategic Management Finance,
Vision and and Select
ssocr Goals and HR Accountinc Evaluate
Mission Stategies
pro- R&D, Performances
Statements
'els of CIS Issues
that
anag-
ming ntérnäl_t

•n its
'd in
.ula-
The Strategy Strategy Strategy
rod- Planning/FormuIation Implementation Evaluation
 Part 1 Introduction

Figure 3-6 Company's Competitive Environment

Linking Corporate and HR Economic. political, demographic,
Strategies competitive. and technological trends
Source 2003.Cnry Dev,'er, Ph D
Companfs Strategjc Plan
For example
Companys Strategic Situation •Should we expand geoqaphtca!ly?
•Cut costs?

Company's Internal Strengths

and Weaknesses
Company's HR (and Other Functional)
Strategies
What are the basic courses of action
HR will pursue to ensure that the recruiting.
OrganizationalPerformance selecting. training, appraising. and
compensation systems are consistent with
the companys strategic plan?

Another writer concludes:

viewed as a sourceof
In a growing number of organizations human resourcesare now
competitive advantage.. . This is in contrast to the traditional emphasis on transferable
resourcessuch as equtpment. Increasingly, it is being recognized that competitive advantage
organizations to compete on the
can be obtained With a high quality workforce that enables
differentiatedproducts, and techno-
basis of market responsiveness, product and service quality,
14
logical innovation.

Strategic Human Resource Management

The term HR strategiesrefers to the specific human resource management courses of
action the company pursues to achieve its aims. 15Thus, one of FedEx's strategic aims is
to achieve superior levels of customer service and high profitability through a highly
committed workforce.The overriding aim of its HR strategy is to build a committed
workforce, preferably in a nonunion environment. 16FedEx's specific HR strategies stem
from this aim. They include: using various methods to build two-way communications;
screening out potential managers whose values are not people-oriented; guaranteeing to
the greatest extent possible fair treatment and employee security for all employees; and
utilizing various promotion-from-within activities to give employees every opportunity
strategic human resource to fully realize their potential. Figure 3-6 illustrates the interplay between HR strategy
management
Formulating and executing HR
and the company's strategic plans and results. Strategic human resource management
systems—HR policies and means formulating and executing HR systems—HR policies and activities—thatpro-
activities—chat produce the duce the employee competencies and behaviors the company needs to achieve its strate-
employee competencies and
behaviors the company needs to gic aims.
achieve its strategic aims.

e HR'S STRATEGIC ROLES

When it comes to how involved HR managers should be in strategic planning, there
is often a disconnect between what CEOs say and do. One writer says HR profes-
sionals' input is crucial: They identify problems that are critical to their companies'
business strategy, and forecast potential obstacles to success.17When Rick Wagner
 The WOrkplace
longo Buildsits Sttotegy on
Some expects woil(focces base, Tho (hereby
conflicts and rising costs. But contributed to Congo's success. While ocher
is lost on che owners of I.ongo Toyota (jealocshipslose half (li0ic salespeople every
Monte. California. Longo's Elli year, Longo retains 90% of staff, in by
supports its strategy of catering to a highly emphasizing a promotion-from-within policy
diverse customer base by hiring and developing that's made more than two-thirds of its
salespeople who speak ovetything from Spanish managers minorities, has also taken steps to
and Kotxtanco Tagatog.And by following that HR attract more women. for instance. by adding a
strategy. Longo may now bo one of America's sales management staff to spend timo providing
cop•ossing auto dealers. the training inexperienced salespeople usually
Wich a 60-person salosforce that speaks
need, In a business in which competitors can
more than 20 languages, Congo's staff provides
easily imitate produce,. showrooms, and most
it with a powetful competitive advantage for
services. Longo has built a competitive
catering to an inc@asinglydiverse customoc
advantage based on employee diversity.

took over as CEO Of General Motors, he organized a senior executive committee

(the "Automotive Strategies Board"). It included GM's chief financial officer, chief
infortnation ofTtcer,and vice president of global human resources. As Wagner says, "J
seek (the HR vice president's] counsel and perspectiveconstantly, She has demon-
strated a tremendous capacity to think and act strategically,which is essential to our
H R fimction and what wc want to achieve in making (GMa globally
18 competitive
business.
A study from the University Of'Michigan conclu(led that highwerförming
coto-
panics' HR professionals should bc part of the firm's strategic plannjng executive
teatji.
'l'hcsc professionals identify the hunntn issues that are vital to business strategy
and
of help establish and execute strategy. They provide alternative insights and are involved
is In creating responsive and market-driven organizations. They conceptualize
and exc-
cute organizational change. Another study by Mcrccr Consulting concluded that
cd of CEOs surveyed sce I•IR as more ol' a partner than a cost center. 19Yet another
study,
m of 447 senior IIR executives, focused Olithe extent to which HR had been involved
in
executing mergers for thetr companies. Figure 3-7 summarizes the findings. Mergers in
to which top management asked IIR to apply its expertise consistently outperformed th(C
in which HR was less involved.2()
Yet one recent survey of I IR professionals found that, in practice, only about
half said senior I IR managers arc involved in developing their cornpanies' business
nt plans.21A survey by the University of Southern California found that about one-fourth
o- of large U.S. businesses appointed managerswith no I IR experienceas top IIR execu-
e- tives. Reasons given include the fact that they may find it easier to give the firms' HR
efforts a strategic emphasis. They may also sometimes be better equipped to integrate
the firm's JIR efforts with the rest of the business.22So in practice, I IR managers don't
appear to bc as involved in strategizing as perhaps they should be.
As I IR tnanagcrs do assume more strategic planning responsibilities, they will
have to acquire new I IR skills. This does not just mean technical skills relating to activ-
re itics like sclection and training. I IR managerswill need "an in-depth understanding of
s- the value creating proposition of the firm." I low docs the company make money? What
'S activities and processes arc most critical for wealth creation as dcfincd by customers and
er capital markets? Who in the firm cxccutcs thcsc activities successfully?2i
 Part 1 Introduction

Figure 3-7
Percent of Mergers in Pre aleal
Which HR Manager Was
Involved 72
Source Jeffrey Schmidt. "The Correct Due Diligence
Spelling of M & A Begins with HR."
HR Magazine. June 2001. p. IOS.
Reproduced with permission of Soc,
Integration Planning
for Human Resource Mgmt,via 53%!
Copyright Clearance Center.

Implementation

0% 20% 60% 80% 100%

Successful mergers Unsuccessful mergers

HR's Strategy Execution Role

Today's HR managers fulfill two basic strategic lannin roles: strategyexecutionand
strategyformulation. StrategyexecutionIStra itionally the heart of the HR manager's
formulates the company's corporate and com-
petitive strategies. Then, it formulates broad functional strategies and policies. Like the
riverbanks for a boat steaming up a waterway, the firm's functional strategies and policies
set the broad limits that determine what the functional manager can and cannot do, and
providea set of signposts that the (HR or other) functional managers can use to decide
the precise form the department's specific policies and activities should take. The com-
pany's HR (or other functional) strategies should thus derive directly from its company-
wide and competitive strategies.
Here, the basic rule is this: The HR department's strategies, policies, and activities
must make sense in terms of the company's corporate and competitive strategies, and
they must support those strategies. Dell's human resource strategies—the Web-based
help desk, its centralized intranet HR service bureau—help the firm better execute
Dell's low-cost strategy. FedEx's HR strategies—supporting communication and
employee development, for instance—help FedEx differentiate itself from its competi-
tors by offering superior customer service.
HR management supports strategic implementation in other ways. For example,
HR guides the execution of most firms' downsizing and restructuring strategies, through
outplacing employees, instituting pay-for-performance plans, reducing health care costs,
and retraining employees.When Wells Fargo acquired First Interstate Bancorp a few
years ago, HR played a strategic role in implementing the merger—in merging two
"wildlydivergent" cultures and in dealing with the uncertainty and initial shock that rip-
pled through the organizations when the merger was announced. 24

HR's Strategy Formulation Role

While execution is important, HR increasingly plays an expanded strategic planning
role today In recent years, HR's traditional role in executing strategy has expanded to
include working with top management to formulate the company's strategic plans. (HR
has "a seat at the strategy planning table" is how some HR writers put this.) This
expanded strategy formulation role reflects the reality most firms face today.
Globalization means more competition, more competition means more performance,
and most firms are gaining that improved performance in whole or part by boosting the
competence and commit%jentlevelsof their employees. That makes HR's input crucial.
 Scorecard, 83
Chapter 3 0 Strategic Human Resource Management and the HR

variety of ways. For ex,ttnplc,

HR helps top managctnent fortnulatc strategy in a
analyzing, and balancing the
iortnulating a cotnpany's strategic plan requires identifying,
and its in/crnal strengths
con)pany's external oppoMuniticsand threats, on the one hand,
plans capitalize on the
and weaknesses,on thc other. Hopefully, the resulting strategic
threats and wcak-
firm's strengths and opportunities, and minimize or neutralize its
supply competitive intel-
nesses. Externally, HR management is in a unique position to
regarding competi-
iigcnce that may be usefill in the strategic planning process.Details
information about
tors' incentive pians, opinion survey data from employeesthat elicit
laws and
customer complaints, and information about pending legislation such as labor
mandatory health insurance are some examples. Furthermore:
From public information and legitimate recruiting and interview activities, you ought
to be able to construct organization charts, stafftng levels and group missionsfor the various
organizational componentsof each ofyour major competitors.Yourknowledge of hou brands
a com-
arc sorted among sales divisions and who reports to whom can give important clues as to
of
petitor's strategic priorities. Youmay even know the track recordand characteristic behavior
the executives. 25

As another example, HR participates in the strategy formulation process by sup-

plying information regarding the company'sinternal human strengths and weaknesses.
For example, IBM's decision in the 1990s to buy Lotus Software was prompted in p.
by the conclusion that its own human resources were insufficient to enable the firm to
reposition itself as an industry leader in networking systems, or at least to do so fast
enough. Some firms, thanks to HR's input, build new strategies around human resource
strengths. For example, in the process of automating its factories, farm equipment man-
ufacturer John Deere developed a workforce that was exceptionally talented and expert
in factory automation. This in turn prompted the firm to establish a new-technology
division to offer automation services to other companies. 26
es But, for a growing number of employers, HR is even more extensively involved in
the strategy formulation process. By working closely with top manacrement, HR is able
to build a persuasive case that shows how—in specific and measurable terms—the firm's
te HR activities can and do contribute to creating value for the company, for instance in
terms of highcr profits and markct valuc. A big part of building that case is to create a
strategy-oriented HR system.We'll turn to this next.

e,
{h
Explain what a
CREATING A STRATEGY-ORIENTED HR SYSTEM
strategy-oriented
•w HR system is and why it is By way of overview, we can think of an HR process as consisting of three basic comp
important. nents. There are the HR professionalswho have the strategic and other skills required to
p-
build a strategy-oriented HR system.There are the HR policiesand activities (such as
how the company recruits, selects, and trains and rewards employees) that comprise the
HR system itself. And there are the employeebehaviorsand competencies
that the com-
pany's strategy requires, and that hopefully emerge from the actions and policies of the
firm's strategy-supporting HR system. Some HR experts refer to these three elements
(the HR professionals, the HR system, and the resulting employee behaviors) as a com-
pany's basic HR architecture (see Figure 3-8).
Ideally, the HR professionalsshould design the HR system in such a way that it
helps to produce the employee competencies and behaviors the company needs to achieve
its strategic goals. It obviously does little good to design, say, training practices that pro-
:e, duce a workforce incapable of using the company's new computerized machines.
he Creating a strategy-oriented HR systern requires new skills on the part of HR pro-
d. fessionals. They must have the competencies required to create HR systems that produce