Human Resource Management

Sixteenth Edition, Global Edition

Chapter 3

Human Resource
Management Strategy and
Performance

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Learning Objectives (1 of 2)
3.1 Give examples of each of the seven steps in the
strategic management process.
3.2 List with examples the main types of strategies.
3.3 Define strategic human resource management, and
give an example of strategic human resource management
in practice.

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Learning Objectives (2 of 2)
3.4 Give at least five examples of HR metrics.
3.5 Give five examples of what employers can do to have
high-performance systems.
3.6 Explain how you would design a program to improve
employee engagement.

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Learning Objective 3.1: Give Examples of
Each of the Seven Steps in the Strategic
Management Process

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The Management Planning Process
• The Hierarchy of Goals
• Policies and Procedures
Figure 3-1 Sample Hierarchy of Goals Diagram for a Company

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 What is Strategic Planning?
• 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 destination.
• A strategy is a course of action.

The Strategic Management Process – Is defined as

the process of identifying and executing the organization's
strategic plan by matching the company’s capabilities with
the demands of the environment.
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The Strategic Management Process
Figure 3-2 The Strategic Management Process

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 The Strategic Management Process
• seven steps include:
1) ask, “Where are we now as a business?”
2) evaluate the firm’s internal and external
strengths, weaknesses, opportunities, and
threats,
3) formulate a new business direction,
4) (4) decide on strategic goals, and
5) (5) choose specific strategies or courses of
action.
6) (6) and (7) are to implement and then evaluate
the strategic plan.
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Learning Objective 3.2: List with
Examples the Main Types of Strategies

In practice, managers engage in three types

or levels of strategic planning.

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Types of Strategies
1. Corporate Strategy
2. Competitive Strategy
3. Functional Strategy

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 Corporate Strategy
• For any business, the corporate strategy
answers the question, “What businesses
will we be in?

• Identifies the portfolio of businesses that,

in total, comprise the company and how
these businesses relate to each other.

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Corporate-Level Strategies
1.Concentration
2.Diversification
3.Vertical Integration
4.Consolidation
5.Geographic expansion

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 Corporate-Level Strategies
1.Concentration – (single-business) corporate
strategy, this is where the company offers one
product or product line, usually in one market.
WD-40 Company is an example. With one spray
lubricant, its product scope is narrow.

2.Diversification – corporate strategy means the

firm will expand by adding new product lines.
PepsiCo is diversified. Thus, PepsiCo added
Frito-Lay chips and Quaker Oats to its drinks
businesses. Here product scope is wider.
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 Corporate-Level Strategies
3.Vertical integration – corporate strategy means
the firm expands by, perhaps, producing its own
raw materials, or selling its products directly. For
example, Apple opened its own Apple stores.
4. Consolidation strategy – is the corporate
strategy in which the company reduces its size.
5.Geographic expansion – Growth is the
corporate strategy in which the company grows
by entering new territorial markets, for instance,
by taking the business abroad.
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 Competitive Strategy
• A strategy that identifies how to build and
strengthen the business’s long-term
competitive position in the marketplace,
which is also known as business-
level/competitive strategy.
• Competitive Strategy examines – on what
basis will each of our businesses
compete? For example, within a company like
PepsiCo, each business unit (such as Pepsi and
Frito-Lay) needs a business-level competitive
strategy.
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The Three Standard Competitive
Strategies
Managers typically adopt one or
more of three standard competitive
strategies:
1.cost leadership,
2.differentiation,
3.or focus
to achieve competitive advantage.
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Functional Strategy
• Each department should operate
within the framework of its business’s
strategic plan
• A strategy that identifies the broad
activities that each department will
pursue in order to help the business
accomplish its competitive goals.
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Managers’ Role in Strategic Planning
• Devising the company’s overall strategic
plan is top management’s responsibility.
However, few top executives formulate
strategic plans without lower-level managers’
input.
• In practice, 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.
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Learning Objective 3.3:
In this section we will learn to
Define Strategic Human Resource
Management, and Give an Example of
Strategic Human Resource Management in
Practice

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• 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. Thus, the marketing
department would have marketing strategies; the
production department would have production
strategies; the human resource management
(“HR”) department would have human resource
management strategies.
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 HR in Action at the Hotel Paris
HR in Practice at the Hotel Paris. Starting as a single hotel
in a Paris suburb in 1990, the Hotel Paris now comprises a
chain of nine hotels, with two in France, one each in
London and Rome, and others in New York, Miami,
Washington, Chicago, and Los Angeles. To see how
managers use strategic
human resource management to improve performance,

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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.

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Improving Performance: The Strategic
Context

The Shanghai Ritz-Carlton

Portman Hotel

Let’s talk about it…

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The Shanghai Ritz-Carlton
Portman Hotel
When the Ritz-Carlton Company took over
managing the Portman Hotel in Shanghai, China,
the new management reviewed the Portman’s
strengths and weaknesses, and its fast-
improving local competitors. They decided that
in order to compete, they had to improve the
hotel’s level of service. Achieving that meant
formulating new human resource management
plans for hiring, training, and rewarding hotel
employees. It meant putting in place a new
human resource strategy for the Portman Hotel,
one aimed at improving customer service.
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Their HR strategy involved taking these steps:
● Strategically, they set the goal of making the Shanghai
Portman outstanding by offering superior customer
service.
● To achieve this, Shanghai Portman employees would
have to exhibit new skills and behaviors, for instance, in
terms of how they treated and responded to guests.
● To produce these employee skills and behaviors,
management formulated new human resource
management plans, policies, and procedures. For
example, they introduced the Ritz-Carlton Company’s
human resource system to the Portman: “Our selection
[now] focuses on talent and personal values
because these are things that can’t be taught … it’s about
caring for and respecting others.” Management’s efforts
paid off.
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Their new human resource plans and
practices helped to produce the
employee behaviors required to improve
the Portman’s level of service, thus
attracting new guests. Travel
publications were soon calling it the
“best employer in Asia,” “overall best
business hotel in Asia,” and “best
business
hotel in China.” Profits soared, in no
small part due to effective strategic
human resource management.
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Talk About it (Discussion): Asian
culture is different from that in the United
States. For example, team incentives
tend to be more attractive to people in
Asia than are individual incentives. How
do you think these cultural differences
would have affected how the hotel’s new
management selected, trained,
appraised, and compensated the
Shanghai Portman’s employees?
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Improving Performance: HR As a Profit
Center

The Zappos “Wow” Way

Let’s talk about it…

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When your strategy involves selling shoes and clothes
online to people who can’t try them on, you need
employees who are energized and enjoy what they’re
doing—Zappos wants employees to deliver “WOW”
through service. That’s why Zappos’ founders knew
they needed special methods for hiring, developing,
and retaining employees, and that’s just what they
created. As their Website says, “This ain’t your
mama’s HR! Recruiting, benefits, and employee
relations keep this cruise ship afloat with fun, inventive
ways of getting employees motivated and educated
about the Zappos Family of companies, their benefits,
and the other fun stuff going on around here!”

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While they may not appeal to everyone, these “fun, inventive
techniques” include interviewing job applicants in what looks
like the set of a talk show, asking employees to submit their
own designs for Steve Madden shoes, and (during Zappos’
annual “Bald & Blue Day”) having some employees volunteer
to shave their heads or dye their hair blue. And, by the way, if
you’re not happy working at Zappos, the company will pay you
to leave—it wants no one there who doesn’t truly want to be
there. Again, that may not be for everyone, but it works for
Zappos. It knows that selling online successfully requires
energized employees who really enjoy what they’re doing.
Management uses these special HR practices to cultivate the
energized and fun environment that Zappos needs to execute
its strategy, and judging from Zappos’ success, they seem to
be working.

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Talk About it (Discussion):
Why do you think Zappos’ top
managers believe it is so
important for employees to
provide a “WOW” factor in their
business?

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 Sustainability and Strategic Human
Resource Management
• Strategic human resource management means
having human resource policies and practices
that produce the employee skills and behaviors
that are necessary to achieve the company’s
strategic goals, and these include
sustainability goals.
• For example, PepsiCo wants to deliver
“Performance with Purpose.” This means
achieving financial performance while also
achieving human sustainability, environmental
sustainability, and talent sustainability.
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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 the……..
• Strategy map
• The HR scorecard
• Digital dashboards
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 Strategic Human Resource
Management Tools
•Strategy map – this shows the “big picture” of
how each department’s performance
contributes to achieving the company’s overall
strategic goals. It also 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.
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 Strategic Human Resource
Management Tools
•The HR Scorecard – is not a scorecard. It
does however refer to a process for assigning
financial and nonfinancial goals or metrics to
important human resource management–
related chain of activities. That chain is required
in order to achieve the company’s strategic
aims and for monitoring results. Many
employers quantify and computerize the
strategy map’s activities by utilizing the HR
Scorecard.
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Strategic Human Resource
Management Tools
• 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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Learning Objective 3.4: Give at
Least Five Examples of HR Metrics

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 HR Metrics, Benchmarking, and Data
Analytics
• Human resource metrics – the quantitative
gauge of a human resource management activity.
• such as employee turnover, hours of training per
employee, or qualified applicants per position.
• Benchmarking – comparing the practices of high-
performing companies’ results to your own. in
order to understand what they do that makes
them better.
• Data Analytics – using statistical and
mathematical analysis to find relationships and
make predictions.
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 Benchmarking
• Just measuring is rarely enough
• “How are we doing?” in relation to something
• Just measuring how one is doing (for instance, in
terms of employee productivity) is rarely enough for
deciding what (if anything) to change. Instead, most
managers want to know “How are we doing?” in
relation to something.

• For example, are our accident rates rising or falling?

Similarly, the manager may want to benchmark the
results.
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Metrics for the SHRM® 2011–2012 Customized
Human Capital Benchmarking Report (1 of 4)
Organizational Data Employment Data
• Revenue • Number of Positions Filled
• Revenue per FTE • Time-to-Fill
• Net Income Before Taxes • Cost-Per-Hire
• Net Income Before Taxes • Employee Tenure
per FTE • Annual Overall Turnover
• Positions Included Within Rate
the Organization’s • Annual Voluntary Turnover
Succession Plan Rate
• Annual Involuntary
Turnover Rate

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Metrics for the SHRM® 2011–2012 Customized
Human Capital Benchmarking Report (2 of 4)
HR Department Data Expectations for Revenue and
• Total HR Staff Organizational Hiring
• HR-to-Employee Ratio • Percentage of Organizations
• Percentage of HR Staff in Expecting Changes in Revenue
Supervisory Roles in 2011 Compared to 2010
• Percentage of HR Staff in • Percentage of Organizations
Professional/Technical Roles Expecting Changes in Hiring in
• Percentage of HR Staff in • 2011 Compared to 2010
Administrative Support Roles
• Reporting Structure for the Head
of HR
• Types of HR Positions
Organizations Expect to Hire in
2011
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Metrics for the SHRM® 2011–2012 Customized
Human Capital Benchmarking Report (3 of 4)
HR Expense Data Metrics for More Profitable
• HR Expenses Organizations
• HR Expense to Operating • Total HR Staff
Expense Ratio • HR-to-Employee Ratio
• HR Expense to FTE Ratio • HR Expenses
• HR Expense to Operating
Compensation Data Expense Ratio
• Annual Salary Increase • HR Expense to FTE Ratio
• Salaries as a Percentage of • Annual Salary Increase
Operating Expense • Target Bonus for Non-Executives
• Target Bonus for Non-
Executives
• Target Bonus for Executives

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Metrics for the SHRM® 2011–2012 Customized
Human Capital Benchmarking Report (4 of 4)
Tuition/Education Data Metrics for More Profitable
Organizations
• Maximum Reimbursement
Allowed for Tuition/Education • Target Bonus for Executives
Expenses per Year • Maximum Reimbursement
Allowed for Tuition/Education
• Percentage of Employees Expenses per year
Participating in
Tuition/Education • Percentage of Employees
Reimbursement Programs Participating in
Tuition/Education
Reimbursement Programs
• Time-to-Fill
• Cost-Per-Hire
• Annual Overall Turnover Rate

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 © 2008 Prentice Hall, Inc. All rights
reserved.

FIGURE 1–5 Five Sample HR Metrics

HR Metric* How to Calculate It

Absence rate # of days absent in month

× 100
Average # of employees during month × # of workdays

Cost per hire Advertising + agency fees + employee referrals + travel cost of
applicants and staff + relocation costs + recruiter pay and benefits
Number of hires

HR expense HR expense
factor Total operating expense

Time to fill Total days elapsed to fill job requisitions

Number hired

Turnover rate Number of separations during month

× 100
Average number of employees during month
Sources: Robert Grossman, “Measuring Up,” HR Magazine, January 2000, pp. 29–35; Peter V. Le Blanc, Paul Mulvey, and Jude T. Rich, “Improving the Return on Human Capital: New Metrics,”
Compensation and Benefits Review, January/February 2000, pp. 13–20; Thomas E. Murphy and Sourushe Zandvakili, “Data and Metrics-Driven Approach to Human Resource Practices: Using 1–44
Customers, Employees, and Financial Metrics,” Human Resource Management 39, no. 1 (Spring 2000), pp. 93–105; [HR Planning, Commerce Clearing House Incorporated, July 17, 1996;]
SHRM/BNA 2000 Cost Per Hire and Staffing Metrics Survey; www.shrm.org. See also, SHRM Research “2006 Strategic HR Management Survey Report,” Society for Human Resource Management..

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 Strategy-Based Metrics
• Strategy-based metrics specifically focus on
measuring the activities that contribute to
achieving a company’s strategic aims.
• Benchmarking provides 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. Managers use strategy-based
metrics to answer such questions.
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What Are HR Audits?
Human resource managers often
assess matters like employee
turnover and safety via human
resource audits.
• The HR audit generally involves
using a checklist to review the
company’s human resource
functions.
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 The HR audit
• generally, involves using a checklist to review the company’s
human resource functions (recruiting, testing, training, and so
on), as well as ensuring that the firm is adhering to
regulations, laws, and company policies.
• The HR auditor may first review payroll data, focusing on what
and when each employee was paid. He or she will then turn to
whether the human resource records are in order (for
instance, are medical records kept separate
• from résumés?). He or she will also review the employer’s
handbooks and policies, for instance, checking for disability
accommodation policies, social media policies, and family and
medical leave policies. He or she may also want to benchmark
the results to comparable companies’.
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Trends Shaping HR: Digital and Social
Media

Information
Data Analytics
Big Data

Let’s take a look…

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Trends Shaping HR: Science In Talent
Management

Evidence-Based HR and the Scientific Way of Doing Things

Let’s talk about it…

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Learning Objective 3.5: Give Five
Examples of What Employers Can Do
to Have High-Performance Systems

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 High-Performance Work Systems
• A High-Performance Work System (HPWS) is a
set of human resource management policies and
practices that promote organizational effectiveness.
• One reason to measure, benchmark, and
scientifically analyze HR practices is to promote
high-performance work practices.
• Policies and Practices
– HR metrics
– What employers must do
– Aspire to encourage employee involvement and
self management
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Learning Objective 3.6: Explain How
You Would Design a Program to
Improve Employee Engagement

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 Employee Engagement Guide for Managers:
Employee Engagement and Performance
• Employee engagement refers to being psychologically involved
in, connected to, and committed to getting one’s jobs done.
• Engaged employees “experience a high level of connectivity
with their work tasks,” and work hard to accomplish their task-
related goals.
• Employee engagement is important because it drives
performance and productivity.
• According to one review of the evidence, employee
engagement is correlated with employees’ customer service
productivity, and improvements in employee engagement were
associated with significant increases in sales, product quality,
productivity, safety incidents at work, retention and
absenteeism, and revenue growth.
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 The Employee Engagement Problem
• Gallup found:
–about 30% of employees were engaged
who work with passion and feel a
profound connection to their company,
–50% were not engaged ( essentially
“checked out,”)
–20% were actively disengaged

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What Can Managers Do to Improve
Employee Engagement? (1 of 2)
Provide supportive supervision.
• Ensure employees understand how
their departments contribute. to the
company’s success.
• See how their efforts contribute to
achieving the company’s goal.

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 What Can Managers Do to Improve
Employee Engagement? (2 of 2)
Additional steps managers can take to foster
engagement include making sure employees:
• Ensure employees get a sense of
accomplishment from working at the firm.
• Ensure employees are highly involved.
• Employers should hold managers
responsible for employee engagement.

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How to Measure Employee Engagement
• Gallup and Towers Watson offer comprehensive
employee engagement survey services.
• Accenture’s three-part “shorthand” method.
Accenture uses a less complicated “shorthand” method called
“say, stay, and strive.”

• Employee Engagement Guide for Managers.

• The Employee Engagement Guide for Managers’ sections
will show how managers use HR activities to improve
employee engagement.

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Chapter 3 Review
What you should now know….
3-1. Give examples of each of the seven steps in the
strategic management process.
3-2. List with examples the main types of strategies.
3-3. Define strategic human resource management,
and give an example of strategic human resource
management in practice.
3-4. Give at least five examples of HR metrics.
3-5. Give five examples of what employers can do to
have high-performance systems.
3-6. Explain how you would design a program to
improve employee engagement.
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