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Strategic Human Resources Planning, Fourth Edition by Monica Belcourt and Kenneth J. McBey Vice-President and Editorial Director: Evelyn Veitch Editor-in-Chief, Higher Education: Anne Williams Acquisitions Editors: Jackie Wood/Amie Plourde Marketing Manager: Kathaleen McCormick Senior Developmental Editor: Karina Hope Permissions Coordinator: Lynn McLeod Senior Content Production Manager: Anne Nellis Production Service: Integra Copy Editor: Michael Kelly Proofreader: Integra Indexer: Integra Manufacturing Manager: Joanne McNeil Design Director: Ken Phipps Managing Designer: Franca Amore Interior Design: Katherine Strain Cover Design: Martyn Schmoll Cover Image: Ren Mansi/istock photo Compositor: Integra Printer: Edwards Brothers
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Library and Archives Canada Cataloguing in Publication Belcourt, Monica, Strategic human resources planning / Monica Belcourt, Kenneth J. McBey.4th ed. (Nelson series in human resources management) Includes index. Order of authors names reversed on 2nd ed. ISBN 978-0-17-650132-7 1. Manpower planning Textbooks. I. McBey, Kenneth James II. McBey, Kenneth James. Strategic human resources planning. III. Title. IV. Series: Nelson series in human resources management HF5549.5.M3B45 2009 658.301 C2009-901307-X ISBN-13: 978-0-17-650132-7 ISBN-10: 0-17-650132-0
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Chapter
Strategic Management
Chapter Learning Objectives
After reading this chapter, you should be able to Discuss why managers need to examine the human resource implications of their organizational strategies. Understand the various terms used to define strategy and its processes. Describe organizational strategies, including restructuring, growth, and maintenance. Define business strategy and discuss how it differs from corporate strategy. Discuss the steps used in strategic planning. List the benefits of strategic planning.
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Part I: Introduction
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The common theme in these stories is the adoption of a strategy that has serious HRM implications. In most cases, unless the HRM strategy is appropriately formulated and skillfully implemented, the success of the organizational strategy is at risk. We have written this book to provide answers to questions about the proper alignment of HR policies with organizational strategies. Managers who have implemented any kind of change within their organizations realize the importance of matching the HRM practices with organizational goals. There is a growing acknowledgment that the strategic management of people within organizations affects important organizational outcomes such as survival, profitability, customer satisfaction levels, and employee performance. Our goal is to help readers understand strategy and the HRM programs and policies that enable organizations to achieve that strategy. We discuss strategy at some length because HR professionals have been criticized for not understanding or using the language of business when discussing the value of HR programs. HR managers have to use strategy terms to show how their HR practices support organizational strategies. The next sections present a discussion of strategy and outline the types of strategies most frequently used by organizations.
Strategy
Strategy is the formulation of organizational missions, goals, and objectives, as well as action plans for achievement that explicitly recognize the competition and the impact of outside environmental forces. Strategy is the plan for how the organization intends to achieve its goals. The means it will use, the courses of action it will take, and how it will generally operate and compete constitute the organizations strategy.1
strategy the formulation of organizational missions, goals, objectives, and action plans
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Licensed to: iChapters User We have presented one definition of strategy, but there are many others. A sampling is found in HR Planning Notebook 1.1. Mintzberg has developed a useful framework for understanding strategy, incorporating many of the meanings found in HR Planning Notebook 1.1. The five Ps of strategy he described are: Plan: An intended course of action a firm has selected to deal with a situation Purpose: A consistent stream of actions that sometimes are the result of a deliberate plan and sometimes the result of emergent actions based on reactions to environmental changes or shifting of assumptions Ploy: A specific manoeuvre at the tactical level with a short time horizon Position: The location of an organization relative to its competitors and other environmental factors Perspective: The gestalt or personality of the organization2
In this text, we consider strategy as both a purpose and a plan. This perspective views strategy as a rational process in which ends are defined in measurable terms and resources are allocated to achieving those ends. In this context, organizations would set objectives such as achieve 25 percent market share by 2012 or be the most cost-efficient health care facility in the province. The organization then develops plans, which include HRM programs, to achieve those goals. Senior management typically sets the goals and has them approved by the board. These objectives are then negotiated and revised as they filter throughout the organization. The top management team determines these objectives through a process of environmental analysis (which is discussed in Chapter 3) and discussions.
HR Plan n i n g N o t eb o ok 1. 1
Descriptions of Strategy
Concepts of strategy can be confusing. Here is a guide to some common terms used throughout the text and in the organizations where you work: Strategy: A declaration of intent Strategic intent: A tangible corporate goal; a point of view about the competitive positions a company hopes to build over a decade Strategic planning: The systematic determination of goals and the plans to achieve them Strategy formulation: The entire process of conceptualizing the mission of an organization, identifying the strategy, and developing long-range performance goals Strategy implementation: Those activities that employees and managers of an organization undertake to enact the strategic plan and achieve the performance goals Objectives: The end, the goals Plans: The product of strategy, the means to the end Strategic plan: A written statement that outlines the future goals of an organization, including long-term performance goals Policies: Broad guidelines to action, which establish the parameters or rules
Part I: Introduction
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Licensed to: iChapters User Execution of strategy is as important as the careful crafting of strategy. Strategic planning requires thinking about the future. In a perfect world, some experts believe that the strategic planner would establish an objective for five to ten years and then formulate plans for achieving the goals. However, other experts do not perceive strategy in such a simplistic, linear fashion. They assert that the future is not that predictable. Planning for the long-term future (i.e., more than ten years) is difficult and would be more appropriately judged as a best guess. For example, the airline industry could not have predicted the catastrophic events of September 11, 2001, and many financial analysts could not have predicted the economic meltdown on Wall Street. The world now awaits the impact of the avian flu on many sectors. Besides catastrophic events, there are more typical shocks that trigger a change in strategy. These are outlined in HR Planning Notebook 1.2. Because of the unpredictability of trigger events, many planners look at a relatively shorter period of time, a more predictable term of three to five years. Because of the uncertainty, their plans are formulated to be somewhat flexible so that they can respond to changes in the environment. Thus, strategic planning must be viewed as a dynamic process, moving, shifting, and evolving as conditions warrant changes. The process of subtly redirecting strategy to accommodate these changes is called logical incrementalism.3 Rather than calling for a straight path to the goal, this strategy calls for a series of actions to react to changes in competitor actions or new legislation. Another name for this reactive process is emergent strategy. This cumulative process can look like a dramatic revolutionary change to those on the outside, but to those on the inside, the strategy has been incrementally implemented.4 Firms can wait
emergent strategy the plan that changes incrementally due to environmental changes
HR Plan n i n g N o t eb o ok 1. 2
Sources: Adapted from S.S. Gordon, W.H. Stewart, R. Sweo, and W.A. Luker, Convergence versus Strategic Reorientation: The Antecedents of Fast-Paced Organizational Change, Journal of Management, vol. 26. no. 5 (2000), pp. 911945; and T.L. Wheelen and J.D. Hunger, Concepts in Strategic Management and Business Policy, 11th edition, 2008, Toronto: Prentice Hall, p. 19.
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Licensed to: iChapters User passively for these changes to occur and then react, or they can anticipate these moves and adopt a proactive stance. Writers on strategy sometimes distinguish between intended strategy and realized strategy. The intended strategy is the one that was formulated at the beginning of the period. The realized strategy is, of course, what actually happened. Figure 1.1 illustrates these various concepts of strategy. You may be asking why develop a strategy if the organization must continually change it to accommodate unforeseen changes? Think of strategy as a game plan or a flight plan. A pilots flight plan appears relatively simple: fly from Ottawa to Edmonton. However, before departure, the pilot is aware of the environment and the capacities (or competencies) of the plane. Based on these external and internal factors, the pilot develops a strategy for a safe flight. While on the voyage, however, environmental changes, such as strong winds or a blizzard, may require the pilot to modify the plan. Even internal factors, such as a passenger suffering a heart attack, may necessitate changes to the plan. But the plane and/or its passengers will somehow, at some time, arrive in Edmonton. This is what is meant by incremental adjustments to the strategy, adjustments that do not require changing the focus of the desired result. There is no strategy so finely crafted that adjustments arent needed. The general rule is that, unless there is a crisis, it should not be necessary to make quantum leaps in strategies. Thus, these strategies should withstand the time test and be durable for several years. A good strategy recognizes the complexity of these realities. To be effective, strategic management anticipates future problems, provides an alignment with external contingencies and internal competencies, recognizes multiple
intended strategy the formulated plan realized strategy the implemented plan
Emergent Strategy created from new ideas and conditions Intended Strategy the agreed-upon strategy arrived at through the formal planning process Realized Strategy executed representing some planned and some emergent strategy
Part I: Introduction
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Licensed to: iChapters User stakeholders, and is concerned with measurable performance5just like the flight plan. The fundamental premise of this book is that different organizational strategies demand different HR policies and practices. Therefore, before we can discuss HRM strategies, you need to understand the different types of strategies that organizations formulate and implement.
Strategic Types
Strategies are not idiosyncraticthat is, unique to each organization that develops one. Many executives and senior managers put in an incredible number of hours forging the strategy for the firm, and they believe the strategy they developed, with much sweat and tears, is unique to their organizations. In one sense, pure, unique organizational strategies do exist, because organizations are extremely complex and no two are identical. In another sense, they do not, because it is possible to group strategies into categories or generic types. In the same way we can group our friends into personality categories of introvert and extrovert, we can group organizations by strategy. By their simplicity, these typologies, or classification schemes, aid our understanding. The more we add variables to approximate the reality of an organization, the more the typology becomes unwieldy.6 Organizational theorists use classification schemes not only to help us understand how organizations work but also to enable us to test the concepts, leading us to better information about how to manage. These identifiable, basic strategies can be classified into (1) corporate strategies and (2) business strategies.
Corporate Strategies
Company-wide strategies, sometimes referred to as corporate strategies, are focused on overall strategy for the company and its businesses or interests. Examples of corporate strategies include decisions to compete internationally or to merge with other companies. Strategies at this level are usually focused on long-term growth and survival goals and will include major decisions such as the decision to acquire another company. Grouped within corporate strategies are three options: restructuring, growth, and stability.
corporate strategy organizational-level decisions that focus on long-term survival
Restructuring Strategies
When an organization is not achieving its goals, whether these goals are business goals of profitability or social goals of helping rehabilitate prisoners, corporate strategy becomes one of trying to deal with the problem. Restructuring options include turnaround, divestiture, liquidation, and bankruptcies. Turnaround A turnaround strategy (sometimes called a retrenchment strategy) is one in which managers try to restore money-losing businesses to healthy profitability or government agencies to viability. Turnaround methods include getting rid
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Licensed to: iChapters User of unprofitable products, layoffs, making the organization more efficient, or attempting to reposition it with new products. See HR Planning Today 1.1 for a description of McDonalds turnaround efforts. Divestiture
divestiture the sale of a division or part of an organization
Divestiture refers to spinning off a business as a financially and managerially independent company or selling it outright.7 Quaker Oats sold its Snapple beverage business for $1.4 billion less than it paid for it because too many new entrants restricted the old oatmeal companys ability to grow into a soft drink powerhouse. Sometimes fit is the problem, not finances. One pharmaceutical company divested itself of a cosmetics business; the scientists in the pharmaceutical company had no respect for the cosmetic unit because they had been trained to apply their scientific knowledge to discovering miracle drugs, not making faces prettier. Liquidation
The least attractive alternative is liquidation, in which plants are closed, employees are released, and goods are auctioned off. There is little return to shareholders under this option. Nevertheless, an early liquidation may
HR Plan n i n g To d ay 1 .1
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Part I: Introduction
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Licensed to: iChapters User allow some resources (including human resources) to be salvaged, whereas a bankruptcy does not. Bombay Company, a retailer of home furniture and accessories in the U.S. and Canada, was liquidated in 2008.
Bankruptcy Bankruptcy occurs when a company can no longer pay its creditors, and, usually, one of them calls a loan. The company ceases to exist, and its assets are divided among its creditors. Insurance company Confederation Life was a very public example of a company that went bankrupt, owing its creditors $740 million. Restructuring strategies, like growth strategies, have profound effects on human resource issues, such as managed turnover, selective layoffs, transfers, increased demands on remaining employees, and renegotiated labour contracts. These issues are described in Chapter 10.
bankruptcy a formal procedure in which an appointed trustee in bankruptcy takes possession of a businesss assets and disposes of them in an orderly fashion
Growth Strategies
Many organizations in the private sector target growth as their number-one strategy. By this they mean growth in revenues, sales, market share, customers, orders, and so on. To a large extent, the implications of a growth strategy for HR practices are profound. A firm in a growth stage is engaged in job creation, aggressive recruitment and selection, rapidly rising wages, and expanded orientation and training budgets, depending on how the organization chooses to grow. Growth can be achieved in several ways: incrementally, internationally, or by mergers and acquisitions. Incremental Growth Incremental growth can be attained by expanding the client base, increasing the products or services, changing the distribution networks, or using technology. Procter & Gamble uses all these methods: Expanding the client base (by introducing skin-care lotion and hair conditioner for babies), Increasing the products (by adding Pringles potato chips to a product mix of cleaning and health care products), Changing the distribution networks (by adding drugstores to grocery stores), and Using technology to manage just-in-time customer purchasing.
International Growth Seeking new customers or markets by expanding internationally is another growth option. Operating a business in a foreign country, particularly one that is not in North America or Europe, poses problems for the Western HR manager. The HR implications for an international strategy are described in Chapter 11.
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Quantum leaps in growth can be achieved through acquisitions, mergers, or joint ventures. An acquisition occurs when one company buys another, whereas a merger typically is seen as two organizations merging to achieve economies of scale. Acquisitions and mergers have an obvious impact on HR: They eliminate the duplication of functions, meld benefits and labour relations practices, and, most importantly, create a common culture. The complexity of merging two companies is outlined in Chapter 12. HR Planning Today 1.2 describes a difficult merger.
Stability Strategies
Some organizations may choose stability over growth. For many reasons, some executives, particularly small business owners, wish to maintain the status quo. They do not wish to see their companies grow. The executive team is content to keep market share, doing what it has always been doing (this is a neutral or even a do-nothing strategy). HRM practices remain constant, as they are assumed to be effective for current strategy. Others see this as a temporary strategy (pause and proceed with caution) until environmental conditions are more favourable for growth. Or perhaps the organization grew very rapidly, such as Dell did by growing 285 percent in two years, and needed time to handle the growing pains. We have not included chapters on stability strategies because the HRM issues would, by definition, be subsumed under another generic strategy. Executives in other companies, recognizing that a current profitable situation will not last forever, choose to milk the investment. This harvest strategy can also be seen as a retrenchment strategy because no investment or efforts will be made to make the business grow; therefore, the goal will be restructuring.
HR Plan n i n g To d ay 1 .2
Merger Misery
Minacs Worldwide Inc., a company that operates inbound customer contact centres (i.e., call centres), was a Canadian success story. More and more companies were using its services as they turned to outsourcing their call centres. Minacs had experienced growth rates of 50 percent over five years and, in 2002, employed 4,500 people in 20 countries and generated sales of $250 million. The company expected to double sales and profits very quickly with the purchase of Phoenix Group, a U.S.based call centre. But the purchase resulted in heavy losses. Although the two cultures seemed similar, the integration proved very difficult and time consuming due to differences in accounting systems, pricing methods, and efficiency levels. The losses led to layoffs, the consolidation of offices, debt restructuring, and a severe drop in share value. In 2006, Minacs was acquired by Transworks and has since received several awards for business excellence.
Sources: O. Bertin, Minacs Worldwide Dials Back in After Disastrous US Purchase, The Globe and Mail, March 6, 2003, p. B17; and www.minacs.com, retrieved September 30, 2008.
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Part I: Introduction
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Licensed to: iChapters User Businesses can pursue several strategies over time or concurrently. Read in HR Planning Today 1.3 about the strategies implemented by Cara Operations Ltd.
Business Strategies
Strategy, as discussed, seems to imply that only corporate-wide plans are made and these are used to manage and control the various units that exist within an organization. But many large organizations operate several businesses under the same or different names, and each of these businesses might have its own strategy. For example, Alcan Aluminum Ltd. operates two divisions or businesses, one that focuses on primary metals and the other on fabrication. Each has a different business strategy, although the overall corporate strategy is growth. Business strategy focuses on one line of business (in a diversified company or public organization), while corporate strategy examines questions about which competitive strategy to choose. Corporate strategies focus on long-term survival and growth. Business-level strategy concerns itself with how to build a strong competitive position. Organizations try to become (or remain) competitive based on a core competence, which can be defined as a specialized expertise that rivals dont have and cannot easily match. As Thompson and
HR Plan n i n g To d ay 1. 3
Multiple Strategies
The mission statement of Cara Operations Ltd. declares that its aim is to be Canadas leading integrated restaurant company. Cara owns or controls such food outlets as Harveys and Swiss Chalet. In 2007, Cara outlets served more than 100 million customers in 726 restaurants. Cara is an example of a company employing multiple corporate strategiesthrough acquisition, divestiture, and new concept developmentto achieve increased sales and profitability. Acquisitions: Cara began an aggressive acquisitions strategy in 1999 when it bought 61 percent of Kelseys, a Canadian company that owned 74 restaurants including Kelseys, Montanas, and Outback. In 2002, Cara bought the Second Cup coffee chain and acquired a 74 percent stake in Milestones, a chain of upscale restaurants. Divestiture: In 2000, Cara sold its Beaver Food Catering business. In 2001, it sold its health care institutional food-services division. In 2006, it sold its airport terminal business as well as Second Cup. The last divestiture was its Summit division (distribution company) in 2007. Growth: Cara has divested its non-core businesses and is focused on its restaurants. The divestitures resulted in cash that will be used to expand the number of restaurants. The growth strategy will see a doubling of restaurants (from 726 to more than 1,000) and sales (from $1.5 billion to $3 billion) over the next seven years. Business strategy: Arjen Melis, president of corporate development at Cara, describes Caras business strategy as pursuing a portfolio of distinct brands, each of which targeting a differentiated consumer segment.
Sources: Adapted from www.cara.com, retrieved November 7, 2005; and Case Study: Cara Operations Ltd., National Post Business, October 2002, pp. 4750; and updated in an interview on May 27th, 2008, with Arjen Melis, president of Corporate Development, Cara Operations Limited.
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Licensed to: iChapters User Strickland note, business strategy is the action plan for managing a single line of business. Business strategy is concerned with competitive position.8 The next section introduces the concept of the business strategy and differentiates it from corporate strategies. Corporate strategies are concerned with questions such as these: Should we be in business? What business should we be in? Business strategies are concerned with questions such as these: How should we compete? Should we compete by offering products at prices lower than those of the competition or by offering the best service? Business strategy is concerned with how to build a competitive position, and with the best way to compete in that line of business. Businesses compete for customers. Air Canada was struggling with its business strategy when it attempted to segment the market by creating a series of sub-brandsdiscount, high-end, and charter. The discount airline Zip was created to compete directly with WestJet. Businesses try to demonstrate to the customer that their product or service is better than their rivals because they have lower prices or more innovative services. Business strategy is all about means and ends. These strategies focus on the best ways to compete in a particular sector. Organizations try to become (or remain) competitive based on their core competence. Wal-Marts core competence is inventory management, resulting in low prices. Kimberly-Clark is the best in the world at producing paper-based consumer products, choosing to specialize in category-killer brands (where the name of the product is synonymous with the name of the categorye.g., Kleenex).9 A business strategy is the action plan for managing a single line of business. It is possible for an organization to have one corporate strategy and many business strategies. For example, the overall corporate strategy for the Royal Bank might be growth, but the business strategy for its bank business might be to provide a unique (differentiated) kind of banking, and for its insurance business, to be a low-cost provider of insurance. We will spend some time describing the process because HR professionals are expected to understand the language of business and to be able to discuss HR programs using the terminology of strategic planning. By learning the models and terms used by managers in business, HR managers will be able to propose or defend HR programs in ways that other managers will understand. The next chapter examines the functional strategies, which include compensation, training, and other HR functional areas that align with corporate and business strategies, including the development of operating strategies that facilitate execution of the corporate, business, and functional strategies. The pyramidal nature of the levels of strategy is shown in Figure 1.2.
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Corporate Strategy The company-wide game plan for managing a set of businesses
Two-Way Influence Orchestrated by the general managers of each of the companys different lines of business, often with advice and input from the heads of functional area activities within each business and other key people
Business Strategy (one for each business the company has diversified into) How to strengthen market position and build competitive advantage Actions to build competitive capabilities
In the case of a single-business company, these two levels of the strategymaking hierarchy merge into one level business strategythat is orchestrated by the companys CEO and other top executives.
Two-Way Influence
Crafted by the heads of major functional activities within a particular businessoften in collaboration with other key people
Functional area strategies within each business Add relevant detail to the hows of overall business strategy Provide a game plan for managing a particular activity in ways that support the overall business
Two-Way Influence Crafted by brand managers; the operating managers of plants, distribution centres, and geographic units; and the managers of strategically important activities like advertising and website operations often key employees are involved
Operating strategies within each business Add detail and completeness to business and functional strategy Provide a game plan for managing specific lower-echelon activities with strategic significance
Source: Thompson, Strickland, and Gamble, Crafting and Executing Strategy 14/e 2005. Reprinted with the permission of the McGraw-Hill Companies, Inc.
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Licensed to: iChapters User 3. 4. 5. 6. 7. Analyze the external environment. Determine the competitive position. Identify the competitive advantage. Implement the strategy. Evaluate the performance.
vision statement a clear and compelling goal that serves to unite an organizations efforts mission statement an articulation of a view of a realistic, credible, and attractive future for the organization
values the basic beliefs that govern individual and group behaviour in an organization
HR Plan n i n g To d ay 1 .4
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Part I: Introduction
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HR Plan n i n g N o t eb o ok 1. 3
we behave? The mission, vision, and value statements of Cara, a leading food service and restaurant business can be found in HR Planning Today 1.5. Sometimes values reflect the founders ethics; sometimes they are just words on the poster on the wall. In order to develop employee buy-in to values, have them participate in the elaboration of the organization values as described in HR Planning Notebook 1.5. Then these values should be part of every orientation workshop and training course, and be modelled by all employees, especially senior management. The articulation of values serves these important purposes: Conveys a sense of identify for employees Generates employee commitment to something greater than themselves Adds to the stability of the organization as a social system Serves as a frame of reference for employees to use to make sense of organizational activities and to use as a guide for appropriate behaviour
2. Develop Objectives
At this stage, the management team develops objectives to achieve the strategy. Objectives are an expression, in measurable terms, of what an organization intends to achieve.14 Goals can be classified as hard or soft. Hard goals always include numbers, usually relative to performance last year, or to competition. For example, an organization would not state increased profitability but would be action oriented and specific: to increase profitability in 2010 by 7 percent over
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HR Plan n i n g To d ay 1 . 5
Mission
Enhancing stakeholder value and building leading businesses, by maximizing our resources and living our values and principles.
Values
Caras strength is based on our core values or fundamental beliefs of: the importance of our people, self-responsibility, integrity, a passion for winning and quality. People. Caras success begins with and endures because of our teammates. We seek out good people, help them grow and improve their skills, appreciate their individuality and contributions, and celebrate their achievements. Self-responsibility. Teammates take the initiative to do what needs to be done. We take
2009. HR Planning Notebook 1.4 offers some examples of typical objectives for corporations. Soft goals usually define the targets for the social conduct of the business, and may not always be quantifiable. Soft goals may include being ethical and environmentally responsible, and providing a working environment free of discrimination with opportunities for professional development.
HR Plan n i n g N o t eb o ok 1. 4
Source: This article was published in Long Range Planning , Vol number 30, No 6, Campbell, A., Mission Statement, 931932, Copyright Elsevier 1997.
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Part I: Introduction
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HR Plan n i n g N o t eb o ok 1. 5
value proposition a statement of the fundamental benefits of the products or services being offered in the marketplace
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Licensed to: iChapters User Michael Porter made a major contribution to the field of strategic management by grouping the many ways in which organizations can compete into five generic competitive strategies:18 1. Low-cost provider strategy: The goal here is to provide a product or service at a price lower than that of competitors while appealing to a broad range of customers. Fast-food businesses use this strategy almost exclusively. A range of customers from toddlers to seniors consumes the cheap hamburger, a good, but basic product with few frills. A company competing on this basis searches continually for ways in which to reduce costs. 2. Broad differentiation strategy: An organization employing this strategy seeks to differentiate its products from competitors products in ways that will appeal to a broad range of buyers. The company employing this strategy searches for features that will make its product or service different from that of competitors and that will encourage customers to pay a premium for it. Thus, Burger King will introduce the Whopper with frills, for which people will pay an extra dollar. The goal is to provide a unique or superior value to the buyer in terms of product quality, or product features or service. 3. Best-cost provider strategy: The goal here is to give customers more value for the money by emphasizing a low-cost product or service and an upscale differentiation. The product has excellent features, including several upscale features that are offered at low cost. East Side Marios offers hamburgers but presents them on a plate, with extras such as potato salad, served by a waiter in an attractive setting featuring focused lights and art on the walls. 4. Focused or market niche strategy based on lower cost: The goal here is to offer a low-cost product to a select group of customers. Red Lobster uses this approach, selling fish and seafood at reasonable prices to a narrow market segment. 5. Focused or market niche strategy based on differentiation: Here, the organization tries to offer a niche product or service customized to the tastes and requirements of a very narrow market segment. For example, Bymark Restaurant in Toronto sells a $35 hamburger that uses sirloin meat and truffles. Under Porters schema, business strategy concerns itself with the product and market scope. What particular goods and services are to be provided? What distinguishing features or attractive attributes will characterize these products and services? Typical product characteristics include cost, quality, optional features, durability, and reliability. Market dimensions refer to the characteristics of the target marketsize, diversity, buying patterns, and geographic regions. The model has been criticized for its overlapping categories. Most textbooks on strategy suggest that there are really only three competitive positions: cost, differentiation, and focus.
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capabilities a complex combination of people and processes that represent the firms capacity to exploit resources that have been purposefully integrated to achieve a desired result core competencies resources and capabilities that serve as a firms competitive advantage
For these resources to provide a competitive advantage, they must possess the characteristics of being valuable, rare, costly to imitate, not easy to substitute, and have the ability to create profits.22 The culture at Southwest Airlines meets all these characteristics, as can be seen in HR Planning Today 1.6. Core competencies are resources and capabilities that serve as a firms competitive advantage. Core competencies distinguish a company competitively and reflect its personality.23 In other words, a core competency is a competitively important activity that a company performs better than other internal activities.24 The core competency of Southwest Airlines is culture and that of Sony is miniaturization. Core competencies can be leveraged. For example, when Amazon.com developed the competency to sell books through the Internet, it leveraged this competency to deliver other consumer products such as CDs.
strategic implementation the process by which a strategy is put into action program the steps or activities necessary to accomplish a goal
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HR Plan n i n g To d ay 1 .6
Attribute: Imitability
Is it easy for other firms to acquire this culture? No. Duplicating this culture is likely to be difficult. Although others may think that they know what makes Southwest employees so motivated, productive, flexible, and dedicated, that may not be the case. Also, building the Southwest culture may have involved a series of events that are impossible for another firm to re-create.
Attribute: Valuable
Does the Southwest Airlines culture offer customers something that they value? Yes, the culture results in employees who are productive, flexible, motivated, and willing to accept a low base pay and work long hours. This not only keeps costs down but also improves utilization and ontime delivery performance.
Attribute: Substitutability
Can another capability offer customers the same value that the Southwest culture does? No. In an industry where utilization is critical, it is difficult for another capability to give airlines the value created by a productive, flexible, highly motivated workforce.
Attribute: Rare
Is Southwest Airlines the only one with this type of culture? If not, is the level of its culture higher than that of competitors? Yes. Each airline has its own culture but only the Southwest culture has inspired employees to care so much about their company that they accept very low base salaries, yet are highly productive and flexible; work almost twice as long and are more motivated than other airlines employees; and would rather support the company than the union. The family at Southwest is just not found at other airlines.
strategy is discussed in Chapter 2. The budget lists the detailed costs of each program, and defines how the organization is going to allocate its financial resources. Most organizations establish a hurdle rate, which is the percentage of return on investment necessary before a program is implemented. As you will see in Chapter 14 on evaluation, most HR managers are very skilled at preparing budgets for the implementation of a new program, but unable to discuss, in dollars, the rate of return for these programs. Procedures list in sequence the steps that are required to get the job done. Most HR professionals use procedures, for example, the procedure to recruit a university student, based on experience, but other functional areas would have these procedures established as standard operating procedures. These would be applied uniformly across the company, in every site.
Part I: Introduction
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Organizations that do not see the benefits of strategic planning have succumbed to these errors: Relegating the process to official planners, and not involving executives and managers (and even employees) in the process so that there is no buy-in Failing to use the plan as the guide to making decisions and evaluating performance Failing to align incentives and other HR policies to the achievement of the strategy
An understanding of the strategic planning process is the essential first step to creating an HR strategy that makes sense for the organization. Our model of strategic HR planning is presented in Figure 1.3. The numbers in parentheses refer to the chapters in which each of the topics is discussed. Our approach is different from classic approaches to HR planning but builds on the tools. Strategic HR planning complements the traditional approach to HR planning (forecasting supply and demand) but adds more
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Restructuring (10) International HRM (11) Mergers and Acquisitions (12) Outsourcing (13) Program Evaluation (14)
(Chapters in parentheses)
strategic choices. Thus, at the most senior levels of the corporation, HR professionals move from an administrative role to the role of strategic partner. They understand strategies and business needs and create the kind of HR competencies that build competitive advantage. Our approach not only serves as a strategic planning model, but also as the structure for this text.
Summary
It is important that HR professionals appreciate the role of strategic planning in their organizations and understand the language and terminology of strategic planning. A strategy is a planned process whereby organizations can map out a set of objectives and methods of meeting those objectives. A strategy may be intendedone that is formulated at the beginning of the processor realizedwhat actually happens. The strategy may also be emergentthat is, it is reactive, changing as necessary to deal with environmental changes. Corporate or company-wide strategies are concerned with the long-term view of the organization. Business strategies focus on one line of business, building a strong competitive position. A seven-step approach to strategic planning was introduced, followed by a list of benefits of undertaking this process. By understanding strategy language and models, the HR professional can work with other executives to implement HR practices that enable strategy.
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Key Terms
acquisition p. 12 bankruptcy p. 11 business strategy p. 13 capabilities p. 21 competitive advantage p. 21 core competencies p. 21 corporate strategies p. 9 divestiture p. 10 emergent strategy p. 7 intended strategy p. 8 liquidation p. 10 merger p. 12 mission statement p. 16 procedures p. 22 program p. 21 realized strategy p. 8 strategic implementation p. 21 strategy p. 5 turnaround strategy p. 9 value proposition p. 19 values p. 16 vision statement p. 16
Web Links
Excellent links for references on strategic planning: www.strategyclub.com Provides useful lists of the benefits and pitfalls of strategic planning: www.entarga.com/stratplan/index.htm A publication that provides articles, interviews, and case studies focused on strategic management and general business issues: www.strategy-business.com Provides information about the development of a strategic plan and compares it to a business plan: www.planware.org/strategy.htm#1
RPC Competencies
RPC 1.1 Contributes to the development of the organizations vision, goals, and strategies with a focus on human capabilities
Discussion Questions
1. Using a real company as an example, describe the differences between corporate strategy and business strategy. 2. Identify companies currently operating under these corporate strategies: divestitureturnaround, divestiture, liquidation, and bankruptcy; growthincremental, international, and mergers and acquisitions.
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Licensed to: iChapters User 3. Review these three mission statements and assess whether they meet the person on the bus test. To provide booklovers and those they care about with the most inspiring retail and online environments in the world for books and life-enriching products and services. X is dedicated to building a world-class national resource enabling Canadians to know their country and themselves through their published heritage and to providing an effective gateway to national and international sources of information. X is an independent campaigning organization which uses non-violent, creative confrontation to expose global environmental problems and to force the solutions which are essential to a green and peaceful future.
4. The focus in this chapter (and in strategy literature) is on private companies. Check the websites of government departments and identify at least ten strategies (often called plans or mission statements). Can you identify any that correspond to some of the models of business strategies? Can you create a model or typology for public-sector organizations? To start, consult J. Tomkins, Strategic Human Resources Management in Government: Unresolved Issues, Public Personnel Management, vol. 31, no. 1 (2002), pp. 95110.
Exercises
1. Identify two companies working in the same sector (hotels, restaurants, and post-secondary institutions are good choices). Compare and contrast the practices of a company using a low-cost provider strategy with one using a differentiation strategy. 2. In describing the Porter model, examples from restaurants were used to illustrate the five types. Pick another sector and identify five companies that best exemplify each of the five business strategies. 3. Write objectives for each of the following mission statements: i. ii. We will be a leader in the transportation sector. Product quality is our number one priority. iii. iv. Every customer will be a satisfied customer. On-time delivery is our commitment to our customers.
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Part I: Introduction
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Questions
1. Conduct a SWOT analysis for Loblaw. As a group, assess the company against the strengths, weaknesses, threats, and opportunities contained in the SWOT matrix below. SWOT Analysis Potential Resource Strengths and Competitive Capabilities
A powerful strategy Superior intellectual capital relative to key rivals Core competencies in _____________ A distinctive competence in ________ A product that is strongly differentiated from those of rivals Competencies and capabilities that are well Proven capabilities in improving matched to industry key success factors A strong financial condition; ample financial resources to grow the business production processes Good supply-chain management capabilities Cost advantages over rivals Strong advertising and promotion Product innovation capabilities
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Part I: Introduction
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Growing bargaining power of customers Restrictive trade policies on the part or supplies A shift in buyer needs and tastes away from the industrys product Vulnerability to industry driving forces
Source: Thompson, Strickland and Gamble, Crafting and Executing Strategy 14/e 2005. Reprinted with the permission of The McGraw-Hill Companies, Inc. Answers to HR Planning Today 1.4: a) Canada Post, b) McDonalds, and c) Harley-Davidson
Endnotes
1. Anthony, W.P., P.L. Perrewe, and K.M. Kacmar. 1993. Strategic Human Resources Management. Fort Worth, TX: Harcourt Brace Jovanovich. 2. Mintzberg, H. 1988. In the Strategy Process. Englewood Cliffs, NJ: Prentice Hall. 3. Quinn, J.B. 1980. Strategies for Change: Logical Incrementalism. Homewood, IL: Richard D. Irwin.
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4. Collins, J. 2001. Good to Great. New York: Harper Business. 5. Lengnick-Hall, C., and M. Lengnick-Hall. 1990. Interactive Human Resource Management and Strategic Planning. New York: Quorum Books. 6. Duane, M.J. 1996. Customized Human Resource Planning. Westport, CT: Quorum Books. 7. Thompson, A.A., and A.J. Strickland III. 1995. Crafting and Implementing Strategy, 6th ed. Chicago: Irwin. 8. Thompson and Strickland, 1995. 9. Collins, 2001. 10. Thompson, A.A. Jr., A.J. Strickland III, and J. Gamble. 2005. Crafting and Executing Strategy, 14th ed. New York: McGraw-Hill. 11. Woodcock, C.P., and P.W. Beamish. 2003. Concepts in Strategic Management, 6th ed. Toronto: McGraw-Hill Ryerson. 12. Certo, S.C., and J.P. Peter. 1993. Strategic Management: A Focus on Process, 2nd ed. Boston: Irwin. 13. Ibid. 14. Crossan, M.M., J.N. Fry, and J.P. Killing. 2002. Strategic Analysis and Action, 5th ed. Toronto: Prentice Hall. 15. Thompson et al., 2005. 16. Ibid. 17. Dess, G.G., and G.T. Lumpkin. 2003. Strategic Management: Creating Competitive Advantages. Boston: McGraw-Hill. 18. Porter, M.E. 1985. Competitive Advantage. New York: Free Press. 19. Afuah, A. 2004. Business Models: A Strategic Management Approach. Boston: McGraw-Hill Irwin. 20. Hitt, M.A., R.D. Ireland, R.E. Hoskisson, W.G. Rowe, and J.P. Sheppard. 2002. Strategic Management, Competitiveness and Globalization Concepts. Toronto: Nelson Thomson Learning. 21. Ulrich, D., and N. Smallwood. 2004. Capitalizing on Capabilities, Harvard Business Review (June): 119127. 22. Barney, J.B. 1995. Looking Inside for Competitive Advantage, Academy of Management Executive, 9, 4961; Collis, J. and C.A. Montgomery. 1995. Competing on Resources: Strategies for the 1990s, Harvard Business Review (JulyAugust): 118218. 23. Hoskisson, R.E., M.A. Hitt, and R.D. Ireland. 2004. Competing for Advantage. Mason, OH: Thompson South-Western. 24. Thompson et al., 2005.
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