Mana 463 Exam 1 Notes.docx

MANA 463 – STRATEGIC HUMAN RESOURCES MANAGEMENT Exam 1 Notes CLASS 2 Strategy What Is Strategy? Strategic HR management means making sure that everything related to how people are managed in a company is in line with and supports the company's overall strategy Strategic management is the way organi...

MANA 463 – STRATEGIC HUMAN RESOURCES MANAGEMENT Exam 1 Notes CLASS 2 Strategy What Is Strategy? Strategic HR management means making sure that everything related to how people are managed in a company is in line with and supports the company's overall strategy Strategic management is the way organizations figure out what they need to do to achieve their goals and, most importantly, how they plan to achieve those goals At the top of the organization, you will make decisions, make plans, and create road maps of success What Is The Difference Between Strategic Planning And Strategic Thinking? Strategic planning Focus: Strategic planning is a structured and formalized process that concentrates on defining specific objectives and creating detailed plans, actions, and timelines to achieve those objectives. Execution: It primarily deals with the implementation of strategies and the allocation of resources to meet established goals. Orientation: It tends to be more tactical and operational, emphasizing the "how" of achieving objectives. Related to creating long term plans Strategic thinking Focus: Strategic thinking is a broader, more open-ended, and continuous cognitive process that revolves around exploring possibilities, assessing opportunities and threats, and shaping the organization's long-term direction. Execution: It is not limited to execution but also includes contemplation, reflection, and adaptability. It sets the stage for strategic planning. Orientation: It is more conceptual and conceptualizes the "what" and "why" of an organization's future direction, encouraging creativity and innovation. Thinking strategically is related to trying to underxtand what is going on in your environment and related to explaining the future Strategic plans can help your organization achieve competitive advantage 3 Models of Strategy Industrial Organizational Model The industrial organization model formed the basis of strategic management through the 1980s.  This model argues that the primary determinant of an organization’s strategy should be the external environment in which the organization operates and that such considerations have a greater influence on performance than internal decisions made by managers. Assumes that the environment presents threats and opportunities to organizations, that organizations within an industry control or have equal access to resources, and that these resources are highly mobile between firms. Argues that organizations should choose to locate themselves in industries that present the greatest opportunities and learn to utilize their resources to suit the needs of the environment Suggests that an organization can be most successful by offering goods and services at a lower cost than its competitors or by differentiating its products from those of competitors, so consumers are willing to pay a premium price. The Resource-Based Model Sometimes referred to as the resource-based view of the firm Argues that the organization’s resources and capabilities, rather than environmental conditions, should be the basis for organizational success. Driven by internal considerations and the strategy is determined by resources Search/Develop Dynamic Capabilities Are the firm’s ability to integrate, build, and reconfigure internal and external resources/competences to address and shape rapidly changing business environments. Analyzing your capabilities Sustainable competitive advantage is always thinking about constant change in your environment and adapting to it Changes in environments lead to the reconfiguration of organizational resources, resulting in changes in organizational capabilities. Once an organization develops dynamic capabilities, its CEO can speak like him: Video notes: Steve Jobs on Apple. Combining three products (ipod, phone and internet) into one product. 3 products had separate capabilities and merged it into one, because he listened to what concerns people were sharing. He was changing industry capabilities and even creating a new industry. Capabilities are different for each company, you need to explore resources and capabilities By analyzing other organizations strengths, weaknesses and resources, you can create your own capabilities The Process of Strategic Management Strategic Management A process by which top management examines the organization and the environment in which it operates and attempts to establish an appropriate and optimal “fit” between the two to ensure organizational success. Mission Statement Organizations have a mission statement that explains in very simple terms the organization’s purpose and reason for existence. Once the organization has established and articulated its mission, assessed its external environment, and identified internal resources and management systems that affect its performance, it is then ready to establish its goals and objectives for the next time period. HR strategy will serve as a framework by which the organization can develop a consistent and aligned set of practices, policies, and programs that will allow employees to achieve the organization’s objectives. To do so, they need to first understand organizational environments and resources. Then, HR strategy will serve to ensure a “fit” between corporate strategy and HR programs and policies CLASS 3 Three Levels of Strategy Corporate Level Business Level Functional Level Corporate Strategies Growth Can allow an organization to reap the benefits of economies of scale, to enhance its position in the industry relative to its competitors, and to provide more opportunities for professional development and advancement to its employees. Growth can be pursued internally or externally. Internally by further penetrating existing markets, developing new markets, or developing new products or services to sell in existing and/or new market CHO (Chief HR Officer) Issues associated with a growth strategy involve adequate planning to ensure that new employees are hired and trained in a timely manner to handle market demand, alerting current employees about promotion and development opportunities, and ensuring that quality and performance standards are maintained during periods of rapid growth. External growth comes from acquiring other organizations. Commonly done with competitors or with other organizations that might supply raw materials or be part of the organization’s distribution chain (called vertical integration). Proactive Companies Apple Focused on product improvement by building off of their own products and mfinding ways to make it better Alphabet acquiring existing companies Ansoff Matrix Market Penetration Objective: Sell more of the existing products to the current customer base in the current market. Focus: Increasing market share, customer loyalty, or sales volume by, for example, running promotions, improving marketing, or enhancing customer service. Market Development Objective: Introduce existing products to new markets or customer segments. Focus: Expanding the customer base by targeting new geographic regions, demographics, or market segments. Product Development Objective: Create and introduce new products or services to the existing customer base. Focus: Innovating and diversifying the product or service offerings to meet the needs of current customers better. Diversification Objective: Enter new markets with new products or services. Focus: Exploring entirely new business areas or industries, often involving higher risk but potentially higher rewards. Ansoff's Matrix helps businesses assess their growth options and make strategic decisions about where to allocate resources to achieve their growth objectives. It provides a framework for considering various expansion possibilities based on market and product considerations. Stability or “Maintaining the Status Quo” May see very limited opportunities in its environment and decide to continue operations as is. The critical strategic HR issue for this type of organization is that an organization that is not growing will also be limited in the opportunities it is able to offer to its employees. There may be fewer opportunities for upward mobility, and employees may decide to leave and pursue opportunities with other employers. Need to develop a retention strategy Turnaround or Retrenchment Strategy When a company uses a retrenchment strategy, it means they're making a plan to cut down or simplify what they do in order to strengthen their core strengths. A key issue that needs to be addressed is cost-cutting; in many organizations, particularly service organizations, payroll is the chief expense. Must adhere to all laws that regulate the employment relationship in selecting individuals to be terminated & need a strategy to manage survivors (people who stayed) Business Level Strategies Cost Leadership Attempts to increase its efficiency, cut costs, and pass the savings on to the consumer. It assumes that the price elasticity of demand for its products is high—or, in other words, that a small change in price will significantly affect customer demand. Enter its HR strategy around short-term, rather than long-term, performance measures that focused on results. Job assignments are more specialized but employees might be cross trained during downtime. May also result in developing incentives for employees to leave organization Minimise costs of inputs: Productivity = change in effective / change in efficiency Efficiency = minimizing costs and effectiveness = increasing quality of product Differentiation Distinguishes its product or service from those of competitors. This allows the organization to demand a premium price over the price charged by competitors and attempts to gain the loyalty of consumers toward a particular brand. With this type of strategy, creativity and innovation in product design or service delivery are important in developing such a distinction. HR strategy should offer incentives and compensation for creativity. Staffing may focus more on external hiring and recruiting individuals who bring a fresh, unique, outside perspective to the organization rather than being bound by existing ways of doing things. Focus Strategy Realizes that different segments of the market have different needs and attempts to satisfy one particular group. Ex: this might involve a restaurant that targets families, a clothing store that targets larger individuals The key strategic HR issue here is ensuring that employees are very aware of what makes the particular market unique. Training and ensuring customer satisfaction are critical factors in this strategy. An organization often attempts to hire employees who are part of the target market and therefore are able to empathize with customers. BCG Matrix The BCG Matrix helps organizations assess their product or business unit portfolio's performance and make strategic decisions about resource allocation and growth priorities. Stars: High-growth, high-market-share products or business units. They have strong potential for future success and require investment to maintain their growth. Cash Cows: High-market-share, low-growth products or business units. They generate significant cash flow and profits and typically require less investment. Question Marks (or Problem Children): Low-market-share, high-growth products or business units. They have potential but are not yet dominant in the market. Decisions need to be made about whether to invest and nurture them or divest. Dogs: Low-market-share, low-growth products or business units. They have limited potential for success and may not be worth further investment. Consideration may be given to divesting or phasing them out. Functional Strategies Top-Down Approach Definition: The top-down approach is a hierarchical or centralized approach where decisions, strategies, and directives are formulated by higher-level authorities or leaders and then disseminated or implemented throughout the organization or group. Process: Leaders or executives at the top of the hierarchy make key decisions and set the overall strategy. These decisions and strategies are communicated to lower-level employees or subordinates who are responsible for executing them. Characteristics: Emphasizes centralized control and authority. Typically faster in decision-making due to a clear chain of command. May lack input from individuals closer to the operational level. Bottom-Up Approach Definition: The bottom-up approach is a decentralized approach where ideas, suggestions, and decisions originate from lower-level employees, team members, or stakeholders and are then aggregated or integrated into higher-level plans or decisions. Process: Ideas, feedback, and proposals are generated by individuals or teams at the operational or grassroots level. These ideas are then reviewed, analyzed, and incorporated into broader strategies or decisions. Characteristics: Encourages participation, creativity, and innovation from the workforce. May take longer to reach decisions due to the need for input and consensus-building. Tends to result in more buy-in from employees because they have a voice in the decision-making process. CLASS 4 Focus This Week Understand the sources of employee value Understand how competitive advantage can be achieved through investment in employees Understand the obstacles that prevent organizations from investing in their employees Gain an appreciation of the importance of human capital and how it can be measured and analyzed Gain an appreciation of metrics, their measures, and their usefulness Understand how metrics relate to analytics and how HR analytics are used in organizations Human Assets as Investment Organization An organization is a consciously coordinated socio-technical entity, with an identifiable boundary, that functions to achieve a goal, which is valuable for consumers. Traditional organizations don’t think its necessary to invest in employees But this has started to change because of HR Organizations now start to see the value of their employees What Is The Main Purpose Of An Organization? Main purpose is to always create value This is created through employee’s knowledge, skills, ideas, etc IPO model (input, process, output) Organizations use different kinds of inputs to create processes/value creation and in turn provide outcomes Human asset is what we focus more in this class. Market asset is related to understanding the customer needs. It is not easy to measure organizational performance (human). Competitive Advantages Managers in organizations are becoming increasingly aware that a critical source of sustainable competitive advantage often comes not from having the most ingenious product development, the best marketing strategy, state-of-the-art technology, or savvy financial management, but from having the appropriate systems for attracting, motivating, and managing the organizations’ human resources. Competitive Advantage A company’s market position in comparison with a similar company in the market When the market share is higher than the other one it means that they have a higher competitive advantage A condition or circumstance that puts a company in a favorable or superior business position. People are the main input to have a sustainable competitive advantage Knowledge-Based Theory of the Firm Capability: An agent’s capacity to perform a particular set of activities reliably in a minimally satisfactory manner. Absorption boundary: A shared mental capacity to acquire, assimilate, and manipulate knowledge. Integration boundary: A shared capacity to manifest recent knowledge in products Organizations used its internal processes and resources to create its capabilities to create performances Human assets (knowledge and skills) cannot be duplicated and therefore become the sustainable competitive advantage that an organization enjoys in its market(s). This is because decision-making processes as well as skills in analyzing complex data are not “owned” by an organization but by individual employees. Human asset is strategic at all levels! The Sources of Employee Value Technical knowledge markets processes customers environment Ability to learn and grow openness to new ideas acquisition of knowledge or skills Decision making capabilities analytical skills problem-solving skills change-management and implementation skills Motivation job satisfaction challenging work perceived fit with organization Commitment belief in mission engagement Teamwork interpersonal skills leadership ability Managing an organization’s employees as investments, mandates the development of an appropriate and integrated approach to managing HR that is consistent with the organization’s strategy. For Ex, an organization pursuing an innovation cannot afford high levels of turnover within its ranks. It needs to develop strategy to retain employees and transfer among employees the new knowledge being developed in-house. Overall intention is to understand human potential Rethink Human Capital management: Employee is more than a number they are competitive advantage and will influence how affects change Career is measured by opportunities not years Example: UPS At United Parcel Service (UPS), all jobs from truck loaders to drivers to customer service representatives are designed around measures of efficiency. Wages are relatively high, but performance expectations are also high. This approach toward managing people is still “strategic” in nature because the systems for managing people are designed around the company’s strategic objectives of efficiency. Consequently, all employee training, performance management, compensation, and work design systems are developed to promote this strategic objective of efficiency. Although taking a strategic approach to HR management usually involves looking at employees as assets and considering them as investments, this does not always mean that an organization will adopt a “human relations” approach to HR. A few successful organizations still utilize principles of scientific management, where workers’ needs and interests are subordinate to efficiency. United Parcel Service (UPS) is a prime example of this. The organization’s goal is to increase efficiency. The strategy that UPS uses is by using KPI as their metric Organizations Investment Decisions The factors influencing an organization’s investment decisions are: Managerial values Attitude toward risk Nature of employee skills Utilitarianism Availability of outsourcing Managerial Values Execs’ values and actions determine organizational investment in assets. It is critical to understand how the organization’s strategy mandates the investment in particular assets relative to others. Whether management values its people is a critical factor in its willingness to invest in them. Upper Echelons Theory States that organizational outcomes are predicted by managerial background characteristics of the top-level management team. Managerial beliefs and values are basic inputs for org culture. Organizational Attitudes Investments in human assets are generally far risky for an organization than investments in physical assets. Risk Adverse vs. Risk Tolerant Risk adverse: This means you prefer to avoid or minimize risks. You like to play it safe and choose options that have a lower chance of losing money, even if it means potentially missing out on higher returns. Risk Tolerant: This means you are more comfortable with taking risks. You are willing to accept a higher level of uncertainty and potential losses in exchange for the possibility of greater rewards or returns on your investments or decisions. The Prospect Theory It describes how people make decisions under uncertainty and how they evaluate potential gains and losses Loss Aversion: People tend to be more sensitive to losses than to equivalent gains. In other words, the pain of losing $100 is greater than the pleasure of gaining $100 Value Function: Prospect theory proposes that people don't evaluate outcomes in absolute terms but in relation to a reference point. This reference point can be the status quo or an expected outcome. Changes from this reference point have different perceived values. Shaped Value Curve: The value function is typically represented by an S-shaped curve. It shows that as gains or losses increase, people's sensitivity to further changes decreases. This means that small changes near the reference point have a significant impact on decision-making, while large changes matter less. Diminishing Sensitivity: People tend to be risk-averse when it comes to gains (preferring a certain gain over a risky chance of a larger gain) and risk-seeking when it comes to losses (preferring a risky option over a certain loss). Nature of Employee Skills Certain organizations require employees to develop and utilize specialized skills motivated by know-how that might not be applicable in another organization; another employer might have employees utilize and develop skills that are highly marketable. An organization that decides to provide its employees with specialized training in skills that can be utilized by others in the marketplace has a much stronger need to develop a strong retention strategy than an organization that teaches employees skills that are less marketable.  Utilitarianism Organizations that take a utilitarian, or “bottom-line,” perspective evaluate investments by using utility analysis, also known as cost-benefit analysis. The costs of any investment are weighted against its benefits to determine whether the prospective investment is either profitable or, more commonly, achieves the target rate of return the organization has set for its investments. Availability of Outsourcing When specialists who may perform certain functions much more efficiently exist outside an organization, any internal programs will be challenged and have to be evaluated relative to such a standard. Developing/Using HR Metrics Information Economy Knowledge Economy Data Economy Information Economy A concept where the production, distribution, and use of information and knowledge play a central role in economic activity The most valuable "goods" are information and knowledge. This includes things like data, ideas, software, and expertise. In the information economy, success often depends on how effectively you can gather, process, and use information to create value, innovate, and compete. It's a shift away from manufacturing physical products to creating value through information and intellectual assets Knowledge Economy A concept where the generation, distribution, and application of knowledge are the primary drivers of economic activity The most valuable "goods" are ideas, information, and expertise For example, technology companies that develop innovative software or pharmaceutical companies that create new drugs are part of the knowledge economy because they rely heavily on specialized knowledge and expertise Success often depends on how well you can create, leverage, and apply knowledge to solve problems, make decisions, and stay competitive Data Economy A concept where data, specifically information collected from various sources, is a valuable resource that can be used for economic gain Companies collect, analyze, and sell data, and they use it to make informed decisions, improve products and services, and gain a competitive advantage Companies often invest in technologies and expertise to manage and leverage data effectively to achieve their business goals Performance can be measured using four different sets of outcomes: Employee Operations Financial Market Kay Indicators and Performance to Measure The Society for Human Resource Management Absence Rate Cost per Hire Health Care Costs per Employee HR Expense Factor Human Capital Return on Investment (ROI) Human Capital Value Added Labor Costs as a Percentage of Sales or Revenues Profit per Employee Revenue per Employee Time to Fill Training Investment Factor Training Return on Investment (ROI) Turnover Costs Turnover Rate (Monthly/Annually) Vacancy Costs Vacancy Rate Workers’ Compensation Cost per Employee Workers’ Compensation Incident Rate Workers’ Compensation Severity Rate Yield Ratio Five of these metrics that are often regarded as the most prominent measures of human capital management can be calculated and utilized. Human Capital ROI: Revenue − (operating expenses − compensation + benefits costs) / compensation + benefits costs Allows determination of return on human investments relative to productivity and profitability; represents pre-tax profit for amounts invested in employee pay and benefits after removal of capital expenses Profit per Employee: Revenue − operating expenses / number of full-time equivalent (FTE) employees Illustrates the value created by employees; provides a means of productivity and expense analysis HR Expense Factor: Total HR expense / total operating expenses Illustrates the degree of leverage of human capital; provides a benchmark for overall expense analysis relative to targets or budgets Human Capital Value Added: Revenue − (operating expenses − compensation + benefits costs) / total number of FTE employees Shows the value of employee knowledge, skills, and performance and how human capital adds value to an organization Turnover Rate: Number of employee separations (during a given time period) / number of employees Provides a measure of workplace retention efforts, which can impact direct costs, stability, profitability morale, and productivity; can be used as a measure of success for retention and reward programs 90 % of Fortune 500 organizations in the US, Canada, and EU evaluate their HR operations on the basis of 3 metrics: Employee retention and turnover Corporate morale and employee satisfaction HR expense as a percentage of operational expenses. Analytic Skills in Social Science Research design Treatment vs. control groups Experimental design (exogenous variation created by researcher) vs. natural experiments (exogenous variation that already exists in the data) Survey design Sample selection Survey item design; validity; reliability Qualitative data collection and analysis Interview techniques Interview coding Content analysis Data management Data preparation Identify data for analysis Prepare/clean the data for analysis (transform, identify outliers, etc.) Basic data analysis Mean Median Minimum & maximum; range Percentiles Intermediate data analysis Correlation Statistically significant differences Standard deviation Basic multivariate models Factor analysis Regression ANOVA/ANCOVA Advanced multivariate models Structural equations models Hierarchical linear models Bivariate/multivariate choice models Cross-level models, including adjustments for grouped and non-normal errors