Business Management and Strategy PDF

WEBC02 04/02/2017 4:22:37 Page 33 A Guide to The Human Resource Body of KnowledgeTM (HRBoKTM), First Edition. Sandra M. Reed.  2017 by Human Resources Certiﬁcation Institute, Inc. Published 2017 by John Wiley & Sons, Inc. 2 Business Management and Strategy Introduction Where do businesses come from? The fact is that there have been some forms of enterprise for thousands of years. From small businesses built upon individual skills and barter systems to import/export services for cross-country and across-oceans transport all the way through the formalized state-run corporations and academic institutions, the early businesses had the same fundamental needs as the companies of today: human capital strategies and competitive supply chain management (SCM). The functional HR practices in business management and strategy (BMS) embrace HR as a business partner. With a strong emphasis on managing the people and processes required to keep businesses up and running, a dedicated HR professional must be capable of: Applying general business principles Leading change efforts Acting as a strategic partner for all functions of HR Applying business strategies to operational activities Achieving international human resource management goals Integrating industry best practices and academic theories Orienting HR activities toward the bottom line The human resources (HR) function focuses on implementing business strate gies that combine the needs of the business with the needs of the people doing the work. This chapter serves as a resource for HR in an advisory role for all business 33 WEBC02 04/02/2017 4:22:37 34 Page 34 A Guide to the Human Resource Body of KnowledgeTM functions. HR professionals must be able to create relationships with HR partners, and develop and administer programs that operate from a set of blueprints designed by master builders—architects, experts, and skilled individuals—with the shared objective to do well, and competitively, the business of work. HR Human resources Function within an organization that focuses on implementing organizational strategy, as well as recruiting, managing performance, and providing direction for the people who work in the organization HR Partner An ally in providing HR services A manager or department that has a relationship with HR in order to provide services to the organization HR Business Partner Strategic role for human resources A role in which the human resources function works closely with an organization to develop strategies and achieve business results Dedicated HR Person committed to human resources in an organization A human resources position that works only on HR responsibilities within an organization Functional HR Dedicated tasks of the human resources position in an organization The human resources role within an organization that focuses on strategy, recruitment, management, and the direction of the people in the organization Human Capital Strategies Employment tactics plan for managing employees Methods and tools for recruiting, managing, and keeping important employees WEBC02 04/02/2017 4:22:37 Page 35 Business Management and Strategy 35 Supply Chain Management (SCM) The steps taken from initial planning through customer support Process of planning, implementing, and controlling operations, which begins with acquiring raw materials and continues to customer delivery and support General Business Principles HR professionals wear many hats and need to possess a variety of skills in order to serve business outcomes. Often acting as internal consultants, their continuing value to the organizations that employ them comes from understanding all aspects of the business, not just the practices of the HR department. Knowing company ﬁnancials, building programs to serve organizational goals, evaluating the efﬁcacy of strategies both before and after implementation, and helping companies prepare the workforce for future needs are all activities that contribute to HR professionals as trusted organizational leaders. Business Entities, Functions, and Structures The interrelatedness of all business functions is often demonstrated through the management of human resources. HR policies, procedures, and rules must be broad enough to apply to all employees yet speciﬁc enough to meet unique company and regulatory needs. Additionally, improving employee engagement and productivity and designing work that is free from safety hazards are other inﬂuences that HR helps to manage through organizational design decisions. This entails HR pros understanding the big picture environment of business entities, department functions, and organiza tional structures. These design features help dictate the plans, policies, programs, and procedures necessary to achieve HR outcomes linked to business strategy. Business Entities There are several different types of business structures that are deﬁned by the Internal Revenue Service (IRS): Sole proprietorship A business that is owned by a single person. Income is generally reported under personal income tax forms and includes liability for self-employment taxes. Partnerships A partnership exists when two or more individuals legally join together to form a business. Each person is actively involved in the business by WEBC02 04/02/2017 36 4:22:37 Page 36 A Guide to the Human Resource Body of Knowledge contributing money and labor, and both expect to share in the beneﬁts of proﬁtability and the risk of loss. In a partnership, the business entity does not pay income tax. Instead, gains or losses are “passed through” to each partner’s personal income tax returns. In this structure, partners are not considered employ ees, and self-employment taxes apply. Corporations A corporation is a business in which stock is sold to shareholders in order to fund operations. The proﬁts of the corporation are taxed to the corporation when earned, and then taxed again to the shareholders when distributed to them as earnings (called a double tax). Shareholders do not deduct corporate losses from their personal taxes. S corporations S corporations are entities that elect to pass proﬁts and losses, income, and deductions through to the shareholders. These are then reported on the shareholders’ personal income taxes as opposed to a corporate tax return. This allows S corporations to avoid the double tax described for regular (C) corporations. Limited liability companies (LLCs) An LLC is a state-by-state-granted business structure that is a hybrid of a corporation and a partnership, with most states allowing for a single member. If there are two or more partners, it may be classiﬁed as a partnership for tax ﬁling purposes. LLCs are not taxed as a corporation; proﬁts and losses are passed through to the members. Self-employment taxes generally apply. In addition to the IRS deﬁnitions, there are other ways a business can be organized, either initially or as part of an overall business strategy. They include: Franchising Franchising is a business structure in which a company sells licensing rights to another group or individual, allowing the franchisee to conduct for-proﬁt business under the franchisor’s brand and supply chain practices. Fast-food restau rant chains are a common example. Joint ventures (JVs) A joint venture (JV) is a type of time-based partnership between two businesses, often with shared goals or aligned to maximize resources. For example, in 2011 Microsoft joined with General Electric to form Caradigm, a company focused on streamlining health care analytics. Similarly, a strategic alliance may be formed by two or more companies to pursue similar objectives. Equity partnerships When an individual or group decides to invest funds for start ups, they may do so using an equity partnership structure. Simple Sugars, a skin care company, appeared on the television show Shark Tank, and agreed to a 33 percent equity partnership with Mark Cuban in exchange for a $100,000 investment in this turnkey operation. Investments may also be used to pay for up-front costs associ ated with getting a business off the ground. Subsidiaries A subsidiary is a company with 50 percent or more ownership interest by a parent company. Odwalla Inc. is a subsidiary of the Coca-Cola Company, two major beverage brands successfully leveraging market position. WEBC02 04/02/2017 4:22:37 Page 37 Business Management and Strategy 37 Foreign subsidiaries Similar to a subsidiary, a foreign subsidiary is 50 percent or more owned by a parent company headquartered in another country, such as Revlon Beauty Products of Spain, a foreign subsidiary of Revlon, Inc., head quartered in the United States. These may be formed using a foreign direct invest (FDI) strategy to obtain control. Greenﬁeld and brownﬁeld operations are two types of FDIs, in which an investor decides what type of operations to invest in and makes decisions such as to whether to buy, lease, or build new facilities. In each of these examples, ownership is a major theme. Ownership determines who is the employer of record, data for ﬁnancial reporting, and tax obligations, among other things. In each method described, the business operates to some degree (fully or partially) independent of the owner. Franchisees may use a company brand, recipes, and operational setups, but they own their business with independent proﬁt-and-loss statements (P&Ls). Joint venture organizations may share resources, but often act as independent groups with different funding, strategies, and goals. A passive equity partnership may have a percentage owner who stays out of the day-to-day operations, but any partner with more than 20 percent equity may have to provide personal guarantees for business loans. Subsidiaries in many cases have their own brand identity, but will be captured in the parent company’s ﬁnancials. Knowing how this works is important for human resource pros, as different regulations and business strategies will need to be planned for, addressed, and managed. Franchising A business model that involves licensing Selling a license for the use of a trademark, product, or service in order to do business a certain way and receiving ongoing payment for the license Joint Venture (JV) Partnership between two or more organizations When two or more organizations work together and share risks and rewards Align Line up, make parallel To place in a line or arrange in a similar way (continued ) WEBC02 04/02/2017 4:22:37 38 Page 38 A Guide to the Human Resource Body of Knowledge (continued ) Alliance Agreement, cooperation A partnership between organizations that helps both sides Strategic Alliance An agreement to cooperate between two organizations An arrangement between two organizations to pursue common goals and share resources. Unlike a joint venture, the organizations do not form a new legal entity. Investment A commitment of money for expected return Money and capital that is spent in order to make more money (for example, stocks, bonds, real estate) Start-Up A new business venture A company or business that recently began operating and is in an early phase of development Equity Partnership Business arrangement with ﬁnancial investors An agreement for a person or an organization to own part of a company by providing start-up funds to the new business Turnkey Operation A business that is ready to operate A business that includes everything needed to start operating in a certain location Up-Front Costs Paid or due in advance Paid in advance, or invested as beginning capital WEBC02 04/02/2017 4:22:37 Page 39 Business Management and Strategy 39 Subsidiary A company that is controlled by another company A company whose voting stock is more than 50 percent owned by another company. The company with the majority interest is called the “parent company” Ownership Interest Equity in a company Owning part of a company or business Foreign Subsidiary A legal term deﬁning ownership of a foreign company A company that is more than 50 percent owned or controlled by a parent organization in another country Foreign Direct Investment (FDI) Ownership of a business or property by a foreign entity An overseas investment in structures, equipment, or property controlled by a foreign corporation Greenﬁeld Operation New business facility built in a new location Start-up of a new business plant or operation, usually in a new location Brownﬁeld Operation Previously used land Reuse of land previously used for industry or manufacturing Lease A contract to use a property An agreement for a person or organization to rent a property (lessee) from its owner (lessor) for a speciﬁc period of time and amount of money (continued ) WEBC02 04/02/2017 4:22:37 40 Page 40 A Guide to the Human Resource Body of Knowledge (continued ) Loan Lending of money or goods Money or goods that a person or organization lends temporarily, usually charging interest Business Functions As Figure 2.1 shows, there are many functions that are relevant to all business types, regardless of the number of employees. HR professionals must have an under standing of the workings of each department in order to plan for and contribute to the overall management of internal and external resources, including time, money, technology, and, of course, the talent. HR needs to know the business model(s) the company is pursuing to achieve revenue (how it makes money) and proﬁt margins on products and services. Becoming experts in how work ﬂows between departments and ultimately to the customer contributes to the design of HR strategies, programs, policies, procedures, and processes. Creating risk management plans, hiring quali ﬁed talent, building training programs, designing pay systems, and complying with country-speciﬁc regulations are just a few examples of how a working knowledge of business makes for a stronger (and more valuable) HR professional. Finance and Accounting Managing a company’s ﬁnances is similar to managing human resources: it requires strategic planning for the management and direction of the ﬁnancial resources toward business goals. On an operational level, reports such as the balance sheet, cash ﬂow statement, and income statement help human resources understand what is driving decisions about spending, growth, and expense management. For example, when a com pany experiences growth of 20 percent or more, cash starts to get tight. This is often because cash for overhead costs associated with increased sales, services, or equipment purchases goes out at a rate greater than cash is coming in. Additionally, ﬁnance will help employers calculate the internal rate of return on ﬁnancial and other investments, and calculate overall net income expectations for the period being evaluated. While growth plans and targets are necessary, they may also impact HR’s ability to pay for necessary talent or get approval for new programs or services. Three ﬁnancial reports help HR understand the big picture and contribute to planning for budget surpluses and shortfalls: 1. Balance sheet The balance sheet is a basic ﬁnancial statement that shows three things: assets, liabilities, and equity. Assets are what show as positive on the balance WEBC02 04/02/2017 4:22:37 Page 41 Business Management and Strategy Figure 2.1 Business Functions 41 WEBC02 04/02/2017 42 4:22:39 Page 42 A Guide to the Human Resource Body of Knowledge sheet. They include equipment, facilities, patents, and the balance due on accounts (monies owed by customers)—anything that is owned by the business that may be converted to cash. Liabilities are those items for which a company owes money. They may include outstanding loans and accounts payable obli gations. Equity refers to ownership, as described in an earlier section. A balance sheet at its most basic shows assets = liabilities + equity. The remaining balance is an indicator of organizational ﬁnancial health. 2. Income statement An income statement is a snapshot of a company at any given time. It shows, in its most basic form, sales expenses = net income. Income statements are often used by employers to review how they are doing compared to the previous year. 3. Statement of cash ﬂows The cash ﬂow statement is focused on tangible money in the bank. Cash is a term that is used by businesses to measure how much money they have available at any given time. Negative cash ﬂow occurs when revenue is coming more slowly than the rate at which money is going out. Positive cash ﬂow is the opposite. Note that neither negative nor positive cash ﬂow is an indication of proﬁt or loss; it simply reﬂects the amount of money an employer has available to operate. Companies may expand or contract spending based on this single indicator. The accounting function refers to the operational tasks associated with crunch ing the numbers every day, week, month, quarter, and year to determine a company’s ﬁnancial viability. Similar to a human resource department, accounting personnel may be generalists or specialists. There are different accounting methods that may be used. Cost accounting relates the costs (ﬁxed and variable inputs) of producing goods or services with sales revenue to aid in decisions about labor levels, equipment purchases, and product pricing. Financial accounting is focused more on company assets and liabilities. The accrual method of accounting captures transactions as they occur (both sales and expenses) rather than when money is paid or received such as in cash basis accounting. The general accepted accounting principles (GAAP) govern the tasks and reporting requirements associated with ﬁnance and accounting. As of 2017, the Securities and Exchange Commission (SEC) is still considering the formal adoption of the International Financial Reporting Standards (IFRS) for U.S. companies operating in multiple countries. Some U.S. companies with foreign subsidiaries have begun to integrate their GAAP practices with IFRS where allowed by law. The ﬁnance and accounting functions of business are an excellent example of when co-sourcing is a good management strategy. A combination of accounting and ﬁnance staff, coupled with reliance on third parties such as CPA ﬁrms, is a practical example of managing the complex tasks of these critical functions. WEBC02 04/02/2017 4:22:39 Page 43 Business Management and Strategy 43 Budgeting Budgeting is both an independent annual practice and also a func tion of the strategic planning process. Intervention strategies that come out of the planning process will require additional ﬁnancial resources, and for that, a budget must be developed. A good question to ask during planning sessions comes from management guru Peter Drucker, who declares that the essence of strategy is deciding what not to work on (Drucker 2001). This allows for planning for a shift of resources or adding as an action item the securing of a separate source of ﬁnancing as needed. The human resources function has its own budget, which should include all labor for the organization. This is driven from workforce planning sessions and annual operating expenses related to the activities of the HR department. An HR budget should include anticipated salary increases and planned hiring. This is part of providing data for human capital projections. A practical view of what is reﬂected in an HR budget may be taken by considering what money is spent on within the HR department on a daily basis. Examples include downsizing efforts, anticipated training costs, outplacement services, or HR software updates that may be necessary to achieve an organiza tion’s plan. Recognition program awards should be included, along with years of service awards or attendance incentives. Consider safety awards, attorney fees, performance incentives, and recruiting costs. With the rising cost of health insurance and other beneﬁts, it is also necessary to forecast and budget for insurance increases. The two main budget methods are: Incremental Incremental budgets are built up from the previous years. Depending on goals and objectives, personnel needs, capital expenditures such as adding equipment, and one-time costs are all items that may be added on top of a department’s or company’s normal overhead. These are sometimes called static budgets, in that targets are established and then outcomes are measured against those targets. Zero-based A zero-based budget starts from scratch each year. This allows department heads and executives to scrub expenses and justify the budget based on return on investment (ROI), necessity, value, and alignment with strategic objectives. Overhead Business operating expenses Direct costs associated with operating a business, such as rent, salaries, beneﬁts, equipment, technology, and so on (continued ) WEBC02 04/02/2017 4:22:39 44 Page 44 A Guide to the Human Resource Body of Knowledge (continued ) Purchase Buy Acquire something through payment or barter Internal Rate of Return A way of measuring proﬁts A calculation of the average return each year during the life of an investment Outstanding Loan An unpaid debt Money that a person or organization has borrowed but not yet paid back Financial Viability Ability to survive ﬁnancially The ability of an organization to achieve ﬁnancial goals, growth, and stability, while also paying expenses and debt Accrual A method of accounting An accounting method that recognizes a company’s ﬁnancial performance by recording income and expenses at the time a transaction occurs, rather than when a payment is received or an invoice is paid Co-Sourcing Using both internal and external resources to perform a service A business practice in which the employees of a company work with an outside organization to perform a service Third Party A term describing those who are not directly involved in a transaction A person or group in addition to those who are directly involved, such as a company that supplies outsourced services to an organization WEBC02 04/02/2017 4:22:39 Page 45 Business Management and Strategy 45 Zero-Based Budgeting An approach to ﬁnancial planning and decision making A budgeting process that requires that every budget item is approved instead of only budget changes being approved. No reference is made to previous budget expenditures. Return on Investment (ROI) A ﬁnancial calculation to evaluate an investment Performance measure used to evaluate the ﬁnancial outcome of an investment Research and Development (R&D) The research and development (R&D) depart ment is tasked with innovation. The need to design new products or reﬁne current products exists for all companies, and often arises in response to the ﬁndings of market research or new technology. In some companies, R&D is its own depart ment. In others, it is folded into a marketing department. Marketing and Sales Marketing and sales are separate yet closely related functions that exist to create and fulﬁll demand for company products and services. The sales function involves persuading customers to buy a company product or engage in a service. Marketing activities provide businesses with insights to help them engage with their stakeholders and promote the company brand, all while supporting the development and execution of business strategies. Source: DILBERT  2004 Scott Adams. Used by permission of ANDREWS MCMEEL SYNDICATION. All rights reserved. Operations The operations function is all about producing the goods and services that are designed by R&D and sold through sales and marketing. Many companies use the term production to categorize activities related to operations. This refers to manufacturing processes that make products. For other WEBC02 04/02/2017 4:22:39 46 Page 46 A Guide to the Human Resource Body of Knowledge companies, the term supply chain management (SCM) is more appropriate, which is in and of itself a major management system. According to Investopedia, SCM includes managing “every business that comes into contact with a particular product, including companies that assemble and deliver component parts to a manufacturer.” In this way, operations is an end-to-end chain linking raw material sourcing with delivery to the consumer, and all parts in between. Similarly, the value chain is built upon identifying what a customer is willing to pay for: quality and service. Customers are not willing to pay for inferior raw materials, production downtime, or the costs to ﬁx defects. Considering core competencies is another way to understand the operations function of business. This term can refer to a company’s core product or the service offering for which the company is best known. Through this ﬁlter, a car wash company’s core competency is washing cars, and everything else is ancillary. The term also refers to a particular excellence in any given area that allows the company to beat out its competitors. In the car wash example, the company may compete based on its environment (live operators, complimentary vacuums, a gift shop) for differentiation from its quarter-operated, carport-style counterparts. In essence, a core competency is identiﬁed by reviewing where a company invests its time and labor resources—it is a tangible declaration of “This is how we win.” See the feature for an example of a strategic core competency at Wal-Mart. Value Chain Model of how businesses create value Model of how businesses receive raw materials, add value to the raw materials, and sell ﬁnished products to customers MICHAEL PORTER, WAL-MART, AND CORE COMPETENCIES According to the Harvard Business Review, a core competency of Wal-Mart is buying power (Schrage 2013). This refers to one of Michael Porter’s ﬁve forces that affect a company’s competitiveness in the marketplace. Buying power is the ability to leverage size and quantity of supplier orders to reduce the wholesale price of a product. The purchasing power of Wal-Mart allows the company to fulﬁll its mission of “Saving people money so they can live better.” Because of its high buying power, Wal-Mart can purchase or manufacture a product at a lower cost than its competitors, making this a primary competitive strategy for the company. Information Technology (IT) Information technology (IT) is a network of systems connecting hardware, software, databases, and company information into a cohesive, user-friendly, secure package. IT needs of companies often are based on size and capacity needs. A small mom-and-pop shop may be able to get by WEBC02 04/02/2017 4:22:39 Page 47 Business Management and Strategy 47 with a single computer connected to the Internet to use for basic word processing, accounting, and inventory needs. Smaller businesses often out source any task beyond the basics through retainers or pay-as-you-go services. Larger companies may need a more robust system of interconnected units beyond simple data retrieval and storage, requiring the hiring and management of technical staff. Knowing the needs of and for a department is often a function of how companies are structured. This will dictate the way work is distributed and is a source for opportunities to develop organizational capabilities. Organizational Structures Organizational structure is much more than a chart of authority; decisions about structure are used to streamline processes, support efﬁciencies, simplify decisions, and establish reporting hierarchies. An organization is a single entity—a being, if you will—made up of many moving, interdependent parts. The right structure will support the unrestrained ﬂow of information so that organizational system compo nents and stakeholders are well served. This structure is visually represented by an organizational chart (org chart). Organizational Charts (Org Charts) According to Kinicki and Fugate in Organiza tional Behavior (McGraw-Hill, 2011), there are four main dimensions of an organiza tional structure that are graphically represented through an org chart: 1. Hierarchy of authority In this dimension, there are linear connections that illustrate chain of command. This assigns who is responsible for which employ ees, often in terms of performance management and direction of effort. 2. Division of labor While the hierarchy of authority references people manage ment, the division of labor often shows who is responsible for which processes. 3. Span of control Span of control is how many people report to a single supervisor. A wide span of control indicates several employees, whereas a narrow span of control indicates few. 4. Line and staff positions Line managers are generally made up of people within the organization who are responsible for revenue generation. Think production staff and the salespeople who sell the company’s products. On an org chart, these are often depicted with solid lines connecting them in the hierarchy. Staff units are support functions and include accounting, IT, and human resources. These roles are often depicted with dotted lines on an org chart. One important distinction between line and staff managers is that staff managers have the authority to advise and direct the efforts of all line managers, not just direct reports. In this capacity, HR serves as an adviser for all managers and employees. WEBC02 04/02/2017 48 4:22:39 Page 48 A Guide to the Human Resource Body of Knowledge Organizational Structure The grouping of employees and processes The way that employees and processes are grouped into departments or functions in an organization, along with a description of reporting relationships Organizational Chart (Org Chart) Diagram showing reporting relationships A graphic representation of how authority and responsibility are distributed within a company; it includes all work processes of the company. Chain of Command Order of authority The sequence of power in an organization, from the top to the next levels of authority Span of Control The number of employees a manager supervises The number of employees who report to one manager in an organization. The more people that a manager supervises, the wider the span of control. What is depicted on the org chart is determined by how the functions of the business are sorted and ordered. There are many different ways to design this, and they include both traditional and nontraditional formats. Traditional Structures Traditional structures are those that are more commonplace, characterized by clear boundaries and relationships: Functional In probably the most common structure, an organization divides departments based on functional areas. Think production, accounting, and IT as some examples, with employees reporting to a manager, who reports to an executive. Functional structures may be divided using a front-back format, a design that divides work based on customers and production. Divisional In the divisional structure, organizations sort authority and tasks by company divisions or brands. Consider a ﬁnancial institution’s division of commercial products such as lending being separate from the investment side of the business WEBC02 04/02/2017 4:22:39 Page 49 Business Management and Strategy 49 services, an example of a divisional product structure. A corporation that divides the structure based on physical regions is an example of a geographic structure. Matrix A matrix structure looks more like a jungle gym than a ladder, because it integrates the functional structure with divisional components. Employees often report to two managers—a functional manager in charge of a department and a brand manager in charge of a product line. Hybrid A hybrid structure is useful for companies that have unique customer or operational needs. This type of organizational structure is a blend of any of the other structures. Functional Area Group of people performing similar tasks A department in which people have similar specialties or skills (for example, the accounting or IT department in an organization) Functional Structure Group of people performing similar tasks A department or division where people have similar specialties or skills (for example, the accounting or IT department in an organization) Front-Back Format An organizational design that separates customer service and production An organization that has two parts: one part that focuses on the customers and the market (the front), and one part that develops products and services (the back) Product Structure A way of organizing a company A method of organizing a company in which the departments are grouped by product Geographic Structure Organizational model based on location An organizational model in which divisions, functions, or departments are organized by location in a speciﬁc country or region (continued ) WEBC02 04/02/2017 4:22:40 50 Page 50 A Guide to the Human Resource Body of Knowledge (continued ) Matrix Structure A system of reporting where employees have both vertical and horizontal relationships A system of managing staff where employees have more than one reporting relationship (for example, they could report to a direct supervisor as well as a team leader) Integrate Combine, mix together To combine or bring together different parts Hybrid Structure A vertical and horizontal organizational model An organizational model that combines different operational, functional, product, and geographic structures Less Traditional Structures Flat line/horizontal Generally organized around a need for collaboration, a ﬂat line structure seeks to reduce boundaries and coordinate the efforts of all employees toward a desired outcome. Cross-functional teams may be a popular strategy in this kind of environment. Hollow In this design, organizations seek to limit what functions are completed in house, and focus instead on core competencies. Many (or all) other functions are outsourced. Companies who excel at design or marketing may take on hollow structures in which production and accounting are outsourced. Modular Modular structures are characterized by strategic business units (SBUs) that focus on individual pieces of a whole product. Components are separated into smaller work units, and companies may choose to outsource functions to save labor costs or improve quality. Modules focus on very speciﬁc quality standards and creating depth in supplier relationships to reduce the risks of defects or an inability to meet demand surges. WEBC02 04/02/2017 4:22:40 Page 51 Business Management and Strategy 51 Virtual The lack of a physical structure is what characterizes a virtual organiza tional structure. Generally temporary in nature, this structure brings together partners to a project, each of whom brings a level of expertise and core competencies to form a well-rounded business entity. This effort is focused on capitalizing on market opportunities. In some cases, competitors, suppliers, and customers compose a virtual team involved in product or service delivery, with shared rewards. The work is usually conducted online and via videoconferencing. One example is the mobile phone industry. Service providers such as AT&T and Verizon have captured vast market shares of cell phone service. For this reason, most phone manufacturers must work together to design and manufacture components for compatible phones. Work Unit Smallest work group in a company A business function that produces one product or focuses on a single area Virtual Team People who work together in different locations or time zones A group of people who work in different times, locations, or organizations, who communicate using technology HR as a Strategic Partner There is a signiﬁcant need for HR to take the lead in linking business strategy with day-to-day operations. While one must account for the many variables that exist from one business to another, there are a few central practices that guide a human resource practitioner toward serving as a valued strategic partner. These are reviewed in more detail next. Mission, Vision, and Values HR contributes in a very real way to building a company culture. The process of building organizational mission, vision, and values (MVV) serves as a platform for many company programs, including workforce strategies, operational practices, and international actions. MVVs serve as a guide for behavior, providing a WEBC02 04/02/2017 52 4:22:40 Page 52 A Guide to the Human Resource Body of Knowledge cornerstone for behavioral expectations. In the chapter Workforce Planning and Employment, the MVVs are cited as a basis for building an employer brand—the perception that internal and external individuals have of the business. A mission statement describes the purpose of an organization, and remains constant throughout the life cycle of the company. A good mission statement is simple in form, focused on the primary reason that a company exists. Google’s mission statement is “to organize the world’s information and make it universally accessible and useful.” There are some cases where business decisions compete with the mission. When Google decided to modify its offerings in China to comply with government regulations amounting to censorship, the company felt it was a more ethical option than leaving the world’s largest population without Internet access. This strategy had to be revisited yet again in light of the 2010 cyber-attacks that appeared to stem from the Chinese government. In these cases, the company’s vision and values can clarify direction. A vision statement is forward-thinking, describing what the future looks like for a company that is evolutionary in nature. While still a macro view, a vision statement provides further clariﬁcation of the company’s long-term orientation. The American Red Cross has a vision statement combined with what the organization calls a strategic intent: “Be recognized by the people and organizations we serve, as well as others in our ﬁeld, as the provider of choice for blood, plasma and tissue services. This will be accomplished by commitment to quality, safety and use of the best medical, scientiﬁc, manufacturing and business practices.” As will be discussed in a later section regarding business ethics, values serve as a guideline for how a company does business. Ben & Jerry’s, the ice cream maker, has a grouping of values statements that orient the consumer (and employees, and the public, and suppliers) to what is most important to the company. These statements include ingredient sourcing and purchasing prac tices, manufacturing practices, and “giving back” practices. HR often serves in an advocacy role to help employers direct their resources to programs with shared rewards. HR professionals reinforce these organizational values by communicat ing them to the workforce, modeling them in their own professional behavior, and coaching managers and executives on how to behave in accordance with agreedupon values. Internally, values guide decisions about employee performance, as illustrated in Figure 2.2. The organizational climate is the experience that stakeholders have when engaged with the business. The climate is served by how well (or how poorly) the MVV is integrated into operational activities. From the mission, business strategies and cascading goals are built that are aligned with the mission. If a company chooses strategies that are out of alignment with a mission, vision, or value, an identity crisis may occur, compromising the quality of decision making that affects service, productivity, quality, and ultimately company survival. WEBC02 04/02/2017 4:22:40 Page 53 Business Management and Strategy Figure 2.2 The Performance/Values and Managing Performance Matrices 53 WEBC02 04/02/2017 4:22:41 54 Page 54 A Guide to the Human Resource Body of Knowledge Company Culture The beliefs and behaviors of an organization The values, language, rules, procedures, expectations, and processes that affect how employees of an organization think, act, and view the world Mission Statement A description of the purpose of an organization A short description of the main purpose of an organization, which does not change (unlike strategy and business practices, which can change frequently) Vision Statement Declaration of what an organization wants to become A written statement that clariﬁes what the organization wants to be in the future Values Beliefs of a person or social group The lasting beliefs of members of a culture about what is good or desirable and what is not Advocacy Support, encouragement Supporting an idea or cause, inﬂuencing outcomes Cascading Goals Goals that ﬂow from the top to the bottom of an organization Goals that an organization sets at a high level, which ﬂow down as goals for departments, and then become goals for speciﬁc people WEBC02 04/02/2017 4:22:41 Page 55 Business Management and Strategy 55 Strategic Planning and Analyses If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle. —Sun Tzu, from The Art of War Strategy has been deﬁned as a careful plan of action. Avoiding a business strategy of “ready, ﬁre, aim” is accomplished through strategic planning and structured actions led by courageous, competent HR leaders. In order to be valued as business leaders, HR professionals must seek to understand the internal forces and external forces affecting every business function. The planning stage of the strategic support role of HR involves helping a company deﬁne its mission, vision, and values, and setting objectives on how outcomes will be achieved. In strategic planning, the participants seek to analyze the conditions affecting competitiveness, develop solutions and plans of action, implement said plans, and evaluate the effectiveness of interventions. This includes anticipating growth or decline that will require an organizational response. There are ﬁve accepted steps to the strategic planning process: 1. Analyze data Data collection is the primary activity of this stage. Information is gathered by scanning the internal and external environments and through the use of forecasting techniques. Both are covered in more detail in an upcoming section. 2. Develop objectives and goals From the MVV and ﬁndings of environmental scanning, cascading goals are developed, often using the acronym S.M.A.R.T. goal setting: Speciﬁc The goal reﬂects the MVV but is speciﬁc enough to direct the behavior of line and staff managers in action planning. Measurable The goal has clearly identiﬁed milestones, often with a description of start and stop conditions. Action-oriented Goals describe the action steps that must be taken to ﬁll the gap between current and desired state, with responsibilities assigned to depart ments or individuals. Realistic The goals are capable of being achieved, whether a stretch objective or the gathering of low-hanging fruit. Time-based The time frame is established and agreed upon. 3. Implement solutions At the center of organizational development are planned interventions staged in order to change conditions—either behavioral or WEBC02 04/02/2017 56 4:22:41 Page 56 A Guide to the Human Resource Body of Knowledge structural. These interventions may be time based, such as updating roles and responsibilities for all jobs on an annual basis, or may be single events such as making structural changes to improve work processes. Ultimately, solutions should map directly back to the problem being solved or strategy to be executed. 4. Evaluate efﬁcacy and monitor progress Some strategies and plans work better than others, and HR must take steps to know which are which. Part of the strategic planning process must identify the methods that will be used to measure the effectiveness of programs. It is in this stage that evaluation and real-time reﬁnement of plans and strategies take place. Performance standards that are set in order to meet a new customer need, for example, must be measured and addressed if they are falling short. Employee recognition for goal achievement may be necessary, particularly if new behaviors are being tested. Establishing controls may take the place of employee self-monitoring, or engineering controls may be designed to eliminate behavioral choice. These are all examples of evaluation efforts HR may lead to measure the success or failure of business initiatives. The strategic planning process requires a good deal of organizational skills, which is often how HR is utilized in the process. This is about much more than simply keeping track of progress on a Gantt chart or spreadsheet. HR brings expertise in matters such as job design, organizational restructuring, data regarding the internal skill set of the workforce, process-ﬂow analysis, and the development of standard operating procedures to aid in the achievement of goals. As a management function, organizing the work to incorporate tangible business needs with the more mercurial needs of the people is top priority. In management planning, supervisors are called upon to understand the day-to-day nature of what needs to get done. This involves a heavy dose of resource management, in which leaders make decisions about the best way to organize and resource the necessary tools. Leadership activities are often directed at meeting the needs of employees and projects. This involves coordinating resources into a smoothly running engine, not a smoke-spewing, belching machine requiring constant mechanical interventions. Organizational leaders—both HR and supervisors—must have the ability to take the strategic inputs gathered during the planning and organizing process, and put them into action through others in order to achieve company objectives. Leading requires individuals to make quality decisions that balance the demands of all stakeholders. External needs such as regulatory compliance, employee needs such as fairness, and business needs such as proﬁtability—these are examples of the competing demands for management attention that the leading effort must embrace. WEBC02 04/02/2017 4:22:41 Page 57 Business Management and Strategy 57 Strategy Plan of action A plan of action that starts with examining the current state of an organization and then deciding how to achieve the best state for the organization’s future Internal Forces Drivers of change inside an organization Key people and inﬂuences inside an organization that shape its future (the opposite of external forces, such as the economy and competitors) External Forces Events an organization cannot control Things that occur outside of an organization that might affect its ﬁnancial health, employees, products, services, or customers (for example, political, economic, or environmental challenges) Strategic Planning Process of deﬁning the organization’s future direction The process of deﬁning a company’s direction for the future in four stages: analysis, development, implementation, and evaluation S.M.A.R.T. Goal Setting Process used to help achieve business success Applying speciﬁc, measurable, action-oriented, realistic, and time-based goals to help a company achieve business success Stretch Objectives Goals that require maximum effort Setting personal or business targets that require extra effort to achieve (continued ) WEBC02 04/02/2017 4:22:41 58 Page 58 A Guide to the Human Resource Body of Knowledge (continued ) Process-Flow Analysis Method of assessing critical business functions A diagram used to assess business processes; sometimes called “process mapping” Forecasting Part of both generalist and senior-level HR tasks includes forecasting, planning, and predicting the impact that any HR program may have on the workforce. Forecasting is the practice of using information to make educated guesses about future conditions to be used to make decisions. Data gathering through research methods is a primary function of forecast ing activities. In primary research, HR personnel make direct contact with the research subjects, often through surveys and focus groups. For example, a company that publishes wage data information would survey target markets about company pay and beneﬁts practices. In secondary research, HR draws from previous research conducted by experts, such as when purchasing a wage survey from the authors. Analyzing the research is the second step in forecasting conditions. HR applies quantiﬁcation techniques when they interpret data that can be numerically or statistically measured. A popular way to interpret numerical data is through measures of central tendency. These approaches attempt to ﬁnd commonalities or patterns through sets of data and establish norms, data that may be relied upon to represent typical or frequent conditions. The most common measures of central tendency are: Mean The mean is an average of a group of numbers achieved by ﬁnding the sum of a series of numbers and then dividing the sum by the number of values. The average of the series 2, 4, and 6 is found by adding 2 + 4 + 6 = 12 and dividing it by 3, which results in an average of 4. Median The median works by ordering numbers by smallest to largest and identifying the value where half the numbers are higher and half are lower. If there is an odd number of values, the one in the middle is the median. If there is an even number of values, the average of the middle two is the median. Mode Perhaps the easiest to identify, the mode is the value that occurs most frequently in a series of numbers. WEBC02 04/02/2017 4:22:41 Page 59 Business Management and Strategy 59 Financial statement analysis provides HR with data used to identify trends, such as when labor costs surge. If these surges happen every year right around June and production has a 30-day learning curve, HR may plan to begin hiring efforts in April or May on the basis of ﬁnancial analysis. Pie charts and graphs are often used to visually present quantitative research ﬁndings. In qualitative research, nonnumerical or less tangible measures are gathered and analyzed. Stay interviews and opinion surveys may be conducted to ﬁnd out what employees value from their employer, or their levels of job satisfaction. Anonymous surveys seeking feedback about a supervisor may be undertaken to make recom mendations for management training programs. File studies may be conducted to pull archival separation data, or to research average personnel ratings in a critical area. Regardless of the type or nature of the research, all data collection instruments should be valid and reliable. This increases the quality of the data collected, and the legal defensibility should the use of the data be called into question. Forecasting A planning tool that helps with future decisions Analyzing the probability of future outcomes to help lessen uncertainty Quantiﬁcation Counting and measuring Giving a number to a measurement of something Norms Standards, averages A standard model or pattern that is considered typical Mean A way to calculate the average of a series of numbers An average determined by adding up a group of numbers, and then dividing that total by the number of numbers. For example, to calculate the mean of 10, 20, 30, 40, 50: ﬁrst, add the numbers (10 + 20 + 30 + 40 + 50 = 150), then count the numbers (5), and then divide the total by the number of numbers (150/5 = 30). (continued ) WEBC02 04/02/2017 4:22:41 60 Page 60 A Guide to the Human Resource Body of Knowledge (continued ) Median The middle value in a series of numbers The middle number in a series. For example, in the series 13, 13, 13, 13, 14, 14, 16, 18, 21, the median is 14, with four numbers to the left and four numbers to the right. Mode The value that occurs most often in a series of numbers In the following series of numbers, 8 is the mode: 6, 5, 8, 3, 7, 8, 9, 8, 4. Environmental Scanning “In a vacuum” is a phrase that refers to the fact that organisms do not function without other inﬂuences; all environments have shaping forces that drive com pany behaviors—no business exists independently or in a vacuum. So it is with organizations, and the leaders within. Consider Jack Canﬁeld’s leadership asser tion that: Leaders cannot work in a vacuum. They may take on larger, seemingly more important roles... but this does not exclude them from asking for and using feedback. In fact, a leader arguably needs feedback more so than anyone else. It’s what helps a leader respond appropriately to events in pursuit of successful outcomes. (Western n.d.) Using the same quote, substitute the word companies for the word leaders: Companies cannot work in a vacuum. They may take on larger, seemingly more important roles... but this does not exclude them from asking for and using feedback. In fact, a company arguably needs feedback more so than anyone else. It’s what helps a company respond appropriately to events in pursuit of successful outcomes. This demonstrates that a business is an entity in which forces may be identiﬁed, molded, measured, and used to positively affect business outcomes. All businesses exist for a reason. These reasons may be proﬁt-centered or missioncentered, but you can be sure there is an internal and external environment in WEBC02 04/02/2017 4:22:41 Page 61 Business Management and Strategy 61 which the participants feed off one another with only one of three results: grow, maintain, or decline. Environmental scanning is the practice of identifying the internal and external factors that drive company strategies, business goals, and daily decisions. One example is that of retail giant Macy’s. The company announced that it is eliminating more than 10,000 jobs by closing 60+ brick-and-mortar stores begin ning in 2017 in order to focus more on online sales. The struggling retailer is the ﬁrst of many that are feeling the pinch from online retailers like the U.S.-based Amazon and China’s Alibaba. These external forces are requiring businesses to react. HR helps to identify external sources to gather information related to an organization’s ability to take advantage of opportunities or to reduce threats to survivability. A gap analysis is then used to compare the actual state to the desired state from which plans of actions may be mapped. Organizational attention deﬁcit disorder (ADD) may occur when everyone is working on one’s own project, or the company has too many projects going on at once, choking off resources and spreading teams thin. There must be an environ ment deﬁned by boundaries in which companies may plan, react, perform, and measure. Both internal assessments and external analysis aid in identifying these environmental business boundaries. Environmental Scanning Gathering internal and external information for strategic purposes Acquiring and using information about the internal and external business envi ronments that inﬂuence an organization’s strategy (for example, determining how to respond to a talent shortage) BACK TO THE FUTURE My 6-year-old self had a wicked set of roller skates—hot pink leather, bright purple stoppers, and ﬂuorescent, glow-in-the-dark laces. Without knowing anything else about me, can you guess about how long ago this was? No need to get speciﬁc—if you answered “more than 40 years,” you are correct! Roller skates were all the rage in the 1970s, and skate manufacturers were enjoying the ﬁnancial fruits of their product’s popularity. In fact, my roller skates were cool right up until I got an Atari for Christmas. Video games had arrived in my house. Now, the roller skate manufacturers had a problem. They had successfully navigated the business stages of infancy and growth, but were going to jump to decline if they didn’t fully embrace the maturity stage of their life cycle. A strategic plan had to be centered on the threat of lost consumers to technology. Executives must have understood the need to direct ﬁnancial resources toward (continued ) WEBC02 04/02/2017 62 4:22:41 Page 62 A Guide to the Human Resource Body of Knowledge (continued ) research and development, and the generation of new products that would meet the mercurial tastes of their 6-year-old consumers. This meant potentially dropping back into the infancy stage of manufacturing a new product, with all the relevant tasks such as building work instructions, designing marketing campaigns, and training staff in the new processes or techniques. In 1981, a new competitor entered the rink—a company called Rollerblade. The founder was focused on redesigning the market by improving on the existing single-line blade technology. By 1988, Rollerblade sales were up to $10 million. The industry as a whole hit half a billion dollars in sales in the 1990s. The roller skate manufacturers that were ﬂuid enough to respond to the new design made up a large percentage of those industry sales. By capitalizing on the existing skill sets of their workers and manufacturing facilities, the transition wasn’t as cumbersome as it could have been. And what happened to the roller-skating companies that did not have the foresight to strategically plan to address both the threat and opportunity in the industry? They pole-positioned themselves onto an asteroid and took a trip straight to the Death Star. SWOT Audits (Internal and External) Analyzing the internal strengths and weak nesses and the external opportunities and threats is the purpose of a SWOT audit. SWOT audits are most often used to assess the company as a whole, but may also be useful as a tool for department analysis as well. In a company SWOT audit, HR works with the executive team to analyze a bird’s-eye view of the company’s strengths and weaknesses. For example, some companies may have a highly skilled workforce or a high-quality product. Weak nesses may include untrained labor or outdated equipment. Externally, data must be gathered about opportunities that technology, consumer, or customer behav ior is creating, and about threats to a company’s viability, such as a lagging economy. The availability and skill sets of local talent are also factors that should be reviewed during a SWOT analysis. This helps forecast and plan for the human capital needs to successfully achieve business goals. One example is Reno, Nevada, where Fremont, California–based visionary car company Tesla chose to build its battery manufacturing plant. Many industry insiders were a bit surprised by this move because the area was not known for its abundance of manufacturing workers. In order to meet demand, Tesla began hiring large groups of out-of-state workers to staff the plant. This strategy resulted in 350 union construction workers walking off the job to protest the hiring of these nonlocal workers willing to work for less, especially because Tesla had received a billion dollars in tax breaks in exchange for agreeing to hire local workers. In a department-speciﬁc SWOT audit, HR facilitates the identiﬁcation of depart ment-by-department strengths and weaknesses. The management teams of many organizations can provide valuable information about what their needs and goals are. HR can act as a facilitator of the brainstorming sessions with managers to ﬁrst WEBC02 04/02/2017 4:22:41 Page 63 Business Management and Strategy 63 Table 2.1 Factors of a SWOT Analysis Internal Strengths and Factors Weaknesses Employee skill sets Software functionality Marketing capability Brand recognition Leadership effectiveness Process management and quality Cash ﬂow Innovativeness Current capabilities: both the good and the bad Opportunities and Threats External Conditions Factors of competition Regulatory constraints Depth in supplier relationships Industry changes Technological advances Economic factors Current and future needs based on opportunities and A strategic plan will address the gaps. minimizing or eliminating threats explain the process and why being honest and thoughtful about team strengths and weaknesses is so important. HR may also help management identify strategies the department heads would be willing to consider in order to maximize strengths and minimize weaknesses. This information will be highly useful when building out the strategic plan, and represents the thoughts, goals, and needs of the management team who will be charged with implementing the ﬁnal strategies. See Table 2.1 for a look at sample SWOT information. One other important note: Some managers may get caught up in the form of a SWOT analysis at the expense of content. While a strength could very well be phrased as an opportunity, the important thing to consider at this stage is capturing the data, and identifying individual behaviors or department interventions that will drive action after the plan is established. SWOT Audit or Analysis Strategic planning method A strategic planning technique used to assess the internal and external environ ment in which a company operates, its strengths and weaknesses (internal), and opportunities and threats (external) PEST Analysis (External) A PEST analysis may be used to complete the external threat and opportunity portion of the SWOT analysis. PEST (or STEP) is similar to SWOT in that it is used as a ﬁlter through which to assess factors affecting organizational competitiveness. WEBC02 04/02/2017 64 4:22:41 Page 64 A Guide to the Human Resource Body of Knowledge Political The political climate can be both a help and a hindrance to the company strategies. Consider, for example, fair trade agreements. An American company may be considering opening a production facility in India. An analysis of fair trade agreements will identify the need for decent wages and safe working conditions for all locations outside of the home country. Political unrest in some countries may result in decisions to not compete there, or to offer danger premiums for expats on assignment. The availability of tax incentives or stipends at both a local level and a national level is also important to consider. With the suburban saturation of large, big box retailers, there are more urban governments in New York, Chicago, and Wash ington, D.C., that are seeking to shrink their high unemployment numbers and increase their sales/property tax funds by courting companies such as Wal-Mart and Home Depot. A 2014 report by Americans for Tax Fairness found that WalMart saved more than $70 million in direct “economic development subsidies by state and local governments.” These were achieved through a combination of tax abatements, sales tax rebates, infrastructure development, and site improve ments. Regardless of how an individual feels about these types of subsidies, they are a viable consideration for companies seeking cities from which to base or grow their operations. It’s interesting to note that state and local politics has a signiﬁcant impact on a company’s ability to compete. For example, in order for some cities to approve big box stores, they may require payment of a living wage to employees that could exceed the federal minimum wage by several dollars. See the “Corporate Welfare” feature for an example of the bubbling mess of results that can happen when governments and fairness aren’t properly mixed with business. CORPORATE WELFARE Manchester, Connecticut, is a bucolic town characterized by local library sleepovers for kids and autumn activities such as scarecrow-making contests. In 2016, Bob’s Discount Furniture planned to build a brand-new 103,000-square-foot corporate ofﬁce in town, adding about 125 jobs to its existing workforce. In anticipation of the sales and property tax revenue, the state promised a $7 million low-interest loan, a $1.7 million grant to train employees, and up to $11 million in tax credits. Other companies receiving grants such as these are obligated to pay a living wage as part of the deal, but Bob’s was exempted from the living wage requirement. The controversy exploded when it was discovered that the company was controlled by Bain Capital, a multibillion-dollar investment ﬁrm boasting as one of its founders 2012 presidential candidate Mitt Romney. Small businesses claimed that Bob’s was receiving a form of “corporate welfare” out of line with all principles of fairness. Local workers protested the loss of a higher wage. And HR students can use Bob’s as an example of when the political and regulatory environment may cultivate a pro-business climate that— right or wrong—drives organizational decision making. WEBC02 04/02/2017 4:22:41 Page 65 Business Management and Strategy 65 Economic Economic factors affecting organizational competitiveness are built upon the health of the local, state, and federal economy. A town’s low wages or high poverty levels may beneﬁt from a business with a cost leadership strategy as opposed to a higher-priced brand competing on product differentiation. Lagging economic indicators and leading economic indicators are key barometers to use when analyzing the local, national, or global economy. In this way, HR must stay plugged into business and industry news that both track historical trends and forecast economic changes. Social Social and political pressures often join forces to shape a company’s decisions about how and where to compete. In a new political era, for example, companies that used to outsource may face social pressures to remain in the United States, as is the case with Carrier of Indiana. Another example of social and/or political forces is emerging in the area of work/life balance. What was once a more social trend is beginning to stir in bellies of lawmakers, making it prudent for HR to pay attention and advise executives on how to engage. Some examples: As of January 2017, French companies with more than 50 workers must guarantee a “right to disconnect from [work-related] e-mails outside ofﬁce hours” to improve work/life balance. The employment ministry of Germany bars its managers from contacting staff during off-hours, except during emergencies. In 2014, the automaker Daimler began allowing employees to use an automated setting that deletes any work-related e-mails received while on vacation. These companies—whether compelled by law or driven by social pressure—are responding to social needs accordingly through their HR teams. Demographics is a large part of the social impact a company’s strategies may have. Offering domestic partnership beneﬁts in the absence of laws requiring them sends a message about diversity, and inﬂuences the ability of a company to source talent based on values. Designing HR programs that allow for job sharing and worker training may help retain an older workforce. Some cultures have a more parochial view, resistant to American business methods. Adopting global ethics policies about where and when to do business internationally helps form the competitive identity of a company. Technological Technology as a driver for change has not slowed a bit in the past decade or so. From desktop to laptop to mobile to cloud, the rate of obsoles cence in technological tools is rapid. Organizations must balance the need to use technology to compete with the cost of adopting technology, and the resulting training needs of both the workforce and consumer. Security and privacy concerns continue to declare their presence, especially through the “Internet of things” practices (connecting everyday objects to the Internet). Coffee makers connected to a mobile app are great until a hacker uses the connection as a conduit to other, more sensitive data. The electronic storage of conﬁdential employee, customer, WEBC02 04/02/2017 66 4:22:42 Page 66 A Guide to the Human Resource Body of Knowledge and ﬁnancial data must be accounted for when technology is used as a path to achieve any strategic goal. HR plays a vital role in monitoring the legal and regulatory, social, economic, and technical environment for trends and changes. This role may involve creating professional presentations and developing a clear and concise communication style to update managers and executives on emerging trends or recommended changes. This includes using the language of business, the language of HR, and the language of money. Belonging to HR associations, attending local trade meetings, and pursuing continuing education all help HR become (and remain) a trusted business adviser. PEST Analysis Method of gathering external data for organizational analysis Political, economic, sociopolitical, and technological (PEST) data that is gathered and reviewed by organizations for planning purposes Political Unrest Disturbance or turmoil about government issues Unrest, agitation, or turmoil about a government’s actions or beliefs Lagging Economic Indicators Signs that conﬁrm change in the economy Signs that conﬁrm the economy has already changed (for example, the unemployment rate) Leading Economic Indicators Signs that predict the future of the economy Signs that show ahead of time that the economy will change (for example, a predicted rise or fall in interest rates) Demographics Data, information about people Statistics about groups of people that give information such as age, gender, income, and ethnic background WEBC02 04/02/2017 4:22:42 Page 67 Business Management and Strategy 67 Parochialism Narrow interest or view A view of the world that does not consider other ways of living and working Employee Capability/Skills Assessments (Internal) Assessing the internal environment is the bookend to the SWOT and the PEST analysis activities. An important role HR can play is helping the executive team understand the general skill set, experience base, and overall capabilities of the employees. Strategies will be developed that address the gap between where the employees are and where the company needs them to be. As an example, assume the executives at a manufacturing company declare their intent to start marketing and selling products online through websites such as Amazon.com. HR can lead the internal assessment by asking questions such as: What knowledge or skills do current employees have to take on this new method of selling? What new knowledge or skills will be required to successfully roll out this strategy? Should the task belong to the sales team or to the customer services team? Will the employees be paid a commission? What kind of training will be required? Can current employees absorb the job tasks, or will new hires be required? Is this a function that perhaps could be outsourced? How will success or failure be measured? HR may use the data collected from the internal assessment to pivot to the more external questions around the practices of a company’s competitors. Business Metrics Metrics are a fundamental aspect to HR being a contributing strategic partner, particularly because labor and its fruits have a direct impact on proﬁtability and business sustainability. Data collected through metric collection provide tangible information from which to make business decisions and set strategies. This means that HR must identify what information is to be collected, and set up systems that will capture and report the data. Additionally, metrics in and of themselves are just a bunch of numbers. HR must help analyze and interpret the data using internal and external benchmarks to measure the achievement of an organization’s strategic goals. WEBC02 04/02/2017 68 4:22:42 Page 68 A Guide to the Human Resource Body of Knowledge Metrics can be created for nearly any business process. Most will focus on current state, desired state, and baselines. Several data analysis methods exist and are explored over the course of this book. The most common business metrics are reviewed next. Cost-Beneﬁt Analysis (CBA) A cost-beneﬁt analysis (CBA) compares all costs (tangible and intangible) of a program in order to calculate the value of the project. The analysis also includes a review of the lost opportunity cost should a company decide not to proceed with a project. In a CBA, it is recognized that there are future values based on interest and inﬂation; in this case, the current value should be factored in. Because some values are presented in units of time or volume as opposed to just monetary values, scoring a CBA may be easiest by using averages, percentages, or ratios. HR uses CBAs for several activities through all stages of the life cycle of a business. In start-ups, fees or equity structures associated with funding the burden on building up are analyzed. Scenarios for growth are evaluated as companies ﬂourish and the cost of adding staff is compared to realistic measures of capacity and output. Short-range (6–12 months) and long-term (3–5 years) planning horizons are important in the growth stage of the life cycle. Companies entering the maturity stage evaluate the CBA of employee training programs to create depth in knowl edge, and plans are built to survive worst-case scenarios. A declining organization may need to evaluate the retention value of employee beneﬁts when compared with premium and administration costs, or the beneﬁts of outsourcing noncore services as a way to phase out production. Key Performance Indicators (KPIs) As with all measurement, key performance indicators (KPIs) are expressed as quanti ﬁable outcomes that may be used to measure progress toward performance goals. Financial KPIs may be set as part of a master or operating budget expressed as targets for real-time decision making. KPIs for marketing may include customer-acquisition costs or new contact rates. Accounting departments may establish KPIs for timebound activities, such as at month end or accounts receivable over 30, 60, or 90 days. Balanced Scorecards Balanced scorecards attempt to balance data collection and analytics between ﬁnancial and nonﬁnancial measures of success. Cited as a framework to capture WEBC02 04/02/2017 4:22:42 Page 69 Business Management and Strategy 69 metrics, the scorecard reﬂects ﬁnancial measures such as proﬁt, internal business practice measures such as shipping times or productivity, customer measures such as loyalty or satisfaction, and learning activities such as how people are hired and knowledge management goals. The balanced scorecard can be a highly complex system to track and manage. HR should assist companies in building a measurement tool that ﬁrst and foremost is aligned with strategic outcomes while still considering the time it will take to complete, data accuracy, and ease of use. Digital Dashboards Dashboards provide at-a-glance views and status of real-time company perform ance. Often made up of visual graphics such as charts, funnels, or thermometers, dashboards show a snapshot of a particular condition, with links to additional details for drill-down capabilities as needed. While the initial investment costs to build a program that extracts data from multiple sources may be high, the returns in terms of future daily resource consumption are often worth it. Cost-Beneﬁt Analysis (CBA) A process of measuring business decisions A ﬁnancial review of various options to determine if the beneﬁts are greater than the costs KPI Key performance indicator A measure an organization uses to see its progress and show what it needs to improve Balanced Scorecard An analysis technique A method or tool that organizations use to measure the success of their strategies by looking at both ﬁnancial and nonﬁnancial areas WEBC02 04/02/2017 70 4:22:42 Page 70 A Guide to the Human Resource Body of Knowledge Technology at Work HR as a practice has beneﬁted as much as any department in terms of the types of technology available to do the work of the people. Smaller companies may be able to use systems that are narrower in scope, such as a human resource information system (HRIS) or talent management system (TMS) that support recruiting, record keeping, performance management, and other modules. Larger companies may prefer a larger, networked program that links informa tion between departments, such as an enterprise resource planning (ERP) system. Cloud computing has signiﬁcantly grown in use in the past decade. Differ ent from on-premises software that requires a local server and physical updates, cloud computing uses the Internet to manage data. New hire paperwork can be processed through electronic forms and automated work ﬂow, eliminating paper ﬁles and HR time to walk an employee through the packet. Employee self-service technology for beneﬁts allows individuals to access their ﬁles, making simple changes such as updating their personal information, enrolling in beneﬁts, submitting expense reimbursements, requesting time off, and more. Timekeeping can be achieved via mobile apps that allow employees to work with location services to clock in to remote sites. These are just a few examples of how cloud computing can serve many of the back-ofﬁce and administrative functions of HR. Technology has also delivered the company intranet, a private network with access granted to employees only. CEOs may post videos with messages for employees across all geographic sectors. HR may post a people directory with department and employee contact information. Standard operating procedures, reference guides, and the employee handbook may be digitally stored for employee access. Forms may also be retrieved from a company intranet, making this a highly practical tool with direct results on HR efﬁciencies. Special considerations must be accounted for in the use of technology at work. The user interface manages how people interact with the computers. It has impact on the external tools used for processing such as ergonomics, and internal factors such as usability and graphics. If the technology is difﬁcult or cumbersome to use, HR can very quickly erode any time gains by having to train or aid employees in the use of the systems. Managing the employee experience with technology is ever-evolving and has led to ensuring that new technology invest ments provide functionality and an intuitive user experience that does not require any special training. HR has the responsibility to lead and oversee any technological transitions, working hand in hand with internal IT staff (in some cases hiring them) or researching how to best outsource the task, either just for installation or to include ongoing support. WEBC02 04/02/2017 4:22:42 Page 71 Business Management and Strategy 71 Workforce Analytics Workforce analytics are used to predict employee behavior, talent needs, events, and risks while directing the efforts of human resource departments, plans, and programs. Analytics gather data to conduct trend analysis to predict and respond to outcomes. For example, churn models can be built to identify root causes of employee turnover such as length of commute, time to pay raise, and attendance. This data are then cross-referenced with information related to historical attrition trends to predict employees who are likely to separate. Another example is employee beneﬁts offerings. Some large companies are using beneﬁts platforms such as Castlight Health to help their employees make more informed decisions about their health care and wellness choices. This leads to healthier workers and reduced health care costs. Castlight uses data from employee searches on its site to tailor recommendations to the workers. Workforce analytics tracking mechanisms are often built into employee engagement software programs and internal portals, raising questions about employee privacy and employer liability concerns. Decisions about what infor mation to collect, when to collect it, and how to use the information must be considered using a combination of IT, executive, and risk management resources. HR serves in an advisory role representing the ethical and privacy concerns of employees, and implements tools such as disclosure notices to protect their companies from risks. The rapid development of data collection on both a macro scale and a micro scale has been a boon—and a beast—for HR practitioners. Touted in some cases as the solution to the perceived passé practices of employee surveys, focus groups, and the humble suggestion box, HR analytics can help companies improve employee physical and mental health, receive real-time feedback on employee morale, manage performance, and ease the burden of HR administrative tasks. Care must be taken, however, to not turn analytics into an overused machine that deconstructs the talent of people into a numbers report. Analytics can help tell a story ﬁlled with insights to inform decision making, leading to greater organiza tional effectiveness. HR must advocate for practices that leverage data to create solutions that are personal in application—the human in human resource, the person in personnel. This means taking technology and making it user friendly, and humanizing the mass amounts of data that workforce analytics is able to provide. Global Integration In some cases, multinational businesses will build production and manufacturing services in another country, but perform other tasks on a global basis. To do so, WEBC02 04/02/2017 72 4:22:42 Page 72 A Guide to the Human Resource Body of Knowledge shared technology, global communication systems and a global IT infrastructure must be built. A network-based framework includes a robust internal team but also access to global resources that have capacity to deal with local or regional conditions. A global communications system is not just about the hardware connections—it’s also about building connections with the people, seeking to engage with consistent messaging, providing tools and resources to a remote staff, and delivering messages from top management that improve alignment with the employer mission, vision, and values. ERP Enterprise resource planning Computer software that combines information from all areas of an organization (such as ﬁnance, human resources, operations, and materials), and also manages contact with people outside the organization (such as customers, suppliers, and stakeholders) Cloud Computing A type of computing that uses groups of servers and resources, made available on the Internet Using a network of remote servers hosted on the Internet to access, manage, and process data, rather than using a local server Employee Self-Service A method allowing employees to access and update data A trend in human resources management that allows employees to handle many job-related tasks (such as updates to their personnel data) using technology Intranet A private computer network with limited access A restricted computer network that allows only authorized people to access the site (for example, a company intranet that allows only its employees access to its data) WEBC02 04/02/2017 4:22:42 Page 73 Business Management and Strategy 73 Network People or things that are connected A group of people who connect with one another; a computer system that allows people to access shared resources and data User Interface Software that allows people and machines to share information Software that allows a human and a computer to share information Ergonomic Safe and comfortable equipment Designed to be comfortable and avoid injuries (for example, an ergonomic chair or keyboard) Workforce Analytics Metrics used in HR strategic planning Metrics used to determine the effectiveness of HR functions, such as turnover rates, organizational culture, and succession planning Trend Analysis A review of historical data to predict future outcomes Gathering information from the past to identify patterns that will help predict future outcomes Standing on the Shoulders of Giants: Strategies’ Leading Experts In order to be of any use, the data collected from internal and external assessments must be applied toward something. In this way, the competitive landscape is the target. The company must be able to address how to best position itself (and corresponding strengths and weaknesses) to capitalize on opportunities and mini mize or exterminate threats. It is also important to understand how organizational culture plays a role in the evolution of a company’s strategic identity. For application of the outcomes from the strategic planning process, we look to the experts. WEBC02 04/02/2017 74 4:22:42 Page 74 A Guide to the Human Resource Body of Knowledge Table 2.2 Facebook through the Lens of Porter’s Five Forces Force Description Competitive rivalry within Innovation, change, and rapid entry of new technology and the industry platforms make this force moderate to high. Bargaining power of Switching costs to users are low, making it easy to try customers something new and making the bargaining power of customers high. Threat of new entrants Building and marketing new websites/platforms requires signiﬁcant investment of resources, so barriers to entry are moderate. Change from desktop to mobile device is a threat that must drive innovation and change. Bargaining power of Hardware, software, and mobile apps all beneﬁt from a suppliers large account such as Facebook, so bargaining power of suppliers is moderate to low. Threat of substitute New sharing sites may emerge that are more attractive to products users; other platforms may solve sharing issues (messaging, videos) that take away from Facebook user experiences. Should Facebook be all sharing to all people? Note: Adapted from Trevis Team, “Facebook through the Lens of Porter’s Five Forces,” Forbes, November 28, 2014. Porter’s Five Forces: Competing for Proﬁts Michael Porter examined the landscape from which industry rivals compete. His fundamental premise is that the greater the power of the force, the lower the proﬁtability. Porter describes ﬁve competitive forces that deﬁne the ﬁeld parame ters that all organizational teams must address in order to develop a winning strategy (Table 2.2). 1. Threat of new entrants This force refers to the entry of new competitors to an industry. High barriers to entry protect an industry from new rivals. In industries with high barriers to entry, this force is not a signiﬁcant threat. In industries where there are low barriers to entry, a plan for dealing with new competition must be built. 2. Bargaining power of vendors/suppliers In this factor of competition, the ability of a material supplier is addressed. Vendors/suppliers that have multiple cus tomers to whom they may sell their products have a higher degree of bargaining power than ﬁrms with only a single customer or group. From a threat WEBC02 04/02/2017 4:22:42 Page 75 Business Management and Strategy 75 perspective, a company that is reliant on a single supplier may need a backup plan in place should the supplier go out of business or be unable to meet demand. Additionally, the company may need to charge higher prices for its products to compensate for the supplier markup. If supplier power is high, proﬁts will be low because costs of goods will go up. 3. Bargaining power of ﬁrm’s customers Customers can be ﬁckle friends, and their needs drive many strategic considerations. If customers want a higher-quality product, for example, they may be willing to pay a higher price, and a differenti ation product strategy makes sense. Powerful buyers will use their collective force to drive prices down, affecting ﬁrm proﬁtability. 4. Threat of substitute products Substitutes for any product will curb industry proﬁtability overall. Substitutes are not exact replicas of a product or service, but rather a product or service that solves the same or a similar problem. Consider the rise of instant movie streaming from home. Streaming services are a substitute for buying movies, and are a direct rival to DVD manufacturers. 5. Intensity of rivalry among competing ﬁrms Price competition, new product introduction, and product promotions are just a few examples of activities companies will use to compete with their fellows. If rivalry is intense, businesses will make decisions based on winning, and will erode proﬁts at the expense of the rivalry. Proﬁts diminish either through extreme cost cutting or by increasing the cost to compete with each other. Porter is also the leader in the generic strategy way of thinking. Instead of companies needing expensive consultants to build and shape custom plans and strategies, Porter argues that there are really only two options: cost leadership and differentiation. Compare a Nissan Versa to a BMW sedan. What is the ﬁrst difference that comes to mind? If you said price or quality, then you understand these two strategies. Cost leadership is the strategy companies adopt when they want to be the low-priced leader in an industry. The company structure may include large-scale production facilities, leveraging suppliers, and focusing on low overhead. HR activities that support this strategy include workforce planning to manage labor costs and training. For example, McDonald’s has a global training center—Hamburger University—that teaches franchise owners and employees how to streamline restaurants’ efﬁciencies to keep costs low. In differentiation, a company is seeking a narrower target market, one that creates customer loyalty through high-quality products or high brand name recognition. HR activities in this strategy may include product knowledge and sales technique training, or investment in paying for external talent. WEBC02 04/02/2017 4:22:42 76 Page 76 A Guide to the Human Resource Body of Knowledge Vendor/Supplier Service provider, seller A person or company that sells services and/or products, such as a recruiting ﬁrm, ﬁnancial consultant, or relocation company Leverage The ability to multiply the return on an investment The act of applying a small investment to bring a high level of return Henry Mintzberg There is so much to say about thought leader and inﬂuencer Henry Mintzberg, all of which is amazing. Within the framework of strategic management, Mintzberg brings much to the conversation. In 2007 he cofounded a group called Coaching Ourselves, drawing upon the collective wisdom of experts regarding managing on a global scale. He distinguishes between the words leader and manager, but not as polar opposites. Mintzberg declares in his video “On Management, Organiza tions and More” that today’s leaders must manage, and today’s managers must lead—one is not better or preferred over the other. Additionally, he calls upon management practices and leadership development to be more holistic rather than focusing solely on individual development strategies. The shift away from personnel management to human resource management also seems to be detrimental to the overall view of employees, managers, and strategic efforts of employers. The term human resources positions people as assets to be manipulated, eroding the psychological contract of the past. In order to compete on a global scale, Mintzberg believes that HR and its leaders must become more worldly—a term combining sophistication with practicality, not just by geographic operations. Piggybacking on Mintzberg’s work in his book Strategy Safari, here are a few salient viewpoints of strategic management through the lens of Sun Tzu’s Art of War: When ten to the enemy’s one, surround him.... When ﬁve times his strength, attack him.... If double his strength, divide him.... If equally matched, you may engage him.... If weaker numerically, be capable of withdrawing.... And if in all respects unequal, be capable of eluding him. —Sun Tzu, from The Art of War WEBC02 04/02/2017 4:22:42 Page 77 Business Management and Strategy 77 This formula is a way to understand how strategy must be linked to what your competitors are doing. If your competition is a large megaﬁrm with hundreds of employees and unlimited lines of credit, you may want to shrink the target by differentiating a product or service as opposed to trying to outperform a cost leadership strategy. Now the elements of the art of war are ﬁrst, measurement of space; second, estimation of quantities; third, calculation; fourth, comparisons; and ﬁfth, chances of victory. —Sun Tzu, from The Art of War In forecasting success or defeat, Sun Tzu included two highly relevant factors for comparing yourself to your competitors: “On which side are ofﬁcers and men more highly trained? In which army is there the greater constancy both in reward and punishment?” Depending on the answers to these questions on internal strengths or weaknesses, your strategy may be to train a stronger workforce or build out a more effective compensation program. It may also identify the need to help supervisors be more consistent in their feedback and discipline. According as circumstances are favorable, one should modify one’s plans. —Sun Tzu, from The Art of War A strategic plan may need to change; that is why incorporating milestones into a plan is so important. Businesses that can respond quickly to changing market conditions are better able to control the outcomes—either positive or negative. Engaging in planning efforts that are scenario based, such as “if this, then that,” results in a critical guide for employees once the plan is in action. Edgar Schein The management philosophies of Edgar Schein lean heavily toward organizational culture and its leaders. Schein, a professor at the MIT Sloan School of Management, describes a model of organizational culture that encompasses three levels: 1. Artifacts Artifacts are organizational characteristics that are seen, heard, or felt. HR inﬂuences over artifacts include company dress codes and codes of conduct. Management modeling and training are also inﬂuenced by the efforts of human resources. 2. Values Values are communicated through a company’s mission, vision, and goals, as well as by what the company says it will or won’t do. Consider safety rules and whether a manager adheres to them. WEBC02 04/02/2017 78 4:22:42 Page 78 A Guide to the Human Resource Body of Knowledge 3. Assumed values Assumed values are the unconscious perceptions employees have about what their employer values. These undercurrents may be communi cated through management behaviors regarding what gets rewarded and what gets disciplined, the functionality of teams, and the depth of relationships between staff. These concepts are often taught using an onion model in which layer 1 is easily addressed and changed. The deeper the culture is rooted, the tougher the behaviors are to identify and affect. Geert Hofstede A social psychologist by day, Professor Hofstede pioneered work related to the inﬂuences of characteristics such as national origin, gender, and social class on individual and organizational behaviors. While both national cultures and organi zational cultures may be viewed through the ﬁlters of Hofstede’s dimensions, he cautions that national and organizational cultures are not the same, but rather share their makeup with a different mix of values, preferences, and practices. HR’s understanding of these preferences shapes policies and programs that will have an actual effect on group behaviors. Hofstede’s dimensions include: Power distance Power distance refers to the amount of equality (or inequality) between the leaders and the workers, also called the distribution of power. Companies and cultures with low power distance are more likely to have executives, managers, and employees working closely together to achieve business outcomes. In companies with high power distance, one would expect to ﬁnd traditional hierarchies and greater disparity between executive and individual pay levels. Uncertainty avoidance Tolerance for uncertainty is higher in some cultures than others. From a workplace perspective, individuals with a high uncertainty tolerance will do better in innovative and creative companies that offer support for trial and error. Those with a low tolerance for uncertainty prefer environments with structure, rules, and standard methods of operation. Individualism versus collectivism Countries and companies with high degrees of individualism value the parts more than the whole. Independence, autonomy, and individual rewards are preferred by these groups. Collectivist cultures may value rewards for loyalty and prefer collaborative business environments. Long-term versus short-term orientation Individuals with high degrees of longterm orientation are big on self-discipline, willing to sacriﬁce rewards of today in order to achieve the greater things of tomorrow. Short-term-oriented individuals value freedom and thinking for oneself. WEBC02 04/02/2017 4:22:42 Page 79 Business Management and Strategy 79 Indulgence versus restraint The most recent addition to Hofstede’s original four, this dimension was added in 2010. It references the degree toward which countries and companies have a need for immediate gratiﬁcation as opposed to suppressing gratiﬁcation in accordance with cultural expected standards of behavior. This dimension is rooted ﬁrmly in degrees of control over one’s work life and personal outcomes. Hofstede notes that although cultures remain relatively stable over time, they can shift in response to internal and external forces. This ties directly in with the relevance of the environmental scanning process described earlier. HR professio nals must have a strong sense of what is going on both in the HR industry and in the industries of the businesses they serve. Additionally, HR should be aware of and help managers understand the presence of cultural bias, which is based in assumptions that what works in one company or at another location should be a one-size-ﬁts-all solution across any type of border. Additional work on cultural differences came from Edward T. Hall, an anthropologist. He found that high-context cultures are more likely to derive meaning from words and actions, as opposed to low-context cultures in which individuals extract explicit meaning from the words of others. High-context organizational cultures are more likely to exist where there is longevity and tenure, as the element of time is a teacher of what to expect when interacting with one another. Power Distance The degree of hierarchy A term Geert Hofstede uses in his cultural theory to describe hierarchical relationships between people in a culture. For example, high power distance means there are strong hierarchical relationships. Low power distance means greater equality and accessibility among members of the population. Uncertainty Avoidance The degree of tolerance for risk and preference for clarity One of Geert Hofstede’s cultural dimensions, uncertainty avoidance describes the degree to which cultures accept ambiguity and risk. For example, in cultures with high uncertainty avoidance, people prefer clear, formal rules. In cultures with low uncertainty avoidance, people are comfortable with ﬂexible rules. (continued ) WEBC02 04/02/2017 4:22:42 80 Page 80 A Guide to the Human Resource Body of Knowledge (continued ) Individualism Self-reliant, personal independence Cultural belief that the individual is the most important part of society; one of Hofstede’s cultural dimensions, the opposite of collectivism High-Context Culture Soc

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