Business Management and Strategy PDF

WEBC02 04/02/2017 4:22:37 Page 33 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...

WEBC02 04/02/2017 4:22:37 Page 33 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