Lecture 1 - Strategic HR

Strategic Human Resource Management Dr Reena Singh 1  Strategic Human Resource Management 1 – HR in the 21st Century 2 – The Strategic Role and Outcome of HRM 3 - HR Strategies & Organizational Performance 3  HRM and the 21st Century Due to I...

Strategic Human Resource Management Dr Reena Singh 1  Strategic Human Resource Management 1 – HR in the 21st Century 2 – The Strategic Role and Outcome of HRM 3 - HR Strategies & Organizational Performance 3  HRM and the 21st Century Due to Internet technologies, organizations are undergoing a complete transformation. The 21st century organization must adapt itself to management via the web. Intellectual capital will be critical to success. Advantage of bringing new technologies to the market will be shorter. Technologies will let competitors match them almost immediately. In such times, it will be critical to attract and retain the best thinkers. Retaining and attracting the top talent will require more than just paychecks. It will require a culture of empowering people, and a reward system that rewards the best as if they were the owners of the company. Intellectual capital will be called on from around the globe. A global corporation might be based in the US but does its software programming in Sri Lanka, engineering in Germany, its manufacturing in China, and is linked via the Internet to allow employees to interact and work in real time. 4  HRM and the 21st Century Corporation 20th Century Corporation 21st Century Corporation Predicated itself on stability Predicated itself on constant change Organized around rigid hierarchies Organized around networks and teams Built on self-sufficiency Built on shifting partnerships and alliances Organizational chart defined as a Organizational chart more likely to be a shrinking pyramid leading to the CEO flat web, intricately woven that links partners, employees, external contractors, suppliers, and customers in various collaborations Constructed on bricks and mortar Constructed on knowledge and technological advantages. 5 6 Introduction to HRM Human Resources Strategy in a firm is a firm’s deliberate and planned use of human resources to help it gain a competitive advantage. The HRM strategy of a firm is its grand plan to ensure that it effectively uses its people to accomplish its mission. 7  HUMAN RESOURCE MANAGEMENT Employer/Organizational Objectives Organizational Structure Job Identification, Analysis & Design Job Specification (Before Joining) Job Description (After Joining) Tasks, Activities, Responsibilities, Accountabilities Power (Financial/Administrative) Reporting Structure Manpower Planning, Recruitment, Induction Training & Development Employee Objectives JOB Employer Objectives Work (Scope & Depth) Growth in Growth in Services Goods & Services Family & Self Customer Satisfaction Employee – Employer Revenue Generation Profession EMPLOYER EMPLOYEE Relationship Profits Career Return on Equity Security (ROE) Social Status Performance Compensatio Expansion of Business Management n & Rewards Corporate Reputation Salary Performance Evaluation Benefits Increments Facilities and Perks Bonus Allowances Incentives Professional, Career, Societal Career Development Recognition Ultimate Potential Internal + External (Mkt) Equity 8 9 10 11 12  Outcomes of HRM Practices HRM practices make an important practical difference in three key organizational outcomes. 1. Productivity 2. Quality of Work Life 3. Profit : Total Revenue minus the Total Cost 13 Outcomes of HRM Practices: 1. Productivity A measure of the output of goods and services relative to the input of labor, capital, and equipment. Higher productivity  Leads to higher wages without boosting inflation.  Is not working harder, it is working smarter.  Is about doing more with fewer people, less money, less time and space, and fewer resources. 14  MORE PRODUCTIVE ORGANIZATIONS GET MORE GOODS AND SERVICES FROM A GIVEN AMOUNT OF LABOR, CAPITAL, EQUIPMENT. 15 Outcomes of HRM Practices: 1. Productivity Improvement Rebuild employee loyalty. Establish a clear link between rewards and production. Say no to ‘Quick Fix’ approach. Emphasize on Continuous Improvement. 16 Outcomes of HRM Practices: 2. Quality of Work Life Two ways of looking at Quality of Work Life (QWL) Organizational Conditions and Practices such as promotion from within, democratic supervision, participative management, employee involvement, safe working conditions, mutual trust, team work. Employees’ Perceptions that they are respected, relatively well satisfied, and able to grow and develop as human beings and professionals. 17 18 Outcomes of HRM Practices: 3. Profit Management Systems that produce profits through people share the following dimensions: 1. Employment Security. 2. Selective Hiring. 3. Self-managed teams and decentralization. 4. High Compensation contingent on organizational performance. 5. Extensive Training, Development and Professional grooming. 6. Reduced differences in status. Respect for competence and performance. 7. Sharing of information, effective communication systems. 8. Employee Care and Satisfaction. 9. Trust. 19 Outcomes of HRM Practices: 4. Roles of HR Professionals Today “ The greatness of an Organisation is due to the Greatness of its People”, Eiji Toyoda 1. Strategic Partners: work with multiple stakeholders to achieve business plans. 2. Innovators: create an environment that supports continuous learning and improvement. 3. Collaborators: create win-win situations with internal and external stakeholders. 4. Change facilitators: anticipate the need for change, think, conceptualize, articulate, execute and energize organization to bring change. 20 HRM and Corporate Strategic Goals Human Resource Management is essential to advance a firm’s strategic goals. CORPORATE Linking Corporate Strategic Goals STRATEGIC with GOALS HRM CORPORATE STRATEGY HR STRATEGY HR TACTICS HR HR PLANS POLICIES, SYSTEMS, SOPs HR PRACTICES 21 Meaning of Strategy Future oriented plan for interacting with competitive environment to achieve organisational goals Strategy is framework for managerial decisions Strategy reflects a firm’s  Awareness of how, when and where it should compete  And for what purpose it should compete The focus is on managing competition 22 Business Environment in India prior to 1990 (Strategies were not required at Business was operating in a highly protected all) environment Organisations had no rivals to encounter No challenges to face and No problems to worry about Whatever produced was grabbed by markets Strategies hardly had any relevance during those days. 23 Strategic Management Refers to process of crafting strategies, their implementation and evaluation of their effectiveness At the core of Strategic Management Process is team comprising of CEO aided by the top executives. 24 Team for Strategic Management Process Core team that formulated and executed the strategic takeover of Corus by Tata Steel consisted of Ratan Tata, CEO Muthuraman, MD Tata Steel Arun Kumar Gandhi, Head of M&A cell of Tata Group Kaushik Chatterjee, VP Finance Tata Steel 25 SHRM Definition Link all HR Activities to the Organisation’s Strategic Objectives “Strategic HRM is an approach that defines how the organization’s goals will be achieved through people by means of HR strategies and integrated HR policies and practices.” Strategic human resource management : a guide to action, Michael Armstrong, 4th ed. Basics Of Strategic HRM Focus on HR Programs to enhance overall organizational performance Involve HR in organisation strategic planning from start Pro-actively participate in big picture decision making on mergers, acquisitions, and downsizing Redesign organizations and the work processes to enhance overall organizational performance Measure and document financial results of all HR activities HR’s Strategic Role Successful firms align their HR strategies and tactics with: 1. Environmental Opportunities and Threats. 2. Business Strategies. 3. Organizational Unique Characteristics. 4. Organization’s Competence. 28 Roles of HR executives 1. HR should define an organisation’s architecture ( It should identify the underlining way of the organisation of doing Business) Architecture is a judicious mix of  Strategy  Systems  Rewards  Processes  People  Styles  Skills and  Shared Values After the Architecture is defined it needs to be articulated explicitly. (without this clarity managers tend to be more myopic about how the company runs.) 29 Roles of HR executives 2. HR needs to be accountable for conducting an organisational audit. Audit helps identify which component of Architecture should be changed in order to facilitate strategic execution. 3. HR should identify methods for renovating the parts of the organisational Architecture that need it. HR manager should take the lead in proposing, creating and debating best practices that can help implement strategies. 4. HR should take stock of its own work and set clear priorities. HR staff has several initiatives in its sight- pay for performance, global team work and action learning development experiences.-should join hands with line managers to continously assess the impact and importance of each one of these initiatives. 30 Planning and Implementing Strategic HR Strategic HR Planning involves: 1. Formulation of HR strategies 2. Designing Programs and Tactics 3. Execution 4. Monitoring Results 31 The Benefits of HR Planning 1. Encouragement of proactive rather than reactive behavior 2. Explicit communication of Company Goals 3. Stimulation of critical thinking and ongoing examination of assumptions 4. Identification of gaps between Current Situation and Future Vision 5. Encouragement of Line Manager’s Participation 6. Identification of HR constraints and opportunities 7. Teamwork and creation of common bonds 32 The Challenges of Strategic HR Planning 1. Maintaining a competitive advantage 2. Reinforcing overall business strategy 3. Avoiding excessive concentration on day-to-day problems 4. Developing HR strategies suited to unique organizational features 5. Coping with the environment 6. Securing management commitment 7. Translating the strategic plan into action 8. Combining intended and emergent strategies 9. Accommodating change 33 Selecting HR Strategies to Increase Firm’s Performances HR Strategy’s effect on a firm’s performance depends on how well it ‘fits’ with other factors Fit refers to the consistency and compatibility between HR strategies and other important aspects of the organization 34 Fit with Organization Strategies Corporate Strategy is referred to as the mix of businesses a corporation decides to hold and the flow of resources among those businesses. Business Unit Strategies are those that are formulated and implemented by a firm that is relatively autonomous, even if it is part of a larger corporation. 35 36 HR Strategies to Fit Three Major Types of Business Strategies 37 HR Strategies That Fit Two Major Types of Business Strategies 38 Fit with the Environment HR strategies should help the organization better exploit environmental opportunities or cope with the unique environmental forces that affect it The relevant environment can be measured in terms of four dimensions: 1. Degree of uncertainty: how much accurate information is available to make appropriate business decisions 2. Volatility: how often does the environment change 3. Magnitude of change: how drastic the changes are 4. Complexity: how many different elements in the environment affect the firm either individually or together 39 HR Strategies for Firms with Different Environmental Characteristics 40 Fit with Organizational Characteristics 1. The production process for converting inputs into outputs Routine production process benefits from HR strategies that emphasize control example: Specific job description and job specific trainings Firms with non-routine production processes such as advertising firms, custom printers, and biotechnology companies, benefit from flexible HR strategies that support organizational adaptability, quick response to change and creative decision making example: Broad job classes, loose work planning, and generic training 41 Fit with Organizational Characteristics 2. The Firm’s Market Posture Firms that experience high sales growth and engage in product innovation for a wide market segment benefit from HR Strategies that support growth and entrepreneurial activities example: External recruitment or buying skills, decentralized pay decisions, customized appraisal Firms with low rates of sales growth and limited product innovation for a narrow market segment benefit from HR strategies that emphasize efficiency, control, and firm specific knowledge example: Internal recruitment or ‘making skills’. On-the-job training, and high dependence on superiors 42 Fit with Organizational Characteristics 3. The firm’s overall managerial philosophy Companies whose top executives are risk-averse and operate with an autocratic leadership style, and are inwardly focused use HR strategies that match this outlook example: Seniority based pay, formal hiring and socializing of new employees, selection decisions made by the HR department and use of top-down communication channels. Management characterized by high risk taking, participation, egalitarianism, and external, proactive environmental orientation use HR strategies that fits this outlook example: include variable pay, giving supervisors a major role in hiring decisions, up-and-down communication channels, and multiple inputs for performance appraisals 43  Fit with Organizational Characteristics 4. The firm’s organizational structure Highly formal organizations that are divided into functional areas like marketing, finance, production, etc, and concentrate decision making on top: HR strategies for such organizations include a control emphasis, centralized pay decisions, explicit job descriptions, and job-based pay. Firms whose structures are less regimented benefit from HR strategies that include informal hiring and socializing of new employees, decentralized pay decisions, broad job classes and individual-based pay. 44 Fit with Organizational Characteristics 5. The firm’s organizational culture Companies that foster an entrepreneurial climate have loose work planning, informal hiring and socializing of new employees and variable pay. Firms that discourage entrepreneurship generally prefer a control emphasis, detailed work planning, formal hiring and socializing of new employees, and fixed pay. Firms with emphasis on moral commitment- the extent to which a firm tries to foster a long-term emotional attachment between the firm and the employees have emphasis on preventive vs. remedial disciplinary action to handle employee mistakes, and explicit ethical codes to monitor and guide behavior. Firms that are low on moral commitment rely on authoritarian relationship between employee and company. 45 Fit with Organizational Capabilities Distinctive competencies of a firm are its capabilities such as technology, management systems, reputation, etc, that give it a Competitive Edge HR strategies should enhance a firm’s performance by: 1. helping the company exploit its specific advantages or strengths while avoiding weaknesses 2. assisting the firm in better utilizing its unique blend of human resource skills and assets 46 Choosing consistent and appropriate HR tactics to implement HR strategies The best-laid HR strategies may fail when specific HR programs are poorly chosen or implemented In addition to fitting with each of the four organizational characteristics; organizational strategy, environment, organizational capabilities and characteristics, a firm’s HR strategies should be mutually consistent HR strategies are likely to be successful if they reinforce one another rather than work at cross-purposes. example: Working in teams, but traditional individual based performance appraisals 47 Choosing Consistent and Appropriate HR Tactics to Implement HR Strategies 48 Reckitt Benckiser diagram 49  DO (2) Interviews Questionnaire Collection of Existing PLAN information (Secondary data) (Learn the existing condition) (1) Listen Observation of employee behavior Individual Confirm Look (Deepen understanding with personal presence) Pre-Study On the Industry METHODOLOGY Formulate a Gap Analysis CHECK Do Think Check the (learn by experience) organization (3) capabilities to fill GAPs Suggestions Brain Storming with the HR manager ACTION (promote better understanding through discussion) KAIZEN Action Plan (4) 50 STEP 1: (PLAN) Individual Pre Study on the Industry what are the practices of the HR Department. STEP 2: (METHODOLOGY) 1st collection of the existing information in the form of secondary Data CONFIRM: of Company. LISTEN: Interview from the Managers & Heads of the company. Development of questionnaire & asking the questionnaire from different levels of people from the industry. Visual observation of the behavior of people at the LOOK: industry. THINK: Brain Storming with the existing HR people to come up with Kaizen. Formulate a GAP analysis of the HR lackings. (Which have been learnt from DO: previous brain storming sessions) STEP 3: (CHECK) After doing the GAP Analysis check the organizational capabilities so that the GAPs can be filled accordingly. STEP 4: (ACTION) Formulation & proposing of the KAIZEN Action Plan to enhance HR practices. 51 Competencies Required of HR Department to Become a Full Strategic Partner 52