Please click here to access the new HRM Failures case associated with this chapter. HRM
Failures features real-life situations in which an HR conflict ended up in court. Each case
includes a discussion questions and possible answers for easy use in the classroom. HRM
Failures are not included in the text so that you can provide your students with additional
real-life content that helps engrain chapter concepts.
Chapter Summary
This chapter describes the concept of strategy and develops the strategic management process.
The levels of integration between the HRM function and the strategic management process
during the strategy formulation stage are then discussed. A number of common strategic models
are reviewed, and, within the context of these models, types of employee skills, behaviors, and
attitudes are noted. Ways in which HRM practices aid the firm in implementing its strategic plan
are described. Finally, a model that views the HRM function as a separate business within a
given firm is presented, making it easier for the student to understand the need for strategic
thinking among HRM practitioners.
Learning Objectives
After studying this chapter, the student should be able to:
1. Describe the differences between strategy formulation and strategy implementation.
2. List the components of the strategic management process.
3. Discuss the role of the HRM function in strategy formulation.
4. Describe the linkages between HRM and strategy formulation.
5. Discuss the more popular typologies of generic strategies and the various HRM practices
associated with each.
6. Describe the different HRM issues and practices associated with various directional
strategies.
Extended Chapter Outline
Note: Key terms are boldface and are listed in the “Chapter Vocabulary” section.
Opening Vignette: Samsung Rises
Samsung, much to the surprise of many people, is the #1 make of cell phones both in the US and
worldwide – not Apple. The company was known in the 1960’s as a cheap propducer of TV’s
and air conditioners. After an embarrassing gaff in the 1990’s involving the compant’s Chairman
sending out their own mobile phones as gifts (only to later learn that they did not work!), the
company made the conscious decision to refocus themselves on quality and innovation. They
achieved their goals through strategic management of their HR function – passing on hiring for
low-cost and focussing on R&D scientists and marketing specialists who could help change the
company’s direction, and changes the company’s culture through the implementation of new HR
systems that included performance-based pay, merit-based promotions, and careeer moves.
Discussion Question
1. Given that Samsung made some pretty radical strategic shifts in the past, what are the
HRM implications for this shift, and how should HRM professionals within Samsung
respond?
Clearly, the re-focusing on the quality and innovation strategies will impact the
workforce. At a minium those employees who work in parts of the company that focus
I. The Samsung vignette provides insights about how Human Resource practices must be
integrated into the business model, and that HR practices must take into account the
changing environment of business. It is unlikely that Samsung anticipated neither the
critical nature of quality in the cell phone market nor the breadth of the explosion of the
industry and demand for cell phones when it established its quality and innovation
strategies. However, approaching these situations through an HR strategy focus allowed
the company to capitalize on these changes in an effective and efficient manner.
II. What is a Business Model?
A. A business model is a story of how a firm will create value for customers, and
B. There are a few accounting terms to familiarize students with in order to
understand a business model. Fixed costs are generally considered the costs that
Competing Through Globalization:
GM in China
Globalization can present companies with many challenges and benefits. Got GM, the growth of
the Chinese automobile market has presented a tremendous opportunity. Investing heavily in
factory facilities and test tracks, GM has positioned itself to be prepared for the anticipated sales
growth to 21 million cars in 2013 (compared to an estimated 15 million cars in the US). In this
case, GM has not focused on globalization simply to capitalize on “cheap labor”, but rather
moving into markets where consumer demand is growing.
Discussion Question
1. Explain the temptation for companies to move their operations to other countries – in this
case Chine, and then explain why this might not be an optimal strategy. How might this
impact a college student as they prepare for graduation and entrance into the workforce?
A global economy has become ubiquitous in business and in the world of work and as
such, college graduates need to be skilled in operating in this environment. However,
This vignette provided an example of why one company, who realized that they could
III. What Is Strategic Management?
A. Strategic Management is a process for analyzing a company’s competitive
B. Strategic human resource management is the pattern of planned human
C. Components of the Strategic Management Process—There are two distinct phases
of this process (Figure 2.2 in the text).
1. Strategy Formulation: During this phase, strategic planning groups
2. Strategy Implementation: During this phase, the organization follows
D. Linkage between HRM and the Strategic Management Process: The strategic
Competing Through Technology:
The Risks of Technological Innovation
Boeing made some bold moves in 2004 be beginning work on the most technologically
sophisticated airplane in commercial aviation history. The introduction of the
“Dreamliner” came with some bumps. However, innovation requires risk taking and
without taking risks, a company runs the risk of becoming obsolete.
Discussion Question
1. Explain the temptation for companies to endeavor in radically innovative projects,
and then explain why this might not be an optimal strategy. How do moves like these
impact the labor market and landscape for graduating college students?
The reason that it is tempting for companies to accept the risk of introducing radically
innovative technologies is because of the potential for great returns. As was
E. The Role of HRM in Strategy Formulation—Both strategy formulation and
strategy implementation involve people-related issues and therefore necessitate
the involvement of the HR function. Four levels of integration exist between the
HR function and the strategic management function, as shown in Figure 2.4 in the
text).
1. Administrative Linkage—This is the lowest level of integration, in which
2. One-Way Linkage—The firm’s strategic business planning function
3. Two-Way Linkage—This linkage allows for consideration of human
4. Integrative Linkage—This is based on continuing, rather than sequential,
III. Strategy Formulation—This includes five major components (see Figure 2.5 in the text).
1. A mission is a statement of the organization’s reasons for being; it usually
specifies the customers served, the needs satisfied and/or the value received by
the customers, and the technology used.
2. Goals are what the organization hopes to achieve in the medium– to long-term
future; they reflect how the mission will be operationalized.
3. External analysis consists of examining the organization’s operating environment
to identify strategic opportunities and threats.
4. Internal analysis attempts to identify the organization’s strengths and
weaknesses.
5. Strategic choice is the organization’s strategy, which describes the ways the
organization will attempt to fulfill its mission and achieve its long term goals.
Example: Merck & Co.’s Mission and Values — Table 2.1 illustrates Merck &
Co.’s
SWOT Analysis is the combination of internal and external analyses (internal
strengths and weaknesses, and external opportunities and threats.) Table 2.2
illustrates the summary of a SWOT analysis for Google, Inc.
Strategic choice refers to the organization’s strategy and the ways an
organization will attempt to fulfill its mission and achieve its long-term
goals.
Integrity in Action:
Samsung’s Equal Opportunity Employment
When Samsung transformed itself, part of that transformation was achieved through a
change in their value system. This change in values came from the top of the
organization, Chairman Lee. Lee’s vision of a value for “humanism” lead Samsung to
become the first Korean company to implement equal opportunities for women in 1993
allowing women to not only exhibit their abilities, but to be paid on the same wage
system as their male counterparts.
Discussion Question
1. Explain the relationship between Chairman Lee’s visions for value and the change in
company policies?
A company’s value system comes in part from the leadership behaviors exhibited by
IV. Strategy Implementation—Five variables determine success in strategy implementation
(see Figure 2.6 in the text).
HR has responsibility for three of these: task, people, and reward systems. The role of
the HRM function is one of (1) ensuring that the company has the number of
appropriately skilled workers and (2) developing “control” systems that ensure that those
employees contribute to goal achievement. This strategy is implemented through various
HR practices (see text Figure 2.7).
A. HRM Practices—The HR function has six “menus” of practices from which
companies can choose to fit their strategic direction (see Table 2.3 in the text).
1. Job analysis is the process of getting detailed information about jobs. Job
design deals with making decisions about what tasks should be grouped
into a particular job. Jobs can range from very narrow sets of tasks that
demand a limited set of skills to a complex array of tasks that requires
multiple, high-level skills. Many jobs today are being broadened.
2. Recruitment is the process through which the organization seeks
applicants for employment. Selection refers to the process of identifying
applicants with the appropriate knowledge, skills, and ability to help the
company achieve its goals.
3. Frequently, employees need new skills when jobs are modified. Training
refers to a planned effort to facilitate learning of job-related knowledge,
skills, and behavior. Development involves the acquisition of knowledge,
skills, and behavior that improves employees’ ability to meet the
challenges of a variety of existing jobs or jobs that do not yet exist. TQM
programs require extensive training of employees.
4. Performance management is used to ensure that employee activities and
outcomes are congruent with the organization’s objectives.
5. Pay structure, incentives, and benefits have an important role in
implementing strategies. High pay levels help to attract and retain
high-quality employees. Performance-based pay plans help motivate
appropriate performance. The pay system includes the base pay as well as
incentives and benefits.
6. Labor and employee relations refer to the general approach the company
takes in interacting with its employees, whether unionized or not.
Companies can choose to treat employees as assets, resources to be
invested in for the long term.
B. Strategic Types—Several different “typologies” of strategies exist.
Porter’s Generic Strategies—Michael Porter has hypothesized that competitive
advantage comes from creating value by (1) reducing costs (overall cost
leadership) or (2) charging a premium price for a differentiated product or service
(differentiation).
C. HR Needs in Strategic Types—Different strategies require different types of
employees with different skills and also require employees to exhibit different
“role behaviors.” Role behaviors are the behaviors required of an individual in
his or her role as a jobholder in a social work environment.
1. Cost strategy firms seek efficiency and therefore carefully define the skills
they need in employees and use worker participation to seek cost-saving
ideas.
2. Differentiation firms need creative risk takers.
Evidence-Based HR: Steel Mini-Mills
A recent study of the different types of HRM used by different type of mini-mills found that
mills that pursued a low-cost strategy used HRM systems that were characterized by high
centralization, low participation, low training, low wages, low benefits, and highly contingent
pay. Differentiator mills, on the other hand, used HRM systems that were the opposite on each
of those dimensions. A later study discovered that high-commitment HRM systems resulted in
higher productivity, lower scrap rates, and lower turnover.
Class Exercise
Write on the board the following terms:
High centralization
Low participation
Low training
Low benefits
Highly contingent pay
Have students reflect on each one of these concepts, and have them write down their
impressions about what each of these terms would mean to them as an employee. Give
students time to reflect on each term. Then, facilitate a large group discussion. Ask
students what would be like to work in an organization that had each of these qualities.
Then, close the discussion by highlighting the relationship between a strategy and the
corresponding Human Resource Management practices. These HRM practices would
complement a low-cost strategy because they in effect minimize labor costs by providing
minimal commitment to employees.
D. Directional Strategies—Five types follow. The human resource implications of
each of these strategies are quite different:
1. External growth strategies include vertical and horizontal integration as
well as diversification.
2. Concentration strategies focus a company on what it does best in its
established markets.
3. Internal growth strategies include market development, product
development, innovation, or joint ventures.
4. Mergers and Acquisitions include consolidation within industries and
mergers across industries.
5. Downsizing is the planned elimination of large numbers of personnel,
designed to enhance organizational effectiveness. Table 2.4 lists the
results of a survey that indicates that only about one-third of the
companies that went through downsizings actually achieved their goal to
increase productivity.
Downsizing presents a number of challenges and opportunities for HRM: careful
reduction of the work force, boosting the morale of employees who remain,
increasing fresh ideas, and changing the company’s culture.