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VIII. Strategy and HR
Organizations seek to achieve and maintain a competitive advantage in the marketplace by
delivering high-quality products and services to their customers in a way that competitors
Strategic planning is the process of defining a strategy, or direction, and making decisions
The strategic planning cycle typically covers a three- to five-year time frame, and
management considers both internal and external forces when formulating the strategic plan.
The planning process begins with an assessment of the current state of the business and the
environmental forces that may be important during the planning cycle. Analysis of the
strengths, weaknesses, opportunities, and threats (SWOT) is a typical starting point because it
Managers then determine the objectives for the planning cycle and formulate organization-
level strategies to accomplish those objectives. The strategic plan is re-evaluated periodically
Bad strategy abounds perhaps because it ignores the difficult path to focusing and making
Regardless of which specific strategies are adopted for guiding an organization, having the
right people will be necessary to make the overall strategies work. Strategic HR management
Strategic HR management refers to the use of human resource management practices to
gain or keep a competitive advantage. Talent acquisition, deployment, development, and
A. Requirements for Human Resource Contribution to Strategy
Specific HR management strategies obviously depend on the strategies and plans of the
company. Figure 1-3 highlights some common areas where HR should develop and
implement appropriate strategies. To contribute in the strategic planning process, HR
professionals can best provide their perspective and expertise to operating managers by
doing the following:
Understand the business—knowing the financials and key drivers of business success
Focus on the key business goals—programs that have the greatest relevance to
Know what to measure—metrics are a vital part of assessing success, which means
Prepare for the future—strategic thinking requires preparing for the future, not
Human resource planning is the process of analyzing and identifying the need for and
availability of people so that the organization can meet its strategic objectives. The focus
HR plans can include several approaches. Actions may include shifting employees to other
jobs in the organization, laying off employees or otherwise cutting back the number of
B. Human Resources Planning Process
The process begins with considering the organizational plans and the environmental
analysis that went into developing strategies. It includes an environmental analysis to
Once those assessments are complete, forecasts must be developed to determine both the
demand for and supply of human resources. Management then formulates HR staffing
Finally, HR plans are developed to provide specific direction for the management of HR
activities related to employee recruiting, selection, and retention. The most telling
IX. Planning for Workforce Availability
If a firm plans to double its number of clients accounts from 100 to 200 in a three-year
period, that firm must also identify how many and what types of new employees will be
A. Factors to Consider
When making HR plans for workforce, employers must consider a number of geographic
and competitive concerns. The net migration into a particular region is important. Direct
competitors are another important external force in HR planning. Failure to consider the
Significant changes in the workforce, both in the United States and globally, must be
When assessing these factors, it is important to analyze how they affect the current and
future availability of workers with specific capabilities and experience. Many firms have
Analyzing the jobs that will need to be done and the capabilities of people who are
currently available in the organization to do them is the next part of HR planning. The
B. Jobs Audit
The starting point for evaluating internal workforce strengths and weaknesses is an audit
of the jobs that need to be done in the organization. The following are key questions that
are addressed during the internal jobs assessment:
What jobs exist now and how essential is each job?
How many individuals are performing each job?
What are the reporting relationships of jobs?
What are the vital KSAs needed in the jobs?
What jobs will be needed to implement future organizational strategies?
What jobs will be needed to implement future organizational strategies?
What are the characteristics of those anticipated jobs?
As HR planners gain an understanding of the current and future jobs that will be necessary
Managers and HR staff members can gather data on individual employees and aggregate
X. Forecasting HR Supply and Demand
Forecasting uses information from the past and the present to identify expected future
A. Forecasting the Demand (Need) for Human Resources
The demand for employees can be calculated for an entire organization and/or for
Demand for Human Resources can be forecast by considering specific openings that are
likely to occur. The openings (or demands) are created when new jobs are being created or
B. Forecasting the Supply (Availability) of Human Resources
Forecasting availability considers both external and internal supplies. Although the
The external supply of potential employees available to the organization can be identified.
Government estimates of labor force populations, trends in the industry, and many more
complex and interrelated factors must be considered. Such information is often available
from state or regional economic development offices. The following items may be
included:
Net migration into and out of the area
Individuals entering and leaving the workforce
Changing workforce composition and patterns
Technological developments and shifts
Actions of competing employers
Estimating internal supply considers the number of external hires and the employees who
move from their current jobs into others through promotions, lateral moves, and
terminations. It also considers that the internal supply is influenced by:
Training and development programs
Retirement policies
In forecasting the internal supply, data from the replacement charts and succession
planning efforts are used to:
Project potential personnel changes
Keep track of attrition (resignations, retirements, etc.) for each department in an
A talent surplus can be managed within a strategic HR plan in a number of ways. The
reasons for the surplus will guide the ultimate steps taken by the organization. If the
workforce has the right qualifications but the sales revenue has fallen, the primary
HR must be involved during workforce adjustments to ensure that the organization does
not violate any of the nondiscrimination or other laws governing workforce reductions.
There can be mismatches between the qualifications needed by employers and the skills
The existing workers can work overtime. This strategy can work on a short-term basis but
is not a solution for a longer-term talent shortage. Workers may appreciate the extra hours
Outsourcing involves transferring the management and/or routine performance of a
business function to an external service provider. Organizations in the United States
Reducing turnover of qualified employees should be an ongoing effort to maintain a
XI. Measuring Effectiveness of Human Resources and Human Capital
Effectiveness for organizations is a measure of the ability of a program, project, or task to
There are many ways of measuring the financial impact of the HR practices in an
A. Measuring HR’s Contribution
A long-standing myth perpetuates the notion that one cannot really measure the value of
It is important that HR managers understand financial and operational measures that drive
the business and relate decisions to key performance indicators (KPIs). Metrics,
HR metrics are specific measures of HR practices. A metric can be developed using costs,
B. Metrics and Analytics
Metrics and software have been combined to make analysis easier, but it is still an
evolving area. Analytics can simply be a way to report certain metrics or a sophisticated
predictive modeling designed to answer “what if” questions about HR variables. A
Benchmarking is the process of comparing the business metrics and outcomes to an
industry standard or best practice. Benchmarking is focused on external practices that the
organization can use to improve its own processes and practices. When implementing
benchmarking, managers should be careful to find organizations with similar contexts,
cultures, operations, and size.
The balanced scorecard is a framework organizations use to report on a diverse set of
performance measures. It balances financial and nonfinancial measures so that managers
focus on long-term drivers of performance and organizational sustainability..
Organizational results in these areas determine if the organization is progressing toward its
strategic objectives.
C. Human Capital Effectiveness Measures
Measuring the benefits of human capital is more challenging but equally important.
Assessing the value of human capital demonstrates the importance of effective HR
practices to maintain a high-quality, workforce.
Revenue per employee is a basic measure of human capital effectiveness. The formula is
Revenue/Head Count (full-time employee equivalents). It is a measure of employee
productivity and shows the sales revenue generated by each full-time employee. If
revenues increase but employee head count remains constant, productivity would increase.
A widely used financial measure that can be applied to measure the contribution and cost
of HR activities is return on investment (ROI), which is a calculation showing the value
of investments in human capital. It can also be used to show how long it will take for the
activities to show results. The following formula can be used to calculate the potential ROI
for a new HR activity:
C
ROI = A + B
where:
A = Operating costs for a new or enhanced system for the time period
ROI is stressed because it is used in most other functions in an organization and allows
Human economic value added (HEVA) shows the wealth created per employee. It shows
how much more valuable the organization has become because of the investment in human
approach requires that all policies, procedures, measures, and methods use cost of capital
as a benchmark against which their return is judged. HR decisions can be subjected to the
same analysis. The formula for HEVA is:
Net Profit after Taxes Cost of Capital
Full-Time Head Count
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XII. HR Audits
An HR audit is a formal research effort to assess the current state of HR practices in an
organization. This audit is used to evaluate how well activities in each of the HR areas
(staffing, compensation, health and safety, etc.) have been performed, so that management
can identify areas for improvement. An HR audit often helps smaller organizations without a
formal HR professional to identify issues associated with legal compliance, administrative
processes and recordkeeping, employee retention, and other areas. There are many levels of
HR audit. Common levels are as follows:
Compliance Audit—checks record keeping on state and federal paperwork requirements
Benefit Programs Audit—reviews regulatory compliance, benefits administration and
I-9 Audit—reviews compliance with immigration regulations and the I-9 form
Specific Program Audit—review of specific HR subareas such as compensation
Audits frequently use a questionnaire and interviews performed to collect information, they
