Management Chapter 4 The Competitive Environment The Competitive Environment Learning Objectives Opening Case

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Chapter 4: The Competitive Environment

Chapter 4

The Competitive Environment

Learning Objectives

Opening Case: Chief Social Media Officer?

Chapter Outline

Closing Case: Using Strategic Goals to Drive Diversity

Discussion Questions

Additional Resources: Your Strategy Needs a Strategy

Learning Objectives

After studying this chapter, students should be able to accomplish the following objectives.

2. Identify three types of strategies and relate each to human resource management

4. Discuss the processes through which human resource strategy is implemented

5. Discuss how the human resource function in organizations can be evaluated

Opening Case: Chief Social Media Officer?

Case Summary

The last few years have been big for social media—digital platforms that allow users to create

and exchange content. Spending on social media advertising now exceeds $4.6 billion annually

and most marketers predict that this number will continue to grow.

Social media managers primarily handle information and communications through social media

outlets—tracking trends and determining posting rates, creating positive communications, and

maintaining a congenial media relationship with a company’s community of customers.

Typically, social media managers work out of marketing departments and perform a variety of

Chapter 4: The Competitive Environment

they’ve earned.

Think It Over

1. Would you want to be a social media manager? Why, or why not?

2. Have you used social media to look for a job? If not, how might you do so in the future?

Students’ answers will vary. There are many organizations that have a presence on social

media sites and share information on them as a marketing strategy to gain the attention of

Chapter Outline

Introduction

Most successful businesses do an effective job of blending strategy, operations, and people. This

blending, in turn, requires that organizations carefully monitor and assess new trends,

opportunities, and challenges. The emergence of social media as a cultural phenomenon in

general and as a business function in particular certainly qualifies as a significant new trend. One

key element in what is happening is how effectively—or ineffectively—businesses approach

human resource management (HRM) from a strategic perspective.

I. The Competitive Environment for Human Resource Management

Figure 4.1 illustrates the framework used to discuss strategic HRM. As the figure shows, this

process starts with an understanding of the organization’s purpose and mission and the influence

of its top management team and culminates with the HR manager serving as a strategic partner to

the operating divisions of the organization. Under this new view of HRM, the HR manager’s job

is to help line managers (at all levels) achieve their strategic goals.

This view also has important implications for how HR managers are trained and how HRM

Chapter 4: The Competitive Environment

courses are designed. In reality, it seems that some general practices are better. If one examines

fundamental HRM practices, it seems reasonable to suggest two points:

• Formal performance appraisals are better than no appraisals.

• Using systematic selection techniques is better than hiring based on intuition or some

nonsystematic basis.

But, within some constraints, exactly how these practices are implemented probably should

depend on the firm’s strategic goals. Therefore, an organization must choose HR practices that fit

its strategy and mission, and so the best practices for one firm may not be exactly the best for

another.

A. A Strategic Perspective

All firms exist in a competitive environment. There are competitors who are trying to attract

the same customers or sell the same goods and services, and each firm must fight to be

successful; that is, each firm seeks to earn higher returns for its stockholders than do its

competitors.

Sometimes, though, a market is not large enough to support all the firms competing in it.

When a firm implements a strategy that its competitors are unable to implement (for any

B. The Influence of Organizational Purpose and Mission

An organization’s purpose and mission are among the most fundamental contextual forces that

define the strategic context of HRM.

• An organization’s purpose is its basic reason for existence.

• An organization’s mission is how its managers have decided to fulfill its purpose.

Chapter 4: The Competitive Environment

A mission statement specifies how the organization intends to manage itself so it can pursue

the fulfillment of its purpose most effectively. A mission statement attempts to specify the

C. The Influence of the Top Management Team

The top management team of an organization is the group of senior executives responsible

for the overall strategic operation of the firm. Common organizational positions that are

assumed to be part of the top management team include the chairperson of the board of

directors, the chief executive officer (CEO), the chief operating officer (COO), and the

president.

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D. The Role of Corporate Governance

Stockholders are the true owners of a modern corporation. These people, who often represent

institutions such as pension funds, are not typically the same people who actually run the

organization on a day-to-day basis. That task is left to the CEO and the top management team.

II. Corporate, Business, and Functional Strategies

Top managers are responsible for the strategic operations of their firms. The key to strategic

operations, in turn, is developing and implementing effective strategies. These strategies may be

at the corporate, business, or functional level, including the HR function. In addition to strategy

formulation, the organization’s top management team also provides oversight and strategic

leadership for the organization on an ongoing basis.

• Corporate strategy deals with determining what businesses the firm will operate.

A. Corporate Strategy and Human Resource Management

There are several broad strategies that a firm might adopt at the corporate level, and each one

has different implications for HRM practices. The first three of the four strategies listed below

are relevant for firms that decide to compete in a single market.

Growth Strategy

When a business has identified a unique niche and is successfully and aggressively

expanding within that particular market niche, it is pursuing what experts call a growth

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Contemporary Challenges in HR: Board Oversight or Board Negligence?

Among other things, corporate boards are responsible for setting the pay of a firm’s top

managers. As a factor in U.S. economic calculations, meaningful wage increases appear

to be a thing of the past. In January 1973, for example, the average hourly wage for

nonmanagement private-sector workers was $4.03. Today, workers need to make $22.41

an hour in order to enjoy the same purchasing power as their 1973 counterparts.

It’s not that the economy hasn’t been generating enough wealth to pay workers. One

recent study conducted by the Economic Policy Institute (EPI) focused on the gap

between wage and productivity growth in order to analyze economic pressures on the

living standards of working families. Since 1979, reports the EPI, while productivity has

grown 74.5 percent, wages for workers in the bottom 20th percentile actually declined by

Students’ answers will vary. While it is necessary for an organization to

adequately compensate those in high positions given that they are responsible for

the overall growth of the firm, it is also important that those at lower levels be

compensated fairly. Putting laws in place to ensure fair compensation will go a

long way in limiting the gap between the highest and lowest paid wages.

2. Suppose you had to justify giving a CEO a 60 percent pay raise to almost $17

Chapter 4: The Competitive Environment

Students’ answers will vary. In this case, it can be argued that perhaps the CEO

would receive the pay raise after achieving certain goals that have been set by the

board members of the organization. One of the goals could be that the CEO

ensure that the organization achieve a target profit that could enable it to provide

fair pay raises to all its employees. Nonfulfillment of the set goals would result in

a significant cutback in the CEO’s pay raise.

Retrenchment or Turnaround Strategy

Sometimes, firms are forced to adopt, at least in the short run, a strategy usually referred to

as a retrenchment or a turnaround strategy, which occurs when an organization finds

that its current operations are not effective. Major changes are usually needed to rectify

Stability Strategy

A third single-market strategy that might be adopted by some firms is a stability strategy.

This strategy essentially calls for maintaining the status quo. The organization’s goal is to

Diversification Strategy

A corporation that uses the diversification strategy usually makes the decision to own and

operate several different businesses. The various businesses owned by a corporation are

Chapter 4: The Competitive Environment

usually related to one another in some way, a strategy called related diversification. The

B. Business Strategy and Human Resource Management

A diversified corporation must develop a business strategy for each operating unit. A variety

of approaches can be used to develop a business-level strategy. One of these is the adaptation

model.

The Adaptation Model

The adaptation model suggests that managers in an organization should try to match the

organization’s strategy with the basic conditions of its environment. The three basic

strategic alternatives from which managers should select are the defender strategy, the

prospector strategy, and the analyzer strategy.

• A defender strategy is assumed to work best when a business operates in an

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Other Competitive Strategies

The other dominant approach to business-level strategies identifies three specific

competitive strategies—namely, differentiation, cost leadership, and focus. These three are

presumed to be appropriate for a wide variety of organizations in diverse industries.

• A company that uses a differentiation strategy attempts to develop an image or

reputation for its product or service that sets it apart from its competitors. Regardless

C. Functional Strategies and Human Resource Management

Functional strategies address how the organization will manage its basic functional activities,

such as marketing, finance, operations, research and development, and HR. It is important that

an HR functional strategy be closely integrated with corporate, business, and other functional

strategies.

III. Human Resource Strategy Formulation

Using the organization’s overarching corporate and business strategies as context, managers can

formally develop the organization’s HR strategy. As illustrated in Figure 4.1, this strategy

commonly includes three distinct components—a staffing strategy, a development strategy, and a

compensation strategy. These dimensions are shown in more detail in Figure 4.3.

• Staffing refers to the set of activities used by the organization to determine its future HR

needs, recruit qualified applicants interested in working for the organization, and select the

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ignores the notion of opportunity.

A. The Impact of Organization Design

Organization design refers to the framework of jobs, positions, groups of positions, and

reporting relationships among positions that are used to construct an organization.

• One form of organization design used by many smaller or newer organizations is the

functional design (also called the U-form organization, with U representing unitary).

The organization groups its members into basic functional departments such as

marketing, finance, and operations.

B. The Impact of Corporate Culture

An organization’s culture refers to the set of values that helps its members understand what

the organization stands for, how it does things, and what it considers important. Culture is a

complex and amorphous concept that defies objective measurement or evaluation.

Nevertheless, it is the foundation of an organization’s internal environment and thus plays a

major role in shaping managerial behavior and is a strong element in how the organization

manages its human resources.

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organization. HR managers may find that, depending on the circumstances, corporate culture

may either facilitate or impede their work.

Finally, managing culture is important for the success of corporate mergers and acquisitions.

The ability to integrate two cultures—in fact, to form a new unique corporate culture and

identity for the merged organization—is critical for the overall success of any merger or

acquisition and is the role of the HRM area.

C. The Impact of Unionization and Collective Bargaining

Other important aspects of the workforce that affect the development and implementation of

strategy in the HRM function are unionization and collective bargaining. Labor relations is the

IV. Interpersonal Processes and Strategy Implementation

The formulation of an HR strategy is clearly important and can be affected by many factors.

Interpersonal processes are especially important because of the role they play in affecting the

performance effectiveness exhibited by each employee in a firm. The starting point for

understanding these processes is the psychological contract that an organization has with its

employees. A psychological contract is the overall set of expectations held by an individual

with respect to what he or she will contribute to the organization and what the organization, in

turn, will provide to the individual.