The Manager’s Role in Strategic Human Resource Management fice Pro Riyadh (OPR) aims to provide office furniture of high quality and innovative design for businesses and-homes in Saudi Arebia, delivering the exact product Jeach customer needs, along with perfect customer service and follow-up. OPR, bbased in Riyadh, is a family-run business with 150 employees. After this morning's meeting with the company’s owner, however, production manager Hussarn Racdawi's worried. ‘Ahter 6 years of double-digit growth, ODP rust consolidate its operations to survive. The comn- ‘pany will need to cut expenses by 20%, maintain its sales lewels in Nechern Egypt against increased competition in a shrinking market, and boost sales = Southam Eaypt by 15%. He ‘was also asked to increase customer satisfaction from 75% to &S% aid reduce production terrors from 12% to 3%. Next Sunday, Hussam and the other managers must submit detailed {ists of personnel actions they wil ake to implement the survival pian intheir own departments, ‘As he retumed to his office, Hussam wondered, "What should! do? Where should | start?” | te ae. os i s) je 8 Sere © Eat Wing 8 Act(HERE ARE WE NOW... ‘anagers like Hussam must adapt the activities of their departments to support their ‘mpanies’ strategic plans. In this chapter, we will explain the strategic management cess as well as the manager's role in strategic planning, strategic human resource snagement, and the creation of high-performance organizations. Po rrig ek a oe ee oe re er ee a een ‘i Rete ee eee ed \RNING OUTCOMES {Explain why strategic planning is important to all managers. Dutlne the basic steps in the management planning process. ist the main contents of atypical business plan, \nswer the question, “What should a manager do to set ‘smart’ motivational qpals?” 5. Explain with examples each of the seven steps in the strategic planning process. | kist with examples the main generic types of corporate strategies and competitive strategies. Define strategic human resource management and give an example of strategic human resource management in practice. Briefly describe three important strategic human resource management tools. Eaniain sith examples wy satis ane ese tin! for iskanaipi (gh-performance human resource policies and practices.98 PART INTRODUCTION 1 Explain why strategic planing is Important to al managers. WHY STRATEGIC PLANNING IS IMPORTANT TO ALL MANAGERS ‘You may not realize itwhen you're managing, but your company’s strategic plan is ‘guiding much of what you do. Management expert Peter Drucker once said that 3 *. . «is the responsibility for execution.” What he means is that as a ‘manager you'll be judged on at least one thing—on the extent to which you accom- plished your unit’s goals. Organizations exist to achieve some purpose, and if they fail to achieve their ends, to that extent they have failed. As Drucker also said, “There has to be something to point to and say, [we] have not worked in vain.” ‘Those aims or goals—and the hard work you put into accomplishing them—all depend on your company's plan. ll your personnel and other decisions—what sorts ‘of people you hire and how you hire them, what you train them to do, and how you appraise and reward them, for instance—depend on the goals that trickled down to you from your firm’s overall plan. We'll look more closely at your role in working, ‘with your company's strategic plan in this chapter. The Hierarchy of Goals ‘Lets start with a bird's eye view of why strategic planning is important to you. Itis important because, as we said, in well-run companies the goals from the very top of the organization down to where you're working should form a more-orless unbro- kken chain (or *hierarchy") of goals. These goals, in turn, should be guiding what youdo. The hierarchy of goals diagram in Figure $-1 summarizes this. At the top of the company, the president and his or her staf set strategic goals (such as “Double sales reventue to $16 million in fiscal year 2011”). Lower-level managers (in this case, vice presidents) then set goals (such as “Add one production line at plant A"). These foals should flow from and make sense in terms of the goals at the next level up. (In ‘other words, “What must I as production head do to help make sure that the com- pany accomplishes its ‘double sales’ goal?") Then the vice presidents’ subordinates set their own goals, and so on down the line. In this way, management creates a hierarchy or chain of departmental goals, from the top down to the lowestranked managers, and even employees. Then, if ‘everyone does his or her job—if each salesperson sells his or her quota, and the sales ‘manager hires enough good salespeople, and the HR manager creates the right incentive plan, and the purchasing head buys enough raw materials—the company FIGURE 3-1. Simple Hierarchy of Goals Diagram for 6 Company{2 Outline the basic steps in the management planning process. 22 List the main contents of « ‘typical business plan. | basins plan (CHAPTER 3 THE MANAGER'S ROLE IN STRATEGIC HUMAN RESOURCE MANAGEMENT 99 and the CEO should also accomplish the overall, company-wide strategic goals. You ‘could therefore say with great certainty that without a clear plan at the top, no one in the company (including you and the other managers) would have the foggiest notion of what to do. At best, you'd all be working at cross-purposes. Let's look next at the basic planning process. FUNDAMENTALS OF MANAGEMENT PLANNING People make plans every day, often without giving it a thought. We plan our routes, to school, what courses to take, and what to do on Saturday night. Underlying all those plans, however, is an often unstated planning process. The Planning Process Consider how you might create a plan for your career. You might: 1. Tentatively set an objective, such as “to work as a management consultant.” 2 Make forcasts for instance, of industry trends and to check your basic assump- tions about things like your strengths and weaknesses to determine your consulting prospects. 8. Determine what your alternatives ae for getting fom where you are now to where you want ‘tobe. Your aim here is to help you identify what courses of action (including college major and summer experiences) will get you to your goal bes. 4. Bualuate your alternatives. 5, Finally, implement and evaluate your plan, ‘That is all there is to the planning process. It hardly matters whether you're planning your career, a trip abroad, or how to sell your company’s new product. The basic plan- ring process always involves setting objectives, forecasting and assessing your basic planning “premises or assumptions, determining alternative courses of action, evali- ating which options are best, and then choosing and implementing your plan. ‘The process is the same when managers plan for their firms, with one small complication. There is usually a hierarchical aspect to managerial planning. Top management approves a long-term or strategic plan. Then each department, ‘working with top management, creates its own budgets and other plans to fit and to contribute to the company’s longterm plan. Putting Together the Business Plan All this planning produces a business plan. The business plan provides a comprehen- sive view of the firm's situation today and of its company-wide and departmental goals. and plans for the next 3 to5 years. Managers most often use the term “business plan” in ‘elation to smaller businesses. Iti the plan that investors or lenders want to see before offering money to the firm. However, even Dell or Microsoft has versions of such com- prehensive plans, They often label it their “long-term” or perhaps “strategic” plan. Figure 8-2 displays the contents of a typical business plan. There are no rigid rules regarding what such plans contain. However, they usually include, at a minimum, a (1) description of the business (including ownership and products or services), (2) the marketing plan, (3) the financial plan, and (4) the management and/or personnel plan. Notice that the business plan invariably guides every functional epartment in the firm, from sales and marketing to manufacturing and finance. Provides a compeohensive view ofthe fms ‘stuatin today and ofits, _degarmental goals and plans forthe next 3 a and4 Answer the question, “What should a manager do to set ‘amar’ mativational goals?” (CHAPTER 3 THE MANAGER'S ROLE IN STRATEGIC HUMAN RESOURCE MANAGEMENT 101 ‘example, a consulting company's projected number of clients will help determine how many consultants and support staff it needs at each stage of the plan. ‘The Production/Operations Plan Implementing the marketing plan will neces sitate having produetive assets. For example, jt takes factories and machines to assemble Dell’s PCs. Dell must therefore plan for how it will meet its projected demand for factories and facilities to take orders for, build, and distribute its PCs, The Financial Plan “What's the bottom line2" isthe frst question most managers and bankers ask. The question underscores 2 trjiam about business and manage. ‘ment. At the end of the day, most of managers’ plans, goals, and accomplishments ‘end up expressed in financial terms. ‘The financial plan (see Figure 3-8) is the vehicle for doing so. For example, a projected (or “pro forma” or planned) profit and loss (P&L) statement shove the Tevenue, cost, and profit (oF loss) implications of a company’s marketing, produc. tion, and personnel plans. The P&L says this: If your plans work out as you antic Pate, these are the revenues, costs, and profits of losses you should produce each month (or quarter, or year). It shows you the boutam line. How Managers Set Objectives Financial goals are the bottom line of planning, The whole point of planning is to decide what the companys to do, and then to express what you want lls employ. 2¢8 0.do, in terms of goals Setting SMART Goals Seitng effective goals i therefore an essential manage- ment skil. Experienced managers have a simple and effective way to check whether their goals are good or not—they use the acronym “SMART.” They say good goals Profitand L Software, Palo Alto, CA Fee iting oa rama ott wdlaatieme @ueneey. lane anni anid Swe Aion Pls ?rm Pulsar | Sal {$592,000 $875,000 $1,100,000 Direct Cost of Sales $158,000 $219,000 § "239,000 Other Wee 86 “Total Cost of Sales $159,000 $219,000 $390,000 Gross Margin $488,000 $656,000 $811,000 Gross Margin % TBM AGTH 73.79% Operating Expenses: ‘Advertsing/ Promotion $ 36,000 $ 40,000 $ 44,000 Public Relstions $ 30,000 § 30,000 $33,000 | Travel $ 60,000 $110,000 Miscellaneous $ 7.00 § 8000 Payroll Expense 1750 $87,000 § 432,000 Payroll Burden $127,365 $52,780 § 60.480 Depreciation $300 $ "0 § 0 Leased Equipment $118.00 § 7000 § 7000 Usices $0 $1200 § 12,000] Insurance $8 $ 20m $2000 Rent BO gi cog Other af 0 § Sees Contract/Conautants io es ee ‘Total Operating Expenses $433,615 $587,780 § 708486: Profit Before Interest and Taxes $ 9985 $6822 § 102520 Interest Expente Short-Term $ 1800 $ 6400 § 10400 Interest Expense Long-Term $ 5.000 $ 5.000 § 5000 ‘Taxes incurred $646 $ 14205 § 21,760 Net Profit 5 1939 $42615 § 65340) Net Profit/Sales 033% 4.87%are specific (make clear what to achieve), measurable, attainable relevant (in terms of ‘what you're setting the goal for), and timely (they have deadlines and milestones), For example, suppose you have an automobile salesperson who has been selling ‘about half the cars he should be selling, and also selling too many easierto-ell fuel Shicient cars, leaving the gas guzzlers in the back of the showroom. Here, an Sneffective “un-smart” goal might be, “Rick. you've got to double the number of vehi- {les you sell next month.” That goal double the number") i fairly specific (it would te better if he also knew what kinds of ears you wanted him to sell) and is measurable. Whether it's atainable is debatable (given his performance to date). Its not relevant in terms of what you're setting the goal for (namely, also getting Rick to sell some gas sguzlers) [tis timely, in that you said he must sell them in the next month, “What would be a better way to formulate Rick's goal? Perhaps this: “Rick, by the end of thisJune, 2 months from today, you've got to sell double the total number of Schiclesyou sold in the last 2 months, and three quarters of those new vehicles must Tome from the gas guzzlers we have in inventory.” This goal is specific, measurable, probably more atainable (given his shaky performance), relevant, and timely How to Set Motivational Goals Goals are only useful if employees are moti. raved to achieve them. Research known as the goal-sling studies provides useful insights into setting motivational goals. They suggest the following:' « Aasign Specific Goals. Employees who have specific goals usually perform beuter than those who do not. Setting specific goals with subordinates (rather than setting no goals or telling them to “do their best") is probably the simplest effective way to motivate subordinates. «Assign Measurable Goals. Always try to express the goal in terms of numbers, ‘and include target dates or deadlines. + Assign Challenging but Doable Goals. Goals should be challenging, but notso difficult that they appear impossible or unrealistic. + Encourage Participation. Throughout your management career, you'll face this decision: Should I just flmy employees what their goals are, or should I let them participate in setting their goals? Participatively set goals do not consistently result in higher performance than assigned goals, nor do assigned goals consis tend result in higher performance than participatively set ones. But when (as is usually the case) the partcipaivey set goals are more difficult than the assigned ones, oey st goals usually produce higher performance. And of course, participa: tion usually reduces employee resistance. So participation is usually best. Using Management by Objectives With management by objectives (MBO), the supervisor and subordinate joindy set goals for the latter and periodically assess progress toward those goals. You can engage in a modest MBO program by setting {goals with your subordinates and periodically providing feedback. However, "MBO" [tually refers to a formal organizationwide program in which managers at each ‘organizational level meet with subordinates to hammer out goals that make sense in terms of each department's assigned goal(s). The process typically includes using special forms and assessing employees’ progress frequently. ¢ Peter Drucker, the creator of MBO, emphasizes thinking of it as a philosophy, not asa rigid sequence of steps. The point, he says, is that “the goals of each man ager’s job must be defined by the contribution he or she has to make to the success ‘of the larger unit of which they are par.” In other words, what each manager does must make sense in terms of the company's overall plan. In any case, the MBO process typically consists of five steps: 1. Set organization goals. Top management sets strategic goals for the company. 2. Set department goals. Department heads and their superiors jointly set supporting goals for their departments. $3. Discuss department goals, Department heads present department goals and askall subordinates to develop their own individual goals.FIGURE 3-4 Management Objectives Grid ‘management by objectives (MBO) ‘technique in which supenisor and subordi- ‘ate oily set goals forthe later and per cically assess progres tonardthove goals. CHAPTER 3 THE MANAGER'S ROLE IN STRATEGIC HUMAN RESOURCE MANAGEMENT. 103 ‘Company-Wide or Departmental Objective: Double sales revenue to $16 milion in fiscal year 2011. Subordinates’ Manager or Objectives in Support Subordinate of Above Objective Responsible Start Date End Date Progress as of: Double sales in East, Vice President 8/1/09 7/81/10 Presiden checked West, and South of Sales 11/089, sales regions up 60%, ‘Add one new Vice President 8/1/09 10/31/09 President checked production line ‘of Production 9/08, work 80% at plant done, ‘Add and trainsix Vice President 8/1/09 9/3/09 "President checked new salespeople of Human 9/30/09, all hired, Resources ‘new people trained, ‘4. Set individual goals. Goals are set for each subordinate, and a timetable is assigned for accomplishing those goals. 5. Give feedback. Supervisor and subordinate meet periodically to review the subor- Highly Productive Ground Crews > Frequent Departures > Low Costs The Top Manager's Role in Strategic Planning Ultimately, devising a strategic plan is top managements responsibility, Because the consequences ofa poor choice can be dire, few top managers would delegate the job of deciding how the company should match its internal strengths and weaknesses vith its external opportunies and threats to maintain a competitive advantage. Top management must decide what businesses the company will be in and where, and on rategy tsxm competitive potton i the function! strategy seaegytaticerifes the portoko _marailace. ‘Stotgy thet onthe the broad ction enti compre he Ne thatearh deparimer wl poe order 'o Tees cn ie SaSeren onto Sept aire canzaion nae tbe borer samp compete to diferentite its product or service from those oft competitors (> Increase market share110. PART INTRODUCTION FIGURE 3-9 Southwest Airlines’ Activity System Note: ike Southwest ‘what basis it will compete. Southwest Airlines’ top managers could never let lower- level managers make strategic decisions (such as unilaterally deciding that instead of emphasizing low cost, they were going to retrofit the planes with first-class cabins and fancy frills) Departmental Managers’ Strategic Planning Roles But what of all the company’s other, departmental, managers, like those for sales, ‘manufacturing, and human resource management? They also play big roles in strategic planning and management. Specifically, they help the lop managers devise the strategic plan, formulate functional, departmental plans that support the overall strate- gic plan, and then exewle the plans. We'll ok at each. They Help Devise the Strategic Plan It would be reckless for any top executive to formulate a strategic plan without the input of his or her lowerlevel managers. Few people know as much about the firm’s competitive pressures, vendor capabili- ties, product and industry trends, and employee capabilities and concerns than do the company’s department managers. So in practice, devising the strategic plan almost invariably involves frequent meetings and discussions among and between levels of managers. The top managers then lean heavily on the information from these interactions to hammer out their strategic plan. ‘Understanding the strategic management process should better prepare you to know how to prepare for these meetings. Remember the heart of strategic planning is gathering information on the company's strengths, weaknesses, opportunities, ‘and threats. A complete listing of possible issues is beyond the scope of this book. However, the sales manager, for instance, should bring to the table a thorough understanding of what customers are buying which products, who the company’s keenest competitors are, what makes them dangerous (in a competitive sense), and ‘which markets seem to be growing fastest or slowing. The manufacturing manager needs to know what the company can do to improve its production costs and quality, whether outsourcing production or perhaps purchasing finished products might be superior to producing them internally, and what competitors are doing in terms of producing their productsThe porting ofjbe rom developed ‘CHAPTER 3 THE MANAGER'S ROLEIN STRATEGIC HUMAN RESOURCE MANAGEMENT 111 ‘Similarly the human resource manager isin a good position to supply competi- tive intelligence. Details regarding competitors’ incentive plans, employee opinion surveys that elicit information about customer complaints, and information about pending legislation such as labor laws are examples. And of course, human resource ‘managers should be the masters of information about current employees’ strengths and weaknesses. Input like this should all help win human resource managers a “seat at the (top management strategic planning) table.” As other examples, From public information and legitimate recruiting and interview activities, you ‘ought to be able to construct organization charts, staffing levels, and group missions for the various organizational components of each of your major competitors. Your knowledge of... who reports to whom can give important clues as to a competitor's strategic priorities. You may even know the track record and characteristic behavior of the executives® ‘The accompanying “Managing the New Workforce” feature further illustrates how ‘human resource managers help devise (and execute) strategic plans. MANAGING THE NEW WORKFORCE Dealing with Offshoring In the film Slumdog Millionaire, the hero works in an Indian call center. Here, hun- dreds of his colleagues spend their days juggling cals from client companies’ users around the world. The client companies offshored this cal-handling task to the call center’ relatively low-paid employees. Offshoring increasingly plays a role in employers’ competitive strategies. Offshoring is the exporting of jobs from developed countries to countries where labor and other costs are lower? When a pharmaceuticals company decides to hhave its drugs produced in China, or you find yourself on the phone with a call center employee in Bangalore, India, offshoring is taking place. Historically, offshoring involved mostly lower skilled manufacturing jobs as, say, clothing manufacturers chose to assemble their garments abroad. increas- ingly, however, employers—seeking to reduce costs and stay competitive—are offshoring thousands of higher skilled jobs, for instance, in financial, legal, and security analysis. ‘The human resource manager plays a role at each stage of the offshoring deci- sion. For example, the CEO should have the human resource team involved in the earliest stages of gathering information about things like the educational and pay levels of the countries to which the firm is thinking of offshoring jobs. However, HR's main involvement is usually once the company decides to offshore. For exam- pile, the human resource management team needs to establish policies governing things like compliance with ethical safety and work standards, and pay levels. Human resource management's involvement back home may be even more crucial ‘Current, home-country employees and their unions may well resist the transfer of ‘work. Maintaining employee commitment and open communications with employ- ‘es is therefore important. ‘They Formulate Supporting, Functional/Departmental Strategies In addition to helping top management devise the overall plan, department managers (as ‘we explained earlier in this chapter) also must translate the firm's strategic choices (such as becoming a low-cost leader) into functional strategies. For example, ‘Walmart’s cost leadership strategy means its purchasing department must pursue coun: ‘vies to counties where labor and other costs srelower112. paRT1 INTRODUCTION f 7 Define strategic human resource ‘management and give an exam. ¥ plo of strategic human resource ‘management in practice [5 FIGURE 3-10 Linking Company-Wide and HR Strategies Source: © Gary Desse, Ph.D, 2007, forcefully buying the lowestcosts goods it can find. To ensure that it does, the purchas- ing department institutes purchasing guidelines, or police, in terms of what buyers should pay, ana how vendors bid for Walmart’s business. Deciding how to translate the company's strategy into departmental strategies and policies is always critical. Functional managers, therefore, need both a good ‘rasp of strategic planning and of what options are best for translating the com- pany’s strategic plan into department initiatives. They Execute the Plans Whereasit would be reckless for top management to devise 4 plan without lowerdevel managers’ advice, it would simply be impossible for them to execute the plan without the active assistance of all the company’s other managers and employees. Except in the tiniest of companies, no top manager could ever expect todo everything alone. With careful oversight, they therefore rely on their subordinate managers to do the planning, organizing, staffing, leading, and controlling that are *equired to execute the companys and each department’ plans and goals. STRATEGIC HUMAN RESOURCE MANAGEMENT. We've seen that once a company decides how it’s going to compete, it turns to for- ‘mulating departmental strategies to support its competitive aims. One of those departments is human resource management, Every company needs its human resource’ management policies and activities to ‘make sense in terms of its broad strategic aims. Strategic human resource management means formulating and executing human resource policies and practices that pro- duce the employee competencies and behaviors the company needs to achieve its strategic aims. Figure 8.10 demonstrates the relationship between human resource strategy and the company’s strategic plans, ‘The basic idea behind strategic human resource management is simple: In for- ‘mulating human resource management policies and activities, the manager's aim must be to produce the employee skills and behaviors that the company ncede to achieve its strategic aims. Figure 3-11 graphically outlines this idea. Management formulates a strategic plan. That strategic plan implies certain workforce requirements. For example, do we need more computeriterate employees for our new machines?) Given these workforce requirements, human resource management formulates HR strategies (policies and practices) wo produce the desired workforce skills, competencies, and behaviors. Finally, the human resource manager identifies the measures he or she can use to gauge the extent to which its new policies and Practices are actually producing the required employee skills and behaviors. These Ezeoomi, ees, enagaohe enpuiye Sod tecrloge! ads t seit e- fenton § SE ay oo t ee apni aoe : ek aeebeeuaan Srrmmtpdenne gelatine ae company’s svtege al?FIGURE 3-11 Basic Model of How to Align HR Stategy and Actions with Business Strategy Source: Adapted from Garett We ne an aco "Designing and an HR Scorecard Human Resources Management 40,n0.4 2001, pae ‘strategic human resource management Formulating and executing human resource ‘policies and practices that procice the ‘employee competencies and behavior the (CHAPTER 3 THE MANAGER'S ROLE IN STRATEGIC HUMAN RESOURCE MANAGEMENT. 113 Formule bres satay “halo seg pal eee y est wee rene “iat ence campetenes eh ‘est es ele beso reas pen" ¥ Fees ant sites | ee et pene ees cee ok SRG oe ces eta ssn pases | Poet mea tear excig [uelerms bares a eset pecs a = ete o ‘neasures might include, for instance, *hours of computer training per employee,” “productivity per employee,” and (via customer surveys) “customer satisfaction” Shanghai Portman Hotel Example Several years ago, the Rit-Carlton Company {ook over managing the Portman Hotel in Shanghai. The new management decided to improve significantly the hotel's level of service. In doing so, Shanghai Portman's new top executive, Mark DeCocinis, followed a similar strategic HR process to the fone we just outlined. For example: * Straegicaly, he and Ritz Carton management set out to make the Shanghai Foruman an oustanding propery by offering superior customer erace * To achieve this, Shanghai Portman employees would have to exhibit new skills ‘and behaviors, They would genuinely have to care for customers, for instance, and the Porunan would have to train and motivate them to be proactive about providing superior customer service. * To produce these employee skills and behaviors, Mark DeCocinis introduced the Ritz-Carlton Company's human resource system to the Poruman, He knew its Policies and practices produced the high-quality service behaviors his hotel required. For example, DeCocinis and his managers personally interviewed each candidate. They delved into each candidate's values, selecting only ‘employees who cared for and respected others: “Our selection focuses on talent and personal values because these are things that can't be taught... it’s about caring for and respect and others."!! Their efforts paid off. Over the past few years, various publications have named the ‘Shanghai Portman Ritz-Carlton “best employer in Asia,” “overall best business hotel in Asia.” and best business hotel in China.” Profits have soared. Effective strategic ‘human resource management helped turn Shanghai's Portman into a premier hotel Human Resource Strategies and Policies ‘Managers call the specific human resource management policies and practices they ‘use to support their strategic aims human resouree strategies "® The Shanghai Portman’sJuman resource strategy was to produce the service-oriented employee behaviors the hotel needed to improve significantly the hotel's level of service. Its HR policies therefore incladed installing the Rit-Carlton Company's human resource system, having top management personally interview each candidate, and selecting only employees who cared for and respected others. Albertsons Example Several years ago, Albertsons Markets had to improve performance, and fast. With 2,500 stores and 230,000 workers, it faced competi- tion not only from grocery chains, but also from Walmart and online sites. Abert sons’ overall strategy included reducing costs, maximizing financial returns, becoming more customerfocused, enbancing rechnovogy an8 energizing ‘employees. Albertsons turned to its human resource managers to help achieve these sategic alms. Albertsons’ human resource team took steps to help the company cut costs, and hire and motivate customerfocused applicants. Its yruman ‘esource strategy meant instituting new screening, training, pay, and ‘other human resources policies and practices, and using more technology to support and reduce the costs of HR activities.!$ Employers also adjust their strategies and policies to the realities of the eco- ‘nomic challenges that they face. The accompanying “Managing HR in Challenging Times" feamure shows how employers were adjusting their HR policies as the U.S, slipped iste recession. MANAGING HR IN CHALLENGING TIMES ‘Adjusting HR Policies to Challenging Times Given the events in 2008 in the economy and financial markets, what changes ‘hawe you made or do you expect to make in HR policies? | ‘As you can see in this table, as the United States slioped into recession, employers began edjusing dai Hi pales tcp tem tothe new sretoic and economic reah Source: Watuon Wyatt, fect of Economic Cis on MR Prorars, Update, December 2008, p. 5.(CHAPTER 3 THE MANAGER'S ROLE IN STRATEGIC HUMAN RESOURCE MANAGEMENT 115, Strategic HR in Action: Improving Mergers and Acquisitions As the credit crisis worsened a few years ago, Merrill Lynch looked to Bank of America (BOA) to throw ita lifeline, and BOA obliged by buying Merril, Within 2 months, that purchase wasn’t looking so attractive. Dozens of top Merrill managers had quit, and ‘costs were skyrocketing. BOA’s experience isn’t unique. Until recently it appears that ‘only about half ofall mergers and acquisitions achieved their anticipated goals.!4 When mergers and acquisitions do fil, it’s often not due to financial or technical issues but to personnel-related ones. These may include, for example, employee resist- ance, mass exits by high-quality employees, and declining morale and productiviy!® ‘As one study concluded some years ago, mergers and acquisitions often fail due to “a Jack of adequate preparation of the personnel involved and a failure to provide train- ing which fosters selfawareness, cultural sensitivity, and a spirit of cooperation."!® Using HRM _ Ie’ ironic that, until recently, top executives rarely involved their human resource managers in planning the merger or acquisition. Surveys by con- sultants Towers Perrin found that prior to 2000, human resource executives played limited roles in merger and acquisition (M&A) planning and due diligence. They tended to get involved only when management began integrating the two compa- nies into one. Today, by contrast “close to two thirds of the (survey) participants are involved in M&A due diligence nov."!? So, it's probably not surprising that there’s been a rise in M&A success as ‘employers have called in their human resource experts earlier. For example, a ‘more recent survey concluded that almost 80% of recent mergers and acquisitions had satisfactory results."® Another survey found that mergers in which top man- agement asked human resource management to apply its expertise consistently outperformed those in which HR was less involved.'9 Figure 3-12 summarizes the findings. How can good human resource practices work such apparent magic? Let's look at some examples. Due Diligence Stage Before finalizing a deal, i is usual for the acquirer (or ‘merger partners) to perform “due diligence” reviews to asure they know what they're getting nto. For the human resource teams, due diligence includes reviewing things Ike organizational culture and structure, employee conipensation and benefits, labor relations, pending employee litigation, human resource palicis and procedures, and key employees." Employee benefits are one obvious example. For example, do the ‘target firm's health insurance contracts have termination clauses that could eliminate if coverage forall employees you ay oo many of afer te merge Integration Stage There are critical human resource issues during the first few ‘months of a merger or acquisition. These include choosing the top management team, ensuring top management leadership, communicating changes effectively 10 ‘employees, retaining key talent, and aligning cultures FIGURE 3-12 Percent of Successful Mergers in Which HR “Manager Was InvolvedUsing HR Consultants Several global human resource consulting companies, such as Towers Perrin, provide merger-related human resource management ser- vices. The services they provide help to illustrate human resource experts’ potential role in facilitating mergers and acquisitions. ‘* Manage the deal costs. For example, Towers Perrin consultants identify and quantify people-related costs, risks, and potential synergies. These range from pension issues to items such as redundancy costs and stock options. ‘ Manage the messages. “We support our clients in rapidly developing and deploying an employee communication strategy” + Secure the top team and key talent. They help clients to identify key talent, and then develop suitable retention strategies. ‘+ Define and implement an effective HR service delivery strategy. Towers Perrin helps their clients plan out how they’re going to implement the delivery of HR services, such as in combining payroll systems. ‘+ Develop a workable change management plan. “Especially in cross-border ‘transactions, we assist companies in understanding and managing the cultural dlfferences they face as part ofthe deal.” + Design and implement the right staffing model. Help companies design the organization structure and determine which employee is best for which role. + Aligning total rewards. “When integration [of pay plans] is desirable, we help companies’ benchmarking and integration of compensation and benefit programs." le Shaws Supermarkets acquired Star Markets several years ago. At the time, Shaws had 126 stores and Star liad 54. The two firms’ human resource management teams played an important role in this successful acquisition. For ‘example, they worked to: + develop preliminary organizational designs, * identify the members ofthe top three levels of management, ~ assess critical managers and employees, * create retention policies for key people, * plan for and execute the separation of redundant staff, * develop a total rewards strategy for the combined company, and ‘+ integrate payroll benefits and human fesource information systems 25 Strategic Human Resource Management Tools ‘Managers use several tools to help them translate the company’s broad strategic goals into specific human resource management policies and activities. Three important tools include the strategy map, the HR Scorecard, and the digital dashboard. Strategy Map The strategy map shows the “big picture” of how each depart ment’s performance contributes to achieving the company’s overall strategic goals. helps the manager understand the role his or her department plays in helping to ‘execute the company's strategic plan. Figure 3-13 presents a strategy map example, in this case for Southwest Airlines. Recall Southwest has a low-cost leader strategy. The strategy map for Southwest suc- cinetly lays out the hierarchy of main activities required for Southwest Airlines to succeed. At the top is achieving company-wide, strategic financial goals. Then the strategy map shows the chain of activitics that help Southwest Airlines achieve these goals. For example, as we saw earlier in this chapter, .o boost revenues and prof- itability Southwest needs to Aly fewer planes (to keep costs down), maintain low prices, and maintain on-time flights.CHAPTER 3 THE MANAGER'S ROLE IN STRATEGIC HUMAN RESOURCE MANAGEMENT. 117 FIGURE 3-13 Svategy Map for Southwest Aiines Source: Adapted from “Creating @ Stategy Map," Ri TangrTeam® TeamCHRYSAUS com. ‘What overall guts ows Seabee ies vant te aclee?| In tum (further down the strategy fast turnaround. And, fast turnaround The strategy map helps each department Ingo £ aa) ee aman, from 32% Gahan petweniees 102% passenger mics. ‘own pe — Maximize contime Nights ae ity commited emaoyecs who are ing got tara mle! Southwest oo ailees } ; map), on-time flights and low prices require requires motivated ground and flight crews. (including HR) visualize what it needs to do to support Southwest's low-cost strategy. ‘The HR Scorecard Many employers quantify and computerize the map's activities. The HR Scorecard help them to dose. The HK Seowcatd statin ing se to a process for assigning financial and nonfinancial goals or metrics to the human resource management-related chain of activities required for achieving the com- ‘Pany’s strategic ims and for monitoring resulis™® (Metrics for Southwest might include airplane turnaround time, Simply put, the idea isto HR APPs 4 U Mobile Access to Strategy Maps Managers can access theic companies” strategy maps whileion-the-go. They can use the ActiveStrategy Com. pany’ ActiveStrategy Enterprise to create and automate thei strategy maps, and to access them through iPhone or similardevices 5 [Area pling toa at show te“ ‘cae of ow each departments performs | tree contbutes to achieving the cetincst diving be coy HR scorecard A process for assigning financial and nonf. ‘nancial goals or metrics tote human ‘resource management-rlated chain of aciv- ‘ites required for achieving the company’s percent on-time flights, and ground crew productivity) take the strategy map and to quantify it. ‘Managers use special scorecard software to facilitate this. The computerized scorecard process helps you to {quantify the relationships between (1) the HR activities {amount of testing, training, and so forth), (2) the result. ing employee behaviors (customer service, for instance), and (8) the resulting firm-wvide strategic outcomes and Performance (such as customer satisfaction and Profitability)” Figure 3-14 summarizes this process. Digital Dashboards The saying ‘a picture is worth a thousand words” explains the purpose of the digital dashboard. A digital dashboard presents the manager with desktop graphs and charts, and so a computerized digital dashboard Presents the manager with desktop graphs and chars, and so picture ‘of where the company stands on all those tics from the HR Scoreced process. strategic sims an for monitoring results.118 PART INTRODUCTION FIGURE 3-14 The Basic HR Scorecard Relationships > — picture of where the company stands on all those metrics from the HR Scorecar process. Asin the illustration just below, a top manager's dashboard for Southwe ‘Kirlines might display on the PC screen real-time trends for strategy map activiti such as fast turnaround, attracting and keeping customers, and on-time flights. Th fives the manager time to take corrective action. For example, if ground crews a turning planes around slower today, nancial results tomorrow may decline unle the manager takes action. Figure $15 stimmarizes the three tools. Translating Strategy into Human Resource Policies and Practices: Einstein Medical Example Albert Einstein Healthcare Network (Einstein Medical) illustrates how manage translate strategic plans into human resource policies and practices.”* Einsteit new CEO saw that intense competition, medical technology changes, and 1) growth of managed care meant that his company needed a new strategic pla {At the time, Einstein Medical was a single acute care hospital, treating just ¢ seriously ill. Seatogy Map HR Scowcdid Grp cl ot snare A ees fr manage tore thecal of aes bat, | [Peterman nao agng a nuit a earpanys secs, and So ows ompojes Ue "be Dee aon ter peraeance FIGURE 3-15 Three Important Strat oars segs ok ‘ott t sensing be al son HR Tools(CHAPTER 3 THE MANAGER'S ROLE IN STRATEGIC HUMAN RESOURCE MANAGEMENT. 119 New Strategy The essence of the CEO's new strategy was to change Einstein into a network of health care facilites providing a full range of high quality services in local markets. Based on that, he decided that to achieve Einsiein Med. ical's strategic aims, its new HR and other strategies would have to produce three important organizational outcomes: produce new services (initia), capitalize on opportunities (adapt), and offer consistently high-quality services (datoe) New Employee Competencies and Behaviors ‘The CEO then asked, “What sorts of employee values, competencies, skills, and behaviors would Einstein Medical need in order to produce these three outcomes?” They would have to be dedcaied to Einstein's {Scus om inate, adapt, and deliver. They would have to take personal accoundailiy for their results. They would have tobe able and willing fe apply new hnowladgrand ski in a Constant search for innovative solutions. And they would have to be resilient, for instance, in terms of moving from job to job, as Einscin's needs changed. New Human Resource Policies and Practices | Given these desired employee Talues and competencies, Einstein Medical’s human resource managers could ask, “What specific HR policies and practices would help Einstein create a dedicated, accountable, innovative, and resilient workforce?” The answer was to implement several new human resource programs: * New training programs aimed at assuring that employees clearly understood the company’s new vision and what it would require of all employees. * Enriching work involved providing employees with more challenge and respon- sibility through flexible assignments * Providing appropriate returns involved tying employees’ rewards to organization wide results (such as initiating new services). * Improved selection, orientation, and dismissal procedures also helped Einstein build ‘4 more dedicated, resilient, accountable, and generative workforce. Jn sum, Einstein's managers knew they could not execute their new strategy without new employee competencies and behaviors. In turn, promoting these Competencies and behaviors required implementing new human resource poli- cies and practices. They could then choose measures (such as “hours of training per employee per year") to monitor the new HR strategies’ actual progress, and track these on digital dashboards, if they so chose. (The Hotel Paris Case at the ‘end of this chapter explains the HR Scorecard process in more detail.) BUILDING YOUR OWN HIGH-PERFORMANCE ‘WORK SYSTEM No two companies have the exact same human resource practices and polices. For example, 2 low-cost leader will have different testing, training, and pay policies than will one that makes luxury goods, What are High-Performance Work Systems? However, many experts agree that certain human resource management policies and practices do distinguish many high-performing companies. Managers cal these sess of practices high performance work stems (HPWS). A high-performance work system i 4 set of human resource management policies and practices that promote organiza. tional effectiveness,120. PART 1 INTRODUCTION ao High-performance work systems became poplar in the 1990s. Faced with global competition from the Toyotas of the world, U.S. companies needed ways to improve Z quality, productivity, and responsiveness. The U.S, Department of Labor listed several ee : characteristics of high-performance work organizations. These include multi-skilled work teams, empowered frontline workers, extensive training, labor-management cooperation, commitment to quality, and customer satisfaction. Scene or High-Performance Human Resource Policies and Practices ttre ae esata or Studies show that in terms of polices and practices, high-performance work jtems anti and creatng ish do differ from less productive ones. Table 8-1 ilusrates this. For example, high perfomance humanreseuce performing companies start with more job candiates, use more selection tess, and ; spend many more hours training employees. This table demonstrates four things about high-performing firms’ human resource management systems. First, ithelps demonstrate why metrics are important. A human resource metric is the quantitative measure of some human resource management yardstick such as employee turnover, hours of training per employee, or qualified applicants per position. (In Table 3-1, the high-performing company metric for the yardstick “Number of qualified applicants per position” is $6.55.) You can use such metrics to assess your own company’s HR performance, and to compare one company’s with another's. Using concrete, quantifiable evidence like this is the heart of evidence- based management. Recall that evidencebased management is the use of data, facts, a7 analytics, scientific rigor, critical evaluation, and critically evaluated research/case as studies to support human resource management proposals, decisions, practices, ‘TABLE 3-1 Comparison of Selected Human Resource Practices in High-Performance | ‘and Low-Performance Companies LowePerformance High-Performance Company HR'Sjstem Company HR System Bottom 10% (42 firms) __‘Top 10% (43 fms) Semple HR Practices ‘Number of qualified applicants per poston (reriing) am 305 Percentage hired based ona validated section test 426 2997 Percentage ofjobs filled from within 3490 61.46 Percentage in a formal HR plon including recruitment, dewlpment “79 6R and svcceston Number of hous of tining for new employees (les than 1 yea) 35.02 i687 Number of hours of traning for experienced employees 1340 20 Percentage of employees receiving a regular performance eprasal aust 95.17 Percentage of workoreewhote met inemasor incentive pis tied 23.96 27 to performance Percentage ofthe workforce eligible for inceive pay mas #336 Percentage of difference in incentive pay between a see “oa lowpeeforming and high-performing employee Percentage ofthe workforce routinely working in a selfmanaged, 1058 2% uncon, or rj ea Firm Performance Employee turnover 2087 Sales per employee 9617576 Market vale to book value 11.05 Sone: Adapted from Bin Becker, Mak Muse and Dine Ulich, The HR Semen: Lining Pl Sra and Performan (Bono: Haar Busines School Pres, 201), pp 16-17 wz(CHAPTER 3 THE MANAGER'S ROLE IN STRATEGIC HUMAN RESOURCE MANAGEMENT 121 and conclusions.*! (This chapter's appendix, “Tools for Evidence-Baséd Human, Resource Management,” provides you with some tools you can use here.) Second, Table 31 illustrates the things euman resource systems must do to be high- performance systems. For example, they hire based on validated selection tests, fill ‘more jobs from within, organize work around selfmanaging teams, and extensively train employees. ‘Third the table illustrates that high-performance practices generally aspire o help ‘workers to manage themseives, The point of the recruiting, screening, training, and other human resources practices is to foster a trained, empowered, self-motivated, and flexible workforce. Fourth, Table 3-1 highlights the notable diferences between high-performance and low-performance companies’ human resource management systems. (For example, high-performing companies have more than four times the number of qualified applicants per job than do low performers.) The idea that “better” companies’ human resource practices are measurably different from low performers’ underlies the human resource management benchmarking movement. Benchmarking means ‘comparing and analyzing the practices of high-performing companies to your own in order to understand what they do that makes them better$ The Evidence The research evidence does seem to demonstrate that companies using high-performance policies and practices like those in Table 8-1 do perform significantly better. For example, based on studies of more than 2,800 companies, one researcher concludes, “high-performance HR practices, [particularly} com- bined with new technology, produce better productivity, quality, sales, and financial performance." Another team of researchers, studying the productivity of 308 companies over 22 years, concluded that empowerment, teamwork, and extensive training—outcomes that high-performance work practices usvally aspire to achieve— produced significant performance benefits.® The Line Manager's Role in Building a High-Performance Work System ‘That a human resource manager can influence things like “number of qualified applicants per position” and “percentage of jobs filed from within” isapparent. After all, those are exactly the sorts of activities that human resource managers oversee. Not so apparent is that cvery department manager and supervisor can play an important role in activities like these and thus build, within his or her own depart- ‘mental domain, a higher performing organization Table 3-1 again provides a sort of road map for doing so. This shows, for instance, that more applicants, more testing, more formal appraisals, better training, and more incentive plans usually correlate with higher performance. You don't have to be a human resource manager to influence activities like these. Every sales manager, pro- duction manager, and accounting manager can influence the number of job appli- canis they get, the testing they do, the quality training they provide, and the sorts of. incentives they offer to their employees. The whole point of this book is to show you. how to do this. For instance, we will see how to boost the chances that you'll have ‘more applicants, improve your batting average in interviewing candidates, and select the best. We'll explain how to spot applicant dishonesty, list the mistakes to avoid in appraising performance, and list dozens of incentives al supervisors can use (quite aside from the company’s formal pay plan). All managers are “human resource managers” because no manager can excel without applying the sorts of tools and techniques you'll find in the following chapters.