Strategic HRM

Integrating HR Strategy with Business strategyIntegrating HR Strategy with Business strategyStrategic HRM Strategic HRM

Strategic management Strategic management

Strategy: the companies long term plan for how it will balance its internal strengths and weakness with its external opportunities and

threats to maintain a competitive advantage. Strategic management: refers to the

process of crafting strategies , their implementation and evaluation of their effectiveness.

Strategies bridge where the company is now , with where it wants to be tomorrow.

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Strategic Management ProcessStrategic Management Process

Environmental Scanning Strategy Formulation

Corporate level Business unit level Functional level

Strategy Implementation Strategy Evaluation

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The Strategic Management The Strategic Management ProcessProcess

SWOT Analysis

Identify the

organization's

current mission, goals,

and strategies

Internal Analysis

• strengths

• weaknesses

External Analysis

• opportunities

• threats

Formulate

Strategies

Implement

Strategies

Evaluate

Results

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FIGURE 3–6 Worksheet for Environmental Scanning

About Surf excelAbout Surf excel Launched in 1954 Oldest detergent used in more then 20 countries Very strong brand communication Available in wide variety and product size. (surf excel blue, matic,

quick wash, comfort in 5 kg, 2kg, 250grm) Solid base company of Unilever (HUL) , employee 2lks, operated in

100 countries, $868 m in R&D; Strong competitors, (tide, nirma, ariel, oxycean, sundry) Substitute products (liquid detergent, bars) Lack of control in supply chain mgmt No famous brand ambassador High price of product Changing life style Applying tactics and surprise Explore new geographical market Political effects, economical effect, legislative effect;environmental

effect Chances of price war

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FIGURE 3–7 SWOT Matrix, with Generic Examples

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Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall 3–9

FIGURE 3–8 Type of Strategy at Each Company Level

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Organizational StrategiesOrganizational Strategies

Corporate Strategies Top management’s overall plan for the

entire organization and its strategic business units

Types of Corporate Strategies Growth: expansion into new products

and markets Stability: maintenance of the status quo Renewal: redirection of the firm into new

markets

8–12

Corporate-Level StrategiesCorporate-Level Strategies

Growth Strategy (within the same industry) Seeking to increase the organization’s

business by expansion into new products and markets.

Types of Growth Strategies Concentration Vertical integration Horizontal integration Diversification (growth outside present

business/ industry)

8–13

Growth StrategiesGrowth Strategies

Concentration Focusing on a primary line of business and

increasing the number of products offered or markets served.

Vertical Integration Backward vertical integration: attempting to

gain control of inputs (become a self-supplier). Forward vertical integration: attempting to

gain control of output through control of the distribution channel and/or provide customer service activities (eliminating intermediaries).

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Growth Strategies (cont’d)Growth Strategies (cont’d) Horizontal Integration

Combining operations with another competitor in the same industry to increase competitive strengths and lower competition among industry rivals.

Related Diversification Expanding by merging with or acquiring firms in

different, but related industries that are “strategic fits”.

Unrelated Diversification Growing by merging with or acquiring firms in

unrelated industries where higher financial returns are possible.

Concentration StrategyConcentration Strategy

Integration StrategyIntegration Strategy

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Stability StrategyStability Strategy

A strategy that seeks to maintain the status quo to deal with the uncertainty of a dynamic environment, when the industry is experiencing slow- or no-growth conditions, or if the owners of the firm elect not to grow for personal reasons.

Eg. Continuing to serve same clients by offering same product, maintaing market share, sustaining an organization’s current business operations.

Retrenchment StrategiesRetrenchment Strategies

Turnaround strategyTurnaround strategy emphasizes the improvement of emphasizes the improvement of operational efficiency when the corporation’s problems operational efficiency when the corporation’s problems are pervasive but not criticalare pervasive but not critical

Divestment: Divestment: Sale of a division with low growth potentialSale of a division with low growth potential

Liquidation: Liquidation: Management terminates the firmManagement terminates the firm

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Business Strategy Business Strategy

Copyright ©2010 Pearson Education, Inc. publishing as Prentice Hall 1-19

Copyright © Houghton Mifflin Company. All rights reserved. 3 | 20

Competitive Advantage, Competitive Advantage, Value Creation, and ProfitabilityValue Creation, and Profitability

1. Value or utility the customer gets from owning the product

2. Price that a company charges for its products

3. Costs of creating that product Consumer surplus is the “excess” utility

a consumer captures beyond the price paid

Basic Principle: the more utility that consumers get from a company’s products or services, the

more pricing options the company has.

How profitable a company becomes depends on three basic factors:

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Business-Level StrategyBusiness-Level Strategy

Firms must decide/evaluate:1. Customer needs – WHAT is to be satisfied2. Customer groups – WHO is to be satisfied3. Distinctive competencies – HOW customers are to be satisfied

A successful business model results from business-level strategies that create a competitive advantage over its rivals.

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Implementing the Business Model Implementing the Business Model

To develop a successful business model, strategic managers must devise a set of strategies that determine: How to DIFFERENTIATE their product

How to PRICE their product

How to SEGMENT their markets

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Building Blocks Building Blocks of Competitive Advantageof Competitive Advantage

Figure 3.6


Competitive Positioning and Competitive Positioning and the Value Creation Frontierthe Value Creation Frontier

Value Creation Frontier - represents the maximum amount of value that the products of different companies inside an industry can give customers at any one time by using different business models.

Companies on the value creation frontier have the most successful strategy in a particular industry.

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Types of Competitive Types of Competitive StrategiesStrategies

Cost leadership Differentiation

Business-LevelCompetitive Strategies

Focus/Niche

Strategic Advantage

Uniqueness Perceived by the Customer

Low Cost Position

Industry wide

Str

ateg

ic T

arg

et

DIFFERENTIATION OVERALL COST LEADERSHIP

FOCUSParticular Segment Only

Source: Porter (1980)

Business strategies

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Generic Business-Level StrategiesGeneric Business-Level Strategies

1. Cost Leadership Lowest cost structure vis-à-vis competitors

allowing price flexibility & higher profitability

2. Focused Cost Leadership Cost leadership in selected market niches where

it has a local or unique cost advantage

3. Differentiation Features important to customers & distinct from

competitors that allow premium pricing

4. Focused Differentiation Distinctiveness in selected market niches where

it better meets the needs of customers than the broad differentiators


Functional-Level StrategiesFunctional-Level StrategiesFunctional-level strategies are strategies aimed at improving the effectiveness of a company’s operations.

Functional-level strategies aim to give a firm superior:

Efficiency Quality Innovation Customer responsiveness

This leads to a competitive advantage and superior profitability and profit growth.

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The Roots of Competitive The Roots of Competitive Advantage : Functional level Advantage : Functional level strategies strategies

Distinctive competencies shape the functional-level strategies that

a company can pursue.

Function-level strategies can build resources and capabilities to

enhance a company’s distinctive competencies.

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Resources and CapabilitiesResources and Capabilities

Resources Inputs into a firm’s

production process Capital equipment Skills of individual

employees Patents Finances Talented managers

Capabilities Refer to company's

skill at coordinating its resources and putting them to productive use

Product of organization structure, process, control systems, hiring systems

Types of Resources : Types of Resources : Tangible/Intangibles resources Tangible/Intangibles resources

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Distinctive CompetenciesDistinctive Competencies

CompetenciesCompetencies

Competitive Competitive AdvantageAdvantage

Value CreationValue Creation

Above Average Above Average ReturnsReturns

ValuableValuable

RareRare

Costly to Costly to ImitateImitate

NonsubstitutablNonsubstitutablee

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EfficiencyEfficiency

Measured by the quantity of inputs it takes to produce a given output:

Efficiency = Outputs / Inputs Productivity leads to greater

efficiency and lower costs: Employee productivity Capital productivity

Superior efficiency helps a company attain a competitive advantage

through a lower cost structure.

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Achieving Superior EfficiencyAchieving Superior Efficiency

Economies of scaleUnit cost reductions associated with a large scale of output

• Ability to spread fixed costs over a large production volume

• Ability of companies producing in large volumes to achieve a greater division of labor and specialization

Learning Effects are cost savings that come from learning by doing.

• Labor productivity Learn by repetition how to best carry out the task• Management efficiency Learn over time how to best run the operation


Human Resource Strategy for Human Resource Strategy for superior efficiency superior efficiency

Hiring strategyAssures that the people a company hires have the attributes that match the strategic objectives of the company

Institute Employee training programs to build skill Upgrades employee skills to perform tasks faster and more accurately

Implement Self-managing teamsMembers coordinate their own activities and make their own hiring, training, work, and reward decisions

Implement Pay for performanceLinking pay to individual and team performance can help to increase employee productivity

Goal: to improve employee productivity.

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QualityQuality

Superior quality = customer perception of greater value in a product’s attributesForm, features, performance, durability, reliability, style, design

Quality products are goods and services that are:• Reliable and• Differentiated by attributes that customers

perceive to have higher value A perception of quality allows a firm to

differentiate its products in the eyes of its customers.


Achieving Superior QualityAchieving Superior Quality

1. Quality as reliability They do the jobs they were designed for and do it

well2. Quality as excellence

Perceived by customers to have superior attributes

A strong reputation for quality allows a company to differentiate its products.

Eliminating defects or errors reduces waste, increases efficiency, and lowers the cost structure – increasing profitability.

Quality can be thought of in terms of two dimensions:

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Improving Quality as ReliabilityImproving Quality as Reliability

Six Sigma methodology: the principal tool now used to increase reliability, which is a direct descendant of Total Quality Management (TQM)

Human Resource Strategy for superior Reliability :

•Institute quality improvement training programs •Identify and train “black belts”•Organize employees into quality teams


Improving Quality as attributes Improving Quality as attributes

Table 4.3

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InnovationInnovation

Innovation is the act of creating new products or new processes Product innovation

Creates products that customers perceive as more valuable and

Increases the company’s pricing options Process innovation

Creates value by lowering production costs

Successful innovation can be a major source of competitive advantage – by giving a company something unique.


Achieving Superior InnovationAchieving Superior Innovation

Innovation can: Result in new products that better satisfy

customer needs Improve the quality of existing products Reduce costs

Innovation can be imitated - So it must be continuous

Building distinctive competencies that result in innovation is the most important source of competitive advantage.

Successful new product launches are major drivers of superior profitability.

Human Resource Strategy for Human Resource Strategy for superior innovation :superior innovation :

Hire talented scientists and engineers


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Customer ResponsivenessCustomer Responsiveness

Enhanced customer responsiveness: Customer response time, design,

service, after-sales service and support

Superior responsiveness to customers differentiates a company’sproducts and services and leads tobrand loyalty and premium pricing.

Identifying and satisfying customers’ needs – better than the competitors do.


Achieving Superior Achieving Superior Responsiveness to CustomersResponsiveness to Customers

Focusing on the customer Satisfying customer needs

Customization (Tailor to unique needs of groups

of customers) Response time (increased

speed; premium pricing)

Customer responsiveness: giving customers what they want, when they want it, and at a price they are willing to pay - as long as the company’s long-term profitability is not compromised.

Human Resource Strategy for Human Resource Strategy for superior Customer Responsiveness superior Customer Responsiveness

Shaping employee attitudes

Develop training programs that gets employees to think like customers themselves


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FIGURE 3–11 Basic Model of How to Align HR Strategy and Actions with Business Strategy

Porter’s Business Unit StrategiesPorter’s Business Unit Strategies Cost leadership – - HR emphasis on efficient, low-cost production,

highly structured procedures, and discourages creativity and innovation

Differentiation -

- HR emphasis on innovation, flexibility, and renewal of the workforce by attracting new talent from other firms

Focus – - HR emphasis would be cross between those

described for low-cost producers and differentiators

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Selected HR Strategies That Fit Porter’s Selected HR Strategies That Fit Porter’s Three Major Types of Business Three Major Types of Business StrategiesStrategies

BusinessStrategy

Common OrganizationalCharacteristics HR Strategies

Overallcostleadership

• Sustained capital investment and access to capital

• Intense supervision of labor

• Tight cost control requiring frequent, detailed control reports

• Low-cost distribution system

• Structured organizationand responsibilities

• Products designed for ease in manufacture

• Efficient production• Explicit job descriptions• Detailed work planning• Emphasis on technical

qualifications and skills• Emphasis on job-specific

training• Emphasis on job-based

pay• Use of performance

appraisal as a control device

Selected HR Strategies That Fit Porter’s Selected HR Strategies That Fit Porter’s Three Major Types of Business Strategies Three Major Types of Business Strategies

BusinessStrategy

Common OrganizationalCharacteristics HR Strategies

Differ-entiation

• Strong marketing abilities

• Product engineering• Strong capability in basic research

• Corporate reputation forquality or technologicalleadership

• Amenities to attract highly skilled labor, scientists, or creative people.

• Emphasis on innovationand flexibility

• Broad job classes• Loose work planning• External recruitment• Team-based training• Emphasis on individual-

based pay• Use of performance

appraisal as development tool

SummarySummary

Strategy management SWOT Types of Corporate Strategy Types of Business Strategy Four building blocks of Functional strategies

Role of HRM in aligning with Business strategy


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Strategic HRM