SHRM - Aligning HR With Strategy

STRATEGIC HUMAN RESOURCE MANAGEMENT Aligning HR with strategy

HR’s emerging role – formulation & implementation of strategy 

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HR field has dramatically changed in the last few years Importance of HR dept. to involve in the strategic planning. E.g. designing reward structure – finance dept + HR dept. + top mgmt. Competitive advantage

Transition from HRM  SHRM 

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Changes in market conditions, economic conditions, labour markets, industrial structure and international competition  importance HR as a competitive advantage. HR strategy is defined as the set of ideas, policies and practices that management adopts to achieve a people management perspective.

Transition from HRM  SHRM 

Schuler (1992) developed a ‘5-P model’ of SHRM that melds five HR activities (philosophies, policies, programs, practices and processes) with strategic business needs, and reflects management’s overall plan for survival, growth, adaptability and profitability. Philosophy: Organization’s attitude towards its HR & how they should be treated & the role they should play in the success of the business. Found in its values/mission statement  culture. e.g creating value through leadership & excellence@ Pepsi-cola  Policies: guidelines about mgmt. of people NOT HR policy manual 

‘5-P model’ of SHRM contd. 

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Programs: coordinated HR efforts to initiate and sustain strategic organizational change. Practices: deal effectively with performance problems, encourage creativity in workplace, form work teams & involve employees in decision making. Processes: involves identification, formulation and implementation of HR activities to meet strategic goals of organ.

The 5-P Model ORGANIZATIONAL STRATEGY INTERNAL CHARACTERISTICS

EXTERNAL CHARACTERISTICS STRATEGIC BUSINESS NEEDS

STRATEGIC HRM ACTIVITIES HR Philosophy

Express how to treat and value people

HR Policies

Establishes guidelines for action on peoplerelated business issues and HR Programs

HR Programs

Coordinates efforts to facilitate change to address major people related business issues

HR Practices

Motivates needed role behaviors

HR Process

Defines how these activities are carried out

Traditional HR Vs strategic HR Traditional HR

Strategic HR

Specialize

Change according to external needs of work

Formulate rules & procedures; strict implementation

Good communication; flexible rules & regulations

HR policies

interdisciplinary

Transactional; short term objectives

Transformational; change agent

People as means to do work

People as intellectual assets – competitive advantage

Changes are slow

Proactive & systemic changes

Traditional HR Versus Strategic HR

Linking Corporate and HR Strategies

Translating Strategy into HR Policy and Practice

Basic Model of How to Align HR Strategy and Actions with Business Strategy

Roles of SHRM 1. Strategic role : formulating business decisions, translating corporate strategy into HR strategy & training employees to focus on customer needs. 2. Information & decision-making role: HR dept informs and advices about best practices life efficiency in customer service or new product development or taking decisions on employee problems. 3. Strategic HR functional role : select, design and implement planning & appraisal systems for employees. 4. Administrative: implement policies and procedures; improve administrative system;

Barriers to Strategic HR    

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Short-term mentality / focus on current performance Lack of technical knowledge Inability of HR to think strategically Failure to understand general manager’s role as an HR manager Difficulty in quantifying many HR outcomes Perception of human assets as high-risk investments Resistance (of employees) to change

Models integrating Strategy & HR 

Two models are important Model of best practice  Model of strategic change  Model of best practice  Tyson and Doherty developed a model of best practice that helps in analyzing best practices according to requirements. These outcomes are based at three levels: 

Strategic level  Operational level  Business process level 

Model of best practice 

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Recruiting and selecting employees with desired competencies Value of the approach  effectiveness and efficiency Effectiveness defines as extent to which the HR Dept. give importance to org. objectives Efficiency defined by the achievement of the objectives in a cost effective manner.

Strategic level 

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Implement major changes Identify programs and policies  integrate with production/ service delivery systems

Operational level 

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Competencies are created to give competitive advantage. Develop sound recruitment and retention strategies Performance assessment and training

Business process level 

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Employees should be involved in framing policies Policies  fair and unbiased Equal weightage to all stakeholders

Models of strategic change 

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A flexible model for integrating strategic change was developed at Harvard university. This model was called “The Map of HRM territory” Legitimate interest of shareholders and stakeholders in organization aligned with HR and Business strategy

Map of HRM territory Stakeholder interests • Stakeholder mgmt. • Employee groups • Govt. Community

Situational factors • Workforce characteristics. • Business strategy • Mgmt. philosophy • Labout market • Unions • Technology • Law & societal values

HRM policy choices • Employee • Influence • HR • flow • Reward systems • work systems

HR outcomes • Commitment • Competence • Congruence • Cost • Effectiveness

Long term consequence • Individual wellbeing • Organiza. Effectiveness • Social well-being

Propositions of Guest 

Guest, HR expert, has developed a set of propositions based on the Harvard Model: Strategic integration - HRM issues with strategic plan  High commitment - to org. goals  High quality - goods & services  Flexibility - ability of org. to adjust to changing business environment 

Integrative model 

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Hendry & Pettigrew’s integrative approach that integrates all modes of HRM like staffing, recruitment & training. This model is called “Model of strategic change and HRM” This model explores implications of employee relations on various approaches to strategic management.

Model of strategic change and HRM Outer context • socioeconomic • technical • political

Inner context • • • •

Culture, Structure Politics / Leadership Task-technology Business outputs

HRM context

Business strategy content • Objectives

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• Product-market • Strategy & tactics

HRM content • HR flows • Work systems • Reward systems • Employee relations

Role Definition Organization HR output

Storey’s Model – Ideal type 

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How org’s transformed are being from personnel into HRM Classified into four areas  Beliefs

& assumptions – about tasks to be completed, nature of human relations  Strategic concepts – key corporate planning  Line mgmt. – mgmt. skills  Key levers – selection, job design, pay, training & development

Economic indicators of HRM 

By developing policies and programs after aligning biz strategy with HR foll. Objectives will be achieved:  Competitive

work practices  Global practices  Effective remuneration & performance policies that can motivate employees  Effective succession planning thro’ recruitment & selection strategies

Invest perspective of HR    

Employee Costs Vs biz. Advantage Potential benefits of training Calculate man-hours lost Value based mgmt.

Factor affecting investmentoriented organizations 1. 2. 3. 4.

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Management values – people as assets Attitude towards risk – training as risk Employee skills – retention strategies Cost benefit analysis – experience & commonsense Outsourcing – focus on core competency – competitive advantage

Human capital accounting 

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American accounting association (1970) defines it as the human resources identification and measuring process and also its communication to the interested parties. Rensis Likert (1967) first used the term Human asset accounting – now replaced by Human resource accounting. Likert designed a human capital balance sheet – investments in replacements and development were balanced with losses thro’ attrition and amortization

What is Human resource accounting ? 

HRA is a management tool which is designed to assist senior management in understanding the long term cost and benefit implications of their HR decisions so that better business decisions can be taken

WHY HRA ? 

According to Likert (1971), HRA serves the following purposes in an organisation: It furnishes cost/value information for making management decisions about acquiring, allocating, developing, and maintaining human resources in order to attain costeffectiveness;  to monitor effectively the use of human resources;  It provides a sound and effective basis of human asset control whether the asset is appreciated, depleted or conserved;  helps in the understanding the financial consequences of various HR practices. 

Flamholtz’s approach 

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An individual's conditional value is the present worth of the potential services that could be rendered if the individual stays with the org. for X years. Conditional value refers to the combination of productivity, transferability and promotability. Conditional value when multiplied with probability factor (time a person will stay with the org.) will give the expected realizable value. Realizable value gives a measure of a person’s value increases as the individual’s learning increases.

Sources of employee value 

Two major sources :  Productivity  Added

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Value

Productivity is the level of output generated by a given level of input. Added value can be defined as the wealth created through the efforts of the enterprise and its people.

Productivity 

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Measure productivity and compare with industry standards ^ in productivity leads to increase in sales, profits which increases the performance of the organization Limitations – This method assumes same average costs for all employees. Also temporary basis employees cannot be accounted for. Should take into account total cost of contributing labor

Added value thro’ rewards and benefits  

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Tie pay to individual performances. Base pay – decided on basis of seniority of performance - with variable element (determined on the basis of individual performance) and an incentive (if the person performs exceptionally well). Incentives motivate individuals Stock options aim to distribute benefits of achieving capital growth & to align employee rewards with that of the shareholders.

Adding value thro’ attrition & recruitment 

Labor turnover is calculated by taking the 

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no. of employees leaving in a time period/ avg. no. of people leaving over a time period.

does not indicate the reason for attrition Lost time and company spent on recruiting and training Conduct exit intercviews

Matthewen 

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Recommended HR audits for calculating value of HR Four factors  Quality

of procedures and practices  Cost benefit analysis  Ability of staff to perform tasks effectively  Customer satisfaction