Describe the HR strategic planning process.
As discussed in Chapter 1, HR executives are now focusing their attention on how HR can help the organization achieve its business objectives through strategic planning, which is the process by which top management determines overall organizational purposes and objectives and how they are achieved. More specifically, strategic planning entails a series of judgments under uncertainty that companies direct toward achieving specific goals.1 Companies base strategy formulation on environmental scanning activities, which we discuss later. HR executives are increasingly highly involved in the strategic planning process. In the past they often waited until the strategic plan was formulated before becoming a part of the conversation.2
Process by which top management determines overall organizational purposes and objectives and how they are achieved.
Strategic planning is an ongoing process that is constantly changing to find a competitive advantage. At times an organization may see the need to diversify and increase the variety of the goods that are made or sold. At other times, downsizing may be required in response to the external environment. Or the strategic plan may see integration, the unified control of many successive or similar operations, as their driving force. Strategic planning attempts to position the organization in terms of the external environment. For example, the so-called Great Recession in 2007-2009 showed weakness in the marketplace for some firms, which led to lower company valuations, increased business failures, and selling off their noncore business units. Forward-thinking companies found opportunities that were not available when business was booming, such as expanding their company through acquisition.3 Companies always need to look for ways to stay competitive, gain market share, and be the first to innovate a new product or service. For instance, automobile manufacturers have set their sights on building and selling affordable all-electric cars of similar or better quality than Tesla Motors’ vehicles.
Strategic planning at all levels of the organization can be divided into four steps: (1) determination of the organizational mission; (2) assessment of the organization and its environment; (3) setting of specific objectives or direction; and (4) determination of strategies to accomplish those objectives (see Figure 4-1). The strategic planning process described here is basically a derivative of the strengths, weaknesses, opportunities, and threats (SWOT) framework that affects organizational performance, but it is less structured.
The 5-step strategic planning process.
FIGURE 4-1 Strategic Planning Process
Figure 4-1 Full Alternative Text
In strategic planning discussions, HR professionals’ primary focus must be on talent. We define human resource management (HRM) as the use of individuals to achieve organizational objectives. According to HRM expert Edward E. Lawler III, “Positioning the HR function and talent management to contribute to the overall effectiveness and financial performance of the organization is the best way the HR function can add value to corporations.”4 Focusing on recruiting, developing, and retaining talent provides the rationale for choosing various HR strategies and practices.
The first step in the strategic planning process is to determine the corporate mission. The mission is a company’s continuing purpose or reason for being. The corporate mission is the sum of the organization’s ongoing purpose. Arriving at a mission statement should involve answering questions such as: What are we in management attempting to do for whom? Should we maximize profit so shareholders will receive higher dividends or so share price will increase? Or should we emphasize stability of earnings so employees will remain secure? In the case of not-for-profit companies, is the focus on extending its humanitarian reach from tragic events in the United States to tragic events in other countries? Certainly, HR can provide valuable assistance in answering these questions.
Company’s continuing purpose or reason for being.
There are many other mission possibilities. Mission determination also requires deciding on the principles on which management decisions will be based. Will the corporation be socially responsible and environmentally friendly (sustainability)? Will the company be forthright in dealing with its various constituents such as its customers? The answers to these questions tend to become embedded in a corporate culture and help determine the organizational mission. Top management expects HR activities to be closely aligned to this mission and add value toward achieving these goals. The following is a part of General Mills’ corporate mission:
We serve the world by making food people love.5
General Mills also includes two additional objectives: environmental sustainability (Nourishing the Future) and community enhancement (Nourishing Communities). For instance, General Mills employees helped prepare and serve food, renovated buildings, and participated in activities to benefit impoverished children and teenagers in Brazil.
Once the mission has been determined, the organization should assess its strengths and weaknesses in the internal environment and the threats and opportunities from the external environment (often referred as a SWOT analysis). Making strategic plans involves information flows from both the internal and the external environments. From inside comes information about organizational competencies, strengths, and weaknesses. Scanning the external environment allows organizational strategists to identify threats and opportunities, as well as constraints. In brief, the strategy would be to take advantage of the company’s strengths and minimize its weaknesses to grasp opportunities and avoid threats. For example, social networking company LinkedIn can capitalize on the following opportunities, which include the growing adoption of LinkedIn’s recruitment services among corporations, growing urbanization, changing attitudes toward employment, and increasing premium subscriptions.6
HR professionals can take advantage of LinkedIn technology and services by connecting to more candidates who subscribe to LinkedIn than would typically otherwise be the case for traditional recruitment methods such as career portals on corporate Web sites, campus hiring, recruitment agencies, and job boards. Also, HR professionals are in the best position to identify workforce strengths and weaknesses. Should the company be considering, for instance, a merger or acquisition, HR would be able to work with top management to determine whether the present workforce can be effectively integrated into the workforce of the merged company. For example, does the workforce of the merged company improve the overall value of the company, or is there only duplication of talent? Any reorganization affects people and HR professionals must be in the forefront of people-related matters.
There are always threats that counterbalance opportunities. For example, LinkedIn faces at least two significant future threats.7 Competitors such as Google and Facebook could challenge LinkedIn’s success by offering similar services to customers such as mixing social networking with recruitment services. In addition, although LinkedIn has established a presence in Latin America, South America, and Asia-Pacific regions, the growth in average revenue per customer will be much lower than in the United States because of lower purchasing power of countries in these international regions.
LinkedIn’s revenue challenges are relevant to the work of its HR professionals. Research and development (R&D) costs and sales and marketing costs are likely to rise. R&D costs increase when a company is enhancing current services or developing new ones. In addition, sales and marketing costs stand to increase when a company is expanding its reach to prospective customers. These activities are likely to translate into stepped up recruitment efforts for software engineers and sales professionals. As well, establishing competitive compensation and benefits programs stand to represent a significant challenge.
In the following Watch It video, learn about iRobot, which is best known for the iRobot Roomba® vacuum cleaning robot. This product helped to change how people view robots. iRobot continues to develop robotic products to change the way customers include robots in their daily life. This video will provide an appreciation of SWOT analysis.
Watch It 1
If your instructor has assigned this, go to www.pearson.com/mylab/management to watch a video titled iRobot: Competitive Strategy of Home Robots and respond to questions.
Objectives are the desired end results of any activity. Objectives should have four basic characteristics: (1) They should be expressed in writing; (2) they should be measurable; (3) they should be specific as to time; and (4) they should be challenging but attainable. Strategic objectives might be directed at factors such as profitability, customer satisfaction, financial returns, technological leadership, and operating efficiency. Objectives should be developed only after a cost–benefit analysis of each alternative is considered. Because HR professionals are in the people business, it is difficult to imagine any strategic objective that would not involve them in some manner, and the LinkedIn example illustrates this point.
Strategies can now be developed for accomplishing those objectives. Strategies should be developed to take advantage of the company’s strengths and minimize its weaknesses to grasp opportunities and avoid threats. HR professionals should be highly involved in these activities because the composition of the workforce will certainly influence the strategies chosen. For the sake of illustration, let’s consider two fundamental strategies: lowest cost and differentiation.
Lowest-cost strategy focuses on gaining competitive advantage by being the lowest-cost producer of a product or service within the marketplace, while selling the product or service at a price advantage relative to the industry average. Lowest-cost strategies require aggressive construction of efficient-scale facilities and vigorous pursuit of cost minimization in such areas as operations, marketing, and HR. For example, you won’t find many extras in clothes retailer Ross Stores. “We believe in “no frills”—no window displays, mannequins, fancy fixtures or decorations in our stores so we can pass more savings on to our customers.”8 Low overhead costs allow Ross to sell quality apparel and home items at 20 to 60 percent less than most department store prices, and the company is profitable.9
Companies adopt differentiation strategies to develop products or services that are unique from those o
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