Chapter-03 Strategic Human Resource Management and the HR Scorecard

08 April 2013

The main purpose of this chapter is to show you how to develop a human resource management system that supports, and makes sense in terms of, your company’s strategic aims; here we show how to translate a company’s business strategy into actionable human resource policies and practices.

THE STRATEGIC MANAGEMENT PROCESS

The essence of strategic planning is to ask “Where are we now as a business, where do we want to be, and how should we get ther?”

Steps in Strategic Management

The entire 7-step strategic management process follows:

Step 1: Define the Current Business

Every company must choose the terrain on which it will compete–in particular ,what products it will sell, where it will sell them, and how it’s products or services will differ from its competitors’. The company’s vision is “what we want to become”, usually longer term, broader images. Mission states to “who we are, what we do, and where we’re headed.”

Step 2: Perform External and Internal Audits

To facilitate strategic external/internal audit, many managers use SWOT analysis to compile and organize the process of identifying company Strengths, Weaknesses, Opportunities, and Threats.

Step 3: Formulate New Business and Mission Statements

Step 4: Translate the Mission into Strategic Goals

Step 5: Formulate Strategies to Achieve the Strategic Goals

Step 6: Implement the Strategies

Strategy implementation means translating the strategies into actions and results–by actually hiring(or firing) people, building(or closing) plants, and adding(or eliminating)products and product lines.

Step 7: Evaluate Performance

Managing strategy is an ongoing process. Strategic control keeps the company’s strategy up to date. It is the process of assessing progress toward strategic goals and taking corrective action as needed.

Strategies in a Nutshell

Dell                Be direct
eBay                Focus on trading communities
General Electric    Be number one or number two in every industry in which we compete, or get out
Southwest Airlines  Meet customers' short-haul travel needs at fares competitive with the cost of automobile travel
Vanguard            Unmatchable value for the investor-owner
Wal-Mart            Low prices, every day

Types of Strategies

Three types of strategic planning: corporate strategy, competitive strategy, and functional strategy.

Corporate Strategy

Corporate-level strategy identifies the portfolio of business. There are several generic possibilities:

A diversification coporate strategy implies that the firm will expand by adding new product lines.
A vertical integration strategy means the firm expands by, perhaps, producing its own raw materials, or selling its products direct.
Consolidation–reducing the company’s size
Geographic expansion–for instance, taking the business abroad

Competitive Strategy

We can define competitive advantages as any factors that allow a company to differentiate its product or service from those of its competitors to increase market share. to achieve competitive advantage:

Cost leandership means the enterprise aims to become the low-cost leader in an industry.
Differentiation. a firm seeks to be unique in its industry along dimensions that are widely valued by buyers.
Focusers carve out a market niche, and compete by providing a product or service customers can get in no other way.

Functional Strategy

Functional strategies identify the basic courses of action that each department will pursue in order to help the business attain its competitive goals.

Achieving Strategic Fit

There are two possibilities:

Fit their capabilities to the oppotunities and threats
Leverage resources–supplementing what you have and doing more with what you have

HUMAN RESOURCE MANAGEMENT’S ROLE IN CREATING COMPETITIVE ADVANTAGE

Operational flexibility is determined primarily by a plant’s operators and the extent to which managers cultivate, measure, and communicate with them. Equipment and compuper integration are secondary. – A production expert from Harvard University

Toyota Small teams of carefully selected and highly trained assembly workers inspecting and assessing their own work, selecting their own team members, interacting with engineers and suppliers to improve components, meeting with the plant’s top managers, and spending several weeks each year being trained.

Strategic Human Resource Management

It means formulating and executing human resource policies and practices that produce the employee competencies and bahaviors the company needs to achieve its strategic aims.

Southwest Airlines An HR strategy built on high compensation, flexible job assignments, cross training, and employee stock ownership. We can outline this as follows: (1) high compensation, flexible work assignments, and so forth, lead to (2) motivated flexible ground crews and employees, who do whatever it takes to (3) turn the planes around in 15 minutes, so that (4) Southwest achieves its strategic aims of delivering low-cost, convenient service.

Dell The essence of Dell’s competitive strategy has always been to be a low-cost leader. Dell delivers most of its human resources services via the Web. Dell’s intranet contains about 30 automated Web applications(including executive search reports, hiring tools, and automated employee referrals).

Strategic Human Resource Challenges

Today’s HR managers face three basic strategic challenges:

One is the need to support corporate productivity and performance improvement efforts.
Second, employees play an expanded role in employers’ performance improvement efforts.
The third challege is that employers see that their human resource units must be more involved in desgning–not just executing–the company’s strategic plan.

HUMAN RESOURCE MANAGEMENT’S STRATEGIC ROLES

Use metrics to measure the performance of human resources-related activities.

How often do HR managers measure their depatment results?

Recruitment and selection processes(n=197)
Performance management(n=196)
Compensation management/reward programs(n=199)
Benefits management(n=192)
Employee relations(n=194)
Health, safety and security programs(n=193)
Budgeting(n=189)
Retention programs(n=191)
Employee communication programs(n=185)
Diversity practices(n=188)
Employee engagement initiatives(n=180)
Analysis of trends and forecasting(n=180)
Leadership development(n=187)
Human capital measurements(n=175)
Retirement planning(n=169)
Talent management initiatives(n=176)
Skills development initiatives(n=192)
Work/life programs(n=171)
Succession planning(n=174)
Employment brand strategy/employment branding(n=161)
Corporate social responsibility programs(n=156)

HR managers can play two basic strategic planning roles, in strategy execution and in strategy formulation.

The Strategy Execution Role (traditional role)

HR manager designs strategies, policies, and practices that make sense in terms of the company’s corporate and competitive strategies.

The Strategy Formulation Role (expanded role)

HR manager need work with top management to formulate the company’s strategic plans.

CREATE THE STRATEGIC HUMAN RESOURCE MANAGEMENT SYSTEM

Focus on three main components:

The HR function: HR professionals with strategic management competencies
The HR system: High Performance Work System (HPWS) consisting of strategically aligned HR policies, practices, and activities
Employee behaviors: Employee competencies, values, motivation, and behaviors required by the company’s strategic plan

The High-Performance Work System

Multi-skilled work teams; empowered front-line workers; extensive training; labor management cooperation; commitment to quality; and customer satisfaction.

Sample HR Practices

Number of qualified applications per position(Recruiting)
Percentage hired based on a validated selection test
Percentage of jobs filled from within
Percentage in a formal HR plan including recruitment, development, and succession
Number of hours of training for new employees(less than 1 year)
Number of hours of training for experience employees
Percentage of employees receiving a regular performance appraisal
Percentage of workforce whose merit increase or incentive pay is tied to performance
Percentage of workforce who received performance feedback from multiple sources(360)
Target percentile for total compensation (market rate=50%)
Percentage of the workforce eligible for incentive pay
Percentage of difference in incentive pay between a low-performing and high-performing employee
Percentage of the workforce routinely working in a self-managed, cross-functional, or project team
Percentage of HR budget spent on outsourced activities(e.g., recruiting, benefits, payroll)
Number of employees per HR professional
Percentage of the eligible workforce covered by a union contract

Firm Performance

Employee turnover
Sales per employee
Market value to book value

Measuring HR’s Effectiveness

Such as revenue and income per full-time equivalent employee, average full-time employees overtime, the level of turnover and its associated costs, and overall human resource expenses.

Translating Strategy into Human Resource Policy and Practice

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

Formulate business strategy. “What are the strategic goals of the business?”
Identify workforce requirments. “What employee competencies and behaviors must HR deliver to enable the business to reach its goals?”
Formulate HR strategic policies and activities. “Which HR strategies and practices will produce these employee competencies and behaviors?”
Develop detailed HR scorecard measures. “How can HR measure whether it is executing well for the business, in terms of producing the required workforce competencies and behaviors?”

The HR Scorecard is a concise measurement system, often summarized on a computer screen in a “digital dashboard”.

SUMMARY

In formulating their human resources strategies, HR managers must address three basic challenges: the need to support corporate productivity and performance improvement efforts; the fact that employees play an expanded role in the employer’s performance improvement efforts; and the fact that HR must be more involved in designing–not just executing–the company’s strategic plan.
There are seven basic steps in the strategic management process: Define the business and its mission; perform an external and internal audit; formulate new business and mission statements; translate the mission into strategic goals; formulate a strategy to achieve the strategic goals; implement the strategy; and evaluate performance.
There are three main types of strategic plans. The company’s corporate-level strategy identifies the portfolio of businesses that in total comprise the company and includes diversification, vertical integration, consolidation, and geographic expansion. Each business needs a business level/competitive strategy: Differentiation and cost leadership are two examples. Finally, each individual business is composed of departments that require functional strategies. The latter identify the basic courses of action each department will pursue in order to help the business attain its strategic goals.
A strategy is a course of action. It shows how the enterprise will move from the business it is in now to the business it wants to be in, given its opportunities and threats and its internal strengths and weaknesses.
Strategic human resource management means formulating and executing HR systems that produce the employee competencies and behaviors the company requires to achieve its strategic aims.
The high-performance work system is designed to maximize the overall quality of human capital throughout the organization, and provides a set of benchmarks against which today’s HR manager can compare the structure, content, and efficiency and effectiveness of his or her human resources system.
The basic process of aligning human resources strategies and actions with business strategy entails four steps: Formulate the business strategy; identify the workforce(employee) behaviors needed to produce the outcomes that will help the company achieve its strategic goals; formulate human resources strategic policies and actions to produce these employee behaviors; and develop measures (metrics) to evaluate the human resources department’s performance.
The HR Scorecard process for creating a strategy-oriented human resources system, includes ten steps: Define the business strategy; outline the company’s value chain; outline a strategy map; identify the strategically required organizational outcomes; identify the required workforce competencies and behaviors; identify the strategically relevant human resources system policies and activities; create HR Scorecard; design the HR Scorecard measurement system; summarize the Scorecard measures in a digital dashboard; and periodically evaluate the measurement system.
The HR Scorecard is a concise mearsurement system that shows the quantitative standards the firm uses to measure human resources activities, to measure the employee behaviors resulting from these activities, and to measure the strategically relevant organizational outcomes of those employee behaviors.

APPENDIX A – HR SCORECARD

What Is an HR Scorecard?

The HR Scorecard is a concise measurement system, often summarized on a computer screen in a “digital dashboard”. It shows the quantitative standards or “metrics” the firm use to measure HR activities, and to measure the employee behaviors resulting from these activities, and to measure the strategically relevant organizational outcomes of those employee behaviors.

Information for Creating an HR Scorecard

To create an HR Scorecard, the manager needs three types of information:

what the company’s strategy
HR scorecard relationships
metrics to measure all the activities and results involved

The Basic HR Scorecard Relationships

HR activies–>Emergent employee behaviors–>Strategically relevant organizational outcomes–>Organizational performance–>Achieve strategic goals

The 10-Step HR Scorecard Process

&1. Define the Business Strategy &2. Outline the Company’s Value Chain
The company’s value chain identifies the primary activities that create value for customers and the related support activities. 3. Outline a Strategy Map
A strategy map is a diagram that summarizes the chain of major inter-related activities that contribute to a company’s success.

Identify the Strategically Required Organizational Outcomes
Identify the Required Workforce Competencies and Behaviors
Identify the Required HR System Policies and Activities
Create HR Scorecard
Choose HR Scorecard Measures
Summarize the Scorecard Measures in a Digital Dashboard
a picture is worth a thousand words. – the purpose of digital dashboard.
For example, SAS software’s Strategic Performance Management package is a web-based system that produces alerts that grab managers’ attention when performance is not meeting targets.
Monitor, Predict, Evaluate

Sample HR Performance Measures

Sample measures for assessing employee competencies and behaviors, such as employee motivation and morale, and for assessing HR activities.

- Employee attitude survey results
- Employee turnover
- Extent to which strategy is clearly articulated and well understood throughout the firm
- Extent to which the average employee understands how his or her job contributes to the firm's success
- Level of cross-cultural teamwork
- Level of organizational learning
- Extent to which employees making suggestions
- Percentage of emplyoees making suggestions
- Employee productivity
- Requests for transfer to supervisor
- Extent to which the employees can describe the company's core values
- Employee commitment survey scores
- Customer complaints/praise
- Percentage of retention of high-performing key employees
- Requests for transfer per employees
- Percentage of employees making suggestions

Sample measures for assessing HR system activities such as testing, training, and reward policies and practices

- Proportion of employees selected based on validated selection methods
- Number of hours of training employees receive each year
- Proportion of merit pay determined by formal performance appraisal
- Percentage of workforce regularly assessed via a formal performance appraisal
- Percentage of employees eligible for annual merit cash or incentive plans
- Extent to which information is communicated effectively to employees
- Percentage of workforce who received a performance feedback from multiple sources
- Percentage of difference in incentive pay between the low-performing and high-performing employees
- Percentage of the workforce routinely working in self-managed or cross-functional or peoject teams
- Number of qualified applicants per position
- Percentage of jobs filled from within

APPENDIX B - Establishing and Computerizing Human Resource Systems

HR system requires translating the HR manager’s broad preferences into specific, “how exactly will we do this” policies, guidelines, tools, and paperwork or computerized process.

Basic Components of Manual HR Systems

Peronnell Forms

Section 1 Recruiting and Selecting

Notice of Available Position
Help Wanted Advertising Listing
Bonus for Employee Referral
Employee Referral Request
Prospective Employee Referral
Applicant Referral Program
Job Bid
Resume Acknowledgement
Applicant Acknowledgement
Acknowledgement of Reference
Applicant Interview Confirmation
Preliminary Employment Application
Veteran/Handicapped Status
Employment Application

Employment Appication Disclaimer and Acknowlegement
Applicant Waiver
Authorization to Release Information
Medical Testing Authorization
Applicant Interview Schedule
Rescheduled Appointment
Interviewing Checklist
Applicant Rating
Clerical Applicant Rating
Applicant Interview Summary
Applicant Comparison Summary
Telephone Reference Checklist
Medical Records Request

Reuest for Reference
Request for Transcript
Verification of Education
Verification of Employment
Verification of Licensure
Verification of Military Status
Unsuccessful Candidate Letter
Applicant Rejection Letter 1
Applicant Rejection Letter 2
Applicant Notification
Applicant Reply
No Decision on Hiring
Employment Confirmation

Section 2 Employment Agreements

Independent Contractor's Agreement
Employment Agreement
Addendum to Employment Agreement
Agreement with Sales Representative
Letter Extending Sales Representative Agreement
Change in Terms of Sales Representative Agreement
Conflict of Interest Declaration
Consent for Drug/Alcohol Screen Testing

Polygraph Examination Consent Form
Agreement to Accept Night Work
Expense Recovery Agreement
Agreement on Inventions and Patents
Agreement on Proprietary Rights
Employees Agreement on Confidentiality Data
Employee's Covenants
Employee Secrecy Agreement

General Non-Compete Agreement
Non-Compete Agreement (Accounts)
Non-Compete Agreement (Area)
Non-Disclosure of Trade Secrets
Acknowledgement of Temporary Employment
Employer Indemnity Agreement
Employee Indemnity Agreement
Waiver of Liability

Section 3 Processing New Employees

Rehire Form
Hiring Authorization
Relocation Expense Approval
Letter to New Employee 1
Letter to New Employee 2
Letter to New Employee 3
Letter to New Employee 4
New Employee Announcement
Employee Background Verification
New Employee Orientation Checklist
New Employee Checklist

New Personnel Checklist
Employee Agreement and Handbook Acknowledgement
Job Description
Emergency Procedures
Summary of Employment Terms
Payroll Deduction Authorization
Payroll Deduction Direct Deposit Authorization
Direct Deposit Authorization
Withholding Tax Information

Employee File
New Employee Data
Emergency Phone Numbers
Established Workday and Workweed Schedules and Policies
Consent for Drug/Alcohol Screening
Receipt for Company Property
Samples and Documents Receipt
EEO Analysis of New Hires

Section 4 Personnel Management

Employment Record
Personnel Data Change
Employee Information Update
Employee Salary Record
Employment Changes
Personnel Data Sheet
Personnel File Access Log
Request to Inspect Personnel File
Consent to Release Information
Telephone Reference Record
Personnel Activity Report
Personnel Requirement Projections
Temporary Employment Requisition
Temporary Personnel Requisition
Employee Flextime Schedule
Weekly Work Schedule
Daily Time Record
Employee Daily Time Record
Weekly Time Record
Hourly Employees' Weekly Time Sheet
Department Overtime Request
Overtime Permit
Overtime Authorization
Overtime Report

Department Overtime Report
Department Payroll
Expense Report
Mileage Reimbursement Report
Payroll Change Notice
Pay Advice
Payroll Summary
Vacation Request Memo
Vacation Request
Employee Health Record
Accident Report
Injury Report
Disability Certificate
Physician's Report
Employee Sympathy Letter 1
Employee Sympathy Letter 2
Employee Sympathy Letter 3
Employee Sympathy Letter 4
Absence Request
Funeral Leave Request
Leave Request/Return from leave
Military Duty Absence
Late Report

Employee Absence Report
Absence Report
Department Absence Report
Annual Attendance Record
Employee Suggestion
Suggestion Plan 1
Suggestion Plan 2
Suggestion Plan 3
Memo Regarding Drug Testing
Test Notice--Polygraph
Information Notice-Polygraph
Notice of Affirmative Action Policy
Affirmative Action Notice to Suppliers
Affirmative Action Self-Identifications
Affirmative Action Supplier's Compliance Certificate
Affirmative Action Summary
Equal Employment Opportunity Policy
Current EEO Workforce Analysis
EEO Analysis of Promotions
Employee Transfer Request
Off-Duty Employment Request
Grievance Form

Section 5 Performance Evaluation

Employee Consultation
Employee Counseling Activity Sheet
Critical Incidents Report
Incident Report
Notice of Ongoing Investigation--Polygraph
Notice of 30-Day Evaluation
Notice of Probation
Notice of Extended Probation
Excessive Absenteeism Warning
First Warning Notice
Second Warning Notice

Disciplinary Notice
Disciplinary Warning
Disciplinary Report
Suspension Without Pay Notice
Employee Self-Evaluation
Performance Analysis Employee Worksheet
Employee Performance Checklist
New Employee Evaluation
Managerial Evaluation
Performance Evaluation
Production Personnel Evaluation
Sales Personnel Evaluation
Standard Evaluation
Temporary Employee Evaluation
Employee Performance Review
Performance Appraisal Interview Report
Employee Rating Response
Performance Objectives
Coaching Form
Employee Performance Improvement Plan
Letter of Commendation
Salary Change Request

Setion 6 Benefits

Accrued Benefits Statements
Employee Benefits Analysis
Benefits Planning Checklist
Employee Benefits Survey
Employee Benefits List
Combined Resolution--Incentive
Stock Option Plan
Resolution--Signing Bonus

Resolution--Paid-Up Annuity Plan
Resolution--Relocation Allowance
Resolution--Performance Bonus
Resolution--Low-Interest Loan
Resolution--Company Car
Resolution--Club Membership
Resolution--At-Home Entertainment Allowance

Resolution--Tuition Benefit
Resolution--Scholarship Aid Program
Resolution--Financial Counseling Plan
Resolution--Sabbatical Leave
Resolution--Child Care Plan
Resolution--Wage Continuation Plan
Resolution--Merchandise Discount Program

Section 7 Termination/Separation

Retirement Checklist
Resignation
Termination Checklist
Notice of Dismissal
Notice of Termination Due to Absence
Notice of Termination Due to Work Rules Violation
Reduction in Workforce Notice
Termination Letter for Excessive Absenteeism
Termination Letter for Lack of Work

Termination Letter for Intoxication on the Job
Letter Terminating Sales Representative
Employee Checkout Record
General Release
Mutual Release
Employee Release
Employee Exit Interview
Seperation Notice
Personnel Separation Report

Employee Separation Report
Unemployment Compensation Record
EEO Analysis of Terminations
Reference Report
Employment Reference Response
Refusal to Grant References
Notice of Confidentiality Agreement
COBRA Letter to Terminating Employee
COBRA Employee Information Letter
COBRA Compliance

Automating Individual HR Tasks

As our company grows, it becomes increasingly unwieldy and uncompetitive to rely exclusively on manual HR systems. (International Association for Human Resource Information Management: http://www.ihrim.org)

Establishing Human Resource Information Systems (HRIS)

Why an HRIS
Larger companies typically integrate their separate HR systems into integrated human resource information systems(HRIS). There are at least three reasons for installing such a system.

First is competitiveness; an HRIS can signigicantly improve the efficiency of the HR operation and therefore a company’s bottom line.
The HRIS can also bump the firm up to a new plateau in terms of the number and variety of HR-related reports it can produce.
Finally, the HRIS can also help shift HR’s attention from transactions-processing to strategic HR.

HRIS in Action
Now, companys are moving from component systems(less than 1500employees) to integrated human resource information systems(larger firms). The advantages are as the following:

Improved Transaction Processing
Online Processing
Improved Reporting Capability

HRIS Vendors

Automatic Data Processing, Inc., Business Information Technology, Inc., Human Resource Microsystems, Lawson Software, Oracle Coporation, PeopleSoft, Inc., Restrac Web Hire, SAP America, Inc.

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