Topic 01 - The Strategic Process

7/29/2019 Topic 01 - The Strategic Process

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MASTER OFINTERNATIONAL BUSINESS

(MIB)

__________________________HUMAN RESOURCE MANAGEMENT (TPM516M)

TOPIC 1

THE STRATEGIC PROCESS


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Topic 1: THE STRATEGIC PROCESS

I. WHAT IS STRATEGIC MANAGEMENTA. Strategic Management: DefinitionB. Strategy: DescriptionC. Characteristics of successful strategyD. Effective Strategic Managers ought to have knowledge, skills and visionE. Analysing the company

F. Analysing the environmentG. The current strategic positionH. Developing strategies

II. STRATEGIC HRMA. IntroductionB. Strategic HRM Models

C. Strategy FormulationD. Strategy ImplementationE. Strategic TypesF. Directional StrategiesG. Strategy Evaluation and ControlH. The Role of HR in providing additional strategic competitive advantage


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I. WHAT IS STRATEGIC MANAGEMENT

A. Strategic Management: Definition type of management through which the

company obtains a sustainable long-term

excellent fit with its environment, and thequality of this fit is reflected in superiorperformance

concerned with long-run, fundamental and

often irreversible decisions about thecompanys mission, scale of operations andspread of activities


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I. WHAT IS STRATEGIC MANAGEMENT (Continued)

B. Strategy: Description Determines the direction in which the organization is going in

relation to its environment Is the process of defining intentions (strategic intent) and

allocating or matching resources to opportunities and needs

(resources based strategy) Its goal is to deploy and allocate resources (physical, human,

and organizational) in a way that gives it competitiveadvantage

Includes the ability to formulate strategic goals, to develop andimplement strategic plans

Is emergent and flexible it never exists at the present time Is not only realized by formal statements but also comes about

by actions and reactions Is a description of a future directed action which is always

directed towards change


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C. Characteristics of Successful Strategy Time Scale: the time scale for strategic decisions is

many years concerned with the long-run nature ofthe company and its activities

Scope: the scope of strategic decisions iscompany-wide concerned with the totality of thecompany rather than individual parts

Reversibility: strategic decisions normally will beextremely difficult if not impossible to reverse

Level: strategic decisions are normally taken by thetop management of companies Importance: strategic decisions are very important

as an incorrect decision may ruin a company


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D. Effective Strategic Managers ought to have theknowledge, skills and vision necessary to:

understand the total company, i.e. its mission, goals,objectives, culture, strategies, and the activities of thedifferent functional areas and the resources available

understand the environment in which the company isoperating, with particular reference to opportunities andthreats that are (or will be) present

develop strategies that are appropriate to the company andits environment

implement chosen strategies control, evaluate and amend as appropriate, the strategies

that have been selected


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E. Analysing the Company An analysis of the elements below will be used to provide a

picture of the strategic health and potential of the company Mission and goals

The first step is to understand the companys mission and goals anexamination of who the top decision-makers and stakeholders in thecompany are and the value systems that drive them

Leadership

Leadership is assessed not according to style, but according to itsappropriateness and consequent effectiveness

Culture Values and attitudes that pervades the company and binds

organization members together

Organisational Structure The formal structure of a company can have profound effects upon its

performance Functional Composition

A methodology for assessing the relative strengths and weaknessesin the principle functions that most companies have, i.e. finance,marketing, production, personnel, etc. is set out.


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F. Analysing the Environment Successful strategies are ones where the company adapts to its

environment Companies that fail to adapt to their environment will in the long-run

disappear The environment can be segmented into the forces set out below

1) Market Forces Market forces determine whether the products or services offered by a

company will be ultimately purchased, at an acceptable price by

consumers Market forces include the size and affluence of the market; the number of

competitors and their sizes; the growth rate of the market; the influenceson buying decisions prices, product features, methods of distribution,and methods of promotion

2) Competitive Forces The threat of new entrants

The threat from substitutes The power of buyers The power of suppliers The degree of rivalry


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F. Analysing the Environment (Continued)3) Economic Forces

The economic context global and national in which the company

operates is examined and its impact assessed4) Legal / Government Forces

A companys current and future operations are affected by legislation5) Social Trends

Assess how social trends affect or will affect the company e. g. socialchange in western countries about health and fitness provided marketopportunities for industries and companies

6) Technological Change Companies must be cognizant of technological changes and keep abreast

of them7) Geographical Location

Industry in general becomes less restricted in its choice of manufacturinglocation

Industrys location is increasingly determined by a whole range of factors

of competitive advantage or necessity which include human resourceswith particular skills, resident scientific infrastructure of appropriate typesand access to sophisticated suppliers

8) Other Forces Any other environmental forces that are not captured in any of the other

categories are addressed here


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G. The Current Strategic Position (The following perspectives areconsidered): an overall assessment, which presents a qualitative perspective of the

companys strategic position the financial analyses are provided through income statements, cash-

flow statement, balance sheets, funds flow statements, etc

key strategic ratios, which show the companys performance and itscompetitive position

corporate portfolio position, which shows how a strategic business unitor division is performing from a corporate perspective

product market portfolio (plotting the movements of products over time),which shows the balance of the portfolio of products a company hasproducts moving in an ideal sequence reflect a well-managed portfolio(low relative market share high market growthhigh relative market share, i.e. the stronger the company is in terms ofthese coordinates, the stronger will be its strategic competitive position)


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H. Developing StrategiesHere, building upon the companys current strategic position, a future strategy isformulated. First select the fundamental strategy

1) Fundamental strategy Conservative growth strategy: company growth rate is similar to industry average

/ historical performance; it continuous to serve the same or related markets withsimilar or related products

High growth strategy: growth rate significantly greater than industry average /historical performance; previous performance measures need adjustment

Neutral strategy: no significant deviation from past strategy (no change); thegoals achieved, the companys activities and its current competitive position havebeen historically satisfactory and similar achievements in the future would alsobe considered satisfactory

Recovery strategy: it is appropriate when the company is not performingsatisfactorily, but there is not a prospect of immediate collapse, i.e., it is in acrisis that is not going to cause immediate failure, but will certainly cause failureto occur if remedial action is not taken fairly quickly; the aim is to minimise thelosses that are occurring, and, if possible, to change a declining company intoone achieving satisfactory returns and developing a long-term sustainablecompetitive position.

Reduction strategy: if the causes of the company decline are due to economicrecession, the appropriate strategy would be to reduce the scale of operations,which could include reduction in the range of activities, range of products, rangeof markets, assets and personnel to match the reduced economic circumstances.Alternatively, if the recession just applied to the company domestic market, thennew sales could be sought in foreign markets.


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H. Developing strategies (cont.)2) Generic strategy

Once a fundamental strategy has been selected, decide upon ageneric strategy the company should follow. The two strategy typesshould complement each other and together should enable thecompany to achieve its goals. There are three generic strategiesthat will enable a company to gain competitive advantage.

High volume / low cost: this strategy seeks to gain competitive advantagethrough having lower costs and higher volumes than competitors

Product differentiation: this strategy seeks to gain competitive advantagethrough differentiating the product from lower prized offerings on the basisof some non-prize factor such as quality and performance, e.g.. BMW

Focus: this strategy seeks to gain competitive advantage through serving

just one very narrow customer group or market segment, and notattempting to serve any others , e.g. families. The competitive advantagearises out of tailoring ones strategy to the requirements of a relativelysmall niche in the market.


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II. STRATEGIC HRM

A. Introduction Is concerned with the relationship between human resource

management and strategic management in the firm Is an integrated approach to the development of HR strategies that

will enable the organization to achieve its goals Has to do with planned human resource deployments and activities Addresses broad organizational issues relating to organizational

effectiveness and performance, changes in structure and culture,

matching resources to future requirements, the development ofdistinctive capabilities, knowledge management and management ofchange

Is concerned with both meeting human capital requirements and thedevelopment of process capabilities (ability to get things doneeffectively)

Focuses on actions that differentiate a company from its competitors

According to Hendry and Pettigrew (1986) is about: The use of planning A coherent approach to the design and management of personnel

systems, based on an employment policy and manpower strategy Matching HRM activities and policies to some explicit business strategy Seeing the people of the organization as a strategic resource for the

achievement of competitive advantage


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II. STRATEGIC HRM (cont.)B. Strategic HRM Models

1) High Performance Management High performance management involves the development of a number of

interrelated processes that together make an impact on the performance of acompany through its people in such areas as productivity, quality, levels ofcustomer service, growth, profits, and ultimately the delivery of increasedshareholder value

The starting point is leadership, vision and benchmarking to create a sense ofmomentum and direction

The main drivers, support systems and culture are:- Decentralized devolved decision-making made by those closest to the customer so as

to constantly renew and improve the offer to customers Development of people capacities through learning at all levels, with particular

emphasis on self-management and team capabilities to enable and supportperformance improvement and organizational potential

Performance, operational and people management processes aligned to organizationalobjectives to build trust, enthusiasm and commitment to the direction taken by theorganization

Fair treatment for those who leave the organization as it changes, and engagement with

the needs of the community outside the organization this is an important componentof trust and commitment-based relationships both within and outside the organization

High performance management practices include rigorous recruitment andselection procedures, extensive and relevant training and managementdevelopment activities, incentive pay systems and performance managementprocesses

The strategy may be expressed as a drive to develop a performance culture inan organisation


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II. STRATEGIC HRM (cont.)

B. Strategic HRM Models (Continued)

2) High Commitment Management

High commitment management is a form of management which isaimed at eliciting a commitment so that behaviour is primarily self-regulated rather than controlled by sanctions and pressures external tothe individual, and relations within the organization are based on highlevels of trust

The approaches to creating a high commitment organization are:- The development of career ladders and emphasis on trainability and

commitment as highly valued characteristics of employees at all levels ofthe organization

A high level of functional flexibility with the abandonment of potentially rigidjob descriptions

The reduction of hierarchies and the ending of status differentials A heavy reliance on team structure for disseminating information (team

briefing), structuring work (team performance) and problem solving (quality

circles) Job design as something management consciously does in order to providejobs that have a considerable level of intrinsic satisfaction

A policy of no compulsory lay-offs or redundancies and permanentemployment guarantees, with the possible use of temporary workers tocushion fluctuations in the demand for labour

New forms of assessment and payment systems and more specifically,merit pay and profit sharing


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B. Strategic HRM Models (Continued)

3) High Involvement Management This model involves treating employees as partners in the enterprise

whose interests are respected and who have a voice on matters thatconcern them

The aim is to create a climate in which there is a continuing dialogue

between managers and the members of their teams in order to defineexpectations and share information on the organisations mission,values and objectives

The following five high involvement practices have been identified: On-line work teams Off-line employee involvement activities and problem solving groups Job rotation Suggestion programmes Decentralization of quality efforts


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C. Strategy Formulation

1) Five major components of the strategic management process are

relevant to strategy formulation The mission: a statement for of the organisations reason for existence Goals: are what the company hopes to achieve in the medium to long-

term future; they reflect how the mission will be operationalised External analysis: consists of examining the organisations operating

environment to identify the strategic opportunities and threats; Examplesof opportunities are markets that are not being served, technologicaladvances that can aid the company, and labour pools that have not been

tapped; Threats include new competitors entering the market, andcompetitors technological advances

Internal Analysis: identifies the organisations strengths and weaknesses;It focuses on the quantity and quality of resources available to theorganization financial, capital, technological, and human resources

After the SWOT Analysis the strategic planning team has all theinformation it needs to generate a number of strategic alternatives: thestrategic managers compare the ability of these alternatives to attain theorganisations strategic goals, and then make a strategic choice; thestrategic choice describes the ways the organization will attempt to fulfillits mission and achieve its long-term goal


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II. STRATEGIC HRM (cont.)C. Strategy Formulation (cont.)2) ROLE OF HRM IN STRATEGY FORMULATION

The strategic choice consists of addressing issues such as where to compete,

how to compete, and with what to compete Each component of the strategy formulation process involves people-related

business issues; therefore the HRM function needs to be involved in each ofthose components

Four levels of integration exists between the HRM function and the strategicmanagement function, i. e.

Administrative Linkage

This is the lowest level of integration and the HRM functions attention isfocused on day-to-day activities

The companys strategic business planning function exists without anyinput from the HRM department

The HRM department is completely divorced from the strategicmanagement process in both strategy formulation and strategyimplementation

One-Way Linkage The firms strategic business planning function develops the strategic plan

and then informs the HRM function of the plan The role of the HRM function is to design systems an/or programmes that

implement the strategic plan This level of integration precludes the company from considering human

resource issues while formulating the strategic plan


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II. STRATEGIC HRM (cont.)C. Strategy Formulation (cont.)2) ROLE OF HRM IN STRATEGY FORMULATION (Continued)

Two-Way Linkage Allows for consideration of human resources issues during the

strategy formulation process First, the strategic planning team informs the HRM function of the

various strategies the company is considering HRM executives then analyse the human resource implications of the

various strategies and present the results of the analyses to thestrategic planning team

Finally, after the strategic decision has been made, the strategic plan

is passed on to the HR executive, who develops programmes toimplement itIntegrative Linkage

It is dynamic and multifaceted, based on continuing rather thansequential interaction

The HR Executive is an integral part of the senior management team Companies have their HR functions build right into the strategy

formulation and implementation process The HRM executive gives strategic planners information about thecompanys human resource capabilities

This information helps top managers choose the best strategybecause they can consider how well each strategic alternative wouldbe implemented

Once the strategic choice has been determined, the role of HRMchanges to the development and alignment of HRM practices that will

give the company employees (having the necessary skills) toimplement the strategy


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D. Strategy Implementation1) Five important variables determine success in overall strategy implementation:

Organisational structure Task design Selection, training, and development of people Reward systems Types of information and information systems

2) Primary responsibilities for strategic HRM implementation

First, for strategy to be successfully implemented, the tasks must be designedand grouped into jobs in a way that is efficient and effective (through processesof job analysis and job design).

Second, the organization must be staffed with people who have the necessaryknowledge, skill and ability to perform their part in implementing the strategy(through recruitment, selection and placement, training, development, and careermanagement).

Third, a performance management and reward system must be developed that

lead employees to work for and support the strategic plan. Thus, the role of the HRM function is (i) to ensure that the company has the

proper number of employees with the right levels and types of skills required bythe strategic plan and (ii) to develop control systems that ensure that thoseemployees act in ways that promote the achievement of the strategic plan.


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II. STRATEGIC HRM (cont.)D. Strategy Implementation (cont.)

3) HRM PRACTICES IMPORTANT FOR STRATEGY IMPLEMENTATION

Job Analysis and designJobs

work tasks that are grouped together jobs range from those that are simplified and require a limited range of skills to

those that require multiple skills (enhance innovation)Job analysis

process of getting detailed information about jobs

Job design addresses what tasks should be grouped into a particular job is an important strategic tool because strategy requires either new and

different tasks or different ways of performing the same tasks also, new technologies can impact the way work is performed

Employee Recruitment and Selection

Recruitment Process through which the organization seeks applicants for potential

employmentSelection

Process used to identify applicants with the necessary knowledge, skills,abilities, etc.

The strategy a company is pursuing will have a direct impact on the types and

numbers of employees it seeks to recruit and select


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D.Strategy Implementation (cont.)

3) HRM PRACTICES IMPORTANT FOR STRATEGY IMPLEMENTATION(Continued)

Employee Training and Development Training

Refers to a planned effort to facilitate the learning of job-related knowledge,skills and behaviours

Development Involves acquiring knowledge, skills, and behaviour that improves

employees ability to meet the challenges of a variety of jobs

Changes in strategies often require changes in the types, levels and mixesof skills

E. g. to adopt a strategy to emphasize quality in products might meanengaging in total quality management (TQM) programmes and other skills

that ensure quality

Performance Management Used to ensure that employees activities and outcomes are congruent with the

organisations objectives Entails specifying those activities and outcomes that will result in the firms

successfully implementing its strategy


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D. Strategy Implementation (cont.)

3) HRM PRACTICES IMPORTANT FOR STRATEGY IMPLEMENTATION(Continued)

Pay Structures, Incentives, and Benefits A high level of pay and / or benefits relative to that of competitors can ensure

that a company attracts and retains high quality employees A company that ties pay to performance can elicit specific activities and levels

of performance from employees

Labour and Employee Relations Relations with employees can strongly affect a companys potential for gaining

competitive advantage E. g. Lee Iacocca turning around Chrysler Corporation (1970s) from

bankruptcy to record profitability Decisions companies make as regards the treatment of employees can result

in achieving / not achieving their goals


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E. STRATEGIC TYPESCost Strategy

Focuses on becoming the lowest cost producer in an industry

Differentiation Strategy Focuses on a product or service that is different from that of others in the

industry Differentiation can come from creating a brand image, from technology,

from unique customer service etc.

HRM Needs in Strategic Types Each of the different strategies requires different types of employees with

different types of behaviours and attitudes E.g. companies engaged in a cost strategy require employees to have a

high concern for quantity and a short-term focus These companies specifically define the skills they require and invest in

training employees in these skill areas These employees are expected to exhibit role behaviors that are relatively

repetitive Employees in companies with a differentiation strategy need to be highly

creative, cooperative, have a long term-focus, be tolerant for ambiguity andbe risk takers

Employees in these companies are expected to exhibit role behaviours that

include cooperating with others and developing new ideas.


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F. DIRECTIONAL STRATEGIES

1) Concentration Strategies

Strategies emphasizing market share or operating costs Companies focus on what it does best within its established markets

Companies maintain the current skills that exist in the organization

Companies provide training programmes as a means of keeping those skills

Companies focus on compensation programmes aimed at retaining people withthose skills

2) Internal Growth Strategies

Strategies focusing on market development, product development, innovation, orjoint ventures

Companies channel their resources toward building on existing strengths

Companies constantly hire, transfer and promote individuals, and expansion intodifferent markets may change the necessary skills that prospective employeesmust have

Training will focus on knowledge of each market if the organization seeks toexpand its markets

Training will be of a more technical nature when the company is seekinginnovation or product development (also focusing on team building)


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F. DIRECTIONAL STRATEGIES (cont.)3) Mergers and Acquisitions

Those attempting to integrate vertically or horizontally or to diversify areexhibiting an external growth strategy, usually through mergers and acquisitions Strategy attempts to expand a companys resources or to strengthen its market

position through acquiring or creating new business HRM has a role in both evaluating a merger opportunity and in the actual

implementation of a merger or acquisition Training in conflict resolution techniques is necessary when joint ventures are

considered due to problems associated with different organizational cultures

4) Downsizing A downsizing or divestment strategy is made up of retrenchment, divestitures or

liquidation These strategies are observed among companies facing serious economic

difficulties Downsizing presents both challenges and opportunities for HRM Challenges are cutting back on workers who are less valuable in their

performance and to boost the morale of remaining employees Opportunities include getting rid of dead-wood, changing an organisations

culture, and demonstrating the companys resources to its ultimate success


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G. STRATEGY EVALUATION ANDCONTROL

It is very important for a firm to constantly

monitor the effectiveness of both thestrategy and implementation process

This monitoring makes it possible for the

company to identify problem areas andeither revise existing structures andstrategies or to devise new ones


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H. THE ROLE OF HR IN PROVIDING ADDITIONAL STRATEGIC COMPETITIVEADVANTAGE

1) Emergent Strategies

Intended strategies

Result of a rational decision-making process by top management

It is a plan that integrates an organisations major goals, policies and actionsequences into a cohesive whole

Emergent strategies

Evolve from what organizations actually do

Identified by those lower in the organizational hierarchy who provide ideas fornew markets, new products, and new strategies

HRM facilitates communication that allows for effective emergent strategies

2) Enhancing Firm Competitiveness

Develop a human capital pool that gives the company the unique ability to

adapt to an ever-changing environment This gives rise to the idea of a Learning Organisation in which people

continually expand their capacity to achieve the results they desire

Thus, there is a need to constantly monitoring the environment, assimilatinginformation, making decisions and flexibly restructuring to compete


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H. THE ROLE OF HR IN PROVIDING ADDITIONAL STRATEGIC COMPETITIVEADVANTAGE (cont.)

3) Strategic Human Resources Executives

Previously, HRM played a largely administrative role Now, HRM are called on to become the source of people expertise in the

company Basic competencies for HR professionals to become partners in the strategic

management process(i) They need business competenceknowing the companys business and understanding

its economic financial capabilitiesHR Executives must be able to calculate the costs and benefits of each alternative in

terms of dollar impact, as well as considering the non-monetary impact (social andethical issues)

(ii) HR Professionals will need professional-technical knowledge of state-of-the-art HRMpractices in areas such as staffing, development, rewards, organizational design, andcommunicationThey will get to learn about new selection techniques, performance appraisal methods,training programmes and incentive plans are constantly being developed

(iii) They must be skilled in the management of change processes such as diagnosing

problems, implementing organizational changes, and evaluating resultsHR Executive must have the skills to oversee change that might result in conflict,resistance, and confusion among people

(iv) HR Professionals must also have integration competence the ability to integrate thethree other competencies to increase the companys valueThis requires specialist knowledge and a generalist perspective in making decisions,including recognizing that changes in any one part of HRM are likely to require changesin other parts of HRM

Topic 01 - The Strategic Process

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