Chapter 1

Strategic Management

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Learning Outcomes

After reading this chapter, you should be able to: •  Discuss why managers need to examine the human

resource implications of their organizational strategies

•  Discuss why human resource managers need to

understand strategy •  Understand the various terms used to define strategy

and its processes

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Learning Outcomes

After reading this chapter, you should be able to: •  Describe organizational strategies, including

restructuring, growth, and stability

•  Define business strategy and discuss how it differs from corporate strategy

•  Discuss the steps used in strategic planning •  List the benefits of strategic planning

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A Need for Strategic HRM

•  There is a common theme among many companies.

•  Adapting organizational strategies to include HRM is essential.

•  If HRM strategies are not skillfully applied, they can negatively affect organizational strategy.

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Strategic Human Resources Management

•  Strategic management of people through HR programs and policies helps to ensure positive organizational outcomes, such as: – profitability – customer satisfaction – employee performance and – organizational survival

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Strategy

Strategy: The formulation of organizational objectives, competitive scopes, as well as action plans for gaining advantage

•  The plan for how an organization intends to achieve its goals

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Descriptions of Strategy

Strategy: A declaration of intent Strategic intent: A tangible corporate

goal; a point of view about the competitive positions a company hopes to build over a decade

Strategic planning: The systematic determination of goals and the plans to achieve them

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Descriptions of Strategy

Strategy formulation: The entire process of conceptualizing the mission of an organization, identifying the strategy, and developing long-range performance goals

Strategy implementation: Those activities that employees and managers of an organization undertake to enact the strategic plan, to achieve the performance goals

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Descriptions of Strategy

Objectives: The end, the goals Plans: The product of strategy, the means to

the end Strategic plan: A written statement that

outlines the future goals of an organization, including long-term performance goals

Policies: Broad guidelines to action, which establish the parameters or rules

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The Reality of the Strategic Process

1.  Intended strategy: The agreed-upon strategy arrived at through the formal planning process

2.  Emergent strategy: Created from new ideas and conditions

3.  Discarded strategy: Deemed inappropriate due to changing circumstances

4.  Realized strategy: The implemented plan; what actually happened

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The Reality of the Strategic Process

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Strategic Types

Corporate strategy: Organizational-level decisions that focus on long-term survival

1.  Restructuring: Includes turnaround, divestiture, liquidation, and bankruptcies

2.  Growth: Includes incremental, international, and mergers and acquisitions

3.  Stability: Maintains status quo

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Restructuring Strategies

Turnaround strategy: An attempt to increase the viability of an organization

Divestiture: The sale of a division or part of an organization

Liquidation: The termination of a business and the sale of its assets

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Restructuring Strategies

Bankruptcy: A formal procedure in which an appointed trustee in bankruptcy takes possession of a business’s assets and disposes of them in an orderly fashion

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Growth Strategies

Incremental growth: Can be attained by expanding the client base, increasing products/services, changing the distribution networks, or using technology

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Growth Strategies

International growth: Can be attained by seeking new customers or markets by expanding internationally

Acquisition: The purchase of one company by another

Merger: Two organizations combine resources and become one

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Stability Strategies

•  These are maintenance strategies where companies do not wish to see their companies grow and so their strategic HRM practices remain constant. These can be called – status quo – neutral – do-nothing strategies

Business vs. Corporate Strategies

Business strategy: The action plan for a single line of business to

gain competitive advantage

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Business vs. Corporate Strategies

Corporate strategy •  Organizational-level

decisions that focus on long-term survival

•  Examines questions about which competitive strategy to choose

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Strategic Plan Revisited

•  A strategic plan describes the organization’s future direction, performance targets, and approaches to achieve the targets in a formal, written statement.

•  Strategic planning can be a long process that has numerous steps, including the following:

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The Strategic Planning Process

1.  Establish the mission, vision, and values. 2.  Develop objectives. 3.  Analyze the external environment. 4.  Identify the competitive advantage. 5.  Determine the competitive position. 6.  Implement the strategy. 7.  Evaluate the performance.

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Mission, Vision, Values

Mission statement: An articulation of the purpose of the organization and the value it creates for customers

Vision statement: A clear and compelling goal that serves to unite an organization’s efforts

Values: The basic beliefs that govern individual and group behaviour in an organization

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Purpose of Values Statement

1.  Conveys a sense of identity for employees 2.  Generates employee commitment to

something greater than themselves 3.  Adds to the stability of the organization as a

social system 4.  Serves as a frame of reference for

employees to use to make sense of organizational activities and to use as a guide for appropriate behaviour

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Hard vs. Soft Objectives

Hard objectives: Goals that are an expression in measurable terms of what an organization intends to achieve

Soft objectives: Goals that define the targets of social conduct for the organization and may not always be quantifiable

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What Is Competitive Advantage?

Competitive advantage: The characteristics of a firm that enable it to earn higher rates of profits than its competitors by utilizing its resources, including:

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What Is Competitive Advantage?

1.  Tangible assets: Organizational assets that have substance and can be consumed

2.  Intangible assets: Organizational assets that are not concrete, such as reputation, goodwill

3.  Capabilities: Collective skills, abilities, and expertise of an organization

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Four Criteria of Sustained Competitive Advantage

1.  Valuable: Are the resources and capabilities valuable to the firm?

2.  Rare: Are the resources and capabilities uncommon?

3.  Inimitable: Are the resources and capabilities hard to copy?

4.  Nonsubstitutable: Are the resources and capabilities replaceable with substitutes?

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Dynamic Capabilities

Dynamic capabilities: Organizational capabilities to adapt and renew competencies in accordance with the changing business environment

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SWOT

•  SWOT is an acronym for: •  Strengths, •  Weaknesses, •  Opportunities •  Threats

•  Used to analyze the company’s resource capabilities and deficiencies and its market opportunities and threats in the future

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Porter’s Model of Competitive Strategies

•  Michael Porter made a major contribution to the field of strategic management by grouping the ways organizations can compete into five generic competitive strategies.

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Porter’s Five Generic Competitive Strategies

1. Low-cost provider strategy 2. Broad differentiation strategy 3. Best-cost provider strategy 4. Focused or market niche strategy

based on lower cost 5. Focused or market niche strategy

based on differentiation

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Benefits of Strategy Formulation

•  Clarity •  Coordination •  Efficiency •  Incentives •  Change •  Career Development

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Errors in Strategic Planning

•  Relegating the process to official planners and not involving executives and managers

•  Failing to use the plan as the guide to making decisions and evaluating performance

•  Failing to align incentives and other HR policies to the achievement of strategy

An Overview of the Textbook

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