In the past, human resource management (HRM) was called the personnel department. In the past, the personnel department hired people and dealt with the hiring paperwork and processes. It is believed the first human resource department was created in 1901 by the National Cash Register Company (NCR). The company faced a major strike but eventually defeated the union after a lockout. (We address unions in Chapter 12 "Working with Labor Unions".) After this difficult battle, the company president decided to improve worker relations by organizing a personnel department to handle grievances, discharges, safety concerns, and other employee issues. The department also kept track of new legislation surrounding laws impacting the organization. Many other companies were coming to the same realization that a department was necessary to create employee satisfaction, which resulted in more productivity. In 1913, Henry Ford saw employee turnover at 380 percent and tried to ease the turnover by increasing wages from $2.50 to $5.00, even though $2.50 was fair during this time period.Michael Losey, “HR Comes of Age,” HR Magazine, March 15, 1998, accessed July 11, 2011, http://findarticles.com/p/articles/mi_m3495/is_n3_v43/ai_20514399. Of course, this approach didn’t work for long, and these large companies began to understand they had to do more than hire and fire if they were going to meet customer demand.
More recently, however, the personnel department has divided into human resource management and human resource development, as these functions have evolved over the century. HRM is not only crucial to an organization’s success, but it should be part of the overall company’s strategic plan, because so many businesses today depend on people to earn profits. Strategic planning plays an important role in how productive the organization is.
Table 2.1 Examples of Differences between Personnel Management and HRM
| Personnel Management Focus | HRM Focus |
|---|---|
| Administering of policies | Helping to achieve strategic goals through people |
| Stand-alone programs, such as training | HRM training programs that are integrated with company’s mission and values |
| Personnel department responsible for managing people | Line managers share joint responsibility in all areas of people hiring and management |
| Creates a cost within an organization | Contributes to the profit objectives of the organization |
Most people agree that the following duties normally fall under HRM. Each of these aspects has its own part within the overall strategic plan of the organization:
In smaller organizations, the manager or owner is likely performing the HRM functions.Jan de Kok and Lorraine M. Uhlaner, “Organization Context and Human Resource Management in the Small Firm” (Tinbergen Institute Discussion Papers 01-038/3, Tinbergen Institute, 2001), accessed August 13, 2011, http://ideas.repec.org/s/dgr/uvatin.html. They hire people, train them, and determine how much they should be paid. Larger companies ultimately perform the same tasks, but because they have more employees, they can afford to employ specialists, or human resource managers, to handle these areas of the business. As a result, it is highly likely that you, as a manager or entrepreneur, will be performing HRM tasks, hence the value in understanding the strategic components of HRM.
Human resource strategyAn elaborate and systematic plan of action developed by the human resource department. is an elaborate and systematic plan of action developed by a human resource department. This definition tells us that an HR strategy includes detailed pathways to implement HRM strategic plans and HR plans. Think of the HRM strategic planA written document that consists of the major objectives the organization wants to achieve. as the major objectives the organization wants to achieve, and the HR planDetailed, written plan to ensure the strategic plan is achieved. as the specific activities carried out to achieve the strategic plan. In other words, the strategic plan may include long-term goals, while the HR plan may include short-term objectives that are tied to the overall strategic plan. As mentioned at the beginning of this chapter, human resource departments in the past were called personnel departments. This term implies that the department provided “support” for the rest of the organization. Companies now understand that the human side of the business is the most important asset in any business (especially in this global economy), and therefore HR has much more importance than it did twenty years ago. While personnel management mostly involved activities surrounding the hiring process and legal compliance, human resources involves much more, including strategic planning, which is the focus of this chapter. The Ulrich HR model, a common way to look at HRM strategic planning, provides an overall view of the role of HRM in the organization. His model is said to have started the movement that changed the view of HR; no longer merely a functional area, HR became more of a partnership within the organization. While his model has changed over the years, the current model looks at alignment of HR activities with the overall global business strategy to form a strategic partnership.David Ulrich and Wayne Brockbank, The HR Value Proposition (Boston: Harvard Business Press, 2005), 9–14. His newly revised model looks at five main areas of HR:
According to Ulrich,David Ulrich, “Evaluating the Ulrich Model,” Acerta, 2011, accessed July 11, 2011, http://www.goingforhr.be/extras/web-specials/hr-according-to-dave-ulrich#ppt_2135261. implementation of this model must happen with an understanding of the overall company objectives, problems, challenges, and opportunities. For example, the HR professional must understand the dynamic nature of the HRM environment, such as changes in labor markets, company culture and values, customers, shareholders, and the economy. Once this occurs, HR can determine how best to meet the needs of the organization within these five main areas.
Figure 2.1
To be successful in writing an HRM strategic plan, one must understand the dynamic external environment.
David Ulrich discusses the importance of bringing HR to the table in strategic planning.
Keeping the Ulrich model in mind, consider these four aspects when creating a good HRM strategic plan:
HR managers know the business and therefore know the needs of the business and can develop a plan to meet those needs. They also stay on top of current events, so they know what is happening globally that could affect their strategic plan. If they find out, for example, that an economic downturn is looming, they will adjust their strategic plan. In other words, the strategic plan needs to be a living document, one that changes as the business and the world changes.
Have you ever looked at your organization’s strategic plan? What areas does the plan address?
As we addressed in Section 2.1.2 "The Steps to Strategic Plan Creation", HRM strategic plans must have several elements to be successful. There should be a distinction made here: the HRM strategic plan is different from the HR plan. Think of the HRM strategic planA written document that consists of the major objectives the organization wants to achieve. as the major objectives the organization wants to achieve, while the HR planDetailed, written plan to ensure the strategic plan is achieved. consists of the detailed plans to ensure the strategic plan is achieved. Oftentimes the strategic plan is viewed as just another report that must be written. Rather than jumping in and writing it without much thought, it is best to give the plan careful consideration.
The goal of Section 2 "Conduct a Strategic Analysis" is to provide you with some basic elements to consider and research before writing any HRM plans.
A strategic analysis looks at three aspects of the individual HRM department:
Understanding of the company mission and values. It is impossible to plan for HRM if one does not know the values and missions of the organization. As we have already addressed in this chapter, it is imperative for the HR manager to align department objectives with organizational objectives. It is worthwhile to sit down with company executives, management, and supervisors to make sure you have a good understanding of the company mission and values.
Another important aspect is the understanding of the organizational life cycle. You may have learned about the life cycle in marketing or other business classes, and this applies to HRM, too. An organizational life cycleRefers to the introduction, growth, maturity, and decline of the organization, which can vary over time. A different HRM strategy is needed, depending on the organizational life cycle the company is experiencing. refers to the introduction, growth, maturity, and decline of the organization, which can vary over time. For example, when the organization first begins, it is in the introduction phase, and a different staffing, compensation, training, and labor/employee relations strategy may be necessary to align HRM with the organization’s goals. This might be opposed to an organization that is struggling to stay in business and is in the decline phase. That same organization, however, can create a new product, for example, which might again put the organization in the growth phase. Table 2.2 "Lifecycle Stages and HRM Strategy" explains some of the strategies that may be different depending on the organizational life cycle.
Understanding of the HRM department mission and values. HRM departments must develop their own departmental mission and values. These guiding principles for the department will change as the company’s overall mission and values change. Often the mission statement is a list of what the department does, which is less of a strategic approach. Brainstorming about HR goals, values, and priorities is a good way to start. The mission statement should express how an organization’s human resources help that organization meet the business goals. A poor mission statement might read as follows: “The human resource department at Techno, Inc. provides resources to hiring managers and develops compensation plans and other services to assist the employees of our company.”
A strategic statement that expresses how human resources help the organization might read as follows: “HR’s responsibility is to ensure that our human resources are more talented and motivated than our competitors’, giving us a competitive advantage. This will be achieved by monitoring our turnover rates, compensation, and company sales data and comparing that data to our competitors.”Gary Kaufman, “How to Fix HR,” Harvard Business Review, September 2006, accessed July 11, 2011, http://hbr.org/2006/09/how-to-fix-hr/ar/1. When the mission statement is written in this way, it is easier to take a strategic approach with the HR planning process.
Table 2.2 Lifecycle Stages and HRM Strategy
| Life Cycle Stage | Staffing | Compensation | Training and Development | Labor / Employee Relations |
|---|---|---|---|---|
| Introduction | Attract best technical and professional talent. | Meet or exceed labor market rates to attract needed talent. | Define future skill requirements and begin establishing career ladders. | Set basic employee-relations philosophy of organization. |
| Growth | Recruit adequate numbers and mix of qualifying workers. Plan management succession. Manage rapid internal labor market movements. | Meet external market but consider internal equity effects. Establish formal compensation structures. | Mold effective management team through management development and organizational development. | Maintain labor peace, employee motivation, and morale. |
| Maturity | Encourage sufficient turnover to minimize layoffs and provide new openings. Encourage mobility as reorganizations shift jobs around. | Control compensation costs. | Maintain flexibility and skills of an aging workforce. | Control labor costs and maintain labor peace. Improve productivity. |
| Decline | Plan and implement workforce reductions and reallocations; downsizing and outplacement may occur during this stage. | Implement tighter cost control. | Implement retraining and career consulting services. | Improve productivity and achieve flexibility in work rules. Negotiate job security and employment-adjustment policies |
Source: Seattle University Presentation, accessed July 11, 2011, http://fac-staff.seattleu.edu/gprussia/web/mgt383/HR%20Planning1.ppt.
In this step, the HRM professionals will analyze the challenges addressed in the first step. For example, the department may see that it is not strategically aligned with the company’s mission and values and opt to make changes to its departmental mission and values as a result of this information.
Many organizations and departments will use a strategic planning tool that identifies strengths, weaknesses, opportunities, and threats (SWOT analysis) to determine some of the issues they are facing. Once this analysis is performed for the business, HR can align itself with the needs of the business by understanding the business strategy. See Table 2.3 "Sample HR Department SWOT Analysis for Techno, Inc." for an example of how a company’s SWOT analysis can be used to develop a SWOT analysis for the HR department.
Once the alignment of the company SWOT is completed, HR can develop its own SWOT analysis to determine the gaps between HR’s strategic plan and the company’s strategic plan. For example, if the HR manager finds that a department’s strength is its numerous training programs, this is something the organization should continue doing. If a weakness is the organization’s lack of consistent compensation throughout all job titles, then the opportunity to review and revise the compensation policies presents itself. In other words, the company’s SWOT analysis provides a basis to address some of the issues in the organization, but it can be whittled down to also address issues within the department.
Table 2.3 Sample HR Department SWOT Analysis for Techno, Inc.
| Strengths | Hiring talented people |
| Company growth | |
| Technology implementation for business processes | |
| Excellent relationship between HRM and management/executives | |
| Weaknesses | No strategic plan for HRM |
| No planning for up/down cycles | |
| No formal training processes | |
| Lacking of software needed to manage business processes, including go-to-market staffing strategies | |
| Opportunities | Development of HRM staffing plan to meet industry growth |
| HRM software purchase to manage training, staffing, assessment needs for an unpredictable business cycle | |
| Continue development of HRM and executive relationship by attendance and participation in key meetings and decision-making processes | |
| Develop training programs and outside development opportunities to continue development of in-house marketing expertise | |
| Threats | Economy |
| Changing technology |
Based on the data gathered in the last step, the HRM manager should prioritize the goals and then put action plans together to deal with these challenges. For example, if an organization identifies that they lack a comprehensive training program, plans should be developed that address this need. (Training needs are discussed in Chapter 8 "Training and Development".) An important aspect of this step is the involvement of the management and executives in the organization. Once you have a list of issues you will address, discuss them with the management and executives, as they may see other issues or other priorities differently than you. Remember, to be effective, HRM must work with the organization and assist the organization in meeting goals. This should be considered in every aspect of HRM planning.
Once the HRM manager has met with executives and management, and priorities have been agreed upon, the plans are ready to be developed. Detailed development of these plans will be discussed in Section 2.2 "Writing the HRM Plan". Sometimes companies have great strategic plans, but when the development of the details occurs, it can be difficult to align the strategic plan with the more detailed plans. An HRM manager should always refer to the overall strategic plan before developing the HRM strategic plan and HR plans.
Even if a company does not have an HR department, HRM strategic plans and HR plans should still be developed by management. By developing and monitoring these plans, the organization can ensure the right processes are implemented to meet the ever-changing needs of the organization. The strategic plan looks at the organization as a whole, the HRM strategic plan looks at the department as a whole, and the HR plan addresses specific issues in the human resource department.
