MM514

HUMAN RESOURCE MANAGEMENT

LECTURE 2 (2011.06.16)

STRATEGIC HUMAN RESOURCES MANAGEMENT

DR. VINCENT LEUNG

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RECAP OF LECTURE 1
What did we learn?
• All organizations need effective HR practices to deliver
for their stakeholders
• The administrative, business and strategic functions of
HR; 6 HR competencies (CA, CS, TM, SA, BA, OE)
• HRM Challenges: Sustainability, Globalization,
Technology
• How HRM practices link with company competitiveness?
• Diversity
• Legal: The impact of SMW (update guideline), MPF cap
at 25,000
• Ethics

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LECTURE 2: STRATEGIC HUMAN
RESOURCES MANAGEMENT

Learning Objectives
• Describe the differences between strategy formulation and
strategy implementation.
• List the components of the strategic management process.
• Discuss the role of the HRM function in strategy formulation.
• Describe the linkages between HRM and strategy formulation.
• Discuss the more popular typologies of generic strategies and
the various HRM practices associated with each.
• Describe the different HRM issues and practices associated
with various directional strategies.

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STRATEGIC MANAGEMENT

The goal of strategic management in an organization is to

deploy and allocate resources (physical, organizational,
human and financial) in ways that provide a competitive
advantage. To be maximally effective, the HRM function
must be integrally involved in the company's strategic
management process.

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STRATEGIC MANAGEMENT

The HR Manager should involve in the strategic
management process:

The ability of the human resources pool to implement
particular strategic alternatives

Knowledge about the strategic goals

Know what types of employee skills, behaviors, and
attitudes are needed to support the strategic plan

Develop programs to ensure that employees have those
skills, behaviors, and attitudes

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BUSINESS MODEL
A business model is a story of how a firm will create value for
customers, and more importantly, how it will do so profitably
• Price, p
• Output, x
• Fixed costs, a
• Variable costs, b
• Unit contribution margins, p-b
• Gross margin, px-bx
• Profit, px-(a+bx)
• Break-even point, px=a+bx, x=a/p-b

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BUSINESS MODEL
Item Product A Product B Total Product A
Price (p) .5 .5 .5
Quantity Sold (x) 60000 30000 60000
Revenue (px) 30000 15000 45000 30000
Unit .2 .2 .2
Variable Cost (b)
Variable Cost (bx) 12000 6000 18000 12000
Salary 5000 5000 10000 5000
Admin Cost (a) 10000 5000 15000 15000
Total Cost 27000 16000 43000 32000
P/L 3000 -1000 2000
-2000

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VIDEO: SOUTHWEST CEO –
GET TO KNOW GARY KELLY

BUSINESS MODEL

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STRATEGIC MANAGEMENT
• Strategos (Greek) – a general’s grand design behind a war
or battle
• “skillful employment and coordination of tactics”
• “artful planning and management”
Strategic Management is a process, an approach to
addressing the competitive challenges an organization faces.
 The generic approach to competing
 The specific adjustments
 The actions taken

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STRATEGIC
MANAGEMENT PROCESS
Generic strategy
• Defender, analyzer, prospector or reactor (Miles & Snow, 1978)
• Cost, differentiation or focus (M. Porter, 1980)
A process of developing strategies for achieving the
company’s goals in light of its current environment
Make choices on, for examples:

How many and what types of people to employ

What technology to implement

How to raise revenues

How to lower production costs

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2 DISTINCT AND INTERDEPENDENT
PHASES OF STRATEGIC
MANAGEMENT PROCESS
Strategy Formulation: the strategic planning groups decide
on a strategic direction by defining the company's mission
and goals, its external opportunities and threats, and its
internal strengths and weaknesses (SWOT analysis).
Strategy Implementation: the organization follows through on
the strategy that has been chosen. This includes structuring
the organization, allocating resources, ensuring that the firm
has skilled employees in place, and developing reward
systems that align employee behavior with the strategic
goals.

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FIVE COMPONENTS OF
STRATEGY FORMULATION
A mission is a statement of the organization's reasons for being;
it usually specifies the customers served, the needs satisfied
and/or the value received by the customers, and the technology
used
Goals are what the organization hopes to achieve in the
medium- to long-term future; they reflect how the mission will
be operationalized.
External analysis consists of examining the organization's
operating environment to identify strategic opportunities and
threats.
Internal analysis attempts to identify the organization's
strengths and weaknesses.
Strategic choice is the organization's strategy, which describes
the ways the organization will attempt to fulfill its mission and
achieve its long term goals.

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“HOMEWORK”
 Before L3 (6.21), please email me a copy of your
organization’s mission / vision / value statement available
from website or annual report or company brochure (if
appropriate and permitted)
 Briefly evaluate the role of HR (1-2 paragraphs) in helping
the accomplishment of your organizational goals.

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STRATEGIC MANAGEMENT PROCESS
MODEL
Strategy Formulation Strategy Implementation
HR Practices
•Recruiting
External Analysis •Training
•Performance management
•Opportunities •Labor relations
•Threats •Employee relations Firm
•Job analysis
•Job design Performance
Human •Selection •Productivity
•Development •Quality
Resource •Pay structure
Strategic Needs •Incentives •Profitability
Mission Goals Choice •Skills •Benefits
•Behavior
•Culture
Human Human
Internal Resource
Capability Resource
Analysis Actions
•Strengths •Skills,
•Abilities •Behaviors
•Weaknesses
•Knowledge •Results

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THE STRATEGIC CHOICE
Where to compete
• Location(s), industries or product(s)
How to compete
• Cost, quality, delivery
With what to compete
• Technology, people

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STRATEGIC HUMAN RESOURCE
MANAGEMENT (SHRM)

 “the pattern of planned human resource deployments and

activities intended to enable an organization to achieve its
goals”
 Both strategy formulation and strategy implementation
involve people-related issues
 Systems e.g. TQM, JIT are run by people. Therefore, we
need to assess the KSAOs of people required to run these
systems and deploy HR practices such as selection and
training to ensure these KSAOs are in place.

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“If people relate to the company
they work for, if they form an
emotional tie to it and buy into
its dreams, they will pour their
heart into making it better. When
employee has self-esteem and
self-respect they can contribute
so much more; to their company,
to their family, to the world”
Howard Schultz, Starbucks

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Tea, juices, food G music sales

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A FOOTBALL TEAM
How would you A focus strategy—
characterize the team's development of the
generic strategy? ground game
How does the To run the football, score
composition of the team points, keep the clock
members (in terms of moving, and, with their
size, speed, ability, etc.) skilled defense, keep the
relate to that strategy? ball out of their
opponents' hands
What are the strengths
and weaknesses of the
team?
How do these dictate the
team's generic strategy
and its approach to a
particular game?

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DISCUSSION
• What are the major people issue that exist in organization?
• What are the specific skills needed for HRM to tackle
those issues?
• Do you think employees are assets or expenses? Why?

Group
Discussion
10 Minutes

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HR POWER

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JACE & WONDERFUL UNION

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SIX SIGMA

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THE GOAL OF STRATEGIC
MANAGEMENT
To deploy and allocate resources in a way that gives
competitive advantage
• Financial resources
• Physical resources
• Organizational resources
• Human resources

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WHAT HRM FUNCTION SHOULD
BE IN RELATION TO STRATEGIC
MANAGEMENT?

Assessment of the HR pool

Knowledgeable about the strategic goals

Know the needs e.g. skills, behaviors

Ensure employees have those needed

The success of the strategic management

process depends largely on the extent to
which the HRM function is involved

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We need to have the right people
in the right place at the right
time to do the right things right.

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In reality, we usually have some
wrong people in place at the
right time to do the wrong things.

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LINKAGE OF HRM AND
STRATEGIC MANAGEMENT
Purely administrative: HRM
function's attention is focused
on day-to-day activities
As the implementer (One-way):
HRM helps in the
implementation of the plan Administrative One-way
developed by the strategic
planning function
Provide inputs and then
implement (Two-way): HRM
provides input of human
resources issue for
consideration
Two-way Integrative
Involve in strategy formulation
and implementation (Integrative):
The HR executive is an integral
member of the strategic
planning team

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STRATEGY IMPLEMENTATION
VARIABLES
Role of HRM
Organizational
Structure

Types Task
of Design
Information

Product Performance
Market
Strategy Select
Reward Train
Systems Develop
People

• Ensuring that the company has the number of appropriately skilled workers
• Ensuring that those employees are acting in ways that promote the achievement
of the goals specified in the strategic plan

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STRATEGIC IMPLEMENTATION
HR Practices
•Recruiting
•Training
•Performance management
•Labor relations
•Employee relations Firm
•Job analysis Performance
Human •Job design •Productivity
•Selection
Resource •Development •Quality
Strategic Needs •Pay structure •Profitability
Choice •Skills •Incentives
•Behavior •Benefits
•Culture
Human Human
Resource Resource
Capability Actions
•Skills, •Behaviors
•Abilities •Results
•Knowledge -productivity
-absenteeism
- turnover

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HRM PRACTICES – 6
MENUS
Job analysis and design

Recruitment and selection

Training and development

Performance management: subjective vs. quantitative

Pay structure, incentives and benefits: incentives vs.

benefits

Labor and employee relations

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HRM PRACTICES – 6 MENUS

 Job analysis is the process of getting detailed information

about jobs. Job design deals with making decisions about
what tasks should be grouped into a particular job. Jobs
can range from very narrow sets of tasks that demand a
limited set of skills to a complex array of tasks that
requires multiple, high-level skills.
Can you do a job analysis and job design for the following
job “the worst job ever”? (By groups)

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HRM PRACTICES – 6 MENUS

 Recruitment is the process through which the

organization seeks applicants for employment. Selection
refers to the process of identifying applicants with the
appropriate knowledge, skills, and ability to help the
company achieve its goals.
 Training refers to a planned effort to facilitate learning of
job-related knowledge, skills, and behavior. Development
involves the acquisition of knowledge, skills, and behavior
that improves employees' ability to meet the challenges of
a variety of existing jobs or jobs that do not yet exist.

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HRM PRACTICES – 6 MENUS

 Performance management is used to ensure that

employee activities and outcomes are congruent with the
organization’s objectives.
 Pay structure, incentives, and benefits have an important
role in implementing strategies. High pay levels help to
attract and retain high-quality employees.
Performance-based pay plans help motivate appropriate
performance. The pay system includes the base pay as
well as incentives and benefits.

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HRM PRACTICES – 6 MENUS

 Labor and employee relations refer to the general

approach the company takes in interacting with its
employees
• Companies can choose to treat employees as assets,
resources to be invested in for the long term.

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HR NEEDS IN STRATEGIC TYPES
Different strategies require different types of
employees with different skills and also require
employees to exhibit different “role behaviors.”
Cost strategy require Differentiation firms
employees to have a need creative risk
high concern for takers. They use
quantity and a short- “commitment” HRM
term focus. They use systems
control systems

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DISCUSSION
• What is the relationship between the increasing use of
HRM practices (compensation tied to performance, high
level of training, employee participation) with profit?
• What is the implication of HRM needs with different
strategy types?

Group
Discussion
10 Minutes

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MODEL BASED WITH
DATA SUPPORT
HRM Practices Profit
• Training • Knowledge / performance
• Incentives • Satisfaction
• Empowerment • Customer satisfaction

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HRM NEEDS IN DIFFERENT
STRATEGIC TYPES
Cost Strategy Differentiation
Strategy
Value Cost reduction Premium
Ways Efficiency, controlling Brand image,
costs technology, innovation
(product features,
services)
Role behaviors Quantitative, short- Creative, long-term
term, and risk averse and risk taking
Pay-system • Behavioral • External equity
• Performance base • Results based
performance
management
system
Recruitment Inside Outside

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HRM system Control-oriented Commitment system
DIRECTIONAL STRATEGIES

“Concentration” “Sticking to its knitting” : increase

market share or reduce costs (Defender)
• Maintain the current skills / behavioral based performance appraisal
“Internal Growth”: market and product development,
innovation, JV (Analyzer)
• Changing skill sets / behavioral / result based
“External Growth”: integration, diversification, M&A
(Prospector)
• Culture / people issues: HRM role in evaluating and implementing
“Downsizing” / “Rightsizing” or “Divestment”:
retrenchment, divestitures or liquidation (Reactor)
• How to keep the reputation? How to distinguish between good and
poor performers? “Get rid of dead wood”, “Change culture”,
“Demonstrate HR value”

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INTENDED VS. EMERGENT
STRATEGIES
 Intended strategy :
• They are proactive, rational decisions aimed toward some
predetermined goal
• The result of the rational decision-making process used by top
managers as they develop a strategic plan
• “the pattern or plan that integrates an organization’s major goals,
policies, and action sequence into a cohesive whole”
 Emerging strategy: emerged from the rank-and-file employees
that is, what actually is done versus what is planned. HRM needs
to enhancing communication between levels of the organization
• Store managers of Starbucks suggested to offer non-fat milk and
Frappucino to customers
• “a pattern in a stream of decisions or actions”

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INTENDED VS.
EMERGENT STRATEGIES
The role of HRM:
• Identifying the people-
related issues during
strategy formulation
• Developing HRM systems
that help in the
implementation
• Facilitating communication
throughout the organization
so that suggestions can
make their way up to the top

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ENHANCING COMPETITIVENESS
BY LEARNING
The company is in a constant state of learning
through
• Monitoring the environment
• Assimilating information
• Making decisions
• Flexibly restructuring to compete in that
environment
 The people (human capital) who make up the
company is the key

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KEY CONCEPT –
STRATEGIC HRM
 Developing, contributing to, and
supporting the organization’s mission,
vision, values, strategic goals, and
objectives; formulating policies; guiding
and leading the change process; and
evaluating HR’s contributions to
organizational effectiveness

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KEY CONCEPT –
STRATEGIC HRM
 Interpret information related to the
organization’s operations in order to
contribute to the development of the
organization’s strategic plan.
 Interpret information from external sources
related to the general business environment
in order to contribute to the development of
the organization’s strategic plan.
 Participate as a contributing partner in the
organization’s strategic planning process

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KEY CONCEPT –
STRATEGIC HRM
 Establish strategic relationships with key
individuals in the organization to influence
organizational decision-making.
 Establish relationships/alliances with key
individuals and organizations in the
community to assist in achieving the
organization’s strategic goals and
objectives.
 Develop and utilize metrics to evaluate HR’s
contributions to the achievement of the
organization’s strategic goals and
objectives.

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KEY CONCEPT –
STRATEGIC HRM
 Develop and execute strategies for
managing organizational change that
balance the expectations and needs of the
organization, its employees, and all other
stakeholders.
 Develop and align the organization’s human
capital management plan with its strategic
plan.
 Facilitate the development and
communication of the organization’s core
values and ethical behaviors

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KEY CONCEPT –
STRATEGIC HRM
 Reinforce the organization’s core values
and behavioral expectations through
modeling, communication, and coaching
 Develop and manage the HR budget in a
manner consistent with the
organization’s strategic goals, objectives,
and values
 Provide information for the development
and monitoring of the organization’s
overall budget

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KEY CONCEPT –
STRATEGIC HRM
 Monitor the legislative and regulatory
environment for proposed changes and their
potential impact to the organization, taking
appropriate proactive steps to support, modify,
or oppose the proposed changes
 Develop policies and procedures to support
corporate governance initiatives (for example,
board of directors training, whistleblower
protection, code of conduct)
 Participate in enterprise risk management by
examining HR policies to evaluate their
potential risks to the organization

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KEY CONCEPT –
STRATEGIC HRM
 Identify and evaluate alternatives and recommend
strategies for vendor selection and/or outsourcing (for
example, HRIS, benefits, payroll)
 Participate in strategic decision-making and due diligence
activities related to organizational structure and design
(for example, corporate restructuring, mergers and
acquisitions [M&A], off shoring, divestitures)
 Determine strategic application of integrated technical
tools and systems (for example, HRIS, performance
management tools, applicant tracking, compensation tools,
employee self-service technologies)

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SUMMARY

• Human resources are the most important

asset and single largest most controllable
cost within the business model.
• HRM has a profound impact on the strategic
plan implementation by developing and
aligning HRM practices that ensure the
company has motivated employees with
necessary skills.
• HR professionals must develop business,
professional-technical, change management
and integration competencies.

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SHORT QUIZ FOR L2:
10 T/F & 10 M.C.
• L1 Mean = 15.6 Good Work!
• Please check your answers and submit it

1-5 6-10 11-15 16-20

F F D B

T T C C

F F B C

T T A D

F T D A

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UNDERSTANDING
HYPOTHESIS & P-VALUE
• We need to reject the null hypothesis H0 to have the
test hypothesis H1 supported
• The probability of incorrectly rejecting the null
hypothesis is the Type I error

Example: Under Common Law

H0: Suspect X is innocent
H1: Suspect X is guilty (The police officer want to proof this)

Truth
Decision H0 H1
H0 1-α Type II Error (ß)
H1 Type I Error (α) Power
Result 冤枉好人！ 放了坏人！
p value
No*: insignificant and the H is not supported
*: significant at less than 5% Type I error
**: significant at less than 1% Type I error

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***: significant at less than 0.1% Type I error
CORE READING: CARMELI &
SCHAUBROECK (2005)
Human capital stock + means of leveraging → performance
Distinctive value:
• Rareness
• Uniqueness
• Inimitability
• Non-substitutability

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CORE READING: CARMELI &
SCHAUBROECK (2005)
Hypothesis 1. There will be a significant interaction between
HR capital and the distinctive value of HR capital in
predicting organizational performance; the positive
relationship between HR capital and organizational
performance will be stronger when the distinctive value of
HR capital is high.

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HIERARCHICAL
REGRESSION (5 BLOCKS)

IV

MV DV

IV X MV

Controls

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CORE READING: CARMELI &
SCHAUBROECK (2005)

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SLOPE DIAGRAM
• Get the standard deviation of the IV and MV variables
• “H” = +1 std.deviation and “L” = -1 std.deviation
Y = Constant + ( ) IV + ( ) MV + ( ) IV * MV
• Substitute the MV’s L, H and IV’s L,H in the 2 X 2 matrix
accordingly in the slope test
• Arrange the input matrix according to IV ‘s L , H on vertical and
MV L H on horizontal
MV Lo MV Hi
Lo 3.70 3.31
Hi 3.77 3.95

• Plot the two lines

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CORE READING: CARMELI &
SCHAUBROECK (2005)

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CORE READING: CARMELI &
SCHAUBROECK (2005)

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CORE READING: CARMELI &
SCHAUBROECK (2005)

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CORE READING: CARMELI &
SCHAUBROECK (2005)

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CORE READING: CARMELI &
SCHAUBROECK (2005)
The effect of leveraging HR capital applies to both private
and public sector
How to design a human resource system that creates a
distinctive value for organization?
There is a need to align various interests and resources
within an organization and to develop a talented and
committed workforce

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VIDEO:
PRIVACY: BURNED BY THE FIREWALL
Objective: To analyze the role of HR in enforcing company
policies. This scenario provides an example of what not to do
to be a strategic business partner
Overview: An employee, Willy Kushing, has been put on
administrative leave by the HR department for misuse of
company property [internet service and telephone]. His
Manager is just returning from vacation and had no prior
notice that Willy would be put on leave. The Manager goes to
meet with HR to find out what has happened.
• Lynn Couchara is the Director of Distribution
• Janet Pierce is the Director of Human Resources

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WHAT ARE THE PRO’S
AND CON’S OF E-POLICY?
• Pro’s – don’t have to worry about invasion of privacy
when monitoring electronic systems, less risk of viruses,
less use of the system’s resources because fewer emails
and attachments to handle
• Con’s – employees who are expected to work long hours
do not get the chance to communicate with friends and
family or do occasional “errands” on-line. This can cause
them stress and potential dissatisfaction with the
organization. Employee privacy becomes a concern when
monitoring the system.

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EVALUATE THE ACTIONS TAKEN BY
THE HR DIRECTOR IN THIS SCENARIO.
WHAT WAS DONE WELL, POORLY?

Janet apologized to Lynn for her actions, but

beyond that the HR Director’s actions did not take
into consideration the big picture or the
organization’s business needs. While violating the
company policy may impact the organization’s
bottom line, putting the employee on leave without
a fair warning will likely be perceived as unfair to
the employee and cause him to be disgruntled.
HR’s role should be to provide advice and
guidance to line management on disciplinary
actions – not take them themselves. Thus, not
including Lynn in the decision was a mistake and
will damage Janet’s relationship with Lynn.

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70
PRIVACY
COMMISSIONER

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GROUPING AND
PRESENTATION Group Leaders Topic Profile

• Group Profile Form with a Christine Cheung Done Done

group photo by email Stephanie Yong Done Done
• Presentation Form: The
Danny Chan
first 5 groups
• The last 5 groups must Clare Ho Almost Done
also submit through email
before the third lecture on
2011.6.21 if you haven’t Franky Mak Almost Almost
prepared Byron Yu Done
• You must also email me
the Peer Evaluation Form Wendy Chan Almost
individually before the last Zoe Wong
lecture on 2011.07.28)
Ron Chan Done

Mike Kwok

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PRESENTATION/ PAPER
USE “A” JOURNAL

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REMINDERS ON
LECTURE 3
• Catch up the readings (core reading and textbook) with
effort ASAP
• Submit your presentation topics (6th to 10th group) before
6.21
• See you on 6.21 and have a nice weekend (don’t forget the
homework)

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