If zappos wanted to utilize data mining they might

The Strategic Management Process

Learning Objective 3-1 Explain with examples each of the seven steps in the strategic management process.

Employers can’t intelligently design their human resource policies and practices without understanding the role these policies and practices are to play in achieving their companies’ strategic goals. In this chapter, we look at how managers design strategic and human resource plans, and how they evaluate the results of their plans. We start with an over‐ view of the basic management planning process.

The Management Planning Process The basic management planning process consists of five steps: setting objectives, making basic planning forecasts, reviewing alternative cour‐ ses of action, evaluating which options are best, and then choosing and implementing your plan. A plan shows the course of action for getting

from where you are to the goal. Planning is always “​goal-directed” (such as, “double sales revenue to $16 million in fiscal year 2017”).

In companies, it is traditional to view the goals from the top of the firm down to front-line employees as a chain or hierarchy of goals. Figure 3-1 illustrates this. At the top, the president sets long-term or “strategic” goals (such as “double sales revenue to $16 million in fiscal year 2017”). His or her vice presidents then set goals for their units that flow from, and make sense in terms of accomplishing, the president’s goal (see Figure 3-1 ). Then their own subordinates set goals, and so on down the chain.

Policies and procedures provide day-to-day guid‐

ance employees need to do their jobs in a manner that is consistent with the company’s plans and goals. Policies set broad guidelines de‐ lineating how employees should act. For example, “It is the policy of this company to comply with all laws, regulations, and principles of eth‐ ical conduct.” Procedures spell out what to do if a specific situation arises. For example,

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Any employee who believes this policy has been violated must report this belief

to the employee’s immediate supervisor. If that is not practical, the employee

should file a written report with the Director of Human Resources. There is to be

no retaliation in any form.

Employers write their own policies and procedures, or adapt ones from existing sources (or both). For example, most employers have employ‐ ee manuals listing the company’s human resource policies and proce‐ dures. A Google search would produce many vendors of such policies and procedures. They offer prepackaged HR policies manuals cover‐ ing appraisal, compensation, equal employment compliance, and other policies and procedures.

Figure 3-1 Sample Hierarchy of Goals Diagram for a Company

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What Is Strategic Planning?

As noted, the company’s hierarchy or chain of

goals flows from top management’s overall strategic plan for the com‐ pany. A strategic plan is the company’s overall plan for how it will match its internal strengths and weaknesses with its external opportu‐ nities and threats in order to maintain a competitive position. The strategic planner asks, “Where are we now as a business, and where do we want to be?” He or she then formulates a strategic plan to help guide the company to the desired destination. When Yahoo! tries to figure out whether to sell its search business to concentrate on offering more content, or when Apple branches out into selling watches, they are ​engaged in strategic planning.

Strategic plans are similar to but not the same as business models. Those ​investing in a business will ask top management, “What’s your business model?” A business model “is a company’s method for mak‐ ing money in the current ​business environment.” It pinpoints whom the company serves, what products or services it provides, what differenti‐ ates it, its competitive advantage, how it provides its ​product or ser‐ vice, and, most importantly, how it makes money. For example, Google doesn’t make money by requiring people to pay for searches; it

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makes money by offering targeted paid advertisements based on what you’re searching for.

A strategy is a course of action. Both PepsiCo and Coca-Cola face the same basic problem—people are drinking fewer sugared drinks. However, they each chose different strategies to deal with this. PepsiCo diversified by selling more food items like chips. Coca-Cola concentrat‐ ed on sweet beverages, and on boosting advertising to (hopefully) boost Coke sales.

Finally, strategic management is the process of identifying and ex‐ ecuting the organization’s strategic plan by matching the company’s capabilities (strengths and weaknesses) with the demands of its envi‐ ronment (its competitors, customers, and suppliers, for instance).

The Strategic Management Process Figure 3-2 summarizes the strategic management process. Its sev‐ en steps include (1) ask, “What business are we in now?” (2) evaluate the firm’s internal and external strengths, weaknesses, opportunities, and threats, (3) formulate a new business ​direction, (4) decide on strate‐ gic goals, and (5) choose specific strategies or courses of action. Steps (6) and (7) are to implement and then evaluate the strategic plan.

The strategic management process begins (step 1) by asking, “What business are we in?” Here the manager defines the company’s current business. Specifically, “What products do we sell, where do we sell

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them, and how do our products or services differ from our competi‐ tors’?” For example, the Coca-Cola Company sells mostly sweetened beverages such as Coke and Sprite, while PepsiCo sells drinks but also foods such as Quaker Oats and Frito chips.

Figure 3-2 The Strategic Management Process

The second step is to ask, “Are we in the right

business given our strengths and weaknesses and the challenges that we face?” To answer this, managers “audit” or study both the firm’s en‐ vironment and the firm’s internal strengths and weaknesses. The ​envi‐ ronmental scan worksheet in Figure 3-3 is a guide for compiling in‐ formation about the company’s environment. As you can see, this in‐ cludes the economic, ​competitive, and political trends that may affect

the company. The SWOT chart in Figure 3-4 is widely used. Man‐ agers use it to compile and organize the company strengths, weak‐ nesses, opportunities, and threats. This audit may also include analyz‐ ing the so-called PEST factors. These include Political factors such as government regulations and employment laws; Economic factors in‐ cluding unemployment and economic growth; Social factors such as changing demographics and health consciousness trends; and Techno‐ logical factors such as use of social media and digitalization and of self-driving vehicles. In any case, the manager’s aim is to create a strategic plan that makes sense in terms of the company’s strengths, weaknesses, opportunities, and threats.

Figure 3-3 Worksheet for Environmental Scanning

Next, based on this analysis (in other words, on the environmental scan, SWOT, and PEST analyses), the task in step 3 will be to decide what should our new business be, in terms of what we sell, where we will sell it, and how our products or services differ from competitors’ products and services? Some managers express the essence of their new business with a vision statement. A vision statement is a gen‐ eral statement of the firm’s intended direction; it shows, in broad terms, “what we want to become.” PepsiCo’s vision is “Performance with Purpose.” CEO Indra Nooyi says her company’s executives choose which businesses to be in based on Performance with Purpose’s focus on human sustainability, environmental sustainability, and talent sus‐ tainability. For example, that vision prompted PepsiCo to add the healthy Quaker Oats and Gatorade to its lineup of products.

Figure 3-4 SWOT Matrix, with Generic Examples

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Whereas the vision statement describes in broad terms what the busi‐ ness should be, the company’s mission statement summarizes what the company’s main tasks are today. Several years ago, Ford adopted what was for several years a powerful Ford mission statement —making “Quality Job One.”

In any case, the manager’s next step (step 4) is to translate the desired new direction into strategic goals. At Ford, for example, what exactly did making “Quality Job One” mean for each department in terms of how they would boost quality? The answer was laid out in goals such as “no more than 1 initial defect per 10,000 cars.”

Next, (step 5) the manager chooses strategies—courses of action—that will enable the company to achieve its strategic goals. For example, how should Ford pursue its goal of no more than 1 initial defect per 10,000 cars? Perhaps open two new high-tech plants, and put in place new, rigorous employee selection, training, and performance-appraisal procedures.

Step 6, strategy execution, means translating the strategies into action. This means actually hiring (or firing) people, building (or closing) plants, and adding (or eliminating) products and product lines.

Finally, in step 7, the manager evaluates the results of his or her plan‐ ning and execution. Things don’t always turn out as planned. All man‐ agers should periodically assess the progress of their strategic decisions.

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Types of Strategies

Learning Objective 3-2 List with examples the main types of strategies.

In practice, managers engage in three types or levels of strategic plan‐ ning, corporate-level strategic planning, business unit (or competitive) strategic planning, and functional (or departmental) strategic planning (see Figure 3-5 , page 72).

Corporate Strategy For any business, the corporate strategy answers the question, “What businesses will we be in?” Specifically, the corporate-level strategy identifies the portfolio of businesses that, in total, comprise the compa‐ ny and how these businesses relate to each other. For example, with a concentration (single-business) corporate strategy, the company offers one product or product line, usually in one market. WD-40 Company is one example. With one spray lubricant its product scope is narrow. A diversification corporate strategy means the firm will expand by adding new product lines. PepsiCo is diversified. Thus, PepsiCo added Frito-

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Lay chips and Quaker Oats to its drinks businesses. Here product scope is wider. A vertical integration strategy means the firm expands by, perhaps, producing its own raw materials, or selling its products di‐ rectly. Thus, Apple opened its own Apple stores. With a consolidation strategy, the company reduces its size. With geographic expansion, the company grows by entering new territorial markets, for instance, by taking the business abroad.

Figure 3-5 Type of Strategy at Each Company Level

Competitive Strategy On what basis will each of our businesses compete? Within a company like PepsiCo, each business unit (such as Pepsi and Frito-Lay) needs a business-level competitive strategy. A competitive strategy identi‐

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fies how to build and strengthen the business unit’s long-term competi‐ tive position in the marketplace. It shows, for instance, how Pizza Hut will compete with Papa John’s, or how Walmart will compete with Target.

Managers build their competitive strategies around their businesses’ competitive advantages. Competitive advantage means any fac‐ tors that allow a company to differentiate its product or service from those of its competitors to increase market share. Coca-Cola has a “se‐ cret formula” that shows how to create its famous beverage. However, competitive advantages needn’t be tangible. For example, here is how a former vice president of human resources at the Toyota Motor Manu‐ facturing facility in Georgetown, Kentucky, described the importance of human capital as a competitive advantage:

People are behind our success. Machines don’t have new ideas, solve prob‐

lems, or grasp opportunities. Only people who are involved in thinking can make

a difference . . . Every auto plant in the United States has basically the same ma‐

chinery. But how people are utilized and involved varies widely from one compa‐

ny to ​another. The workforce gives any company its true competitive edge.

Managers typically adopt one or more of three standard competitive strategies—cost leadership, differentiation, or focus—to achieve com‐ petitive advantage. Cost leadership means becoming the low-cost leader in an industry. Walmart is an example. With differentiation, the firm seeks to be unique in its industry along dimensions that are widely valued by buyers. Thus, Volvo stresses the safety of its cars, and Papa John’s stresses fresh ingredients. Focusers carve out a market

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niche (like Bugatti cars). They offer a product or service that their cus‐ tomers cannot get from generalist competitors (such as Toyota).

Functional Strategy Each department should operate within the framework of its business’s competitive strategy. Functional strategies identify what each de‐ partment must do to help the business accomplish its strategic goals. Thus, for, say, P&G to make its Oil of Olay products a top-tier brand, its product development, production, marketing, sales, and human re‐ source departments must engage in activities that are consistent with this unit’s high-quality mission. Inferior products, cheap packaging, or sloppy salespeople would not do.

Managers’ Roles in Strategic Planning Devising the company’s overall strategic plan is top management’s re‐ sponsibility. However, few top executives formulate strategic plans without lower-level managers’ input. No one knows more about the firm’s competitive pressures, product and industry trends, and employ‐ ee capabilities than do the company’s department managers.

For example, the human resource manager is in a good position to sup‐ ply “competitive intelligence”—information on competitors. Details re‐ garding competitors’ incentive plans, employee opinion surveys about customer complaints, and information about pending legislation such

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as labor laws are examples. Human resource managers should also be the masters of information about their own firms’ employees’ strengths and weaknesses.

In practice, devising the firm’s overall strategic plan involves frequent discussions among and between top and lower-level managers. The top managers then use this information to hammer out their strategic plan.

EXAMPLE: IMPROVING MERGERS AND ACQUI‐

SITIONS Mergers and acquisitions (M&A) are among the most impor‐ tant strategic decisions companies make. When mergers and acquisi‐ tions fail, it’s often not due to financial issues but to personnel-related ones, such as employee resistance. Prudent top managers therefore tap their human resource managers’ input early in the merger process.

Critical human resource M&A tasks include choosing top management, communicating changes to employees, merging the firms’ cultures, and retaining key talent. Human resource consulting companies such as Towers Watson assist firms with merger-related human resource man‐ agement services. For example, they identify potential pension short‐ falls, identify key talent and suitable retention strategies, help clients

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combine payroll systems, and help determine which employee is best for which role in the new organization.13

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Strategic Human Resource Management

Learning Objective 3-3 Define strategic human resource management and give an example of strategic human resource management in practice.

The company’s top managers choose overall cor‐

porate strategies, and then choose competitive strategies for each of the company’s businesses. Then departmental managers within each of these businesses formulate functional strategies for their departments. Their aim should be to have functional strategies that will support the competitive strategy and the company-wide strategic aims. The mar‐ keting department would have marketing strategies. The production de‐ partment would have production strategies. The human resource man‐

agement (“HR”) department would have human resource management strategies.

HR in Practice at the Hotel Paris Starting as a single hotel in a Paris suburb in 1990, the Hotel Paris is now a chain of nine hotels, with two in France, one each in London and Rome, and others in New York, Miami, Washing‐ ton, Chicago, and Los Angeles. To see how managers use strategic human resource management to improve performance, see the Hotel Paris Case on pages 90–91 and answer the questions.

What Is Strategic Human Resource Management? Every company’s human resource management policies and activities should make sense in terms of the firm’s strategic aims. For example, a high-end retailer like Neiman-Marcus will have different employee se‐ lection, training, and pay policies than will Walmart.

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Strategic human resource management means formulating and executing human resource policies and practices that produce the em‐ ployee competencies and behaviors the company needs to achieve its strategic aims. The following Strategic Context feature illustrates.

IMPROVING PERFORMANCE: THE STRATEGIC CONTEXT

The Shanghai Ritz-Carlton Portman Hotel

When the Ritz-Carlton Company took over managing the Port‐ man Hotel in Shanghai, China, the new management reviewed the Portman’s strengths and weaknesses, and its fast-improving local competitors. They decided that to compete, they had to improve the hotel’s level of service. Achieving that in turn meant formulating new human resource management plans for hiring, training, and rewarding hotel employees. It meant putting in place a new human resource strategy for the Portman Hotel, one aimed at improving customer service. Their HR strategy involved taking these steps:

Strategically, they set the goal of making the Shanghai Port‐ man outstanding by offering superior customer service. To achieve this, Shanghai Portman employees would have to exhibit new skills and behaviors, for ​instance, in terms of how they treated and responded to guests. To produce these employee skills and behaviors, manage‐ ment formulated new human resource management plans, policies, and procedures. For example, they introduced the

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Ritz-Carlton Company’s human resource system to the Port‐ man: “Our selection [now] focuses on talent and personal values because these are things that can’t be taught … it’s about caring for and respecting others.”

Management’s efforts paid off. Their new human resource plans and practices helped to produce the ​employee behaviors re‐ quired to improve the Portman’s level of service, thus attracting new guests. Travel publications were soon calling it the “best employer in Asia,” “overall best business hotel in Asia,” and “best business hotel in China.” Profits soared, in no small part due to effective strategic human resource management.

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If your professor has assigned this, go to the Assignments section of mymanagementlab.com to complete this dis‐ cussion question.

Talk About It 1: Asian culture is different from that in the United States. For example, team ​incentives tend to be more attractive to people in Asia than are individual incentives. How do you think these cultural differ‐ ences would have affected how the hotel’s new management selected, trained, ​appraised, and compensated the Shanghai Portman’s employees?

The basic idea of strategic human resource management is this: In for‐ mulating human resource management policies and activities, the man‐ ager should aim to formulate policies that produce the employee skills and behaviors that the company needs to achieve its strategic goals.

Figure 3-6 outlines this idea. First, the manager formulates strategic plans and goals. Next, he or she asks, “What employee skills and be‐ haviors will we need to achieve these plans and goals?” And finally, he or she asks, “Specifically what recruitment, selection, training, and oth‐ er HR policies and practices should we put in place so as to produce the required employee skills and behaviors?” Managers often refer to

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their specific HR ​policies and practices as human resource strategies. The accompanying HR as a Profit Center ​feature presents another strategic human resource management example.

IMPROVING PERFORMANCE: HR AS A PROF IT CENTER

The Zappos “WOW” Way

When your strategy involves selling shoes and clothes online to people who can’t try them on, you need employees who are en‐ ergized and enjoy what they’re doing—Zappos wants employees to deliver “WOW” through service. That’s why Zappos’ founders knew they needed special methods for hiring, develop‐ ing, and retaining employees, and that’s just what they created. As their website says, “This ain’t your mama’s HR! Recruiting, benefits, and employee relations keep this cruise ship afloat with fun, inventive ways of getting employees motivated and educat‐ ed about the Zappos Family of companies, their benefits, and the other fun stuff going on around here!”

While they may not appeal to everyone, these “fun, inventive techniques” include interviewing job applicants in what looks like the set of a talk show, asking employees to submit their own designs for Steve Madden shoes, and (during Zappos’ annual “Bald & Blue Day”) having some employees volunteer to shave their heads or dye their hair blue. And, by the way, if you’re not happy working at Zappos, the company will pay you to leave—it wants no one there who doesn’t truly want to be there.

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Again, that may not be for everyone, but it works for Zappos. It knows that selling online successfully requires energized em‐ ployees who really enjoy what they’re doing. Management uses these special HR practices to cultivate the energized and fun en‐ vironment that Zappos needs to execute its strategy, and judg‐ ing from Zappos’ success they seem to be working.

Figure 3-6 The HR Strategy Model

If your professor has assigned this, go to the Assignments section of mymanagementlab.com to complete this dis‐ cussion question.

Talk About It 2: Why do you think Zappos’ top managers believe it is so important for employees to provide a “WOW” factor in their business?

Watch It! How does a company actually go about developing a human resource strategy? If your professor has assigned this, go to the Assignments section of ​mymanagmentlab.com to complete the video exercise titled Strategic ​Management (Joie de Vivre Hospitality).

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Sustainability and Strategic Human Re‐ source Management Today’s emphasis on sustainability has important consequences for hu‐ man resource management. Strategic human resource management means having human resource policies and practices that produce the employee skills and behaviors that are necessary to achieve the com‐ pany’s strategic goals, and these include sustainability goals.

For example, PepsiCo wants to deliver “Performance with Purpose.” This means achieving financial performance while also achieving ​hu‐ man sustainability, environmental sustainability, and talent sustainabili‐ ty. PepsiCo’s human resource managers can help the company achieve these goals. For example, they can use its workforce plan‐ ning processes to help determine how many and what sorts of environ​‐ mental sustainability (“green”) jobs the company will need to recruit for. They can work with top management to institute flexible work arrange‐ ments that help sustain the environment by reducing commuting. They can change its employee orientation process to include more emphasis on socializing new employees into PepsiCo’s sustainability goals. They can modify its performance appraisal systems to measure which man‐ agers and employees are successful in reaching their individual sustain‐ ability goals. They can use incentive systems that motivate employees to achieve PepsiCo’s sustainability goals. The bottom line is that HR policies and practices can support a firm’s sustainability strategy and goals.

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Strategic Human Resource Manage‐ ment Tools Managers use several tools to translate the company’s strategic goals into human ​resource management policies and practices. These tools include the strategy map, the HR scorecard, and the digital dashboard.

STRATEGY MAP The strategy map summarizes how each depart‐ ment’s performance contributes to achieving the company’s overall strategic goals. It helps the manager and each employee visualize and understand the role his or her department plays in achieving the com‐ pany’s strategic plan. Management gurus sometimes say that the map clarifies employees’ “line of sight.” It does this by visually linking their efforts with the company’s ultimate goals.

Figure 3-7 Strategy Map for Southwest Airlines

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Source: Based on TeamCHRYSALIS.com, accessed July 2006; http://mck‐ nightkaney.com/Strategy_Maps_Primer.html; www.strategymap.com.au/ home/StrategyMapOverview.html.

Figure 3-7 presents a strategy-map example for Southwest Airlines. The top-level target is to achieve its profitability, costs, and revenue goals. Then the strategy map shows the chain of activities that help Southwest Airlines achieve these goals. Like Walmart, Southwest has a

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low-cost-leader strategy. So, for example, to boost revenues and prof‐ itability Southwest must fly fewer planes (to keep costs down), maintain low prices, and maintain on-time flights. In turn (further down the strat‐ egy map), ​on-time flights and low prices require fast turnaround. This, in turn, requires motivated ground and flight crews. The resulting strate‐ gy map helps each ​department under​stand what it needs to do to sup‐ port Southwest’s low-cost strategy. For example, what steps must Southwest’s human resource team take to boost the motivation and dedication of its ground crews?

THE HR SCORECARD Many employers quantify and computerize the strategy map’s activities. The HR scorecard helps them to do so. The HR scorecard is not a scorecard. It refers to a process for assigning financial and nonfinancial goals or metrics to the human resource man‐ agement–related strategy-map chain of activities required for achieving the company’s strategic aims. (Metrics for Southwest might include airplane turnaround time, percent of on-time flights, and ground crew productivity.) The idea is to take the strategy map and to quantify it.

Managers use special scorecard software to facilitate this. The comput‐ erized scorecard process helps the manager quantify the relationships between (1) the HR activities (amount of testing, training, and so forth), (2) the resulting employee behaviors (customer service, for instance), and (3) the resulting firm-wide strategic outcomes and performance (such as customer satisfaction and profitability). The HR scorecard derives from the “balanced scorecard” planning approach, which aims to balance hard data such as financial measures with soft data such as customer satisfaction in assessing a company’s performance.

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DIGITAL DASHBOARDS The saying “a picture is worth a thousand words” explains the purpose of the digital dashboard. A digital dashboard presents the manager with desktop graphs and charts, showing a computerized picture of how the company is doing on all the metrics from the HR scorecard process. As in the accompa‐ nying illustration, a top Southwest Airlines manager’s dashboard might display real-time trends for various strategy-map activities, such as fast turnarounds and on-time flights. This enables the manager to take cor‐ rective action. For example, if ground crews are turning planes around slower today, financial results tomorrow may decline unless the manag‐ er takes action.

Figure 3-8 summarizes the three strategic planning tools.

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HR Metrics, Benchmarking, and Data Analytics

Learning Objective 3-4 Give at least five examples of HR metrics.

We’ve seen that strategic human resource man‐

agement means formulating HR policies and practices that produce the employee competencies and behaviors the ​company needs to achieve its strategic goals. Being able to measure results is essential to this process. For example, it would have been futile for the Ritz-Carlton Portman Shanghai’s managers to set “better customer service” as a goal if they couldn’t measure ​customer service. Relevant measures might include, for instance, hours of training per ​employee, productivity per employee, and (via customer surveys) customer satisfaction.

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Figure 3-8 Three Important Strategic HR Tools

Human resource managers use many such measures (or “ human resource ​metrics ”). For example, there is (on average) one human resource employee per 100 company employees for firms with 100–249 employees. The HR employee-to-​employee ratio drops to about 0.79 for firms with 1,000–2,499 employees and to 0.72 for firms with more than 7,500 employees. Figure 3-9 illustrates other hu‐ man ​resource management metrics. They include employee tenure, cost per hire, and ​annual overall turnover rate.

Improving Performance

Through HRIS: Tracking Applicant Met‐

rics for Improved Talent Management As an example of using metrics, many employers spend thou‐ sands of dollars (or more) recruiting employees without measur‐

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ing which hiring source produces the best candidates. The sen‐ sible solution is to assess recruitment effectiveness using mea‐ sures or metrics such as quality of new hires.

Many employers do track and analyze such data with the help of computerized applicant tracking systems (ATS). ATS suppliers include Authoria, PeopleFilter, Wonderlic, eContinuum, and Peo‐ pleClick. Regardless of the vendor, analyzing ​recruitment effec‐ tiveness using ATS software involves two steps:

First, decide how to measure the performance of new hires. For example, with Authoria’s system, hiring managers input their evaluations of each new hire at the end of the employ‐ ee’s first 90 days, using a 1-to-5 scale. Next, the applicant tracking system enables the employer to track the recruitment sources that correlate with superior hires. It may show, for instance, that new employees hired through employee referrals stay longer and work better than those from newspaper ads do.

For example, installing an Authoria ATS enabled the Thomson Reuters Company to identify the recruitment sources, candidate traits, and hiring practices that work best in each geographic area where the company does business. This enabled Thom‐ son to reduce metrics like recruiting costs, by shifting recruit‐ ment dollars from less effective to more effective sources.

Benchmarking

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Just measuring how one is doing (for instance, in terms of employee productivity) is rarely enough for deciding what (if anything) to change. Instead, most managers want to know “How are we doing?” in relation to something. For example, are our accident rates rising or falling? Sim‐ ilarly, the manager may want to benchmark the results—compare high- performing companies’ results to your own, to understand what makes them better.32

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Figure 3-9 Metrics for the SHRM 2011–2012 Customized Human Capital Bench‐ marking Report

Source: Reprinted with permission from the Society for Human Resource Manage‐ ment. All rights reserved.

The Society for Human Resource Management’s (SHRM’s) benchmark‐ ing service enables employers to compare their own HR metrics with those of other companies. The employer can request comparable (benchmark) figures not just by industry, but by employer size, compa‐

®

ny revenue, and geographic region. (See http://shrm.org/research/ benchmarks/.)

Figure 3-10 illustrates one of the SHRM’s many sets of comparable benchmark measures. It shows how much employers are spending for tuition reimbursement programs.

Strategy and Strategy-Based Metrics Benchmarking provides one perspective on how your company’s hu‐ man resource management system is performing. It shows how your human resource management system’s performance compares to the competition. However, it may not reveal the extent to which your firm’s HR practices are supporting its strategic goals. For example, if the strategy calls for doubling profits by improving customer service, to what extent are our new training practices helping to improve customer service?

Managers use strategy-based metrics to answer such questions. Strategy-based metrics measure the activities that contribute to achieving a company’s strategic aims. Thus, for the Portman Shang‐ hai, the strategic HR metrics might include 100% employee testing, 80% guest returns, incentive pay as a percent of total salaries, and sales up 50%. If changes in HR practices such as increased training have their intended effects, then strategic metrics like guest returns should also rise.

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Figure 3-10 SHRM Customized Human Capital Benchmarking Report

Source: “HR Expense Data,” from SHRM Customized Human Capital Benchmarking Report. Reprinted with permission from the Society for Human Resource Manage‐ ment. All rights ​reserved. www.shrm.org/Research/benchmarks/Documents/sam‐ ple_humnba_capital_report.pdf.

What Are HR Audits?

Human resource managers often collect data on

matters like employee turnover and safety via human resource audits. One practitioner calls an HR audit “an analysis by which an organi‐ zation measures where it currently stands and determines what it has to accomplish to improve its HR function.” The HR audit generally in‐35

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volves using a checklist to review the company’s human resource func‐ tions (recruiting, testing, training, and so on), as well as ensuring that the firm is adhering to regulations, laws, and company policies. The HR auditor may first review payroll data, focusing on what and when each employee was paid. He or she will then turn to whether the human re‐ source records are in order (for instance, are medical records kept sep‐ arate from résumés?). He or she will also review the employer’s hand‐ books and policies, for instance, checking for disability accommodation policies, social media policies, and family and medical leave policies. He or she may also want to benchmark the results to comparable companies’.

HR audits vary in scope. Typical areas audited include:

1. Roles and headcount (including job descriptions, and employees categorized by exempt/nonexempt and full- or part-time)

2. Compliance with federal, state, and local employment-related legislation

3. Recruitment and selection (including use of selection tools, background checks, and so on)

4. Compensation (policies, incentives, survey procedures, and so on)

5. Employee relations (union agreements, performance manage‐ ment, disciplinary procedures, employee recognition)

6. Mandated benefits (Social Security, unemployment insurance, workers’ compensation, and so on)

7. Group benefits (insurance, time off, flexible benefits, and so on) 8. Payroll (such as legal compliance)

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9. Documentation and record keeping. For example, do our files in‐ clude résumés and applications, offer letters, job descriptions, performance evaluations, benefit enrollment forms, payroll change notices, and documentation related to personnel actions such as employee handbook acknowledgments?

10. Training and development (new employee orientation, develop‐ ment, technical and safety, career planning, and so on)

11. Employee communications (employee handbook, newsletter, recognition programs)

12. Termination and transition policies and practices

Trends Shaping HR: Digital

and Social Media

Data like monthly labor costs are interesting but relatively use‐ less until converted to information. Information is data presented in a form that makes it useful for making decisions. For example knowing your cost per hire is interesting. However, presenting cost-per-hire data in a way that shows whether the cost is trend‐ ing up or down provides information you can use to make deci‐ sions. Yet in one study, only 10% of respondents said they use such data to analyze their workplace practices’ effectiveness.

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But this is changing. Data analytics means using statistical and mathematical analysis and algorithms to find relationships and make predictions. For example, when online bookstores use al‐ gorithms to predict which books you’re most likely to buy based on things like what books you’ve already bought and similarities between you and other groups, they are using data analytics. Data analytics relies on data mining. Data mining sifts through huge amounts of employee data to identify correlations that em‐ ployers then use to improve their employee-selection and other practices. Data mining is “the set of activities used to find new, hidden, or unexpected patterns in data.”

Big data is basically data analytics on steroids. The basic idea (of scientifically analyzing data to find relationships and make predictions) is the same. However, with “big data” the volume, velocity, and variety of data that are analyzed are much greater. In terms of volume, for example, Walmart now collects about 2.5 petabytes of data—2.5 million gigabytes—every hour from its customer transactions. Similarly, in terms of velocity, all these data are being created more or less instantaneously (as at Wal‐ mart); that means companies can use them to more quickly to adapt in real time (for instance, to who’s buying what products, and therefore how to adjust online promotions). Finally, big data capitalizes on the huge variety of data now available. For in‐ stance, data come not just from Walmart’s transactions but from customers’ mobile phones, GPS, and social networks too. 

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Talent Analytics Data analytics tools like these enable employers (including Wal‐ mart) to analyze together employee data (like employee demo‐ graphics, training, and performance ratings) from traditional sources such as employee records, as well as data from new sources (like company internal social media sites, GPS tracking, and e-mail activity). Employers then use talent analytics (data analytics applied to HR issues) to answer questions that in the past they couldn’t answer, or couldn’t answer as well. For exam‐ ple, human resource consultant Aon Hewitt has an “analytics en‐ gine” that analyzes its client’s employee and performance data. Computer dashboards then enable its clients to answer ques‐ tions such as “Are there potential turnover trends we should fur‐ ther analyze to head off potential problems?” “What factors drive our high-performing salespeople?” And, “what sorts of people are most likely to have accidents and submit claims?”

Talent analytics can produce striking profitability results. For ex‐ ample, Best Buy used talent analytics to discover that a 0.1% increase in employee engagement led to a more than $100,000 rise in a Best Buy store annual operating income. Employers use talent analytics to answer several types of talent manage‐ ment questions.

Human Capital Facts For example, “What are the key indicators of my organization’s overall health?” JetBlue found that employee engagement corre‐ lated with financial performance.

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Analytical HR For example, “Which units, departments, or individuals need at‐ tention?” Lockheed Martin collects performance data in order to identify units needing improvement.

Human Capital Investment Analysis For example, “Which actions have the greatest impact on my business?” By monitoring employee satisfaction levels, Cisco was able to improve its employee retention rate from 65% to 85%, saving the company nearly $50 million in recruitment, se‐ lection, and training costs. A Google talent analytics team ana‐ lyzed data on employee backgrounds, capabilities, and perfor‐ mance. It identified factors (such as an employee feeling un‐ derutilized) likely to lead to the employee leaving—and thus helped it reduce turnover. Microsoft identified correlations among the schools and companies its employees arrived from and the employees’ subsequent performance. This helped it im‐ prove its recruitment and selection practices. By gathering thousands of observations across 100 variables about man‐ agers, Google identified what traits its best managers shared, including: good coach; empowers and does not micromanage; expresses interest in and concern for team members’ success and personal well-being; productive and results-oriented; good communicator; helps with career development; has a clear vi‐ sion and strategy for the team; and has key technical skills the team needs. ConAgra Foods uses talent analytics to discover relationships among employee demographics, training, and per‐ formance and their relationships with various performance indi‐ cators.

Digital tools like talent analytics disrupt how HR departments do things. They require HR managers to be more scientific and analytical. And,

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they often shift “who does HR” (for instance, Aon Hewitt’s digital dash‐ board shows line managers when there’s a turnover problem) from the human resource department to other departments (such as finance), and sometimes to line managers like the heads of departments.

Digital tools like these also show great promise. In one study, 82% of high-performing organizations gave human resource management lead‐ ers such analytical workforce data, compared with 33% of low-per‐ forming ones.

If your professor has assigned this, go to the Assignments section of mymanagementlab.com to complete this dis‐ cussion question.

Talk About It 3: Could Best Buy or some of these other companies have made the same discoveries without using so‐ phisticated computerized tools? How?

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Trends Shaping HR: Science

in Talent Management

Data analytics permits making decisions based on a measurable and objective review of the situation. Managers have a name for this. Evidence-based human resource management means using data, facts, analytics, scientific rigor, critical evaluation, and criti‐ cally evaluated research/case studies to support human re‐ source management proposals, ​decisions, practices, and con‐ clusions.

You may sense that being evidence based is similar to being sci‐ entific, and if so, you are correct. A recent Harvard Business Re‐ view article even argues that managers must become more sci‐ entific and “think like scientists” when making business deci‐ sions.

But how can managers think like scientists? Objectivity, experi‐ mentation, and prediction are the heart of science. In gathering evidence, scientists (or managers) first need to be objective, or there’s no way to trust their conclusions. Recently, a medical school disciplined several professors. They had failed to reveal that they were on the payroll of the drug company that supplied