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Learning ObjectivesAfter studying this chapter, you should be able to:

1. Outline the steps in the strategic management process.

2. Explain and give examples of each type of company-wide strategy.

3. Explain what a strategy-oriented HRM system is and why it is important.

4. Explain the ten steps in the HR Scorecard approach on creating the HRM system.

Chapter 3

Strategic HRM and theHR ScorecardT he Hotel International Group plans to

expand globally. Its corporate strategy is to use superior guest services to distinguish its hotels from competitors. The aim is to increase the length of stay and the return rate of guests, thereby increasing revenue and profit. HR Director Li now has to formulate the right

HR strategy and introduce practices to support this corporate strategy.

This chapter focuses on strategic HRM. It discusses how HR Director Li creates a HR Scorecard and uses it to show the cause-and-effect links among the HR activities, the employees’ performance, and the desired results.

part 1Introduction

52 Part 1 Introduction

“And then the workers are here.”

Strategic Management ProcessStrategic Management ProcessA strategic plan is the company’s plan that shows how it will match its internal strengths and weaknesses with external opportunities and threats to have a competitive advantage.

The basic strategic planning process involves asking questions such as: Where are we now as a business? Where do we want to be? How should we get there?

The managers then formulate strategies to take the company from where it is now to where they want it to be.

Seven Steps in Strategic ManagementThe seven steps in strategic management are as follows (see Figure 3.1):

Define the current business Perform external and internal audits Formulate new business and mission statements Translate the mission into goals Formulate strategies to achieve the company’s goals Implement the strategy Evaluate performance.

Figure 3.1Strategic Management Process

A company’s strategic plan should have a clear view of where it is now as a business and what role each employee has in the plan to achieve the company’s goals.

Step 1:Define the

current business

and mission

Step 2:Performexternal

andinternalaudits

Step 3:Formulate

newbusiness

and missionstatements

Step 4:Translate

themission

intogoals

Step 5:Formulate

strategies toachieve the

strategicgoals

Step 6:Implement

thestrategy

Step 7:Evaluate

performance

Strategic planningStrategic

executionStrategic

evaluation

战略规划

使企业内部的优势和劣

势与外部机会和威胁相匹

配，从而获取竞争优势的企

业计划。

战略管理

通过将企业能力与外部

环境需求匹配来确定及执行

企业使命的过程。

533 Strategic HRM and the HR Scorecard

Step 1: Define the current businessEvery company must decide what products or services it will sell, where it will sell them, and how they differ from those of its competitors. For example, Rolex and Seiko are both in the watch business. Rolex sells high-priced quality watches. Seiko sells inexpensive but innovative watches with features like compasses and altimeters.

Step 2: Perform external and internal auditsManagers begin their planning by analyzing their external and internal situations. They do a SWOT analysis to identify the company’s Strengths, Weaknesses, Opportunities, and Threats (see Figure 3.2).

Step 3: Formulate new business and mission statementBased on the analysis, a company decides what should be its new business, what products it will sell, where it will sell them, and how its products will differ from those of its competitors.

Step 4: Translate the mission into strategic goalsIf the company’s mission is “to make quality products,” what does this mission mean, for each department, in terms of how to improve quality?

Step 5: Formulate strategies to achieve the strategic goalsA strategy is a course of action. It shows how the company will move from the present business to the new business it wants to be in. The best strategy should be simple so that managers can easily explain it to their employees. For example, Wal-Mart’s strategy is “Low prices, every day.”

Step 6: Implement the strategiesImplementation means translating the strategies into actions—such as hiring people, building plants, and adding new product lines. The process involves all the management functions: plan, organize, staff, lead, and control.

Step 7: Evaluate performanceStrategies may not succeed because of changes in external factors. For example, new trends may reduce the demand for some products while increasing the demand for others.

Strategic control is the process of assessing progress toward the goals and taking corrective action. Managers always check whether the company is meeting its strategic goals, and find out why deviations exist. They study the new situation (such as competitors, technical advances, customer demographics, etc.) and make adjustments.

Figure 3.2 A SWOT Chart

QuickQuiz What is strategic management

process? Outline the steps in this process.

ThreatsExample: merger of two competitors to form single strong one

OpportunitiesExample:expandingChina markets

WeaknessesExample: agingmachinery

StrengthsExample: strong research group

战略控制

评估通向战略目标的进

展及采取纠正行动的过程。

SWOT分析用 SWOT 图表确定企业

的优势、劣势、机会和威胁。


Types Of StrategiesTypes Of StrategiesAs shown in Figure 3.3, managers engage in three types of strategies:

Corporate strategy Competitive strategy Functional strategy.

Corporate StrategyAt the company-wide level, a company may consist of several businesses. For example, PepsiCo runs Pepsi, Frito-Lay, and Pizza Hut. PepsiCo therefore needs a corporate-level strategy. A company’s corporate-level strategy identifies the whole range of businesses that it is doing, and how these businesses relate to one another.

As shown in Figure 3.4, there are four possible strategies: Diversification Vertical integration Consolidation Geographic expansion.

Figure 3.3Relationships among Strategies in Multi-business Firms

Figure 3.4Corporate Strategies—Company-wide

Competitive StrategyAt the next level down, each of these businesses needs a strategy to build a competitive position in the marketplace. For example, the company’s competitive advantage allows it to differentiate its product or service from those of its competitors.

Corporate strategy

Functionalstrategies



Business 1Competitive

strategy


strategy


strategy

Diversification Company expands by adding new product lines.

Vertical integration Company expands by producing its own raw materials.

ConsolidationCompany reduces its size.

Geographic expansion Company takes the business abroad.

Company Strategy—

company-wide

竞争优势

任何使企业将产品或服

务与其竞争对手区分开来，从

而增加市场份额的因素。


HR in ACTIONHR for Line Managers and Entrepreneurs Using Computerized Business Planning Software

There are several business planning software packages available in the market. They assist the line manager or small business owner in writing business plans. For example, the software may contain all the information and planning aids the user needs to create a business plan. It contains sample plans, step-by-step instruction (with examples) for creating each part of a plan. The result is an integrated plan, complete with overall strategic plan, and charts and tables.

As shown in Figure 3.5, a company may use the following strategies to achieve competitive advantage: (a) cost leadership, (b) differentiation, (c) focus.

Functional StrategyA company comprises departments, such as manufacturing and sales. Functional strategies identify the action that each department will take to help the company to attain its competitive goals.

The “HR in Action” section shows a system you can use to facilitate your planning efforts.

HRM’s Role In Creating Competitive HRM’s Role In Creating Competitive AdvantageAdvantageTo compete effectively, the company must have one or more competitive advantages. The competitive advantage can take many forms. For a pharma-ceuticals company, it may be the quality of its research team and its patents. For a software company, it may be its special software system.

Today, most companies have easy access to the same technologies, so technology itself is not enough to be a competitive advantage. For example, Toyota does not have manufacturing equipment that is not available to Ford. Why then is Toyota so much more efficient, and its cars of such high quality? Watching Toyota’s self-managing assembly teams will show that at once. It is the employees’ skills and commitment, and the management system that produces the skills and commitment that make the difference.

Figure 3.5Corporate Strategies—Business Level

QuickQuiz Explain the various types of

company-wide strategies. Give examples of each type.

Corporate strategies — Business level

Focus Focus on products that customers cannot get from competitors

Differentiation Seek to be unique in its products or services

Cost leadership Aim to become low-cost leader in the industry


HR in ACTIONToyota’s Self-managed Teams

A visitor to a typical Toyota factory will soon discover the secrets of its success: Small teams of highly trained workers inspect and assess their own work. They select their own team members, interact with engineers and suppliers to

improve components. They discuss problems with top managers. They spend several weeks each year in training to upgrade skills.

As a result, costs are low and quality is high. This is because these self-managing teams have the capacity and commitment to always do their best.

Then Now

Strategic HRMFigure 3.6 shows the interplay between HR strategy and the company’s strategic plans. Strategic HRM means formulating HR policies and introducing activities that produce the employee competencies and behaviors that the company needs to achieve its goals.

Effective HR managers are able to handle a larger portfolio and work closely with top management to formulate and implement the company’s strategic plans.

Figure 3.6Linking Company-wide and HR StrategiesSource: © Gary Dessler, Ph.D., 2007.

Companyʼs competitive environment

Economic, political, demographic,competitive, and technological trends

Companyʼs strategic situation

Companyʼs internal strengthsand weaknesses

Organizational performance

Companyʼs strategic planFor example

Should we expand geographically? Cut costs? Diversify?

Companyʼs HR (and other functional) strategies

What are the basic courses of action HR will pursue to ensure that the recruiting, selecting, training, appraising, and compensation systems support the company’s strategic plan?

战略人力资源管理指制

定人力资源政策并导入实践

活动，促使员工的能力和行

为与企业实现其目标所需相

吻合。


HRM’S Strategic RolesHRM’S Strategic RolesEffective HR managers work closely with top management to formulate and implement the company’s strategic plans. They have two basic strategic planning roles:

Strategy execution Strategy formulation.

Strategy Execution RoleTop management formulates the company’s corporate strategies. Then, the HR manager designs policies, and introduces practices that fit into the company’s corporate strategies.

Strategy Formulation RoleThe role of HR managers also includes working with top management to formulate the company’s strategic plans. Globalization means more competition, and more competition means the need to improve performance. Companies improve their performance by improving their employees’ competence and commitment. In this context, the input from the HR department is very important.

HR managers are in a unique position to supply information that is useful for strategic planning. Details about competitors’ incentive plans, employees’ opinion survey data about customer complaints, employment laws and health insurance are some examples.

Creating A Strategic HRM SystemCreating A Strategic HRM SystemA strategic HRM system focuses on three main components (see Figure 3.7):

HR professionals who have the skills to build a strategy-oriented HR system. HR policies and practices on recruitment, selection, training, and reward. Employee behaviors and competencies that the company needs.

QuickQuiz What is a strategy-oriented HRM

system? Why is it important?

The greatest challenge in implementing new strategies is the attitude of people in their respective organizations.

Figure 3.7Three Main Strategic Human Resource System ComponentsSource: Adapted from Brian Becker et al.,The HR Scorecard: Linking People, Strategy, and Performance (Boston: Harvard Business School Press, 2001), p. 12. Copyright © 2001 by the Harvard Business School Publishing Corporation; all rights reserved.

The HR functionHR professionals with strategic management competencies

The HR systemHigh Performance Work System (HPWS) consisting of strategically aligned HR policies, practices, and activities

Employee behaviorsEmployee competencies, values, motivation, and behaviors required by the company’s strategic plan


HR in ACTIONStrategic HRM in the Philippines

In 1995, the Personnel Management Association of the Philippines (PMAP) conducted a study on the strategic HRM practices in the Philippines through a grant from the International Labor Organisation (ILO).

The study identified four themes that were common in 40 leading companies. These were:

Productivity and quality management Growth and expansion Organization building Technological innovation.

In the area of productivity and quality improvement, HR practices included those that improved the use of resources. Examples were quality circles, benchmarking, affirming good services, productivity gain sharing programs, and training.

The study also identified some barriers in implementing strategic HR practices. They included resistance to change, interpersonal difficulties, clash with existing systems, and lack of recognition for HR function. The great challenge in implementing new strategies was the attitude of people in their respective organizations.1

Figure 3.8Characteristics of a High-performance Work Organization

High-Performance Work SystemEvery company should create a HR system that fits its needs. There is a trend toward installing HR systems that broadly share many characteristics. The aim of these systems is to maximize employees’ competencies and commitment.

Figure 3.8 shows the characteristics of a high-performance work organization.

Customer satisfaction

Commitment to quality

Extensive training

Labor management cooperation

Empowered workers

Multi-skilled work teams

Characteristics of a High-

Performance Work

Organization


“This is the last time you have exceeded your leave quota. Your services are no longer needed.”

HR managers need to identify the required workforce behaviors that will ultimately create value for the company

Measuring HR’s EffectivenessEmployers expect their HR managers to introduce HR activities that create value for the company such as more profit and bigger market share.

Translating Strategy into HR Policy and PracticeStrategic HRM means HR managers need to translate the company’s strategy into the required employee competencies and behaviors. They must then translate these required employee competencies and behaviors into specific HR policies and practices that will achieve the company’s goals. The basic process is outlined in Figure 3.9.

Figure 3.9Basic Model of How to Align HR Strategy and Actions with Business StrategySource: Adapted from Garrett Walker and J. Randal MacDonald, “Designing and Implementing an HR Scorecard,” Human Resources Management 40, no. 4 (2001), p. 370.

Formulate business strategy“What are the strategic goals of the business?”

Identify workforce requirements“What employee competencies and behaviors must HR deliver to enable the business to reach its goals?”

Formulate HR strategic policies and activities“Which HR strategies and practices will produce these

employee competencies and behaviors?”

Develop detailed HR scorecard measures“How can HR measure whether it is executing well

for the business, in terms of producing the required workforce competencies and behaviors?”


HR in ACTIONTranslating Strategy into HR Policies and Practices

The organizational change at the Albert Einstein Hospital (AEH) is an example of how a company translates strategic plans into HR policies and practices. In the 1990s, it was clear to the AEH’s new CEO that competition, technological changes, and the growth of the healthcare industry meant that his company needed a new strategic plan. At that time, AEH was a single acute care hospital, treating only the seriously ill.

New Strategy

The CEO’s new strategy was to change AEH into a healthcare network to provide a full range of high-quality services. He knew that to make this change, the new AEH would need a more flexible, adaptable, and professional approach in delivering services.

Based on that, he summarized the strategic goals in three words: “initiate,” “adapt,” and “deliver.” To achieve these aims, employees must produce new services (initiate), seek opportunities (adapt), and offer high-quality services (deliver).

New Employee Competencies and Behaviors

The CEO’s next question was, “What kind of employee competencies and behaviors would AEH need to produce these three outcomes?”

Working with the head of the HR Department, the CEO chose four employee competencies and behaviors: “dedicated, accountable, generative, and resilient.” Employees must:

be dedicated to AEH’s focus on initiating, adapting, and delivering. take personal accountability for their results. apply new knowledge and skills and look for innovative solutions. be willing to move from job to job as the company’s needs change.

New HR Policies and Practices

Given these desired employee competencies and behaviors, AEH’s HR managers implemented several new programs to:

ensure that employees clearly understood the company’s new vision. provide employees with more challenge and responsibility through flexible assignments and team-based work.

help employees take personal responsibility for their own personal development.

link employees’ rewards to results and provide non-monetary rewards.In summary, managers at AEH translated the new strategy into specific HR policies

and practices. These managers used a simple and logical process to translate strategy into the required HR policies and activities. This is perfectly acceptable. Increasingly, however, many companies are using a new method called the HR Scorecard Process. We explain that approach in HR Today on page 65.

Questions

1. Why was there a need for the new CEO of AEH to introduce organizational changes?

2. Explain the four competencies as identified by the CEO.3. Discuss the programs that were introduced to achieve these four competencies.


competitive advantage, 54HR Scorecard, 65metrics, 65mission, 52strategic control, 53strategic human resource management, 56strategic management, 52

strategic plan, 52strategy, 53strategy map, 66SWOT analysis, 53value chain analysis, 67vision, 60

CHAPTER SUMMARY1. In formulating their HR strategies, HR managers must address three basic challenges:

a. The need to support corporate productivity improvement effortsb. That employees play an expanded role in the company’s performance improvement effortsc. That HR must be more involved in designing—not just executing—the company’s strategic plan.

2. There are seven basic steps in the strategic management process:a. Define the business and its missionb. Perform an external and internal auditc. Formulate new mission statementsd. Translate the mission into strategic goalse. Formulate a strategy to achieve these goalsf. Implement the strategyg. Evaluate performance.

3. There are three main types of strategic plans:a. The company’s corporate-level strategy that identifies the company’s whole range of businesses

and includes diversification, vertical integration, consolidation, and geographic expansionb. Each business needs a business level competitive strategy: differentiation and cost leadership are

two examplesc. Each individual business is made up of departments that require functional strategies. The latter

identify the action that each department will take to help the business attain its goals.4. A strategy is a course of action. It shows how the company will move from the business it is in now to

the business it wants to be in.5. Strategic HRM means formulating and executing HR systems that produce the employee competencies

and behaviors the company requires to achieve its strategic goals.6. The high-performance work system is designed to maximize the overall quality of human capital

throughout the organization. It provides a set of benchmarks for HR managers to compare the structure, content, and effectiveness of their HR system.

7. The process of aligning HR strategies with business strategy has four steps:a. Formulate the business strategyb. Identify employee behaviors needed to produce the outcomes that help the company to achieve

its goalsc. Formulate HR policies and actions to produce these employee behaviorsd. Develop measures (metrics) to evaluate the HR department’s performance.

8. The HR Scorecard process has seven steps:a. Define the business strategyb. Outline the company’s value chainc. Identify the required organizational outcomesd. Identify the required workforce competencies and behaviorse. Identify the relevant HR system policies and activitiesf. Design the HR Scorecard measurement systemg. Evaluate the measurement system.

9. The HR Scorecard is a system showing the quantitative standards that a company uses to measure:a. HR activitiesb. Employee behaviors resulting from these activitiesc. The relevant organizational outcomes of those employee behaviors.

KEY TERMS


DISCUSS!1. What is the difference between a strategy and a mission? Give one example of each.2. Define and give at least two examples of cost leadership competitive strategy and differentiation

competitive strategy.3. Explain how HRM can help a company to create a competitive advantage.4. What is a high-performance work system? Discuss specific examples of the elements in a high-performance

work system.5. Define what an HR Scorecard is. Briefly explain each of the seven steps in the HR Scorecard approach to

create a strategy-oriented HR system.

INTERACT!ACTIVITY 1 With three or four other students, form a strategic management group for your college or university. Your assignment is to develop the outline of a strategic plan for the college or university. This should include details such as mission and vision statements; strategic goals; and corporate, competitive, and functional strategies. In preparing your plan, make sure to show the main strengths, weaknesses, opportunities, and threats the college faces, and which prompted you to develop your particular strategic plans.

ACTIVITY 2 Using the Internet or library resources, analyze the annual reports of five companies. Bring to class examples of how those companies say they are using their HR processes to help the company achieve their strategic goals.

ACTIVITY 3 Interview an HR manager and write a short report on the topic: “The strategic roles of the HR manager at XYZ Company.”

ACTIVITY 4 Using the Internet or library resources, bring to class and discuss at least two examples of how companies are using an HR Scorecard to help create HR systems that support the company’s strategic aims. Do all managers mean the same thing when they refer to “HR Scorecards”? How do they differ?

USE YOUR HR SKILLS!Siemens Builds a Strategy-Oriented HR SystemSiemens is a 150-year-old German company. Until recently, Siemens focused on producing electrical products. Today the company has diversified into software, engineering, and services. It is also global, with over 400,000 employees working in 190 countries. In other words, Siemens became a world leader by pursuing a corporate strategy that emphasized diversifying into high-tech products and services, and doing so on a global basis.

With a corporate strategy like that, global HRM plays a big role at Siemens. Sophisticated engineering and services require more focus on employee selection, training, and compensation than in the average company. Globalization requires delivering these services in many countries. Siemens sums up the basic themes of its HR strategy as follows:

1. A living company is a learning company The high-tech nature of Siemens’s business means that employees must learn on a continuing basis. Siemens

uses its system of combined classroom and hands-on apprenticeship training around the world to facilitate this. It also offers employees extensive continuing education and management development.

Acute in perception, sound in judgement


Laundry Company

A CONTINUING CASE IN EVERY CHAPTER...The high-performance work systemAs a fresh graduate and a person who reads business magazines, KK’s Consulting Manager Jen Ko is familiar with the benefits of programs such as total quality management and high-performance work system.

Her father Jak Ko has already installed a total quality program, and it has been in place for about five years. This program takes the form of employee meetings. Jak holds employee meetings periodically, particularly

2. Global teamwork is the key to developing and using all the potential of the company’s human resources Because it is important for employees throughout Siemens to work together, they must understand the

whole process, not just bits and pieces. To support this, Siemens provides extensive training and development. It also ensures that all employees feel they are part of a strong, unifying company. For example, HR uses cross-border, cross-cultural experiences as prerequisites for career advances.

3. A climate of mutual respect is the basis of all relationships—within the company and with society Siemens believes that the wealth of different nationalities, cultures, languages, and outlooks represented

by its employees is one of its most valuable assets. It therefore engages in numerous HR activities aimed at building openness, transparency, and fairness, and supporting diversity.

Questions1. Based on the information in this case, provide examples, for Siemens, of at least four strategically required

organizational outcomes, and four required employee competencies and behaviors.2. Identify at least four strategically relevant HR policies and activities that Siemens has introduced for

employees to contribute to achieve the company’s goals.3. Write a brief outline of a HR Scorecard for Siemens.

EXPERIENCE HR!Developing HR Strategy for StarbucksPurposeThe purpose of this exercise is to help you to develop an HR strategy for Starbucks or a similar food outlet.

Required understandingYou should be familiar with the material in this chapter, including the “AEH” HR strategy example and Figure 3.9.

Setting up the exerciseForm groups of three or four students for this exercise. You are probably already familiar with what it is like to have a cup of coffee or tea in Starbucks or a local coffee house. If not, spend some time in one before doing this exercise. Meet in groups and develop an outline for an HR strategy for Starbucks or your local coffee house. Your outline should include these four basic elements:1. A basic business competitive strategy for Starbucks2. Identify workforce requirements (in terms of employee competencies and behaviors) that this strategy

requires3. Specific HR policies and the activities necessary to produce these workforce requirements4. Suggestions for metrics they could use to measure the success of the HR strategy.


Endnotes1. Austero, Schubert (1996) “Strategic Human

Resource Management in the Philippines,” The Asian Manager, October-December, 8–10.

2. Becker, Brian, Huselid, Mark, and Ulrich, Dave. 2001. The HR Scorecard: Linking People, Strategy, and Performance. Boston: Harvard Business School Press.

when there is a serious problem in a store—such as poor quality work or machine breakdown. When problems like these arise, instead of trying to solve them himself or with Jen, he contacts all the employees in that store and discusses with them as soon as the store closes.

The meetings have been useful in helping Jak to identify and solve several problems. For example, in one store all the white blouses were coming out looking dirty. It was because the cleaner had ignored the company rule that required removing (by “boiling down”) the special cleaning fluid before washing items like these. As a result, these white blouses were being washed in a cleaning fluid that had dirt from earlier washes.

Jen was deliberating whether these employee meetings should be expanded to give the employees a bigger role in managing the company’s quality.

“We can’t be everywhere watching everything all the time,” she said to her father. “Yes, but will these people want to act like mini-managers?” he replied.

Questions1. Would you recommend that the company expand its quality program? If so, what form should it take?2. Assume the company wants to introduce a high-performance work system as a test program in one of the

stores. Write a one-page outline summarizing what the program would consist of.


Using the HR Scorecard Process

The 10-Step HR Scorecard ProcessThe 10 steps in the HR Scorecard process is shown in Figure 3.10 (partly adapted from Becker et al. 2001).2

HR Performance MeasuresTable 3.1 shows some performance measures. Measures like these serve two functions:

They help the company to assess the HR team’s performance.

They help the HR manager to build a measurable and persuasive business case.

HR ScorecardStrategy and Results—Hotel InternationalLet us see how this Scorecard process works by discussing the case of Hotel International (HI).

Starting as a single hotel in a Paris suburb in 1990, the HI now has a chain of hotels in major cities in Europe, Asia, and North America. As a corporate strategy, HI’s management and owners want to expand geographically. They believe that by doing so, they can capitalize on their reputation for good service. The problem is, their reputation for good service has not been very good. If they cannot improve service, it would be unwise to expand.

The StrategyThe top management team has chosen a new competitive strategy and formulates new goals. It has decided that: “Hotel International will use superior guest services to differentiate its hotels from competitors. The aim is to increase the length of stays and the return rate of guests in order to increase revenue and profit.” All HI managers—including the director of HR services— must now formulate strategies that support this corporate strategy.

What is an HR Scorecard?Management judges the HR function based on whether it creates value for the company and “value creation” means contributing in a measurable way to achieve the company’s goals. HR managers can create value by promoting activities that produce the employee behaviors the company needs to achieve its goals.

The question is: how does one outline these interrelationships, and attach measurable performance standards to each? Managers use HR Scorecard process to do this.

The HR Scorecard is a measurement system. It shows the quantitative standards or “metrics” that the company uses to measure:

HR activities Employee behaviors resulting from these activities Relevant organizational outcomes of those employee

behaviors.In so doing, it highlights the causal link between the HR activities, employee behaviors, and the resulting company-wide strategic outcomes and performance.

Information for Creating an HR ScorecardTo create an HR Scorecard, managers need three types of information:

They must know what the company’s strategy is, because the strategy will determine what the employee behaviors and important organizational outcomes are, and how the company will measure organizational performance.

Managers must understand the causal links between the HR activities, the employee behaviors, the organizational outcomes, and the organization’s performance. (Figure 3.10 summarizes the sequence involved.)

Managers need metrics to measure the HR activities, the employee behaviors, the relevant organizational outcomes, and the organizational performance.

A s discussed in an earlier section, the managers at Albert Einstein Hospital (AEH) used a simple and logical process to translate strategy into required HR policies and activities, and this is perfectly acceptable. However, many companies are now using a more rigorous method called the

HR Scorecard process. We explain that new approach here.

Figure 3.10Basic HR Scorecard Relationships

Emergent employeebehaviors

Strategically relevantorganizational

outcomes

Organizationalperformance

Achievestrategic goalsHR activities


Figure 3.11Ten Steps in the HR Scorecard. Approach to Formulating HR Policies, Activities, and StrategiesSource: © Gary Dessler, Ph.D.

Formulate BusinessStrategies

Identify Workforce Requirements

Formulate HR Policies and Practices

Develop Detailed “Scorecard” Measures

Summarize Scorecard measures in digital dashboard⑨

Identify the strategically relevant HR system policies and activites, such as new training and grievance systems

⑥

Define the business strategy①

Outline the company’s value chain activities②

Outline a strategy map③

Identify the strategically required organizational outcomes

④

Identify the required workforce behaviors⑤

Create HR Scorecard⑦

Design the HR Scorecard measurement system⑧

Periodically re-evaluate the measurement system⑩


The Value ChainBased on discussion with other managers, the HR Director Li has outlined the company’s value chain (see Figure 3.12). This should help her to identify HR activities that are crucial in helping the hotel achieve its goals. In a service business,

Source: Adapted from Brian Becker, Mark Huselid, and Dave Ulrich, The HR Scorecard (Boston: Harvard Business School Press, 2001), pp. 16–17, 63, 64, 66, 71. Copyright ©2001 by the Harvard Business School Publishing Corporation; all rights reserved.

Table 3.1 Sample HR Performance Measures

Sample measures for assessing employee competencies and behaviors, such as employee motivation and morale, and for assessing HR activities.

Employee attitude survey results

Employee turnover

Extent to which strategy is clearly articulated and well understood throughout the firm

Extent to which the average employee understands how his or her job contributes to the firm’s success

Level of cross-cultural teamwork

Level of organizational learning

Extent to which employees are clear about their own goals

Percentage of employees making suggestions

Employee productivity

Requests for transfer to supervisor

Extent to which the employees can describe the company’s core values

Employee commitment survey scores

Customer complaints/praise

Percentage of retention of high-performing key employees

Requests for transfer per employees

Percentage of employees making suggestions

Sample measures for assessing HR system activities such as testing, training, and reward policies and practices

Proportion of employees selected based on validated selection methods

Number of hours of training employees receive each year

Proportion of merit pay determined by formal performance appraisal

Percentage of workforce regularly assessed via a formal performance appraisal

Percentage of employees eligible for annual merit cash or incentive plans

Extent to which information is communicated effectively to employees

Percentage of workforce who received a performance feedback from multiple sources

Percentage of difference in incentive pay between the low-performing and high-performing employees

Percentage of the workforce routinely working in self-managed or cross-functional or project teams

Number of qualified applicants per position

Percentage of jobs filled from within

the “product” is satisfied guests. Producing satisfied guests requires attending to all activities along the hotel’s value chain that affect the guests’ experience.


For the hotel, there are: Inbound logistics activities such as getting guests from

the airport and having them checked in at the hotel. Operation activities such as cleaning guest rooms. Outbound logistics activities such as picking up

baggage and getting the guests checked out. Marketing activities to attract guests to the hotel Service activities that provide post-stay services, such

as travel awards to guests for multiple stays Other support activities, such as purchasing,

information systems, and HR.

The Required Organizational OutcomesThe hotel’s basic strategy is to use superior guest services to expand globally. Each step in the hotel’s value chain provides opportunities to improve guest service. For HR Director Li, it is clear that achieving the hotel’s aims means achieving the following organizational outcomes:

Fewer customer complaints More written compliments More guest returns and longer stays Higher guest spending per visit.

Relevant Workforce Competencies and BehaviorsThe question facing Director Li is this: What are the competencies and behaviors that the hotel’s employees must have, if the hotel wants to produce required organizational outcomes such as fewer customer complaints, more compliments, and more guest returns?

Going over the activities at each step in the hotel’s value chain helps her to answer that question.

For example, the required employee competencies and behaviors would include the following:

Provide high-quality front-desk customer service Take calls for reservations in a friendly manner Greet guests at the front door Process guests’ room service meals efficiently.

Relevant HR System Policies and ActivitiesThe HR Director’s task now is to introduce HR activities that will produce these crucial employee competencies and behaviors.

As one example, “high-quality front-desk customer service” is one such required behavior. From this, the HR

Figure 3.12Simple Value Chain for “Hotel International”

Guestreservations

Take calls by 3rd ring

Professional handling of questions

3-min. faxed reservation

Inboundguest

services

Airport pickup

Front door welcome & unloading

Quick frontdesk service

In-roomservices

Clean rooms

24-hour room service

200-channel TV

Amenities

5-star food & service

Expert personal trainers

24-hour pool

Marketing &sales

Advertising

Salesclerk training

Market research

Outboundguest services

In-room TV checkout

Fast frontdesk checkout

Airport vans every 10 min.

Bellhop service

Sample Primary Activities in the Hotel InternationalValue Chain

Human resource managementRecruitment, selection, training, appraisal, and compensation

General administrationGeneral management, accounting, safety, and maintenance

TechnologyComputer systems, phone and Internet systems, and TV services

Support

Activities


Figure 3.13HR Scorecard Process for Hotel International**Note: An abbreviated example showing selected HR practices and outcomes aimed at implementing the competitive strategy, “To use superior guest services to differentiate the Hotel International properties and thus increase the length of stays and the return rate of guests, and thus boost revenues and profitability and help the firm expand geographically.”

Annual revenuesPercent share ofmarket

Profit marginsand total annualprofits

Rankings inindustry servicesatisfactionsurveys

5. Strategicperformancemetrics(Are we achievingour strategic goals?)

4. Strategicallyrelevant customer and organizational outcomes metrics(How can we measure whether our customerservice is actually improving and having the desired effects?)

Guest servicesatisfaction index

Number of written guestcompliments and/orcomplaints per year

Various customer and Hotel International outcome metrics, including:frequency of guests’ returns; average length of stay; and guest expenditures per guest per stay

3. Strategically relevant emergent employee capabilities andbehaviors metrics(What skills and actions must our employees demonstrate if our company is to achieve its strategic goals?)

Employeeturnover

Employee morale Various employee service-oriented behavior metrics, including: percent calls answered with required greeting; speed of check in/out; percent room cleaning infractions; and percent guests receiving Hotel International required greeting on arrival

Employeeservicecommitment andengagementindex

Percentage ofemployeesscoring at least90% on HotelInternational core values quiz

2. Strategic HR activities metrics(What HR function should we focus on, and how should we measure its efficiency and effectiveness?)

Part I Introduction

Part II Recruiting and SelectingSuch as: no. of applicants; % of employees hired based on test

Part III Training and AppraisingSuch as: no. of hours training per employee; no. of employees appraised

Part IV CompensationSuch as: % of workforce eligible for merit pay

Part V Employee Relations and SafetySuch as: accident costs per year; no. of grievances per year

1. Hotel International basic strategic themes(What basic themes must we in HR pursue to help Hotel International achieve its strategic goals?)

Create service-oriented workforce

Embed core values Encourage personal employee growth and learning

Emphasize partnership and sense of ownership


Director identifies HR activities to produce such front-desk customer service efforts. For example, she decides to introduce practices to improve the disciplinary fairness in the company, with the aim of improving employee morale. Her assumption is that enhanced fairness will produce higher morale and that higher morale will produce better front-desk service.

HR ScorecardNext, the HR director creates an HR Scorecard. This shows the cause-and-effect links among the HR activities, employed behaviors, and the organizational outcomes (Figure 3.13 shows the overall HR Scorecard for Hotel International).

This scorecard and its linkages reflect certain assumptions on the HR Director’s part. For example, based on experience and discussion with the other managers, she formulates the following hypothesis about how HR affects hotel performance: Improved grievance procedures cause

improved morale, which leads to improved front-desk service, which in turn leads to increased guest returns, which finally leads to improved financial performance. The HR director then chooses metrics to measure each of these factors. For example, she decides to measure the following:

“improved disciplinary procedures” in terms of how many grievances employees submit each month

“improved morale” in terms of “scores on the hotel’s semiannual attitude survey”

“high-quality front-desk customer service” in terms of “customer complaints per month.”

She then quantifies the cause-and-effect links among these measures. If she can show the top management that there is a measurable, sequential link between improved disciplinary procedures, high morale, improved front-desk service, number of guest return visits, and the hotel’s profit, she has a strong case to say that HR has contributed to the hotel’s performance.

*Note: An abbreviated example showing selected HR practices and outcomes aimed at implementing the competitive strategy, “To use superior guest services to differentiate the Hotel International properties and thus increase the length of stays and the return rate of guests, and thus boost revenues and profitability and help the firm expand geographically.”

Table 3.2 Examples of HR System Activities the Hotel International can Measure as Related to Each Chapter in this Book

Chapter Strategic Activities Metrics

2. EEOC Number EEOC claims/year; cost of HR-related litigation; percent minority/women promotions

3. Strategy Percent employees who can quote company strategy/vision

4. Job Analysis Percent employees with updated job descriptions

5. Recruiting Number applicants per recruiting source; number qualified applicants/position

6. Testing Percent employees hired based on validated employment test

7. Interview Percent applicants receiving structured interview

8. Training Number hours training/employee/year; number hours training new employee

9. Appraisal Number employees getting feedback; percent appraisals completed on time

10. Career Mgmt. Percent employees with formal career/development plan

11. Compensation Target percentile for total compensation (pay in top 25 percent)

12. Incentives Percent workforce eligible for merit pay

13. Benefits Percent employees 80 percent satisfied with benefits

14. Ethics Number grievances/year; percent employees able to quote ethics code

15. Labor Relations Percent workforce in unions

16. Health and Safety Number safety training programs/year; $ accident costs/year; hours lost time due to accidents

17. Global Percent expatriates receiving predeparture screening, counseling

Overall HR Metrics HR cost/employee; HR expense/total expenses; turnover costs


How We Will Use the HR ScorecardIn reality, computerization enables the HR director to create a more comprehensive HR Scorecard than the one in Figure 3.13, one that might accommodate links among dozens of cause-and-effect metrics.

For example, with computerization, the HR director need not limit herself to assessing the effects of the handful of employee behaviors alone (such as percentage of calls answered on time) in Table 3.1. Instead, she could include metrics covering other activities, from recruitment and selection through training, appraisal, compensation, and labor relations. Her HR Scorecard model could also include the effects of these activities on a wide range

of employee competencies and behaviors, and on the company’s performance. In this way, her HR Scorecard would become a comprehensive model that adds value to the hotel performance.

We will use a “Strategy and Results—Hotel International Case” in the end-of-chapter material of each chapter starting with Chapter 4 to show how the hotel’s HR director uses the concepts and techniques from that chapter to create a HRM system that helps the hotel to achieve its strategic goals. Table 3.2 presents some of the metrics that the director could use to measure HR activities.


Part 1VIDEO CASESCASES

Video 1: Introduction to HRM and Strategic HRMVideo Title: ShowtimeShowtime Networks Corp operates cable networks and pay-per-view cable channels in several countries. As this video illustrates, its HR function supports corporate strategy by helping to determine what kind of employees are needed to keep the company in top performance, and then by providing employees with the HR activities that they need to do their jobs. For example, you will see that Showtime offers many development and training programs, as well as personal development type activities including mentoring programs and career-oriented development activities. The company’s performance management process (which the employees helped to develop) focuses specifically on the activities that help to achieve departmental and corporate goals.

In this video, Matthew, the firm’s CEO, emphasizes that it is essential to use HR as a strategic partner, and the video then goes on to provide a summary of the basic HRM functions.

Discussion Questions1. What evidence do you see in this video that HR at

Showtime helps the company to achieve its strategic goals?

2. What specific HR functions does the video mention?

3. Why do you think management at Showtime places such a heavy emphasis on personal development and quality of work issues such as open door policies, mentoring programs, and allowing employees to exchange jobs?

Video 2: Managing Equal Opportunity and DiversityVideo Title: IQ Solutions CorpIQ Solutions Corp is a company that provides health-care system services. The company uses its very diverse employee base to better serve and attract a broad client base. Employees at IQ Solutions work together in teams to achieve the company’s goals.

As we see in this video, the company itself is very diverse. For example, employees speak about 18 languages. The company capitalizes on this diversity in many ways. For example, they let employees share their ethnically unique holidays, and provide special training and other benefits that support diversity.

Discussion Questions1. To what extent does diversity management at IQ

Solutions Corp contribute to the company goals?2. Based upon what you read in this part of the book,

which diversity management programs can you identify in use at IQ Solutions Corp?

Learning ObjectivesAfter studying this chapter, you should be able to:

1. Discuss the nature of job analysis, what it is, and how it is used.

2. Know how to collect job analysis information, including interview, questionnaire, observation, and participant’s diary.

3. Write job descriptions, job summaries, and job specifications.

4. Explain what job analysis is, what it means, and how it is done in practice?

5. Explain what competence-based job analysis is.

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