2-1 Classify the major components of the external environment.

There are nine major external forces: customers, competition, suppliers, the labor force and unions, shareholders, society, technology, the economy, and governments. Each factor is briefly discussed below.

• Customers. Companies must continually improve products to create value for their customers.

• Competition. Organizations must compete against each other for customers, for the same employees, and sometimes for suppliers. Competitors’ changing strategic moves affect the performance of the organization.

• Suppliers. The firm’s performance is affected by its suppliers. Therefore, it is important to develop close working relationships with your suppliers, and close relationships require employees who have the ability to communicate, empathize, negotiate, and come to mutually advantageous agreements.

• Labor force. The recruits available to and the employees of an organization have a direct effect on its performance. Management recruits human resources from the available labor force outside the company’s boundaries.

• Shareholders. The owners of a corporation, known as shareholders, influence management. Most shareholders of large corporations are not involved in the day-to-day operation of the firm, but they do vote for the board of directors, and the top manager reports to the board of directors.

• Society. Individuals and groups within society have formed to pressure business for changes. People who live in the same area with the business do not want it to pollute the air or water or otherwise abuse natural resources.

• Technology. Computers and the Internet have changed the speed and the manner in which organizations conduct and transact business, and they’re often a major part of the firm’s systems processes. Changing technologies require technologically savvy employees who have the ability to adapt to new processes.

• Economic. No organization has control over economic growth, inflation, interest rates, foreign exchange rates, and so on. In general, as measured by gross domestic product (GDP), businesses do better when the economy is growing than they do during recessions.

• Governments. National, state, and local governments all set laws and regulations that businesses must obey. Governments create both opportunities and obstacles for businesses. To a large extent, business may not do whatever it wants to do; the government tells business what it can and cannot do.

2-2  Discuss the three major organizational factors that affect our strategic options.

Our strategic options are governed to a great extent by our current strategy, our organizational structure, and our culture. Strategy deals with how the organization competes within its industry. Strategy is just a plan of action to achieve a particular set of objectives. It looks at the external environment and the organizational environment to create strategic advantage. Strategic advantage occurs when you analyze the environment better and react quicker than your competitors do, thus creating a sustainable competitive advantage.

Organizational structure refers to the way in which an organization groups its resources to accomplish its mission. Organizations structure their resources

2-3 Summarize the major components of organizational structure and why it is important to understand them.

All of an organization’s resources must be structured effectively if it is to achieve its mission. Structure is made up of three major components:

• Complexity, which is the degree to which three types of differentiation exist within the organization. These three types are vertical differentiation, horizontal differentiation, and spatial differentiation. The more the organization is divided—whether vertically, horizontally, or spatially—the more difficult it is to manage.

• Formalization, which is the degree to which jobs are standardized within an organization. The more we can standardize the organization and its processes, the easier it is to control those processes.

• Centralization, which is the degree to which decision making is concentrated within the organization at a single point—usually at the top. A highly centralized organization would have all authority concentrated at the top, while a decentralized organization would have authority spread throughout. If authority can be centralized, we can take advantage of learning curve effects that help to improve our decision making over time.

2-4 Describe organizational culture and how it affects the members of the organization.

Organizational culture consists of the values, beliefs, and assumptions about appropriate behavior that members of an organization share. Organizational culture is primarily learned through observing people and events in the organization.

Because organizational culture is based at least partly on assumptions, values, and beliefs, the culture can control how people act within its boundaries. Since assumptions, values, and beliefs are such strong influences, individuals will generally act to conform to the culture. For the most part, we all act to conform to the culture that we happen to be in at any given point in time, and that’s because cultural values push us to act that way.

2-5 Define data analytics and explain how it helps organizations make important decisions.

Data analytics is the process of accessing large amounts of data in order to analyze those data and gain insight into significant trends or patterns within organizations or industries. Analytics tools and processes can be used to guide decision making for many HR functions, such as talent acquisition and management, training and development, work and job analysis, productivity analysis, motivation, retention, and engagement. Data analytics on a large scale, or big data, will change how people are managed within organizations, and ideally lead to increased performance of the organization.

2-6  Identify how human resource information systems (HRIS) can help HR make decisions.

Human resource information systems (HRIS) are interacting database systems that aim to generate and deliver HR information and allow us to automate some HRM functions. They are primarily database management systems, designed especially for use in HR functions.

HRIS allow us to maintain control of our HR information and make it available for use during the strategic planning process. Having this information immediately available makes the strategic planning process both quicker and smoother. We can also use the information stored in the database to make daily decisions within the HR department, such as a decision on whom to send to a particular training class. We can also use these databases when considering promotions, transfers, team assignments, and many other daily activities that are required inside the organization.

2-7 Recall the common measurement tools for strategic human resource management (HRM).

We discussed two common tools in this chapter: economic value added (EVA) and return on investment (ROI).

EVA is a measure of profits that remain after the cost of capital has been deducted from operating profits. ROI is a measure of the financial return we receive because of something that we do to invest in our organization or its people.

2-8 Define the key terms found in the chapter margins and listed following the Chapter Summary.

Complete the Key Terms Review to test your understanding of this chapter’s key terms.