Chapter Summary

2.1  Discuss the strategic planning process by classifying the major components of the external environment.

Strategic planning provides a process to evaluate our organization and its environment—both today and in the expected future—and determine what our organization wants to do to meet the requirements of that expected future. There are nine major external environmental forces that must be taken into account:

  • 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.
  • Labor force. The recruits available to, and the employees of, an organization have a direct effect on its performance. Management must recruit 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. Changing technologies require technologically savvy employees who have the ability to adapt to new processes.
  • The Economy. 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. To a large extent, a business may not do whatever it wants to do; the government tells business what it can and cannot do.

2.2 Discuss how visions, missions, and objectives help to define the organization’s strategy.

A strategy is a plan of action designed to achieve a particular set of objectives. Visions and mission statements help focus organizational activities on achieving the strategic goals of the organization. The vision is what we expect to become as an organization at a particular point in time in the future. The vision is who we are, what we stand for, what we believe in, and what we want to become. The mission is where we start to become specific. It lays out our expectations of what we’re going to do in order to become the organization that we have envisioned. When you put the vision and mission together, all the people in the organization get a more complete picture of the direction in which they are expected to go. Setting objectives creates targets that enable management to measure its progress at achieving its vision and mission and other goals.

2.3  Explain the three major generic strategies.

  • Cost Leadership—Cost leaders do everything they can to lower the internal organizational costs required to produce their products or services. This can give them a powerful edge in commodity product/service environments.
  • Differentiation—This strategy attempts to create an impression of difference for the company’s product or service in the mind of the customer. The differentiator company stresses its advantages to the customer over its competitors.
  • Focus/Niche—With this strategy, the company focuses on a specific portion, or segment, of a larger market. Within a particular target segment or market niche, the firm may use either a differentiation or a cost leadership strategy.

2.4  Summarize the importance of the major components of organizational structure.

Organizational structure refers to the way in which an organization groups its resources to accomplish its mission. Organizations structure their resources to transform inputs and outputs. All of an organization’s resources must be structured effectively to achieve its mission. As a manager in any department, you will be responsible for part of the organization’s structure.

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 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 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 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.

2.5  Discuss how organizational culture 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. Because 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.

2.6  Define data analytics by 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.

2.7  Identify how human resource management systems (HRMS) can help HR make decisions.

Human resource management systems (HRMS) 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.

HRMS 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.

2.8  Recall the common measurement tools for strategic 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.