Strategic Human Resource Management

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Strategic Human Resource Management

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Identify factors to be considered in forecasting the supply and demand for human resources in an organization. Discuss several ways to manage a surplus of human resources. Identify what a Human Resource Information System (HRIS) is and why it is useful when doing HR planning. Discuss why Human Resources can be a core competency for organizations. Define HR planning, and outline the HR planning process. Specify 4 important HR benchmarking measures. Learning Objectives After reading this you should be able to:

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Human Resource as a Core Competency. Strategic Human Resource Management Organizational use of employees to gain or keep a competitive advantage against competitors. Core Competency A unique compatibility in the organization that creates high value and that differentiates the organization from its competition.

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Human Resources Possible HR Areas For Core Competencies Productivity Special Skills Unusual Quality Innovation Outstanding Service

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HR-Based Core Competencies Organizational Culture The shared values and beliefs of the workforce Productivity A measure of the quantity and quality of work done, considering the cost of the resources used. A ratio of the inputs and outputs that indicates the value added by an organization. Quality Products and Services High quality products and services are the results of HR-enhancements to organizational performance.

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Care and Concern Timely Assistance Confidence in Employees’ Knowledge Dependable and Accurate Performance Customer Service Dimensions Physical Facilities and Equipment Service Excellence

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Factors That Determine HR Plans

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Linkage of Organizational and HR Strategies Cost Leadership Organizational Strategy Differentiation Efficiency Stability Cost Control Strategic Focus Growth Innovation Decentralization Long HR planning horizon Build skills in existing employee Job and employee specialization efficiency HR Strategy Shorter HR planning horizon Hire the HR capabilities needed Broader, more flexible jobs and employees Promote from within Extensive training Hire and train for specific capabilities HR Activities External staffing Less training Hire and train for broad competencies

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Human Resource (HR) Planning The process of analyzing and identifying the need for and availability of human resources so that the organization can meet its objectives. Human Resource Planning HR Planning Responsibilites Top HR executive and subordinates gather information from other managers to use in the development of HR projections for top management to use in strategic planning and setting organizational goals.

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HR Unit Participates in strategic planning process for entire organization Managers Identify supply-and-demand needs for each division and/or department Identifies HR strategies Designs HR planning data systems Compiles and analyzes data from managers on staffing needs Review/discuss HR planning information with HR specialists Integrate HR plan with departamental plans Typical Division of HR Responsibilities in HR Planning Implements HR plan as approved by top management Monitor HR plan to identify changes needed Review employee succession plans associated with HR plan

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Human Resource Planning (continued) Small Business and HR Planning Issues Attracting and retaining qualified outsiders Management succession between generations of owners Evolution of HR activities as business grows Family relationships and HR policies

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HR Planning Process

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HR Planning Process HR Strategies The means used to anticipate and manage the supply of and demand for human resources. Provide overall direction for the way in which HR activities will be developed and managed.

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Benefits of HR Planning Better view of the HR dimensions of business decisions Lower HR costs through better HR management More timely recruitment for anticipated HR needs More inclusion of protected groups through planned increases in workforce diversity Better development of managerial talent

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Scanning the External Environment Environmental Changes Impacting HR Governmental regulations Economic conditions Geographic and competitive concerns Workforce composition Environmental Scanning The process of studying the environment of the organization to pinpoint opportunities and threats.

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Employers’ Use of Part-Time Workers

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What jobs will be needed to implement future organizational strategies? What are the characteristics of anticipated jobs? How will the anticipated open positions be filled? What jobs exist now? How many individuals are performing each job? How essential is each job? Internal Assessment of the Organizational Workforce Auditing Jobs and Skills

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Internal Assessment of the Organizational Workforce Organizational Capabilities Inventory HRIS databases – sources of information about employees’ knowledge, skills, and abilities (KSAs) Components of an organizational capabilities inventory Workforce and individual demographics Individual employee career progression Individual job performance data

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Forecasting The use of information from the past and present to identify expected future conditions. Forecasting HR Supply & Demand Forecasting Methods Judgmental Estimates – asking managers’ opninions, top-down or bottom-up Rules of thumb – using general guidelines Delphi technique – asking a group of experts Nominal groups – reaching a group concensus in open discussion Mathematical Statistical regression analysis – Simulation models Productivity ratios – units produced per employee Staffing ratios – estimates of indirect labor needs Forecasting Periods Short –term – less than one year Intermediate – up to five years Long-range – more than five years

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Forecasting Methods Judgmental Methods Estimates Rule of thumb Delphi technique Nominal groups Mathematical Methods Statistical regression analysis Simulation models Productivity factors Staffing ratios HR Demand and Supply Forecasts

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Forecasting The Supply For Human Resources Forecasting External HR Supply Factors affecting external External Supply Forecasting HR Supply & Demand Internal Supply Forecasting The Demand For Human Resources Organization – wide estimate for total demand Unit breakdown for specific skill needs by number and type of employee Develop decision rules (“fill rates”) for positions to be filled internally and externally. Develop additional decision rules for positions impacted by the chain effects of internal promotions and transfers. Net migration for an area Individuals entering and leaving the workforce Individuals graduating from schools and colleges Changing workforce composition and paterns Economic forecasts Technological developments and shifts Actions of competing employers Government regulations and pressures Other factors affecting the workforce

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Forecasting HR Supply & Demand Forecasting Internal HR Supply Effects of promotions, lateral moves, and terminations Succession analysis Replacement charts Transition matrix (Markov matrix) Exit Manager Supervisor Line Worker Manager .15 .85 .00 .00 Supervisor .10 .15 .70 .05 Line Worker .20 .00 .15 .65

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HR Planning Process

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Managing Human Resource Surplus or Shortage Workforce Reductions and the WARN Act Identifies employer requirements for layoff advance notice. 60-day notice to employees and the local community before a layoff or facility closing involving more than 50 people. Does not cover part-time or seasonal workers. Imposes fines for not following notification procedure. Has hardship clauses for unanticipated closures or lack of business continuance capabilities. Workforce Realignment “ Downsizing”, “Rightsizing”, and “Reduction in Force” (RIF) all mean reducing the number of employees in an organization. Causes Economic – weak product demand, loss of market share to competitors Structural – technological change, mergers and acquisitions Positive consequences Increases competitiveness Increased productivity Negative consequences Cannibalization of HR resources Loss of specialized skills and experience Loss of growth and innovation skills Managing survivors Provide explanations for actions and the future Involve survivors in transition/regrouping activities

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Managing Human Resource Surplus or Shortage Downsizing Approaches Attrition and hiring freezes Not replacing departing employees and not hiring new employees Early retirement buyouts. Offering incentives that encourage senior employees to leave the organization early. Layoffs Employees are placed on unpaid leave until called back to work when business conditions improve. Employees are selected for layoff on the basis of their seniority or performance or a combination of both. Outplacement services provided to displaced employees to give them support and assistance: Personal career counseling Resume preparation and typing services Interviewing workshops Referral assistance Severance payments Continuance of medical benefits Job retraining

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Dealing With Downsizing Investigate alternatives to downsizing Involve those people necessary for success in the planning for downsizing Develop comprehensive communications plans Nurture the survivors Outplacement pays off

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Worker’s compensation per employee Absenteeism rates Turnover rates HR expense per employee Compensation as a percent of expenses HR department expense as a percent of total expenses Assessing HR Effectiveness Diagnostic Measures of HR Effectiveness Cost of hires

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Overview of the HR Evaluation Process

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Assessing HR Effectiveness HR Audit A formal research effort that evaluates the current state of HR management in an organization Audit areas: Legal compliance (e.g., EEO, OSHA, ERISA, and FMLA) Current job specifications and descriptions Valid recruiting and selection process Formal wage and salary system Benefits Employee handbook Absenteeism and turnover control Grievance resolution process Orientation program Training and development Performance management system

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HR Research The analysis of data from HR records to determine the effectiveness of past and present HR practices. Primary Research Research method in which data are gathered first-hand for the specific project being conducted. Secondary Research Research method using data already gathered by others and reported in books, articles in professional journals, or other sources. Using HR Research For Assessment

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Benchmarking Comparing specific measures of performance against data on those measures in other “best practice” organizations HR Performance & Benchmarking Common Benchmarks Total compensation as a percentage of net income before taxes Percent of management positions filled internally Dollar sales per employee Benefits as a percentage of payroll cost

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Doing The Benchmarking Analysis Return On Investment (ROI) Calculation showing the value of expenditures for HR activities. A = Operating costs for a new or enchanced system for the time period B = One-time cost of acquisition and implementation C = Value of gains from productivity improvements for the time period

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HR Business Performance Calculations HR Performance Area Method Of Calculation 1. CEO’s priority numbers Whatever CEO sees as linked to organizational strategic goals 2. Human value added Revenue Operating expense Pay and benefits =Adjusted profit + Full-time-equivalent employees 3. Return on human capital invested Revenue Operating expense Pay and benefits =Adjusted profit + Pay and benefits 4. Time to fill openings Total calendar days from each requisition to accepted offer/Number of openings filled 5. Turnover Cost Cost to terminate + Cost to hire + Vacancy cost + Production loss = Total + Employees lost 6. Volunteer turnover rate Total voluntary employee separations + Total employees 7. Return on training (Dependent upon type of training done) 8. Cost per employee hired Advertising expenses + Agency fees + Employee referral bonuses + HR recruiters pay and benefits + 10% misc. costs = Total + Total number of employees hired 9. Pay and benefits as % of operating expense Total pay and benefits expenditures + Total operating expenses 10. Healthcare costs per employee Total healthcare benefits expenses + Total number of employees

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Doing the Benchmarking Analysis Economic Value Added (EVA) A firm’s net operating profit after the cost of capital (minimum rate of return demanded by the shareholders) is deducted. Cost of capital is the benchmark for returns for all HR activities. Utility Analysis Analysis in which economic or other statistical models are built to identify the costs and benefits associated with specific HR activities

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Human Resource Information Systems Human resource information systems (HRIS) An integrated system of hardware, software, and databases designed to provide information used in HR decision making. Benefits of HRIS Administrative and operational efficiency in compiling HR data Availability of data for effective HR strategic planning Uses of HRIS Automation of payroll and benefit activities EEO/affirmative action tracking

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Uses of an HR Information System (HRIS)

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To what uses will the information be put? What information available and what information is needed? Designing And Implementing An HRIS What output format compatibility with other systems is required? HRIS Design Issues When and how often will the information be needed? Who will be allowed access to the information?

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Intranet An organizational (internal) network that operates over the internet. Extranet An Internet-linked network that allows employees access to information provided by external entities. Web-based HRIS Uses Bulletin boards Data access Employee self-service Extended linkage Accessing The HRIS

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Credits: SECTION 1 – Nature of Human Resource Management © 2003 Southwestern College Publishing. All Rights Reserved. Team SUCCESS

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