Speaker 1: The strategy an organization follows is its plan for how to compete successfully, survive, and grow. Many organizations have a relatively formal process for developing a written strategy encompassing a certain period of time, with objectives and goals identified for each business unit. Strategic planning is the process of defining organizational strategy, or direction, and allocating resources, capital, and people towards its achievement. The strategic planning process involves several sequential steps that focus on the future of the firm. Here's the steps, mission, SWOT analysis, goals and objectives, and strategy. The strategic planning cycle typically covers a three to five year time frame, although some firms conduct long-term planning that can cover ten years or more. When formulating the strategic plan, management often considers both internal and external forces that affect a company, including the conditions that exist in the industry overall. The guiding force behind the strategic planning process is the organization's mission, which is the core reason for the existence of the organization. The mission statement is usually determined by what makes the organization unique. The planning process begins with an assessment of the current state of the business and the environmental forces that may be important during the strategic planning cycle. Analysis of strengths, weaknesses, opportunities, and threats, known as SWOT, is a common starting point because it allows managers to consider both internal and external conditions that the business face. Managers then determine the objectives for the planning cycle and formulate organizational-level strategies to accomplish those objectives. Each function within the organization, such as the HR department, then formulates strategies that link to and support the organization-level strategies. The strategic plan is re-evaluated periodically because conditions may change and managers must react to a fluid business environment. Organizational strategy often relies on managers who are willing to closely assess current conditions and develop a game plan that enables a firm to overcome obstacles and sustain success. Strategic HR management refers to the appropriate use of HR management practices to gain or keep a competitive advantage. Strategic HR management provides input for strategic planning and develops specific HR objectives that can help achieve organizational goals. Getting HR involved is the key, with one study finding that the participation of HR in strategic processes is enhanced as HR service quality and the expectations of the contributions of HR increase. An important element of strategic human resource management is creating processes in a company that help connect employee performance with strategic objectives. For instance, some contend that HR should be a strategic partner by providing aspirations to a company and functioning as an inspiration for strategic planning. The strategies developed by HR managers depend heavily on the plans and objectives created within an organization. HR departments need to be involved in strategic planning so that HR executives are aware of the overall strategic direction of the firm. Some common areas where HR can develop and implement appropriate strategies are creating HR policies at the top, middle, and lower levels of the firm that best match organizational strategies as well as developing metrics that will help determine how well strategies at the different levels are being met. HR leaders can provide their perspectives and expertise by doing the following, having a seat at the strategic table, being knowledgeable about business operations, focusing on the future, prioritizing business goals, and understanding what to measure. An important way that HR professionals can contribute to strategy is by introducing high-performance approaches into the workplace that lead to increased performance. Human resource planning is the process of analyzing and identifying the need and availability of people so that the organization can meet its strategic objectives. The human resource planning process includes four distinct steps. Let's take a look at each. The focus of HR planning is ensuring that the organization has the right number of people with the right capabilities at the right times and in the right places. It's a four-step planning process that includes reviewing, assessing, forecasting, and taking action on human resource needs. Notice that the process begins with considering the organizational plans and environmental analysis that went into developing strategies. The process includes an environmental analysis to identify the context in which HR is operating. Strengths, weaknesses, opportunities, and threats are considered. Then the possible available workforce is evaluated by identifying both the internal and external workforce. Once those assessments are complete, forecasts must be developed to determine both the demand and supply of human resources. Management then formulates HR staffing plans and actions needed to address imbalances in both the short and the long term. Particular strategies may be developed to fill vacancies or to deal with surplus employees. Finally, HR plans are developed to provide specific direction for the management of HR activities related to recruiting, selecting, and retaining employees. The most telling evidence of successful HR planning is the consistent alignment of the availabilities and capabilities of human resources with the needs of the organization over a considerable period of time. Human capital solutions are also available that enable HR managers to identify how to develop talent to allow the organization to reach its strategic goals. Forecasting uses information from the past and the present to predict future conditions. Forecasting methods may be either judgmental or mathematical. Methods for forecasting human resources range from a manager's best guess to rigorous and complex computer simulation. Despite the availability of sophisticated judgmental and mathematical models and techniques, forecasting is still a combination of quantitative methods and subjective judgment. HR forecasting should be done over three planning periods, short, intermediate, and long range. The most commonly used planning period of six months to one year focuses on short-range forecasts for the immediate HR needs of an organization. Intermediate and long-range forecasting are more difficult processes. Intermediate-range plans usually project one to three years into the future and long-range plans extend beyond three years. The demand for employees can be calculated for an entire organization and or individual units of that organization. Demand for human resources can be forecast by considering specific openings that are likely to occur. The openings, or demands, are made when new jobs are created or current jobs are changed. Once HR needs have been forecast, the availability of qualified individuals must be determined. Forecasting availability considers both external and internal supplies. Although the internal supply may be somewhat easier to calculate, it's important to calculate the external supply as accurately as possible. The external supply of potential employees available to the organization can be identified. Government estimates of labor force populations, trends in the industry, and many more complex and interrelated factors must be considered. Estimating internal supply considers the number of external hires and the employees who move in their current jobs into other positions, lateral moves, or demotions. It also considers the internal supply is influenced by transfer and promotion policies as well as retirement policies, among other factors. A talent surplus can be managed with strategic HR plans in a number of ways. The reasons for the surplus will guide the ultimate steps taken by the organization. If the workforce has the right qualifications but sales revenue has fallen, the primary strategies would involve retaining the best workers and cutting costs. However, if the workforce is not appropriately trained for the jobs needed, the organization may lay off those employees who cannot perform the work. Managing a shortage of employees seems simple enough, just hire more people. However, there can be mismatches between the qualifications needed by employers and the skills possessed by available workers. So positive HR planning can be a source of competitive advantage for organizations. This is true because planning helps companies identify their future needs and how to get the right employees to satisfy those needs, thus making the hiring process more efficient. HR metrics are specific measures of HR practices. Metrics are typically used to assess HR practices and results within an organization over time. A metric can be developed using cost, quantity, quality, timeliness, or other designated goals. Metrics can be developed to track HR efficiency and effectiveness. HR and line managers collect and share the data needed to track performance. Data to track these measures comes from several sources within the organization. The real value in using metrics comes from the interpretation of the data that can lead to improvements in HR practices. Information and historical data are studied to determine the reasons for current performance levels and to learn how to improve these levels in the future. Analytics involve using various metrics and complex modeling techniques to answer questions about HR functions. HR analytics can be defined as an evidence-based approach to making HR decisions on the basis of quantitative tools and models. The following should be considered when developing HR metrics and analytics. Accurate data can be collected. Measures are linked to strategic and operational objectives. Calculations can be clearly understood. Results can be compared both externally and internally. And measurement data drives HR management efforts. Unlike financial reporting, there's not yet a standard for the implementation of reporting HR measures. Managers choose what and how to report to employees, investors, and other interested parties. Benchmarking is the process of comparing an organization's business results to industry standards or best practices. When implementing benchmarking, managers should be careful to find organizations with similar contexts, cultures, operations, and size so that comparisons are realistic. While benchmarking helps a firm compare its results to those of other organizations, it does not provide the reasons behind the findings. Thus, benchmarking is only a starting point, not the end point, for improving HR practices. The Balance Scorecard is a framework organizations use to report on a diverse set of performance measures. This method balances financial and non-financial measures so that managers focus on long-term drivers of performance and organizational sustainability. As shown here, the Balance Scorecard measures performance in four areas – customer relations, financial measures, learning and growth activities, and internal business processes. Customer relations is about customer satisfaction, loyalty, and retention, which are important to ensure that the organization is meeting customer expectations and can depend on repeat business from its customers. Traditional financial measures such as profit and loss, operating margins, utilization of capital, return on investment, and return on assets are needed to ensure that the organization manages its bottom line effectively. Learning and growth activities refer to employee training and development, mentoring programs, succession planning, and knowledge creation and sharing, providing the necessary talent and human capital pools to ensure the future of the organization. Internal business processes refer to the product and service quality, efficiency, and productivity. Conformance with standards and cycle times can be measured to ensure that the operation runs smoothly and efficiently. Results in each of these four areas determine if the organization is progressing towards its strategic objectives. Measuring the benefits of human capital is equally important because it shows how effective HR practices help an organization and its employees. Revenue per employee is a basic measure of human capital effectiveness. It's a measure of employee productivity and shows the revenue generated by each full-time employee. The measure is commonly used in government reporting – see the Bureau of Labor Statistics or BLS on the internet – as well as many other organizations to track productivity over time. If revenues increase but employee headcount remains constant, productivity will increase. A widely used financial element that can be applied to measure the contribution and cost of HR activities is return on investment, a calculation showing the value of investments in human capital. It can also be used to show how long it will take for the activities to show results. The following formula can be used to calculate potential ROI for a new HR practice. Take the anticipated benefits minus the total development cost and divide it by the total development cost of the program. Human Capital Value Added or HCVA is an adjusted operating profitability figure calculated by subtracting all operating expenses except labor expenses from revenue and dividing by the total full-time headcount. It shows the operating profit per full-time employee. Because labor is required to generate revenues, employment costs are added back into operating expenses. Human Capital Return on Investment or HCROI directly shows the amount of profit derived from investments in labor, which represents the leverage the company has on labor cost. The formula for HCROI uses the same adjusted operating profitability figure as was used in HCVA, but it's divided by the total human capital cost. Human Economic Value Added or HEVA shows the wealth created per employee. It shows how much more valuable the organization has become because of its investment in human capital. A variety of financial measures can be assessed to show the contribution human capital makes to organizational results. Without such measures, it would be difficult to know what's going on in an organization, identify performance gap, and provide feedback. Managers should require the same level of rigor in measuring HR practices as they do for other functions of an organization.