Module_1-2-3-4_Strategic HR.pdf

# Evolution and definition of strategic human resource management This topic explores the historical transformation of Human Resource Management (HRM) from administrative duties to a strategic function, driven by factors like technological advancements and globalization, and defines the core elements of Strategic HRM (SHRM). ### 1.1 From human resource management to strategic human resource management Human Resource Management (HRM) has evolved significantly, moving from a role focused on administrative tasks to one that is central to organizational strategy and success. Historically, HR primarily handled administrative duties such as payroll, attendance, and compliance, with limited strategic input. However, as organizations recognized the crucial link between human capital and performance, HRM transformed into a strategic partner. In the contemporary context, HR professionals collaborate with senior leadership to develop and implement strategies for talent acquisition, retention, performance management, and succession planning, aligning HR practices with overarching organizational goals to foster innovation, diversity, and employee engagement [1](#page=1) [2](#page=2). #### 1.1.1 Drivers of evolution Several factors have propelled HRM’s evolution into a strategic function [2](#page=2). * **Technological Advancements:** Proliferation of HRIS (Human Resource Information Systems) and AI-driven analytics tools have automated processes, enabled data-driven decision-making, and facilitated predictive analytics. This has empowered HR to focus on strategic workforce planning, talent development, and organizational transformation rather than administrative tasks [2](#page=2). * **Globalization:** As organizations expand internationally, HR must manage diverse workforces, navigate complex legal and cultural environments, and ensure compliance with international labor standards. This global perspective necessitates more inclusive and culturally sensitive approaches to talent management, diversity, inclusion, and employee relations [2](#page=2). #### 1.1.2 Challenges and opportunities The evolution of HRM presents new challenges and opportunities [2](#page=2). * **Rapid Technological Change:** HR practitioners need continuous upskilling to adapt to new tools and platforms. * **Data Analytics:** The increasing emphasis on data analytics and evidence-based HR practices requires a more data-driven mindset within HR departments. * **Changing Employment Models:** The rise of remote work, the gig economy, and flexible employment arrangements necessitate navigating these trends while maintaining organizational culture, employee morale, and productivity [2](#page=2). #### 1.1.3 The future of human resource management The definition of HRM has moved beyond older conceptions, such as Daft's 2008 definition which described HRM as "the attainment of organizational goals in an effective and efficient manner through planning, organizing, leading and controlling human resources, while respecting the reciprocal relationship between individual and organisation". Future HRM will continue to evolve, with HR professionals acting more strategically to drive organizational agility, resilience, and innovation. They will leverage technology, data analytics, and digital platforms to attract, develop, and retain talent in a competitive global market. Furthermore, HR leaders will focus on holistic employee well-being, encompassing physical, mental, and emotional health through wellness programs, work-life balance initiatives, and diversity, equity, and inclusion efforts [2](#page=2) [3](#page=3). #### 1.1.4 Ulrich's "Go outside" theory Dave Ulrich's "Go outside" theory outlines the evolution of HR thinking since the 1930s in four waves [3](#page=3): * **Wave 1: Administration:** Focus on managing processes, terms and conditions, and labor contracts. * **Wave 2: HR Practices:** Shift to a set of HR practices focusing on staffing, training, and compensation, with an emphasis on effectiveness. * **Wave 3 (since 2000): HR Strategy:** Connects HR practices to business success through HR strategy. * **Wave 4: External Business Conditions:** Utilizes HR practices to respond to external business conditions, viewing strategy as a "window" rather than a "mirror," encouraging HR to look outside the company for better job performance [3](#page=3). #### 1.1.5 Amstrong's definition of strategic HRM Around 2010, Michael Amstrong's definition encompassed this evolving thinking: "Strategic HRM is an approach that defines how the organisation’s goals will be achieved in the context, through people, by means of integrated HR strategies, policies and practices" [3](#page=3). * **Strategy:** Refers to the organization's intentions and how it plans to achieve its objectives [3](#page=3). * **HR strategies:** Define the direction HRM intends to pursue [3](#page=3). * **HR policies:** Provide guidelines for applying and implementing values, principles, and strategies in specific situations [3](#page=3). * **HR processes:** Formal procedures and methods used to implement HR strategic plans and policies [3](#page=3). > **Tip:** A policy is a practice that has been carefully considered and then formalized, such as a formal guideline on email usage after thinking through its implications [4](#page=4). ### 1.2 Strategic human resource management Strategic HRM differs from traditional HRM by incorporating three key elements that elevate its function beyond mere administrative necessity or legal compliance [4](#page=4). #### 1.2.1 Core elements of strategic HRM Strategic HRM is characterized by the following three main elements: 1. **Partner in organizational success:** SHRM is viewed as a contributor to achieving organizational goals, rather than just a necessity for legal compliance or compensation [4](#page=4). 2. **Interdepartmental interaction:** SHRM practitioners do not operate in silos. They collaborate with other departments to understand their goals and develop strategies that align with both departmental and overall organizational objectives. Consequently, the HR department's goals directly reflect and support those of the rest of the organization [4](#page=4). 3. **Leveraging talent and opportunity:** SHRM utilizes the talent and opportunities within the HR department to enhance the strength and effectiveness of other departments [4](#page=4). #### 1.2.2 Inside-out vs. outside-in perspectives Traditional HRM often has an "inside-out" focus, emphasizing internal operations and employee needs, acting primarily as an employee champion. In contrast, Strategic HRM adopts an "outside-in" perspective, aligning HR with the organization's overall mission, vision, values, and goals [5](#page=5). > **Example:** An example of a lack of horizontal strategic fit in HRM would be implementing a remote work policy while employees are still evaluated based on the number of hours they spend physically in the office [5](#page=5). #### 1.2.3 Strategic fit in business HRM is considered a partner working in service of organizational goals and successes. Strategic fit in business refers to how effectively different business sections work together and complement each other to achieve competitive advantage and success. Wright and McMahan identified two dimensions of strategic fit in SHRM [5](#page=5): * **Vertical fit:** Linking HRM practices with the organization's strategic management processes [5](#page=5). * **Horizontal fit:** Emphasizing the coordination and congruence among various HRM practices [5](#page=5). --- # Strategic fit and the external environment in HRM This section explores the crucial role of strategic fit, encompassing both vertical and horizontal dimensions, within Human Resource Management (HRM) practices, alongside the necessity of strategic flexibility and an 'outside-in' approach in navigating a VUCA world and engaging with stakeholders. ### 2.1 Partner in organisational success HRM functions as a partner in organizational success by aligning its practices with overarching organizational goals, mission, vision, and values. This strategic role requires HRM to achieve fit in two key dimensions: vertical and horizontal [5](#page=5). #### 2.1.1 Vertical strategic fit Vertical strategic fit refers to the linkage between HRM practices and the organization's strategic management processes. This means ensuring that HR activities directly support and contribute to the achievement of the company's strategic objectives [5](#page=5). #### 2.1.2 Horizontal strategic fit Horizontal strategic fit emphasizes the coordination and congruence among various internal HRM practices. All HR practices should work together cohesively to support the overall organizational strategy [5](#page=5). > **Example of a lack of horizontal strategic fit:** Implementing a work-from-home policy while simultaneously evaluating employees based on the number of hours spent physically in the office demonstrates a misalignment between HR practices [5](#page=5). #### 2.1.3 Strategic flexibility Strategic flexibility is defined as an organization's ability to adapt and respond to changes in its competitive environment. The nature of the environment influences the required flexibility strategy [6](#page=6). > **Example of strategic flexibility:** In a stable environment, organizations might focus on developing employees with specialized skills and narrow knowledge bases with tight job descriptions. Conversely, in a dynamic and unpredictable environment, organic HR systems are favored to cultivate a human capital pool with diverse skills capable of engaging in a wide range of behaviors [6](#page=6). #### 2.1.4 Importance of strategic fit Strategic fit is crucial for several reasons: * **Competitive advantage:** By aligning resources, capabilities, strategies, objectives, and the external environment, companies can gain a sustainable market edge. This can be achieved through elements like company culture, reputation, innovation, technology, location, employee expertise, and quality [6](#page=6). * **Improved decision-making:** A clear understanding of company goals and objectives enables decision-makers to allocate resources and develop strategies more effectively [6](#page=6). * **Enhanced operational efficiency:** Aligning company processes and procedures with the overall strategy helps minimize waste and maximize efficiency [6](#page=6). > **Example of aligned HR processes:** Various HR processes that can be aligned with the overall strategy include recruitment, selection, retention, onboarding, offboarding, training and development, employee relations (focused on engagement and retention), compensation and benefits, handling employee requests, performance management, regulatory compliance, HR planning (balancing long- and short-term staffing with business goals), and HR process automation. Employee engagement signifies the level of employee investment in the company, while employee retention focuses on job satisfaction measures [6](#page=6). * **Unified culture:** Ensuring all employees understand company goals and objectives fosters a collaborative environment leading to improved morale and productivity [7](#page=7). #### 2.1.5 Applying strategic fit in HRM Strategic fit can be applied to various areas within HRM to align HR processes with business strategy. This ensures the recruitment and selection of individuals possessing the necessary skills and abilities to support organizational strategies [7](#page=7). | HR process & practices | Examples | Vertical fit? | Horizontal fit? | | :----------------------------------------- | :--------------------------------------------------------------------------------- | :------------------------------------------------ | :----------------------------------------------------------------------------------------------------------- | | Training & development | Tailored trainings based on exact job analysis (e.g., Excel advanced for logistic planner) | Yes, link with job descriptions | | | Compensation | Pay differences based on pay for performance (e.g., individual + team bonus) | Yes, link with performance management | | | Labor relations | Aligning communication frequency with labor relations to decisions taken by management team (e.g., Every Monday communication to labor reps after Top Management meeting) | Yes, link to management team | | | Performance management | Performance led by management by objectives (MBO) (e.g., Objectives reached get max. score) | Yes, link to organizational objectives | | | Staffing | Promotion based on rules, selection based on motivation and fit with company values (e.g., promotion after 3 yrs in job + have necessary skills + good performance) | Yes, link to company values | Yes, link with competency management (skills) and performance management (promotion) | ### 2.2 Outside-in: It's a VUCA world The external context, characterized by volatility, uncertainty, complexity, and ambiguity (VUCA), significantly influences organizational strategy. Internally, leaders require vision, understanding, clarity, and agility (VUCA Prime) to guide the organization and its employees [8](#page=8). ### 2.3 A connected mindset A connected mindset is the third element of truly strategic HRM. This involves being present and aware of others, fostering meaningful connections that enhance well-being and build relationships. Organizations are increasingly interconnected, evolving into network structures where individuals are linked to each other and their stakeholders, even across organizational boundaries. Leaders must be present to cultivate a culture where employees feel connected to each other and the organization's vision [10](#page=10). ### 2.4 Connecting with stakeholders To be truly strategic, HR professionals must identify and connect with relevant stakeholders from an 'outside-in' perspective. The specific stakeholders to engage with will depend on the situation, such as a project or a market change [12](#page=12). --- # HR value creation and strategic planning This topic explores how Human Resources can generate organizational value by understanding business context and adopting different planning approaches [13](#page=13) [14](#page=14). ### 3.1 Building a future strategic HR (Ulrich) Dave Ulrich outlines a future direction for HR that emphasizes creating and adding value from an "outside-in" perspective. This approach involves understanding administrative functions (wave 1), HR practices (wave 2), their connection to strategy (wave 3), and ultimately, their link to the external business environment (wave 4). The core of this future strategy is to define HR targets and objectives based on the business context and stakeholders. HR work then operates on three levels: individual abilities (talent), organizational capabilities (culture), and leadership (teams), supported by HR budgets and investments in people and data [14](#page=14). ### 3.2 How can HR add value? #### 3.2.1 The paradox of HR The existence and necessity of HR departments are sometimes questioned, with some suggesting companies no longer need them. Statistics indicate a trend of increasing HR professionals per employee in the U.S. In the Netherlands, the ratio of employees per HR Full-Time Equivalent (FTE) was 74 in 2019, with larger organizations and certain sectors like services, production, and transport having more employees per HR FTE than the government [15](#page=15) [16](#page=16). #### 3.2.2 Defining the value of HR The value of HR is primarily defined by the receiver, not the giver. HR professionals add value when their work assists others in achieving their goals, with the outcome of actions being more critical than the design of programs or policies. In resource-scarce environments, non-value-adding activities should be discontinued. The HR value proposition asserts that HR practices, departments, and professionals deliver positive outcomes for key stakeholders, including employees, line managers, customers, and investors [16](#page=16). > **Tip:** The greatest challenge HR faces is often still being consumed by administrative and practice-oriented HR questions, rather than focusing on the outcomes they create for others. A shift to an "outside-in" approach means focusing on what HR creates for others, including key stakeholders, emphasizing outcomes and the broader business context. This is referred to as "so that 2.0" thinking. HR professionals should build credibility with line managers and top management to achieve better alignment and help the business reach its goals, thereby anticipating and responding to external business conditions and delivering value to customers and investors. This approach moves HR from an inside-out to an outside-in perspective, aligning internal services with external expectations and helping to shape business strategy [16](#page=16). > **Example:** For an innovative software company of 100 people, redesigning the recruiting policy to create value would involve recruiting individuals with an innovative mindset and strong product expertise aligned with the business strategy. Including customers in the recruiting process could provide insights into desired software features and customer service expectations [17](#page=17). The HR value proposition states that HR practices, departments, and professionals produce positive outcomes for key stakeholders: employees, line managers, customers, and investors. It also emphasizes that HR services offered internally should align with external expectations, that HR transforms practices to create external value, that HR helps shape strategy rather than just responding to it, and that HR professionals understand their business context and key stakeholders [17](#page=17). Chris Ruisi suggests HR should: * Shift from discussing limitations to highlighting capabilities, adopting a positive business partner mindset rather than a "policeman" role [18](#page=18). * Focus on goals and the path forward, rather than worrying about who knows what they do [18](#page=18). * Avoid making excuses or blaming others [18](#page=18). HR professionals should perceive themselves as business professionals who happen to work in HR, with a broader and focused view of necessary actions [18](#page=18). #### 3.2.3 HR business context Beyond focusing on employees (morale, commitment, competence, retention), HR professionals must be aware of and understand five key business realities within organizations [18](#page=18): * **The customers:** What drives their purchasing decisions and loyalty? (Focus on retention, satisfaction, and commitment) [18](#page=18). * **The deadlines:** What resources are needed to meet them [18](#page=18)? * **The financial situation:** Turnover, reporting, costs, profit, growth, cash flow [19](#page=19). * **The technology:** Current technology and what is required by the strategy (e.g., pilots, followers) [19](#page=19). * **The investors:** Who they are and what motivates them (focus on profitability, cost, growth, cash flow, and margin) [19](#page=19). > **Example:** PacknWood aims to increase revenue by 20% by supplying paper straws to companies like Starbucks, operating in a greener world. HR actions could include: > * **Recruitment:** Hiring product developers who can innovate and find alternatives to plastic straws, and involving customers in the recruitment process [19](#page=19). > * **Training:** Training customer relations officers to deeply understand customer business challenges to provide valuable insights, training product developers on customer relations, and training production workers on new technology for producing paper straws [19](#page=19). > * **Development:** Creating a career ladder for expert product developers, parallel to management ladders, to value and retain specialized expertise [19](#page=19). #### 3.2.4 Planning HR work differently For HR practices to create value within the business context, a shift in HR's thinking and working methods is necessary, leading to different approaches to planning HR work. HR departments tend to plan their work in three ways: in isolation, in integration with the business, or as an "afterthought." [19](#page=19) [20](#page=20). * **Isolation:** HR works independently from the business, focusing on HR practices and presenting an HR plan to line managers for feedback. The outcome is typically an agenda for the HR function with defined priorities and practices to develop. This approach aligns with **Wave 1 and 2** of HR practices [20](#page=20). * **Integration:** HR collaborates closely with the business, focusing on a synthesis of business and HR planning. Line managers and HR professionals work as partners in an integrated HR and business planning process. This aligns with **Wave 3** of HR practices [20](#page=20). * **Afterthought/Add-on:** Business planning is the primary focus, with HR practices considered an afterthought. Line managers lead HR discussions, and HR professionals are involved mainly from a process perspective, organizing meetings without decision-making power. The outcome is a summary of HR practices needed to support business plans, with HR professionals supporting line managers in their HR roles. This aligns with **Wave 4** of HR practices [20](#page=20). > **Example:** > * **Square:** Listed as an "afterthought/add-on" approach due to top executives teaching manager training modules, implying managers are primarily responsible for people challenges rather than HR [21](#page=21). > * **Mattel:** Also categorized as "afterthought/add-on" because the planning focus shifted to leaders rather than HR [21](#page=21). > * **Equinox:** Identified as "integration" because HR had to partner with field operations, with People Services creating frameworks and working directly with general managers and field leaders for local implementation [21](#page=21). --- # Structure of the HR department and its capabilities The structure and capabilities of HR departments have evolved significantly, moving from administrative functions to strategic partners, requiring new skills and a focus on alignment, integration, and innovation. ## 4. Structure of the HR department and its capabilities The structure of an HR department has transformed as Human Resource Management (HRM) has evolved into Strategic HRM. Historically, HR departments were primarily administrative, handling tasks like record-keeping, payroll, and benefits administration. However, with the shift towards a strategic role, HR departments now often hold a position on the board of directors, develop written HR management strategies, and take sole responsibility for major policy decisions. This evolution has led to the creation of new roles such as Chief Diversity Officer (CDO) and Chief Human Resources Officer (CHRO), indicating HR's proven credibility and impact as a business partner [22](#page=22). ### 4.1 Factors influencing HR department structure The specific structure of an HR department is influenced by several key factors: * **Organization size:** Larger organizations may require more complex structures, such as the inclusion of HR Business Partners (HRBPs) [23](#page=23). * **Industry:** Different industries may have unique HR needs and structures [23](#page=23). * **Speed of change within the industry:** Rapidly changing industries necessitate agile HR structures [23](#page=23). * **Sourcing of HR responsibilities:** Whether HR functions are managed internally or outsourced impacts departmental design [23](#page=23). ### 4.2 Basic organization of an HR team Regardless of organization size, an effective basic structure involves specializing individuals or teams in key HR functions. Common specializations include [23](#page=23): * Training and Development [23](#page=23). * Monetary Transactions (salaries, compensation, benefits) [23](#page=23). * Compliance and Employee/Labor Relations [23](#page=23). ### 4.3 Organizational structure types within HR HR departments adopt various organizational structures that often mirror the larger company's structure. Three common types include [23](#page=23): #### 4.3.1 Functional organizational structure This is the most common structure, where the HR department is organized by functional areas. These areas typically include [23](#page=23): * Recruiting and Staffing [24](#page=24). * Benefits [24](#page=24). * Compensation [24](#page=24). * Employee Relations [24](#page=24). * HR Compliance [24](#page=24). * Organizational Design [24](#page=24). * Training and Development [24](#page=24). * Human Resource Information Systems (H.R.I.S.) [24](#page=24). * Payroll [24](#page=24). #### 4.3.2 Flat organizational structure This structure features few or no middle management layers, creating a more level playing field. In this model, multiple specialists report directly to a single senior HR leader, such as a VP of HR, with no direct reports themselves. This approach aims to reduce workplace politics and red tape by distributing responsibilities and power equally, fostering shared decision-making. It is often found in small companies and startups [24](#page=24). #### 4.3.3 Matrix organizational structure This structure organizes reporting relationships as a grid or matrix, deviating from traditional hierarchies. It enhances flexibility and collaboration, particularly beneficial for project management. In an HR context, employees may report to both a functional manager and a project manager, common for field HR leaders involved in project teams [24](#page=24). #### 4.3.4 Other organizational structures Less common but still utilized structures include: * **Divisional Organizational Structure:** Suitable for large enterprises with distinct divisions [25](#page=25). * **Network Organizational Structure:** Involves partnerships between two or more independent organizations for business purposes [25](#page=25). * **Team Organizational Structure:** Functions through groups of employees collaborating in teams towards shared goals under a single supervisor [25](#page=25). ### 4.4 Strategic HR capabilities: Alignment, Integration, and Innovation For HR professionals to operate strategically, they must master three key actions: alignment, integration, and innovation [29](#page=29). #### 4.4.1 Alignment Alignment involves ensuring HR practices in all four areas (people, performance, information, and work) are synchronized with the company's strategy and also with external stakeholders. This "outside/in" approach encourages HR to continuously adapt to customer, investor, and community expectations [29](#page=29). > **Tip:** To achieve alignment, HR professionals should actively engage with external stakeholders, such as spending time on sales calls with customers to understand their needs and demonstrate how HR practices support promised customer value [30](#page=30). Examples of aligned HR practices include involving customers in training design, assessing reward systems against customer expectations, and ensuring internal and external communications are consistent [29](#page=29). #### 4.4.2 Integration HR practices must be integrated with each other to avoid working at cross-purposes and to achieve higher overall results. Integration often focuses on developing specific organizational capabilities. For instance, if a company aims for innovation, HR can align hiring, training, compensation, communication, and work organization to foster this capability [30](#page=30). > **Example:** If a company's business strategy is to grow profit by 20% and its HR goals are to recruit IT developers and provide a healthy working environment, integrated HR practices in recruiting, training, performance, and reward should directly support these objectives [30](#page=30). #### 4.4.3 Innovation Innovation in HR means constantly seeking new ways to manage people, performance, information, and work, not just in products or services, but also in administrative processes. This requires a spirit of inquisitiveness, a willingness to experiment, the ability to source ideas from both within and outside the industry, and a disciplined approach to assessing what works [31](#page=31). > **Tip:** Seeking HR innovation often arises from the challenges of operating in new product markets or emerging global economies [31](#page=31). When HR practices are aligned, integrated, and innovative, HR can effectively deliver talent, culture, and leadership, creating value for stakeholders and responding to the external business context [31](#page=31). ### 4.5 Four areas of HR practices HR practices can be broadly categorized into four interconnected areas [28](#page=28): 1. **People:** This area focuses on the flow of individuals into, through, and out of an organization. It encompasses: * Staffing (recruitment and selection) [28](#page=28). * Training [28](#page=28). * Development (internal career mobility) [28](#page=28). * Workforce Planning (identifying future competencies and talent needs) [28](#page=28). * Retention (keeping key talent) [28](#page=28). 2. **Performance:** HR work in this domain promotes accountability through performance management. Key elements include: * Performance Appraisal (e.g., continuous feedback conversations) [28](#page=28). * Setting Standards (e.g., defining leadership expectations and objectives) [28](#page=28). * Measuring Performance (e.g., conducting regular evaluation interviews) [28](#page=28). * Allocating Rewards (e.g., bonuses for team achievements) [29](#page=29). * Offering Feedback (e.g., fostering a culture of regular, open feedback) [29](#page=29). 3. **Information:** This area concerns the flow of information within an organization [29](#page=29). * Formal flows (e.g., top-down, inside-to-outside) may be managed in collaboration with the communication department [29](#page=29). * Informal flows (e.g., bottom-up, side-to-side) can be guided by HR, facilitating sensitive communication or peer-to-peer discussions among managers [29](#page=29). 4. **Work:** This encompasses understanding how work is accomplished within the organization, including workforce policies and physical settings [29](#page=29). * Workforce Policies (e.g., labor agreements, use of virtual technology) [29](#page=29). * Physical Settings (e.g., remote work, flexible desk arrangements) [29](#page=29). ### 4.6 People in HR: Future roles and skills Future HR professionals need to adapt to evolving trends, requiring a balanced approach and competence in six key roles. These roles represent a shift from earlier models that included "employee champion," "administrative expert," "change agent," and "strategic partner". The six foreseen roles are [32](#page=32) [33](#page=33): * **Credible activist:** This role has the biggest impact on personal and business results, requiring the ability to build trust (credibility) and possess a clear point of view for influence (activism) [32](#page=32) [33](#page=33). * **Strategy architect:** Focuses on designing and implementing HR strategies that support business objectives [33](#page=33). * **Culture and change steward:** Responsible for shaping and nurturing organizational culture and managing change initiatives [33](#page=33). * **Talent managers and organizational designers:** Concerned with attracting, developing, and retaining talent, as well as designing effective organizational structures [33](#page=33). * **Operational executors:** Ensure the efficient and effective day-to-day HR operations [33](#page=33). * **Business allies:** Act as partners to line managers and other business functions, understanding and supporting their needs [33](#page=33). These six roles can be integrated into a single HR function or distributed across various roles, particularly in smaller or growing companies. Developing competence in these roles is crucial for future HR professionals to make a significant contribution to their organizations [33](#page=33). --- # Strategic choices and performance management frameworks This topic explores models for strategic choices within organizations and the frameworks used for performance management [35](#page=35). ### 5.1 Strategic choices models Organizations utilize various models to make strategic choices that align with their objectives and competitive landscape [35](#page=35). #### 5.1.1 Porter's generic strategies Michael Porter, in his book 'Competitive Advantage', proposed that companies can achieve and maintain a sustainable competitive advantage by adopting one of three generic strategies: cost leadership, differentiation, or focus. He also introduced the '5 forces analysis' to understand the revenue-determining forces in an organization [36](#page=36). * **Cost leadership (or low cost strategy):** This strategy focuses on maximizing efficiency and effectiveness to offer products or services at lower costs than competitors. Methods include mass production, standardization, process simplification, automation, and outsourcing to low-cost regions [36](#page=36). * **Differentiation:** This strategy involves adding unique value to products or services that customers are willing to pay a premium for. This can be achieved through superior quality, brand image, exceptional service (like after-sales support), or innovation. Differentiation on product, service, or image is considered harder for competitors to replicate [36](#page=36). * **Focus:** This strategy targets a specific market segment (niche) rather than the entire market, allowing the organization to better cater to the unique needs of that segment. Within a focus strategy, an organization must still choose between a low-cost or a differentiation approach [36](#page=36). Porter suggests that organizations failing to clearly choose between these competitive strategies may experience lower revenues. He concluded that in a cost leadership strategy, price is paramount, while in a differentiation strategy, customer loyalty is the most crucial element [36](#page=36). Porter's '5 forces model' identifies five key forces determining an organization's revenue: * Supplier power [36](#page=36). * Customer power [36](#page=36). * Threat of substitute or complementary products/services [36](#page=36). * Threat of new competitors [36](#page=36). * Internal competition within the market [36](#page=36). #### 5.1.2 Value proposition model of Treacy & Wiersma Treacy and Wiersma developed a model that simplifies strategic choices into three distinct value propositions: product leadership, operational excellence, and customer intimacy. Organizations typically focus on one proposition while maintaining an "olympic minimum" in the other two [37](#page=37) [38](#page=38). | Aspect | Operational Excellence | Product Leadership | Customer Intimacy | | :------------------- | :------------------------------------------------------------------------------------------------------------------ | :----------------------------------------------------------------------------------------------------------------------------------------------- | :------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | | **What?** | The fastest and/or cheapest way to serve a customer. | Offer the "best" product/service, for which the customer is willing to pay extra. | More than customer-friendly; fully understanding the customer to provide a global (intimate) customer experience and connection. | [37](#page=37). | **How? (key)** | Efficiency in all processes, e.g., lean production, monitoring Key Performance Indicators (KPIs), continuous process optimization, and benchmarking against competitors. | Innovation in product development, sales, marketing, and HRM; often launching new products quickly and translating innovation to market rapidly. | Sharply defining "best" customers, considering them company jewels; customer satisfaction is the most important KPI, often utilizing datamining. | [37](#page=37). | **Examples** | McDonald's, Amazon, Carglass, Ikea, Ryanair, Colruyt, Vandenborre, Zara, TUI. | Studio 100, Cirque du Soleil, Apple, Brabantia. | Bank Van Breda & C°, Zappos.com, Singapore Airlines, Ritz-Carlton. | [38](#page=38). | **Culture** | Process and product driven; cost and waste awareness; proactive focus on operational improvements. | Customer driven; customer gets "what" they ask for. | Creative "future"; "out-of-the-box" thinking; Innovation (R&D). | [38](#page=38). | **Structure** | Clear roles and responsibilities. | Flat structure with self-steering for teams and individuals. | - | [38](#page=38). | **KPIs** | Efficiency, planning & control, standard operational procedures (ERP). | Revenue by customer (80-20 rule), customer satisfaction (datamining). | Product or service life cycle. | [38](#page=38). Focusing on a value proposition can manifest in different ways: for Product Leadership, it involves researching customer needs to reach a broader audience; for Customer Intimacy, it means engaging customers through various channels to better understand and meet their needs; and for Operational Excellence, it emphasizes informing and assisting customers quickly to optimize processes and handle high volumes. Treacy and Wiersma emphasize that value propositions should permeate the entire organization, not just marketing strategies, to prevent internal gaps [39](#page=39). ### 5.2 Performance management frameworks Performance management encompasses all organizational actions aimed at planning, monitoring, and evaluating performance, ultimately translating organizational ambitions into individual employee contributions [40](#page=40). #### 5.2.1 The Balanced Scorecard (BSC) The Balanced Scorecard (BSC), developed by Kaplan & Norton, is a management system that aids organizations in formulating strategic objectives and cascading them throughout the organization. It utilizes a strategy map to visualize these objectives and the strategies required to achieve them, enabling management to translate key processes into budgets, objectives, and relevant policies like strategic HRM and IT [39](#page=39). The BSC emphasizes that organizational performance should not be solely measured by financial metrics. It includes four key performance perspectives [39](#page=39): * **Customer perspective:** Evaluates customer experience, product/service quality, and market standing, often measured by metrics like customer complaints, loyalty, and market share [39](#page=39). * **Internal perspective:** Assesses organizational efficiency, effectiveness, and sustainability, focusing on continuous improvement, change, and innovation. KPIs include revenue per customer, time-to-market, production accuracy, downtime, waste, and energy efficiency. In HRM, this could involve measuring employee turnover [39](#page=39). * **Innovation perspective:** Examines opportunities for learning and improvement, the added value of key organizational processes, and self-development. It looks at how successful HRM policies are (e.g., reduction in illnesses or burnout), knowledge management, and innovation. KPIs might include the number of submitted patents and the availability of knowledge and experience relative to organizational needs [39](#page=39). * **Financial perspective:** Monitors financial performance, such as revenue and cash flow. KPIs include economic value added and solvency ratios [40](#page=40). Organizations that balance their objectives across financial, process, customer, market, and innovation areas over the long term tend to perform exceptionally well [40](#page=40). #### 5.2.2 Principles of performance management Performance management, as introduced by Sir Aubrey Daniels, is about ensuring employees do what is expected, fostering a "getting things done" attitude, and motivating them to enhance their performance and understand their contribution to strategic objectives. It ensures activities are focused on impactful areas [40](#page=40). ##### 5.2.2.1 Individual performance management Individual performance management involves translating organizational goals into specific individual objectives and expected workplace behaviors. This clarifies how an employee contributes to organizational outcomes. Performance is measured at specific intervals, and the results are discussed with the employee to identify successes and areas for behavioral improvement. Outcomes can include training and development plans, promotions, salary increases, or, in severe cases, termination if performance consistently falls short [40](#page=40). The performance cycle typically includes planning, follow-up, and evaluation. Formal performance discussions usually occur multiple times a year, supplemented by informal feedback moments [40](#page=40). * **Planning talk:** At the beginning of a period, objectives are set regarding performance, personal growth, and the development of relevant competencies [40](#page=40). * **Functional talk:** One or more discussions where managers and employees review achievements, discuss developments, and identify future needs for constructive work [40](#page=40). * **Evaluation talk:** A review of an employee's performance and development, with results informing career planning and potentially rewards [41](#page=41). While administrative processes and documents historically supported these cycles, they often became bureaucratic. The introduction of ERP systems and online learning platforms has improved this by facilitating note-taking during discussions [41](#page=41). **AMO framework for individual performance analysis:** Performance is viewed as a result of three interacting variables [41](#page=41): * **Ability:** The presence of sufficient competencies, or the need for development or experience [41](#page=41). * **Motivation:** How employees can be motivated to perform optimally and take ownership of their learning and work behavior [41](#page=41). * **Opportunity:** How managers direct employees towards learning and performance [41](#page=41). ##### 5.2.2.2 Management By Objectives (MBO) Peter Drucker's Management By Objectives (MBO), introduced in 1954, is a process for defining specific organizational objectives down to the individual employee level. Each objective is linked to a specific method of achievement, enabling managers to plan and organize, and employees to visualize their accomplishments. MBO can be highly motivating, especially when employees are involved in setting their own objectives, fostering a sense of accountability. Successful MBO implementation requires high involvement from top management and line managers, with HR support. Research indicates MBO increases productivity if the objectives are of high quality, which can be achieved by formulating them using the SMART principle [41](#page=41). **SMART principle for objective formulation:** * **Specific:** Clearly defined to avoid interpretation differences [41](#page=41). * **Measurable:** A standard is set to determine objective achievement [41](#page=41). * **Acceptable:** All parties involved find the objective agreeable, increasing the likelihood of success [41](#page=41). * **Realistic:** The objective must be practically achievable within the given timeframe, considering potential obstacles [41](#page=41). * **Timely:** The objective has a defined timeframe with follow-up moments and a clear deadline [41](#page=41). ##### 5.2.2.3 Follow-up and evaluation A manager's ongoing responsibility is to provide daily follow-up and motivation to ensure excellent work behavior and results. This can involve regular functional talks or informal discussions as needed, emphasizing high-quality, two-way communication for sustainable performance [42](#page=42). At the end of a performance cycle, achievements are measured and formally evaluated. Evaluation encompasses actions to assess the value of an employee's work behavior, results, and competencies (skills, attitude, knowledge, development) concerning future contributions [42](#page=42). > **Tip:** When evaluating performance, it's crucial to agree with the employee on both the desired results and the expected behaviors to achieve them. Behavioral objectives are sometimes overlooked but are vital for a comprehensive assessment [42](#page=42). ##### 5.2.2.4 Success factors for performance management systems A successful performance management system should be: * **In line with the strategy:** Encourages and measures behaviors supportive of organizational objectives [43](#page=43). * **Thorough:** Evaluates all employees, measures all key responsibilities, and covers performance over a given period [43](#page=43). * **Practical:** Accessible, credible, acceptable, and easy to use, with advantages outweighing costs [43](#page=43). * **Useful:** Measures performance only on aspects within the employee's control, done regularly. It should facilitate continuous skill development, inform HR decisions, and be integrated into every function [43](#page=43). * **Specific:** Provides clear instructions for both evaluators and evaluatees [43](#page=43). * **Discriminating:** Allows clear differentiation between effective and less effective performance and performers [43](#page=43). * **Credible and valid:** Performance scores are consistent over time and across evaluators (requiring calibration meetings) [43](#page=43). * **Inclusive:** Allows evaluatees to actively participate in performance talks and input into the system's design [43](#page=43). * **Fair and acceptable:** Participants perceive the process and results as fair and acceptable [43](#page=43). **Stress test (Trost, 2011):** This test helps assess the robustness of a performance system by considering various scenarios, such as daily communication between managers and employees, challenges in giving feedback, unclear goals, or a manager's limited view of an employee's work [43](#page=43). ##### 5.2.2.5 Communication in performance management A performance cycle typically involves discussing past performance, future performance, and potential [44](#page=44). * **Past performance:** Involves giving feedback, recognizing achievements, and addressing areas for improvement, differentiating between behavior and results [44](#page=44). * **Future performance:** Setting new agreements and goals for the upcoming period, such as undertaking training for specific results [44](#page=44). * **Potential:** Assessing an employee's opportunities for future growth and development, often documented in a Personal Development Plan (PDP) and career plan [44](#page=44). ##### 5.2.2.6 Who evaluates? Traditionally, the direct manager (single rater) is seen as having the most expertise for valid and credible evaluation. However, this is not always ideal, especially if managers have limited observation opportunities or potential biases [44](#page=44). | Evaluator | Pros | Cons | | :----------------------- | :------------------------------------------------------------------------------------------------------------------------------------------------------------- | :-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | **Direct manager** | Legitimate authority, established agreements, knowledge of task-related results, high credibility. | Limited observation opportunities (halo-effect), risk of impression management, time pressure, fear of giving negative feedback, less insight into interpersonal behavior. | [44](#page=44). | **Colleagues (peers)** | Diverse observation opportunities leading to high credibility, covers task and interpersonal behavior, improves feedback and communication, high validity. | Friendship relations might lead to mild evaluations, breaks with classic power structures (resistance), top performers give objective judgment. | [44](#page=44). | **Team members (bottom-up)** | Can improve team building, provides a view on leadership competencies. Requires anonymity, a large number of evaluators, and a trust basis. | Fear of backfire, resistance from management, deteriorating relationships, insufficient insight into functional requirements. | [44](#page=44). | **Employee (self-evaluation)** | Knows the function, can improve development, part of 360° evaluation. | Can be extremely mild (especially when linked to rewards/promotions), perception bias. | [44](#page=44). | **External specialist** | Unbiased, evaluates technical knowledge and skills, determines potential. | Insufficient knowledge of the organization and required performance, few observation opportunities, not perceived as legitimate. | [45](#page=45). The **Yohari-window** is a useful tool for understanding self-perception versus external perception and highlights the need for regular feedback to minimize blind spots [45](#page=45). **360°-evaluation (multiple rater):** This approach gathers feedback from various evaluators in a structured way, using defined competencies. It visualizes strengths, weaknesses, and potential gaps between self-perception and others' perceptions, often supplemented by qualitative input for nuance. Successful implementation requires careful planning regarding respondent selection, result distribution, and feedback discussions [45](#page=45). ##### 5.2.2.7 Feedback Feedback can only lead to behavioral improvement if it is accepted and understood. While historically passive, employees now actively seek feedback to understand job pros and cons and future perspectives. The central focus is translating feedback into improved work behavior and results [45](#page=45). ##### 5.2.2.8 Use of evaluations for other HRM interventions Information from performance management systems can be categorized into four intervention quadrants based on performance/competencies and motivation [46](#page=46): * **High performance/competencies, High motivation:** Challenge. Requires coaching, frequent feedback, goal setting, competency development, and task restructuring [46](#page=46). * **High performance/competencies, Low motivation:** Good performers. Requires rewards for performance, identification of development possibilities, and honest, direct feedback [46](#page=46). * **Low performance/competencies, High motivation:** Underperformers. Requires honest, direct feedback, advice, teambuilding/conflict management, rewards based on results, competency development, and stress management [46](#page=46). * **Low performance/competencies, Low motivation:** Dead wood. May require exit strategies, cessation of salary increases, or demotion [46](#page=46). ##### 5.2.2.9 The future of performance management Current performance management systems are often time-consuming, administratively burdensome, and complex, leading to resistance. The demand for more flexible organizations and the war for talent necessitate a shift towards investing in people's growth rather than solely evaluating the past. Increasing importance of teamwork, innovation, less hierarchical structures, employee involvement, and flatter organizations, coupled with managers handling more direct reports, suggests traditional systems are becoming less effective [46](#page=46). Many companies are adopting alternative performance management systems that are more flexible, monthly (case-based), voluntary, team-focused, and qualitative, with shared responsibility and self-evaluation elements. Examples include real-time feedback apps, deeper conversations, continuous learning focus, agile systems, and continuous feedback and coaching without extensive documentation [46](#page=46) [47](#page=47). #### 5.2.3 The ROI of performance management Performance management serves as a crucial link between employees, teams, and the organization, essential for achieving strategic goals. HRM, in collaboration with employees, management, and stakeholders, must continue to lead the process of monitoring behavior and results, ensuring feedback, follow-up, and evaluation cycles enhance employee motivation and contribute to organizational success [47](#page=47). --- ## Common mistakes to avoid - Review all topics thoroughly before exams - Pay attention to formulas and key definitions - Practice with examples provided in each section - Don't memorize without understanding the underlying concepts

| Term | Definition | |------|------------| | Strategic Human Resource Management (SHRM) | An approach that defines how an organization's goals will be achieved through people, by means of integrated HR strategies, policies, and practices, aligning with the external business environment and stakeholder needs. | | VUCA World | An acronym representing a volatile, uncertain, complex, and ambiguous environment, which necessitates agility and strategic foresight in organizational management and HR practices. | | Strategic Fit | The degree to which an organization's HR practices and activities are aligned with its overall business strategy and external environment, encompassing both vertical (linking HR to strategy) and horizontal (coordinating HR practices) dimensions. | | Strategic Flexibility | The ability of a business to adapt and respond effectively to changes in its competitive environment, often achieved through adaptable HR systems and a workforce with diverse skills. | | Stakeholders | Individuals, groups, or organizations that have an interest in or are affected by an organization's activities, including employees, line managers, customers, and investors. | | HR Value Proposition | The promise by HR practices, departments, and professionals to produce positive outcomes for key stakeholders, aligning internal HR services with external expectations and contributing to the creation and shaping of organizational strategy. | | Balanced Scorecard (BSC) | A strategic management system that translates an organization's mission and vision into measurable objectives across four perspectives: customer, internal processes, innovation, and financial, providing a comprehensive view of performance beyond just financial metrics. | | Performance Management | A continuous process encompassing all actions taken by a company to plan, monitor, and evaluate performance, translating organizational objectives into individual goals and behaviors to enhance employee contribution and organizational results. | | Management By Objectives (MBO) | A management process, popularized by Peter Drucker, where specific objectives are defined at all organizational levels, translated into actionable steps, and used to motivate employees and enhance productivity through shared accountability. | | SMART Principle | A mnemonic used for formulating objectives and agreements, ensuring they are Specific, Measurable, Acceptable, Realistic, and Timely, thereby increasing the likelihood of their successful achievement. | | AMO Framework | A model used to analyze individual employee performance, consisting of three interacting variables: Ability (competencies and development needs), Motivation (factors driving optimal work and ownership), and Opportunity (managerial direction for learning and performance). | | 360°-Evaluation | A performance appraisal method where feedback on an employee's work behavior is gathered from multiple evaluators, including managers, colleagues, team members, and sometimes self-evaluation, to provide a comprehensive and objective view. | | HR Business Partner (HRBP) | A role within the HR department that works closely with specific business units or clients within the organization, providing HR resources and expertise focused on achieving organizational missions and objectives, with less emphasis on compliance and administration. | | Organizational Structure | The system companies use to organize people, build organizational charts, and define how employees fit within an organization, influencing reporting relationships, communication flows, and decision-making processes. | | Operational Excellence | A value proposition focused on serving customers in the fastest and/or cheapest way possible through efficiency in all processes, continuous optimization, and benchmarking against competitors. | | Product Leadership | A value proposition focused on offering the "best" product or service, for which customers are willing to pay a premium, driven by innovation in product development, sales, marketing, and rapid translation from concept to market. | | Customer Intimacy | A value proposition centered on deeply understanding the customer to offer a holistic and personalized experience, making them the "crown jewels" of the company and prioritizing customer satisfaction as the key performance indicator. |