Module_1-2-3-4_Strategic HR.pdf

# Evolution of Human Resource Management Human Resource Management (HRM) has evolved significantly from its administrative roots to a strategic function integral to organizational success, driven by technological advancements, globalization, and a changing work landscape [1](#page=1) [2](#page=2). ## 1. Evolution of human resource management ### 1.1 From administrative tasks to strategic partner Historically, HRM was primarily associated with administrative duties such as payroll, attendance tracking, and compliance. The role was largely transactional, with limited strategic input. However, as the connection between human capital and organizational performance became evident, HRM transformed into a strategic partner. Modern HRM professionals collaborate with senior leadership to develop and execute 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). ### 1.2 Drivers of change Several factors have propelled HRM's evolution: #### 1.2.1 Technological advancements The proliferation of HRIS (Human Resource Information Systems) and AI-driven analytics tools has revolutionized HR processes, enabling automation, data-driven decision-making, and predictive analytics. These innovations allow HR professionals to shift focus from administrative tasks to strategic workforce planning, talent development, and organizational transformation [2](#page=2). #### 1.2.2 Globalization Expanding international operations has necessitated that HRM manage diverse workforces, navigate complex legal and cultural landscapes, and ensure compliance with international labor standards. This global perspective has pushed HRM towards more inclusive and culturally sensitive approaches to talent management, diversity and inclusion, and employee relations [2](#page=2). ### 1.3 Challenges and opportunities The evolution of HRM presents new challenges and opportunities. Rapid technological changes require continuous upskilling and adaptation to new tools. The growing emphasis on data analytics and evidence-based HR practices demands a more data-driven mindset. Furthermore, the rise of remote work, the gig economy, and flexible employment arrangements require HR professionals to balance flexibility with maintaining organizational culture, employee morale, and productivity [2](#page=2). ### 1.4 The future of human resource management The definition of HRM has moved beyond traditional models; for example, Daft's 2008 definition focusing on organizational goals, efficiency, and reciprocal relationships is no longer fully representative. Future HRM is expected to be increasingly strategic, driving organizational agility, resilience, and innovation. HR professionals will leverage technology, data analytics, and digital platforms to attract, develop, and retain top talent in a competitive global market. A holistic approach to employee well-being, encompassing physical, mental, and emotional health, will be crucial, involving wellness programs, work-life balance initiatives, and diversity, equity, and inclusion efforts [2](#page=2) [3](#page=3). > **Tip:** The future of HRM hinges on its ability to be a proactive driver of business strategy rather than a reactive administrator. ### 1.5 Ulrich's "Go outside" theory and strategic HRM definitions #### 1.5.1 Ulrich's "Go outside" theory Dave Ulrich's "Go outside" theory outlines four waves of HR evolution since the 1930s [3](#page=3): * **Wave 1:** Focused on administration, managing processes, terms, and conditions [3](#page=3). * **Wave 2:** Shifted to a set of HR practices (staffing, training, compensation) with an emphasis on effectiveness [3](#page=3). * **Wave 3 (since 2000):** Connected HR practices to business success through HR strategy [3](#page=3). * **Wave 4 (emerging):** Utilizes HR practices to respond to external business conditions, viewing strategy as a window into the external environment rather than just a mirror of internal intentions. This wave encourages HR to look externally to improve its practices [3](#page=3). #### 1.5.2 Armstrong's definition of Strategic HRM Armstrong, around 2010, defined Strategic HRM as: "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, its methods of operation, or its approach to getting from its current state to its desired future state [3](#page=3). * **HR strategies:** Define the intended direction for HRM [3](#page=3). * **HR policies:** Provide guidelines for applying and implementing values, principles, and strategies in specific situations [3](#page=3). --- # Strategic Human Resource Management principles Strategic Human Resource Management (SHRM) moves beyond traditional HR functions by aligning HR practices with overarching organizational goals and ensuring HR acts as a partner in achieving business success. This approach emphasizes an external perspective in a dynamic environment and fosters a connected organizational culture [4](#page=4) [5](#page=5). ### 2.1 Core elements of strategic HRM There are three key elements that differentiate strategic HRM from conventional HRM [4](#page=4): * **Partner in organizational success:** SHRM is viewed as integral to achieving organizational goals and success, rather than merely a function for legal compliance or compensation [4](#page=4) [5](#page=5). * **Outside-in perspective:** HR departments actively engage with other departments to understand their goals and then develop strategies that align with both departmental and overall organizational objectives. This contrasts with traditional HRM's internal focus ("inside-out") which prioritizes employee welfare [4](#page=4) [5](#page=5). * **Connected mindset:** SHRM cultivates an environment where employees feel connected to each other, the organization's vision, and its stakeholders, fostering well-being and deeper relationships [10](#page=10). ### 2.2 Partner in organizational success Viewing HR as a partner in organizational success requires strategic fit in two dimensions [5](#page=5): #### 2.2.1 Strategic fit Strategic fit refers to the degree to which different sections of a business work together to achieve competitive advantage and business success [5](#page=5). * **Vertical fit:** This dimension links HR practices with the strategic management processes of the organization [5](#page=5). * **Example:** Performance management linked to organizational objectives demonstrates vertical fit, as seen with management by objectives (MBO) where achieved objectives receive a maximum score [7](#page=7). * **Horizontal fit:** This dimension emphasizes the coordination and congruence among various HR practices [5](#page=5). * **Example:** Staffing decisions based on motivation and company values, along with competency and performance management, illustrate horizontal fit [7](#page=7). #### 2.2.2 Strategic flexibility Strategic flexibility is the ability of an organization to adapt and respond to changes in its competitive environment. Environmental dynamism influences the required flexibility strategy [6](#page=6): * **Stable, predictable environments:** Organizations might focus on developing employees with a narrow range of skills and tight job descriptions [6](#page=6). * **Dynamic, unpredictable environments:** Organizations may develop organic HR systems to cultivate a human capital pool with a wide range of skills and adaptable behaviors [6](#page=6). #### 2.2.3 Importance of strategic fit Strategic fit is crucial for several reasons [6](#page=6): * **Competitive advantage:** By aligning resources and capabilities with strategies, objectives, and the external environment, companies gain a sustainable market edge. This can manifest in areas like company culture, reputation, innovation, technology, location, employee expertise, and quality [6](#page=6). * **Example:** RJ Industries, Inc. improved product quality and customer satisfaction by implementing a training program for employees on quality control, leading to higher sales performance [6](#page=6). * **Improved decision-making:** Understanding company goals and objectives enables better resource allocation and strategy development by decision-makers [6](#page=6). * **Enhanced operational efficiency:** Aligning company processes and procedures with the overall strategy minimizes waste and maximizes efficiency [6](#page=6). * **Example HR processes aligned with strategy:** Recruitment, selection, retention, onboarding, offboarding, training and development, employee relations (geared towards engagement and retention), compensation & benefits, employee requests handling, performance management, regulatory compliance, HR planning (balancing long- and short-term staffing needs with business goals), and HR process automation (ERP systems) [6](#page=6) [7](#page=7). * **Unified culture:** Ensuring all employees understand company goals and objectives fosters a collaborative environment, leading to improved morale and productivity [7](#page=7). ### 2.3 Outside-in: It's a VUCA world The external context, characterized by Volatility, Uncertainty, Complexity, and Ambiguity (VUCA), shapes organizational strategy. Internally, leaders require Vision, Understanding, Clarity, and Agility (VUCA prime) to effectively guide the organization and its employees [8](#page=8). ### 2.4 A connected mindset A connected mindset is the third essential element of strategic HRM. It involves being present and aware of others, fostering meaningful connections, and building well-being and deep friendships. Organizations are increasingly interconnected, evolving into network structures where relationships, rather than organigrams, define their external representation. For leaders, being present is vital for cultivating a culture of connection among employees and with the organization's vision [10](#page=10). ### 2.5 Connecting with stakeholders A strategic HR approach necessitates awareness of and connection with key stakeholders from an outside-in perspective. The identification of relevant stakeholders depends on the specific context, such as a project or market change [12](#page=12). > **Tip:** When considering stakeholders, think broadly about individuals, groups, or organizations that have an interest in or are affected by the company's HR transformation efforts [12](#page=12). --- # HR value creation and business context HR creates value by understanding the business context, aligning with stakeholder expectations, and strategically planning HR work to support organizational goals [14](#page=14). ### 3.1 Building a future strategic HR Dave Ulrich advocates for an "outside-in" approach to HR, moving beyond administrative tasks (wave 1) and HR practices (wave 2) to connect with organizational strategy (wave 3) and the external business world (wave 4). The core challenge for HR is to create value by being connected to the business context and stakeholders, defining HR objectives based on this understanding. This involves focusing on individual abilities (talent), organizational capabilities (culture), and leadership (teams), with HR organization structure, budget, and data investments supporting these areas [14](#page=14). ### 3.2 How HR can add value #### 3.2.1 The paradox of HR departments While some companies, particularly startups, operate without dedicated HR departments, statistics indicate a growing number of HR professionals are employed by organizations. In 2012, U.S. employers had a median of 1.54 HR professionals per 100 employees, an increase from 1.24 in 2009. In the Netherlands in 2019, the ratio was 74 employees per HR Full-Time Equivalent (FTE), with larger organizations and the private sector (services, production, transport) having more employees per HR FTE [15](#page=15). #### 3.2.2 Defining the value of HR The value of HR is defined by its recipients rather than its providers. HR professionals add value when their work enables others to achieve their goals; the impact on recipients is paramount, not merely the design of programs or policies. In resource-constrained environments, activities that do not add value should be discontinued. The HR value proposition asserts that HR practices, departments, and professionals generate positive outcomes for key stakeholders, including employees, line managers, customers, and investors [16](#page=16). A significant challenge for HR is the continued preoccupation with administrative and practice-based HR questions (waves 1 and 2). An "outside-in" perspective requires HR to focus on the outcomes created for others, considering key stakeholders and the broader business context. This "so that 2.0" approach involves HR professionals building credibility with line and top management to align with business goals, and then anticipating and responding to external business conditions to deliver value to customers and investors. This shift enables HR to move from an inside-out to an outside-in approach, ensuring internal services align with external expectations and transforming HR practices to create value for those outside the company. HR professionals then move from merely responding to strategy to actively shaping and creating it [16](#page=16). > **Tip:** The "so that 2.0" approach encourages HR to constantly ask "so that" to understand the ultimate purpose and impact of their actions on stakeholders and the business. **Example:** To create value in a software company's recruiting policy, HR needs to ensure recruited talents and competencies align with the business strategy, such as recruiting individuals with innovative mindsets and strong product expertise if the company aims for innovation. Including customers in the recruiting process can also add value by providing 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. These outcomes include HR services aligning with external expectations, transforming HR practices to create external value, shaping strategy rather than just responding to it, and understanding the business context and key stakeholders [17](#page=17). Chris Ruisi suggests that for HR to add value, professionals should: * Adopt a positive mindset as a business partner, focusing on what they *can* do, rather than a "policeman" role focused on rules [18](#page=18). * Focus on goals and remove barriers, rather than worrying about recognition [18](#page=18). * Avoid making excuses or blaming others, taking ownership of challenges [18](#page=18). HR professionals should view themselves as business professionals who happen to work in HR, with a broad and focused perspective on 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 the five most important business realities within organizations [18](#page=18): * **The customers:** Understanding what drives their purchasing decisions and repeat business, focusing on retention, satisfaction, and commitment [18](#page=18). * **The deadlines:** Identifying the resources required to meet deadlines [19](#page=19). * **The financial situation:** Monitoring turnover, reporting, costs, profit, growth, and cash flow [19](#page=19). * **The technology:** Assessing current technology and understanding what is required by the business strategy (e.g., pilots, followers) [19](#page=19). * **The investors:** Identifying investors and understanding their drivers, focusing on profitability, cost, growth, cash flow, and margin [19](#page=19). **Example:** If PacknWood, a paper straw producer, aims to increase revenue by 20% in a greener market, HR could take actions like: * **Recruiting:** Hiring product developers to innovate alternative solutions to plastic straws and involving customers in the recruitment process [19](#page=19). * **Training:** Equipping customer relation officers to understand customer challenges for business insights and training product developers on customer relations, as well as training production workers on new technology for increased paper straw output [19](#page=19). * **Development:** Creating a career ladder for expert product developers, parallel to a management ladder, to recognize and value their expertise [19](#page=19). Considering the "so that 2.0" principle, HR actions should clearly articulate their purpose and value creation for stakeholders and the business [19](#page=19). #### 3.2.4 Planning HR work differently For HR practices to create value within the business context, HR needs to shift its thinking and planning approach. HR departments can plan their work in three main ways [19](#page=19): 1. **Isolation:** In companies where HR operates in isolation from the business, the focus is on HR practices and how the HR function can add value. HR professionals develop an HR plan and present it to line managers for feedback. The outcome is typically an agenda for the HR function, outlining priorities and development areas. This approach aligns with **Wave 1 and 2** of HR practices [20](#page=20). 2. **Integration:** In companies where HR works closely with the business, there is a focus on synthesizing business and HR planning. Line managers and HR professionals collaborate as partners in an integrated HR and business planning process. This approach corresponds with **Wave 3** [20](#page=20). 3. **Afterthought/Add-on:** When HR is an "afterthought" or "add-on," the primary focus is on business planning, with HR practices considered secondary. Line managers lead HR discussions, and HR professionals are primarily involved in process execution, such as organizing meetings, but lack decision-making power. The outcome is a summary of HR practices needed to achieve business plans, with HR professionals supporting line managers in their HR roles. This approach aligns with **Wave 4** [20](#page=20). **Example:** Mapping companies to planning types: * **Square:** Enlisting top executives to teach manager training modules indicates that people challenges are seen as the managers' own issues to resolve, rather than HR's responsibility. This ownership transforms the organization, aligning with the **afterthought/add-on** approach [21](#page=21). * **Mattel:** A shift in planning focus towards leaders rather than HR suggests that HR is not driving the talent mapping, characteristic of the **afterthought/add-on** approach [21](#page=21). * **Equinox:** As Equinox expands, HR partners with field operations. People Services creates HR service frameworks (compliance, recruiting, training, development) and works directly with general managers and field leaders for local implementation. This collaborative framework creation and implementation indicates an **integration** approach [21](#page=21). --- # Structure and capabilities of the HR department The structure and capabilities of an HR department are evolving significantly, moving from administrative functions to a strategic business partner role, requiring new skills and a re-evaluation of HR practices. ### 4.1 Evolution of HR department structure Historically, HR departments were primarily administrative, focusing on transactional tasks like record-keeping, payroll, and benefits administration. However, with the evolution towards Strategic HRM, HR departments now play a more integrated and strategic role within organizations. Evidence of this shift includes HR having a place on the board of directors in many organizations and the creation of new senior roles such as Chief Diversity Officer (CDO) and Chief Human Resources Officer (CHRO). This signifies HR's proven credibility as a business partner with an impact comparable to other business domains [22](#page=22). #### 4.1.1 Factors influencing HR structure The structure of an HR department is contingent upon several key factors: * **Organizational size:** Larger organizations may require more complex and specialized HR structures [23](#page=23). * **Industry:** Different industries have unique demands that influence HR's organizational design [23](#page=23). * **Speed of change within the industry:** Rapidly changing environments necessitate more agile and responsive HR structures [23](#page=23). * **Sourcing of responsibilities:** Whether HR responsibilities are managed internally or outsourced significantly impacts departmental structure [23](#page=23). #### 4.1.2 Basic organizational principles At a fundamental level, effective HR departmental structures involve specialization. Individuals or teams should focus on key HR functions such as training and development, compensation and benefits, and compliance and employee relations. This specialization mirrors dedicated teams found in other operational areas across various industries [23](#page=23). #### 4.1.3 Key HR roles and reporting structures The role of the head of an HR department varies, often correlating with company size and the extent of internal versus external HR responsibilities. While not always on the executive team, HR leaders typically report to the CEO as a trusted partner. In larger organizations, the **Human Resources Business Partner (HRBP)** role emerges, where HRBPs act as clients within the organization, focusing on organizational missions and objectives. These organizations often have a separate **HR shared services team** or central department to handle policy development, benefits, and compensation [23](#page=23). ### 4.2 Common HR organizational structures Organizational structures define how employees are organized and fit within a company, and the HR team's structure often reflects this. Some common structures include [23](#page=23): #### 4.2.1 Functional organizational structure This is the most prevalent structure, where the HR department is organized into functional areas. These areas typically include: * Recruiting and staffing [23](#page=23) [24](#page=24). * Benefits [23](#page=23) [24](#page=24). * Compensation [23](#page=23) [24](#page=24). * Employee relations [23](#page=23) [24](#page=24). * HR compliance [23](#page=23) [24](#page=24). * Organizational design [23](#page=23) [24](#page=24). * Training and development [23](#page=23) [24](#page=24). * Human Resource Information Systems (HRIS) [23](#page=23) [24](#page=24). * Payroll [23](#page=23) [24](#page=24). #### 4.2.2 Flat organizational structure In contrast to functional structures, flat organizations have fewer managerial layers, creating a more level playing field. A VP of HR might have several direct reports, each specializing in an HR area (e.g., recruiting, benefits), all reporting directly to the VP without having their own direct reports. This structure aims to reduce workplace politics and red tape by distributing responsibilities and power equally, fostering shared decision-making. It is commonly found in small companies and startups [24](#page=24). #### 4.2.3 Matrix organizational structure This structure features reporting relationships organized as a grid or matrix, moving away from traditional hierarchies. It enhances flexibility and collaboration, making it ideal for project management. In HR, employees may report to both a functional manager and a project manager, allowing different teams to collaborate. This is often seen for field HR leaders working within project teams [24](#page=24). #### 4.2.4 Other organizational structures While less common, other structures exist: * **Divisional Organizational Structure:** Suited 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:** Based on groups of employees collaborating in teams towards a shared goal under a single supervisor [25](#page=25). ### 4.3 Core HR practices and capabilities Effective HR departments focus on integrated HR policies that significantly impact business results. HR practices encompass a broad range of activities from recruitment to exit procedures. These practices are influenced by both external and internal factors [27](#page=27). #### 4.3.1 Factors influencing HR practices * **External factors:** These are uncontrollable pressures such as technological change (e.g., AI), national culture, industry characteristics, competitor actions, union activities, and globalization [28](#page=28). * **Internal factors:** These include organizational size, structure, business strategy, history and traditions, top management influence, line management capabilities, power dynamics, and academic influence [28](#page=28). #### 4.3.2 Four areas of HR practices HR practices can be summarized into four key areas [28](#page=28): 1. **People:** This area focuses on the flow of individuals into, through, and out of an organization. It includes: * Staffing (recruitment and selection) [28](#page=28). * Training (on-the-job, external) [28](#page=28). * Development (internal career mobility) [28](#page=28). * Workforce planning (identifying future competency needs) [28](#page=28). * Retention (keeping key talent) [28](#page=28). 2. **Performance:** This area promotes accountability through performance management, standard setting, measurement, reward allocation, and feedback. It comprises [28](#page=28): * Performance appraisal and management [28](#page=28). * Setting standards (for results, leadership) [28](#page=28). * Measuring performance (evaluations, interviews) [28](#page=28). * Allocating rewards (bonuses for team results) [29](#page=29). * Offering feedback (fostering a feedback culture) [29](#page=29). 3. **Information:** This area governs the flow of information within an organization. * Formal flows (e.g., top-down, outside-in) may be managed by the communication department in collaboration with HR [29](#page=29). * Informal flows (e.g., bottom-up, side-to-side) are often guided by HR, facilitating communication for sensitive information or peer-to-peer discussions [29](#page=29). 4. **Work:** This area involves understanding how work is accomplished, workforce policies, and physical settings. It includes [29](#page=29): * Workforce policies (e.g., labor agreements, working hours, technology use) [29](#page=29). * Physical settings (e.g., work from home, flex desks), often managed collaboratively with other departments [29](#page=29). #### 4.3.3 Strategic HR actions To operate strategically, HR professionals must master three actions related to HR work: alignment, integration, and innovation [29](#page=29). * **Alignment:** HR practices should align with business strategy and external stakeholders, adopting an "outside/in" approach to meet customer, investor, and community expectations [29](#page=29). > **Tip:** HR professionals should actively engage with external stakeholders, such as spending time on sales calls with customers, to understand their needs and build relationships [30](#page=30). * **Integration:** HR practices must be interconnected to avoid working at cross-purposes and to maximize results. Integrated HR work leads to higher outcomes as different practices focus on similar objectives. Integration is crucial for developing organizational capabilities, such as innovation, by aligning hiring, training, compensation, communication, and work organization towards that capability [30](#page=30). * **Innovation:** HR professionals should continuously seek new ways to manage people, performance, information, and work. This requires inquisitiveness, a willingness to experiment, and a rigorous assessment of what works [31](#page=31). > **Example:** A company might develop local leaders in emerging markets by assigning a seasoned leader to work "2 in a box" with a local leader, transferring leadership insights over time [31](#page=31). When HR practices are aligned, integrated, and innovative, HR can deliver individual talent, organizational capabilities (culture), and leadership, creating value for stakeholders and responding effectively to external business contexts. This future of HR necessitates new skills for HR professionals [31](#page=31). ### 4.4 Roles and skills of HR professionals The evolution of HR has led to a redefined set of roles and skills for HR professionals. Dave Ulrich foresees HR professionals needing to become more balanced, functioning in six key roles [32](#page=32). #### 4.4.1 Six roles for HR professionals The six roles are: 1. **Credible activist:** This role has the biggest impact on personal and business results. It comprises building trust (credible) and having a point of view to influence (activist) [33](#page=33). 2. **Strategy architect:** Developing and aligning HR strategy with the overall business strategy [33](#page=33). 3. **Culture and change steward:** Championing and managing organizational culture and change initiatives [33](#page=33). 4. **Talent managers and organizational designers:** Focusing on attracting, developing, and retaining talent, as well as designing effective organizational structures [33](#page=33). 5. **Operational executors:** Efficiently managing day-to-day HR operations [33](#page=33). 6. **Business allies:** Understanding and supporting the needs of different business units within the organization [33](#page=33). These six roles can be combined within a single HR function or integrated into other organizational roles, especially in smaller or growing companies [33](#page=33). > **Tip:** Future HR professionals should reflect on these six roles and consider which ones align with their career aspirations and strengths [33](#page=33) [34](#page=34). --- # Strategic choices and performance management This module explores various models for making strategic choices within organizations and delves into the principles and practices of performance management to align individual and organizational goals [35](#page=35). ### 5.1 Strategic choice models Organizations employ various strategic choice models to gain a competitive advantage in dynamic environments, which are crucial for HR professionals to align HR actions with organizational strategy [36](#page=36). #### 5.1.1 Porter's strategies Michael Porter's model, presented in 'Competitive Advantage', outlines three fundamental strategies for achieving a sustainable competitive advantage: * **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 distinguishing products or services by adding unique features or value, for which customers are willing to pay a premium. Differentiation can be based on quality, image, or superior service. Its strength lies in being harder for competitors to replicate [36](#page=36). * **Focus:** This strategy involves concentrating on a specific market segment (niche) rather than the entire market, enabling better satisfaction of customer needs. Porter suggests that within this focus strategy, an organization must still choose between a low-cost or a differentiation approach [36](#page=36). Porter posits that organizations failing to clearly choose between these competitive strategies are likely to experience lower revenues [36](#page=36). Porter's "5 Forces model" analyzes factors determining an organization's revenue: * Supplier power * Customer power * Availability of substitutes or complementary products/services * Threat of new competitors * Internal market competition [36](#page=36). Combining these models, Porter suggests that price is paramount in cost leadership, while customer loyalty is key in differentiation [36](#page=36). #### 5.1.2 Value proposition model of Treacy & Wiersma Treacy and Wiersma's model offers three distinct value propositions for optimizing strategic choices: * **Operational Excellence:** This proposition focuses on providing the fastest and/or cheapest way to serve customers. Key elements include efficiency in all processes, lean production principles, continuous process optimization, and benchmarking against competitors. Examples include McDonald's, Amazon, and Ryanair [37](#page=37) [38](#page=38). * **Product Leadership:** This strategy aims to offer the "best" product or service, commanding a premium price. It emphasizes innovation in product development, sales, marketing, and HRM, often involving quick launches of new products and rapid translation from innovation to market. Examples include Studio 100, Apple, and Brabantia [37](#page=37) [38](#page=38). * **Customer Intimacy:** This involves cultivating deep customer relationships to provide a global, intimate customer experience. It requires sharply defining key customer segments and prioritizing customer satisfaction as the most important Key Performance Indicator (KPI). Examples include Bank Van Breda & C°, Zappos.com, and Ritz-Carlton [37](#page=37) [38](#page=38). Organizations should focus on one primary value proposition while ensuring they achieve the "Olympic minimum" in the other two [38](#page=38). The strategic focus should permeate the entire organization, not just marketing, to avoid gaps [39](#page=39). #### 5.1.3 Balanced Scorecard (Kaplan & Norton) The Balanced Scorecard (BSC) is a management system that aids in formulating strategic objectives and translating them throughout the organization. Kaplan and Norton's BSC, visualized through a strategy map, translates objectives into budgets, policies (including strategic HRM and IT), and KPIs. Its goal is to communicate the organization's mission and vision and monitor strategy effectiveness using measurable indicators, emphasizing that performance should not be solely judged on financial metrics [39](#page=39). The BSC comprises four performance perspectives: * **Customer perspective:** Assesses customer experience, product/service quality, and market standing (e.g., measured by customer complaints, loyalty, and market share) [39](#page=39). * **Internal perspective:** Evaluates internal operational excellence, efficiency, effectiveness, and sustainability, including continuous improvement, change, and innovation. Relevant KPIs include revenue per customer, time-to-market, production accuracy, waste reduction, and energy efficiency. In HRM, this could include employee turnover [39](#page=39). * **Innovation perspective:** Focuses on learning, improvement, and the added value of key organizational processes, encompassing self-development and performance growth. This includes assessing the success of HRM policies (e.g., reduction in illnesses or burnouts) and knowledge management, with metrics like submitted patents or knowledge availability [39](#page=39). * **Financial perspective:** Measures financial performance, including revenue and cash flow, using KPIs like economic value added and solvency ratios [39](#page=39). Organizations that balance objectives across financial, process, personnel, customer, market, and innovation areas tend to excel, focusing both internally and externally, and on short-term and long-term horizons [40](#page=40). ### 5.2 Performance management Performance management encompasses all actions taken by a company to plan, monitor, and evaluate performance, ultimately translating organizational ambitions into individual employee contributions [40](#page=40). #### 5.2.1 Definition and purpose Human performance management, as introduced by Sir Aubrey Daniels, is about "getting people to do what you want them to do." More accurately, it involves fostering a "getting things done" attitude and motivating employees to enhance their performance, aligning their activities with strategic objectives and organizational impact [40](#page=40). #### 5.2.2 Individual performance management cycle This process translates organizational objectives into individual goals and expected behaviors. The realization of these objectives is measured at specific times, discussed with the employee to identify successes and areas for improvement, potentially leading to training, promotions, salary increases, or, in cases of prolonged underperformance, exit [40](#page=40). The performance cycle typically involves several formal discussions annually: * **Planning talk:** Establishes objectives and agreements for the upcoming period concerning performance, personal growth, and development of relevant competencies [40](#page=40). * **Functional talk:** One or more discussions where the manager and employee review achieved results, developmental progress, and future needs for constructive work [40](#page=40). * **Evaluation talk:** A review of the employee's performance and development, with results informing career planning and potential rewards [41](#page=41). While supported by administrative processes, these can become bureaucratic. The introduction of ERP systems and online learning platforms has improved documentation [41](#page=41). #### 5.2.3 The AMO model Performance is analyzed using the AMO model, which considers three interacting variables: * **Ability:** Assesses whether employees possess the necessary competencies or require development/experiential journeys [41](#page=41). * **Motivation:** Explores ways to motivate employees to perform optimally and take ownership of their learning and work behavior [41](#page=41). * **Opportunity:** Examines how managers guide employees towards learning and performance [41](#page=41). #### 5.2.4 Formulating objectives and work agreements Peter Drucker's "Management By Objectives" (MBO) concept involves defining specific organizational objectives, cascaded down to individual employees, with clear methods for their realization. MBO has a strong motivating impact by making employee contributions visible and fostering accountability. High involvement from top management and line managers, supported by HRM, is crucial for MBO's success, leading to increased productivity if objectives are of high quality [41](#page=41). Objectives should be formulated using the SMART principle: * **Specific:** Clear and unambiguous [41](#page=41). * **Measurable:** Allows determination of achievement [41](#page=41). * **Acceptable:** Agreed upon by all parties involved [41](#page=41). * **Realistic:** Practically achievable within the given timeframe, accounting for obstacles [41](#page=41). * **Timely:** Has a defined timeframe with follow-up moments and a clear deadline [41](#page=41). #### 5.2.5 Performance follow-up and evaluation Managers are responsible for daily follow-up and motivation to ensure excellent work behavior and results, through regular or as-needed functional talks. Performance evaluation formally measures objective achievements at the end of a cycle (usually annually), assessing work behavior, results, and competencies against future needs [42](#page=42). > **Tip:** It is important to agree with the employee on both the desired results and the expected behaviors to achieve them, as behavioral objectives are sometimes overlooked [42](#page=42). #### 5.2.6 Criteria for a successful performance management system A successful performance management system should be: * **In line with the strategy:** Encouraging and measuring behavior that supports organizational objectives [42](#page=42). * **Thorough:** Covering all employees, key responsibilities, and the entire performance period [42](#page=42). * **Practical:** Accessible, credible, acceptable, and easy to use, with benefits outweighing costs [42](#page=42). * **Useful:** Measuring only what is within the employee's control, conducted regularly, and facilitating continuous development. Results should inform HR decisions, and implementation should be integral to each function [43](#page=43). * **Specific:** Providing clear instructions to evaluators and evaluatees [43](#page=43). * **Discriminating:** Allowing clear differentiation between effective and less effective performance [43](#page=43). * **Credible and valid:** Ensuring consistent scores over time and between different evaluators (calibration meetings) [43](#page=43). * **Inclusivity:** Allowing active participation from evaluatees and input from both evaluators and evaluatees in system design [43](#page=43). * **Fair and acceptable:** Participants must perceive the process and outcomes as fair and acceptable [43](#page=43). Armin Trost's "stress test" helps assess the effectiveness of a performance system by posing critical "What if..." scenarios regarding daily communication, feedback quality, clarity of goals, and trust between managers and employees [43](#page=43). #### 5.2.7 Communication in performance cycles A performance cycle typically involves discussing: * **Past performance:** Providing feedback on achievements and areas for improvement, differentiating between behavior and results [43](#page=43). * **Future performance:** Setting new agreements and goals for the upcoming period, which may include development activities like training [43](#page=43). * **Potential:** Assessing an employee's growth and development possibilities, identifying unused competencies for development, often leading to a Personal Development Plan (PDP) and career planning discussions [44](#page=44). #### 5.2.8 Who evaluates? Traditionally, direct managers are the primary evaluators due to their authority and understanding of task-related results. However, other evaluators can offer diverse perspectives [44](#page=44): | Evaluator | Pros | Cons | | :-------------------- | :-------------------------------------------------------------------------------------------------------- | :---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | | Direct manager | Legitimate authority, agreements made, knows task results, high credibility. | Limited observation opportunities, impression management risk, time pressure, fear of negative feedback, less insight into interpersonal behavior. | | Colleagues (peers) | Diverse observation opportunities, high credibility, assesses task and interpersonal behavior, improves communication. | Friendship bias leading to mild evaluations, potential resistance due to power structure shifts, top performers may give objective judgments. | | Team members | Provides bottom-up feedback, improves team building, offers view on leadership competences. | Requires anonymity, large numbers, and trust; fear of repercussions; resistance from management; relationship deterioration; insufficient insight into functional requirements. | | Employee (self-evaluation) | Knows the function, improves development, part of 360° evaluation. | Tendency for mild evaluation (especially when tied to rewards), perception bias. | | External specialist | Unbiased assessment of technical knowledge and skills, determines potential. | Insufficient knowledge of the organization and required performance, few observation chances, not perceived as legitimate. | The Yohai window model highlights that self-perception is limited, emphasizing the need for regular feedback from managers, colleagues, team members, and customers to minimize blind spots [45](#page=45). **360°-evaluation** (multiple rater) gathers feedback from various sources to provide a more objective and credible view, visualizing strengths, weaknesses, and potential gaps between self-perception and others' perceptions. Successful implementation requires careful consideration of respondents, result recipients, feedback discussions, and the mandatory nature of PDPs [45](#page=45). #### 5.2.9 Feedback Effective feedback must be accepted and understood to improve behavior. Modern approaches emphasize active feedback seeking by employees to understand job pros and cons and career perspectives, with the goal of translating feedback into improved work behavior and results [45](#page=45). #### 5.2.10 Use of evaluations for other HRM interventions Performance management information can lead to four intervention quadrants based on performance/competency and motivation levels: * **High performance/competency, High motivation:** Good performers requiring recognition, development opportunities, and honest feedback [46](#page=46). * **High performance/competency, Low motivation:** Challenge cases needing coaching, frequent feedback, goal setting, competency development, and task restructuring [46](#page=46). * **Low performance/competency, High motivation:** Underperformers benefiting from honest feedback, advice, team building, rewards based on results, competency development, and stress management [46](#page=46). * **Low performance/competency, Low motivation:** Dead wood cases that may require exit, cessation of salary increases, or demotion [46](#page=46). #### 5.2.11 The future of performance management Traditional performance management systems are often time-consuming, administratively burdensome, and complex, leading to resistance. The market demands more flexible organizations and a focus on talent growth rather than past evaluations. Teamwork, innovation, less hierarchical structures, and employee involvement are increasingly important [46](#page=46). Alternative performance management systems differ from traditional ones in several aspects: | Aspect | Traditional | Alternative | | :------------------ | :------------------------------- | :-------------------------------- | | Frequency | Annually | Monthly (case-based) | | Obligation | Standard | Voluntary | | Focus | Employee | Team | | Responsibility | Manager | Employee/Team | | Who evaluates? | Manager (direct) | Self, colleagues, team | | Format of evaluation| Quantitative (scores) | Qualitative | | Dimensions to evaluate | Structured | Open | | Forced distribution?| Standard distribution | No | | Goal setting | Top-down | Bottom-up | | Advice on results | Yes | No (confidential) | | Registration | Central (database) | No, confidential | | Centrally organised | Yes (top-down) | No | Examples of evolving performance management practices include real-time feedback apps, deeper conversational approaches, shifts from ratings to continuous learning, and agile HR systems emphasizing employee agency and continuous feedback [47](#page=47). #### 5.2.12 The ROI of performance management Performance management serves as a critical link between employees, teams, and the organization, essential for achieving strategic goals. HRM, in collaboration with employees, management, and stakeholders, should continue to monitor behavior and results, using periodical cycles for feedback, follow-up, and evaluation to enhance motivation and overall performance [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 HRM | An approach that defines how the organization's goals will be achieved in context, through people, by means of integrated HR strategies, policies, and practices. | | VUCA World | A term describing a complex and unpredictable environment characterized by Volatility, Uncertainty, Complexity, and Ambiguity. | | Strategic Fit | The degree to which HRM practices are aligned with and support the overall business strategy of an organization, encompassing both vertical (linking HR practices to strategic management) and horizontal (coordination among HR practices) dimensions. | | Strategic Flexibility | The ability of an organization to adapt and respond effectively to changes in its competitive environment, often achieved through flexible HR systems and a multiskilled workforce. | | HR Value Proposition | The promise that HR practices, departments, and professionals produce positive outcomes for key stakeholders, including employees, line managers, customers, and investors. | | Business Context | The set of internal and external realities and influences that shape an organization's operations, strategy, and goals, including factors like customers, deadlines, financial situation, technology, and investors. | | Performance Management | A systematic process of setting objectives, planning, monitoring, and evaluating performance to help employees understand their contribution to organizational goals and improve their effectiveness. | | Management By Objectives (MBO) | A management concept introduced by Peter Drucker where specific objectives are defined throughout an organization, down to the individual employee level, to enhance productivity and motivation. | | SMART Principle | A framework for setting effective objectives, where each objective is Specific, Measurable, Acceptable, Realistic, and Timely. | | 360°-Evaluation | A feedback mechanism where an employee's work behavior is assessed by multiple evaluators, including managers, colleagues, team members, and sometimes subordinates, to provide a comprehensive view of strengths and weaknesses. | | HRBP (Human Resources Business Partner) | A role within an HR department that acts as a consultant and strategic advisor to specific client groups within the organization, focusing on aligning HR initiatives with business objectives. | | Operational Excellence | A value proposition focused on serving customers in the fastest and/or cheapest way through high efficiency in all processes, continuous optimization, and strong key performance indicators (KPIs). | | 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, product development, and a quick translation from innovation to market. | | Customer Intimacy | A value proposition centered on deeply understanding and knowing the customer to offer a personalized and comprehensive customer experience, often involving direct contact and tailored services. |