THE STRATEGIC MANAGEMENT PROCESS

As in the following Strategic Context feature,we can use the Shanghai Portman example
to get a bird's eye view of the strategic human resource management process.

Goal-Setting and the Planning Process

Whether the manager is planning to boost a hotel s profitability or something more
mundane, the basic planning process is the same. It involves setting objectives, making
basic planning forecasts, reviewing alternative courses of action, evaluating which
options are best, and then choosing and implementing your plan. A plan shows the
course of action for getting from where you are to where you want to go in other
words, to the goal. Planning is always goal-directed (in this case, to improve the
hotel s level of service significantly ).
THE HIERARCHY OF GOALS In companies, it is traditional to view the goals
from the top of the firm down to front-line employees as a chain or hierarchy of goals.
Figure 3-1 illustrates this. At the top, the president sets long term or strategic goals
(such as Double sales revenue to $16 million in fiscal year 2011 ). His or her vice
presidents then set goals, such as add one production line at plant, which flow from
and make sense in terms of accomplishing the president s goal. (In other words, What
must I as production head do to help make sure that the company accomplishes its
double sales goal? ) Then the vice presidents subordinates set their own goals, and so
on down the chain of command. The planning process thus traditionally starts with
formulating top-level, long-term strategic plans and goals.
Strategic Planning

A strategic plan is the company s plan for how it will match its internal strengths and

weaknesses with external opportunities and threats in order to maintain a competitive

advantage. The essence of strategic planning is to ask, Where are we now as a business,

where do we want to be, and how should we get there? The manager then formulates

specific (human resources and other) plans to take the company from where it is now to

where he or she wants it to be.When Yahoo! tries to figure out whether to sell its search

business to Microsoft, it s engaged in strategic planning.A strategy is a course of action.

If Yahoo! decides it must raise money and focus more on applications like Yahoo!

Finance, one strategy might be to sell Yahoo! Search. Strategic management is the

process of identifying and executing the organization s strategic plan, by matching

the company s capabilities with the demands of its environment.

STEP 1: DEFINE THE CURRENT BUSINESS The logical place to start is by

defining one s current business. Specifically, what products do we sell, where do we
sell them, and how do our products or services differ from our competitor s. For
example, Rolex and Casio both sell watches. However, Rolex sells a limited line of
expensive watches. Casio sells a variety of relatively inexpensive but innovative
specialty watches with features like compasses and altimeters.
STEP 2: PERFORM EXTERNAL AND INTERNAL AUDITS The next step
is to ask, Are we heading in the right direction? No one is immune to competitive
pressures. Yahoo! s search tool predominated until Google. Amazon s Kindle Reader
forced even more bookstores to close. Prudent managers periodically assess what s
happening in their environments.
Managers need to audit both the firms environment, and the firms strengths
and weaknesses. The environmental scanning worksheet in Figure 3-3 is a simple

guide for compiling relevant information about the company s environment. This

includes the economic, competitive, and political trends that may affect the

company.

STEP 3: FORMULATE A NEW DIRECTION The question now is, based on the

environmental scan and SWOT analysis,what should our new business be, in terms of

what products we will sell, where we will sell them, and how our products or services

will differ from competitors products?

Managers sometimes formulate a vision statement to summarize how they see

the essence of their business down the road. The vision statement is a general statement

of the firms intended direction; it shows, in broad terms, what we want to

become. 2 Rupert Murdoch, chairman of News Corporation (which owns the Fox

network, and many newspapers and satellite TV businesses), built his company

around a vision of an integrated, global satellite-based news-gathering, entertainment,

and multimedia firm. PepsiCo s vision is Performance with Purpose. PepsiCo

CEO Indra Nooyi says the company s executives choose which businesses to be in

based on Performance with Purposes three pillars of human sustainability, environmental

sustainability, and talent sustainability.3

Whereas vision statements usually describe in broad terms what the business

should be, the company s mission statement summarizes what the company s main

tasks are now. Several years ago, Ford adapted what was for several years a powerful

mission for them making Quality Job One.

STEP 4: TRANSLATE THE MISSION INTO STRATEGIC GOALS Next,

translate the mission into strategic objectives. The company and its managers need

strategic goals. At Ford, for example, what exactly did making Quality Job One
mean for each department in terms of how they would boost quality? The answer is

that its managers had to meet strict goals such as no more than 1 initial defect per

10,000 cars.

STEP 5: FORMULATE STRATEGIES TO ACHIEVE THE STRATEGIC GOALS

Next, the manager chooses strategies courses of action that will enable the company
to achieve its strategic goals. For example, what strategies could Ford pursue to hit its
goal of no more than 1 initial defect per 10,000 cars? Perhaps open two new high-tech
plants, reduce the number of car lines to better focus on just a few, and put in place new
more rigorous employee selection, training, and performance appraisal procedures.
STEP 6: IMPLEMENT THE STRATEGIES Strategy execution means translating
the strategies into action. The company s managers do this by actually hiring (or
firing) people, building (or closing) plants, and adding (or eliminating) products and
product lines.
STEP 7: EVALUATE PERFORMANCE Things don t always turn out as planned.
For example, Ford bought Jaguar and Land Rover as a way to reduce reliance on
lower-profit cars. With auto competition brutal, Ford announced in 2009 it was
selling Jaguar and Land Rover (to Tata, a company in India). Ford wants to focus its
scarce resources on modernizing and turning around its North American operations.
Like all companies, Ford continually needs to assess its strategic decisions.

Types of Strategies

In practice, managers formulate three strategies. There is corporate-wide strategic planning,

business unit (or competitive) strategic planning, and functional (or departmental)

strategic planning

CORPORATE STRATEGY The corporate strategy question is, How many and what

kind of businesses should we be in? For example, PepsiCo doesn t just make Pepsi-Cola.

Instead,PepsiCo is comprised of four main businesses: Frito-Lay North America,PepsiCo

Beverages North America, PepsiCo International, and Quaker Oats North America.5

PepsiCo therefore needs a corporate-level strategy. A company s corporate-level

strategy identifies the portfolio of businesses that, in total, comprise the company

and how these businesses relate to each other.

* For example, with a concentration (single business) corporate strategy, the

company offers one product or product line, usually in one market. WD-40

Company (which makes a spray hardware lubricant) is one example.

* A diversification corporate strategy implies that the firm will expand by adding

new product lines. PepsiCo is diversified. Over the years, PepsiCo added chips
and Quaker Oats. Such related diversification means diversifying so that a firms

lines of business still possess a logical fit. Conglomerate diversification means

diversifying into products or markets not related to the firms current businesses

or to one another.

* A vertical integration strategy means the firm expands by, perhaps, producing its

own raw materials, or selling its products direct. Thus, Apple opened its own

Apple stores.

* With consolidation strategy, the company reduces its size.

* With geographic expansion, the company grows by entering new territorial markets,

for instance, by taking the business abroad, as PepsiCo also did.

COMPETITIVE STRATEGY On what basis will each of our businesses compete?

Each of these businesses (such as Frito-Lay) needs its own business-level/competitive

strategy. A competitive strategy identifies how to build and strengthen the business s

long-term competitive position in the marketplace.6 It identifies, for instance, how

Pizza Hut will compete with Papa Johns or how Walmart competes with Target.

Managers endeavor to achieve competitive advantages for each of their businesses.

We can define competitive advantage as any factors that allow a company to differentiate

its product or service from those of its competitors to increase market share.

Managers use several standard competitive strategies to achieve competitive advantage:

* Cost leadership means becoming the low-cost leader in an industry.Walmart is a

classic example. It maintains its competitive advantage through its satellite-based

distribution system, careful (usually suburban) site location, and expert control

of purchasing and sales costs.

* Differentiation is a second possible competitive strategy. In a differentiation strategy,

the firm seeks to be unique in its industry along dimensions that are widely valued

by buyers.7 Thus,Volvo stresses the safety of its cars, Papa Johns stresses fresh ingredients,

and Target stresses somewhat more upscale brands than Walmart. Like

Mercedes-Benz, firms can usually charge a premium if they successfully stake a claim

to being substantially different from competitors in some coveted way.

* Focusers carve out a market niche (like Ferrari). They compete by providing a

product or service that their customers cannot get from their generalist competitors

(such as Toyota).

HUMAN RESOURCES AS A COMPETITIVE ADVANTAGE A competitive

advantage enables a company to differentiate its product or service from those

of its competitors, but the competitive advantage needn t be tangible, such ashigh-tech machines or
satellite systems. Bloomberg Businessweek magazine recently

described teams of empowered workers at a GE airfoils plant in Greenville,

South Carolina. The teams run computer-controlled machine tools, interview

prospective team members, and adjust assembly lines to maximize production.8

For GE, the workers skills and dedication are competitive advantages; they produce

the quality and productivity that make GE an aerospace leader. Similarly, Apple s

reputation for innovation reflects its competitive advantage in creative and brilliant

engineers. Thus, the best competitive advantage is often human capital

knowledgeable, skilled, engaged employees working hard and with self-discipline.

FUNCTIONAL STRATEGY Finally, what do our competitive choices (such as

maintaining the lowest costs) mean for each of the departments that actually must do

the work? Each individual business (like PepsiCo s Frito-Lay and Quaker Oats units)

consists of departments such as manufacturing, sales, and human resource

management. Functional strategies identify the broad guidelines that each

department will follow in order to help the business accomplish its competitive goals.

Each department s functional strategy should make sense in terms of the business/

competitive strategy.

For example, the business s competitive strategy should mold the firms human

resource management policies and practices. As an example, the Portland hotel wants

to differentiate itself with exceptional service, and so needs to select and train

employees who are exceptionally customer oriented.Walmart s low cost competitive

strategy translates into human resource management policies that many view as

low-pay and antiunion.

STRATEGIC FIT Strategic planning expert Michael Porter uses the term strategic

fit to sum up the idea that each department s functional strategy should fit and

support the company s competitive aims.

For example, Southwest Airlines is a low-cost leader. It aims to deliver

low-cost, convenient service on its routes. To accomplish this, Southwest builds its

departments activities around supporting certain core aims. Southwest s core aims

include limited passenger services (such as meals); short-haul, point-to-point

service between mostly mid-size cities; high aircraft utilization; and lean highly

productive ground crews. Achieving these aims means that each department s

efforts needs to fit these aims. Southwest s ground crew department must get fast

15-minute turnarounds at the gate. That way, Southwest can keep its planes flying

longer hours and have more departures with fewer aircraft. Its purchasing

and marketing departments shun frills like meals and premium classes of service.

To ensure highly productive ground crews, the HR department will provide

high compensation, flexible union contracts, and employee stock ownership. Their

aim is that:

High Pay Highly Productive Ground Crews Frequent Departures

Low Costs

Top Managers Roles in Strategic Planning

Devising a strategic plan is top management s responsibility. Top management

must decide what businesses the company will be in and where, and on what basis

it will compete. Southwest Airlines top managers could never let lower-level

managers make strategic decisions (such as unilaterally deciding that instead of

emphasizing low cost, they were going to retrofit the planes with first-class cabins).