Strategic Management Concepts

1. Strategic Analysis

Strategic analysis, the first step in the strategic planning process, involves collecting and assessing information about a company’s environment and operations. Strategic analysis helps leaders set priorities and goals, forming the foundation for strategic planning and long-term business strategies.

The process of assessing and analyzing organizational data and information provides managers with a clear understanding of their resources for achieving long-term goals and identifies areas that need attention when developing a plan for business success. The same applies when conducting a strategic analysis specifically for human resources.

key concept

Whether looking at the organization as a whole or simply the department itself, it is important that an analysis is conducted to gain information so that there is informed decision making rather than making assumptions. By looking at items such as employee skills, company culture, and unemployment rates, HR can support a company in meeting its long-term goals and objectives.

Strategic planning for HR can be done both at the department and company-wide levels. When looking at departmental HR strategic plans versus company-wide strategic plans with HR initiatives, we’re looking at two different scopes of planning. A departmental HR strategic plan focuses on the goals and needs of the HR department.

EXAMPLE

An HR departmental strategic plan might include things like improving recruitment processes, enhancing employee training programs, or developing better performance evaluation systems. It’s all about making the HR department more effective and efficient.

A company-wide strategic plan including HR initiatives is broader. This plan covers the entire organization and integrates HR strategies to support overall business goals.

EXAMPLE

If the company aims to expand into new markets, the HR initiatives might focus on hiring and training employees with the necessary skills for this expansion.

hint

While a departmental HR plan focuses on HR-specific improvements, a company-wide plan uses HR strategies to drive the broader business objectives. Both are crucial, but they operate at different levels of the organization.

When conducting strategic analysis, it is important to understand the scope of the planning and identify data that relates to the level of planning. Two tools that can be used in the strategic analysis process are SWOT and PESTEL. Each of these creates a process for assessing the current situation and identifying opportunities for positive change.

term to know

Strategic Analysis

Researching a company's environment to create effective plans for achieving long-term goals.

1a. SWOT Analysis

You may already have heard of one very common tool used to analyze a company’s strategic and competitive situation: SWOT analysis, which is an acronym for strengths, weaknesses, opportunities, and threats. Organizations use SWOT analysis to get a general understanding of what they are good or bad at and what factors outside their doors might present chances for success or difficulty. HR, as a department, can also utilize SWOT as a tool to assess the department and organizational needs around personnel and talent management.

In a SWOT analysis, a firm’s strengths are, put simply, what it is good at. When conducting a SWOT analysis and considering the human side of the organization, strengths might include items such as an experienced workforce, high morale and engagement, comprehensive training programs, or a strong employer brand. By capitalizing on its strengths, a company can gain a competitive advantage by utilizing a skilled, motivated, and well-supported workforce to achieve its goals.

EXAMPLE

When conducting a SWOT analysis, some strengths an organization might identify around HRM are a highly skilled and experienced workforce, a strong leadership team, a culture of innovation and collaboration, or effective employee retention strategies. Recognizing these strengths allows the organization to leverage them strategically, enhancing its reputation as an employer of choice, or expanding training programs to further develop its workforce.

A firm’s weaknesses are what it is not good at—things that it does not have the capabilities to perform well. Weaknesses are not necessarily faults; remember that not all firms can be great at all things. When a firm understands its weaknesses, it will avoid trying to do things it does not have the skills or assets to succeed in, or it will find ways to improve its weaknesses before undertaking something new. An organization’s weaknesses are simply gaps in capabilities, and those gaps do not always have to be filled within the firm.

EXAMPLE

When conducting a SWOT analysis, some weaknesses an organization might identify around HRM are high turnover rates, skill gaps, uncompetitive salaries, or compliance issues. Identifying these weaknesses then allows strategic goals to be created to mitigate these issues to put the organization into a more competitive position.

hint

Strengths and weaknesses are internal to an organization, but opportunities and threats are always external.

An opportunity is a potential situation that a firm is or may be equipped to take advantage of. By identifying these opportunities, the firm can identify what steps need to be taken to take advantage of the opportunity.

EXAMPLE

Opportunities a company might have regarding HR might be technology that would improve recruitment, education collaborations with local colleges, or government initiatives around workforce development. Goals could be created around exploring and utilizing these types of opportunities to support employee development and engagement.

When assessing the external competitive environment, anything that would make it harder for the firm to be successful is a threat. A wide variety of situations and scenarios can threaten a firm’s chances of success, from a downturn in the economy to a competitor launching a better version of a product the firm also offers. A good threat assessment looks thoroughly at the external environment and identifies threats to the firm’s business so it can be prepared to meet them.

EXAMPLE

Threats that could impact an organization’s employees might include changing labor laws, litigation risks, global political instability, or cybersecurity threats.

SWOT analysis can generate a good evaluation of the firm’s internal and external environments, but it is more likely to overlook key issues because it is difficult to identify or imagine everything that could, for example, be a threat to the firm.

terms to know

SWOT Analysis

An acronym for strengths, weaknesses, opportunities, and threats. Firms use SWOT analysis to get a general understanding of what they are good or bad at and what factors outside their doors might present chances for success or difficulty.

Strengths 

What a firm is good at.

Employer Brand

A company’s reputation as employer.

Weaknesses 

What a firm is not good at—things that it does not have the capabilities to perform well.

Turnover

The rate in which employees leave a company and are replaced by new hires.

Opportunity

A potential external situation that a firm is equipped to take advantage of.

Threat

Anything in the competitive environment that would make it harder for a firm to be successful.

1b. PESTEL Analysis

PESTEL is a tool that guides managers into looking at several distinct categories in the macro environment. Like SWOT, PESTEL is an acronym. In this case, the letters represent the categories to examine: political factors (P), economic factors (E), sociocultural factors (S), technological factors (T), environmental factors (E), and legal factors (L). When using PESTEL to analyze factors impacting a firm’s human resources, the overlap between different categories of PESTEL factors can sometimes happen just as it can with SWOT.

The table below describes the components of PESTEL with examples of how human resources might be effected by each factor.

make the connection

In the Touchstone, you will be asked to conduct an analysis of the current HR practices of a firm. SWOT and PESTLE are both tools that are helpful when conducting an assessment of current practices and laying out recommendations for change.

terms to know

PESTEL Analysis

An acronym with each letter representing categories to examine when assessing the macro environment.

Macro Environment

The external factors and forces that impact a company.

Political Factors

Include taxation, tariffs, trade agreements, labor regulations, and environmental regulations.

Economic Factors

Conditions like inflation, unemployment, and interest rates, which impact a company’s financial health and strategic decisions.

Sociocultural Factors 

This broad category encompasses everything from changing national demographics to fashion trends and many things in between.

Technological Factors

This category includes the Internet, automation, and consumer’s increased access to information to make buying decisions.

Environmental Factors

Conditions like climate, natural disasters, and pollution, that affect a company’s operations and strategic decisions.

Legal Factors

Laws and regulations that can impact business success. These factors commonly have deep political connections.

2. Strategy Formulation

Strategy formulation involves taking the information from the strategic analysis stage into a strategic plan with specific goals and objectives set. Specifically, the process involves developing a plan that best reflects the organization’s strengths and weaknesses and market realities.

Creating an effective HR strategy means understanding the process at both the department and company-wide levels. This ensures a unified approach to managing human resources. At both levels, HR strategy involves aligning the specific goals and needs of a department with the company's overall objectives. Information from analyses like SWOT or PESTEL is used to set these goals, addressing weaknesses and threats while taking advantage of strengths and opportunities.

At the departmental level, the plan focuses on aligning the HR department’s goals with the company’s objectives.

EXAMPLE

This might include updating the recruitment process, streamlining benefits, or creating specific training plans for departmental growth.

On a company-wide scale, HR strategy formulation takes a broader view. The goal is to create a unified strategy that supports the entire organization’s mission and vision.

EXAMPLE

This involves understanding the company’s long-term goals and ensuring the HR strategy helps achieve them.

think about it

Imagine an HR department in a coffee roastery aiming to expand production and be a leader in industry innovation. What steps should the HR department of the coffee roastery take to achieve its goal of becoming an industry leader in innovation? The strategy formulation would include identifying key goals, assessing current capabilities and gaps, and brainstorming initiatives to support the department’s needs. This might involve tailored recruitment plans, specialized training programs, or initiatives to boost team morale and creativity to attract and retain top talent in the coffee industry.

Whether creating a departmental strategic plan or one for the organization as a whole, effective HR strategy formulation requires a deep understanding of the organization’s goals, a clear assessment of the current workforce, and creative thinking to develop initiatives that bridge the gap between the present and the future. By aligning departmental strategies with broader company-wide objectives, HR can ensure that every part of the organization is moving in the same direction, contributing to overall success. This approach helps create a resilient, adaptable, and high-performing workforce ready to meet any challenge.

term to know

Strategy Formulation

Planning actions for a company to achieve goals by analyzing strengths, weaknesses, opportunities, and threats.

3. Strategy Implementation

Implementing an HR strategy is like managing a complex project. It involves clear communication, effective training, regular monitoring, and alignment with the business strategy.

• Communication is crucial for everyone in the organization to understand the HR strategy. This means clearly explaining the goals, the steps to achieve them, and the benefits for everyone involved. Without clear communication, confusion can lead to mistakes and missed opportunities.
• Training and development is essential. Employees need training to perform their roles effectively. This could involve workshops, online courses, or on-the-job training. The aim is to equip employees with the skills and knowledge they need to contribute to the organization’s goals.
• Monitoring and feedback are key aspects. HR needs to regularly check in on how the strategy is being implemented and adjust as needed. This could involve regular meetings, surveys, or performance reviews.
• Alignment is also important. All parts of the organization need to work together towards the same goals. This means ensuring that the HR strategy aligns with the overall business strategy. It’s like making sure all the pieces of a puzzle fit together to create a coherent picture.

REFERENCES

Bright, David S. & Cortes, Anastasia H. (2019). “PRINCIPLES OF MANAGEMENT”. Access For Free At OPEN STAX. https://creativecommons.org/licenses/by-sa/4.0/.