CASE STUDY 2:INTEGRATING STRATEGY AND HRM

The experiences of several organizations provide good examples of the integration of strategy and human resource management. One such example is provided by the experiences of People's Bank, a financial services company headquartered in Bridgeport, Connecticut. Massive changes began to take place in the business environment of banking with deregulation and relaxation of ceilings on interest. Money markets began to drain off funds that ordinarily went into banks' deposits, forcing them to rely on more expensive sources of funds. Further, the money center banks began to compete in the same middle markets as regional banks. People's, which was a small regional bank, responded by changing its strategy from a product orientation to one directed toward markets. With a product orientation, products are developed and then markets are sought out in which to sell the product. Conversely, a market orientation involves an opposite approach in that market demands are determined and then products developed to serve the market. As a result of these changes, People's transformed itself into a diversified financial services company with 139 branches and a fully integrated banking services and stock trading presence on the Internet

Because of major changes in People's strategy, there was recognition that new organizational structures would be needed to accommodate the changes. The organization was decentralized, hierarchical levels removed, strategic business units formed, and new senior vice presidencies created within a matrix structure. The bank then conducted a study of the types of employees that would be needed with the new strategy's skill and organizational requirements. Major changes were undertaken as a result of the audit. For example, the performance appraisal system was revised. The revised system emphasized goal setting, linked individual goal accomplishment, and rewards with the attainment of the bank's objectives, and places greater emphasis in performance appraisal and marketing and sales. Further, human resource planning was more fully integrated with the strategic planning process through synchronization of its scanning processes with the bank's overall environmental scanning process.

The experiences of the U.S. Navy provide another example of the integration of strategy and human resource management. As a result of its linkage of strategic planning with human resource management, the Navy was able to pursue a proactive strategy that provided lower labour costs. In the Navy's case, its human resources planners analyzed the labour cost savings of a strategy involving its civilian employees that would substitute local wage policies for national wage policies. By developing human resource forecasts to determine the labour market reactions to these changes, planners could determine whether sufficient labour supplies would be available with the cost-saving strategy. In this example, the planners also examined the impact of the reduction of private-sector middle management positions and found that higher-quality employees could be hired.

Ingersoll-Rand's experiences with one of its divisions also provide a good example of the outcome of a strong linkage between strategy and human resources management. Ingersoll-Rand's rock-drilling division was experiencing rapid growth and had shortages of labour. It also needed to train its employees to work with new technology and wanted to control labour costs. The outcome of integrating its human resources capabilities with its strategic planning process was that the company implemented a number of programs, including gain sharing and employee involvement teams. It also had employees participate in decisions on the purchase of new technology and made a major commitment to technological training.

A final example of the integration of strategy and human resources is provided by Maid Bess, a manufacturer of uniforms. The company faced intense competition from foreign manufacturers, and control of labour costs became very critical. Because of its labour intensity, the company closely integrated human resource management with the strategic planning process. As an outcome of the integrated strategic planning process, the company's executive vice president designed a compensation program that incorporated bonuses that enhanced productivity, increases employee wages, and reduced turnover.

Questions

1. Based on these descriptions of the experiences of People's Bank, Ingersoll-Rand, and Maid Bess, what is the unifying theme of the role played by human resource management?

2. What were the environmental influences stimulating the actions described for each of these organizations?

3. What managerial trends are indicated in the experiences of these organizations?

4. Explain how employee empowerment can provide a viable source of competitive advantage to be considered in strategic decision making.