Read Case 4, “Integrating Strategy and Human Resource Management” (pages 156-158 in the Greer text), and then answer all 5 questions on page 158.

Integrating Strategy and Human Resource Management

The experiences of several organizations provide good examples of the integra-tion of strategy and human resource management. One such example is provided by the experiences of People’s Bank, a financial services company headquar-tered 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. 1 Because of major changes in People’s strategy, there was a recognition that new organizational structures would be needed to accommodate the changes. The organization was decentralized, hierarchical levels removed, strategic busi-ness 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 placed greater emphasis in performance appraisal on mar-keting 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. 2 The experiences of the U. S. Navy provide another example of the integra-tion of strategy and human resource management. As a result of its linkage of strategic planning with human resource management, the Navy was able to pur-sue a proactive strategy that provided lower labor costs. In the Navy’s case, its human resource planners analyzed the labor 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 labor market reactions to these changes, planners could determine whether sufficient labor 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 man-agement positions and found that higher- quality employees could be hired. 3 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 resource management. Ingersoll- Rand’s rock- drilling division was experiencing rapid growth and had shortages of labor. It also needed to train its employees to work with new technology and wanted to control labor costs. The outcome of integrating its human resource capabilities with its strategic planning process was that the company implemented a number of programs, including gain shar-ing and employee involvement teams. It also had employees participate in deci-sions on the purchase of new technology and made a major commitment to tech-nological training. 4 A final example of the integration of strategy and human resources is pro-vided by Maid Bess, a manufacturer of uniforms. The company faced intense competition from foreign manufacturers, and control of labor costs became very critical. Because of its labor 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 pro-ductivity, increased employee wages, and reduced turnover. 5

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. How does the strategic role of human resource management in the U. S. Navy case differ from the others?

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

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

5. The Ingersoll- Rand case indicates that its solutions to the problems it faced were based largely on employee empowerment approaches. Explain how employee empowerment can provide a viable source of competitive advantage to be consid-ered in strategic decision making.

References

1. People’s Bank. Company Press Release, ” People’s Announces Three Strategic Initiatives— New Key Areas Will Enhance the Organization’s Agility and Effectiveness” ( May 10, 2000); Coleman, Sharon M., Martin Leshner, and C. Chase Hewes. ” Human Resources Planning: A Tool for Strategic Change,” The Bankers Magazine 169, no. 6 ( 1986): 39- 44.

2. Coleman, Leshner, and Hewes. ” Human Resources Planning: A Tool for Strategic Change.”

3. Atwater, D. M., E. S. Brees III, and R. J. Niehaus. ” Analyzing Organizational Strategic Change Using Proactive Labor Market Forecasts,” in Richard J. Niehaus and Karl F. Price ( Eds.), Creating the Competitive Edge through Human Resource Applications. New York: Plenum Press, 1988, pp. 119- 36.

4. McManis, Gerald L., and Michael S. Leibman. ” Integrating Human Resource and Business Planning,” Personnel Administrator 33, no. 6 ( 1988): 32- 35.

5. Ibid.