Twin Cities Human Resources Association -...

Twin Cities Human Resources Association SHRM Certification Preparation Course – Fall 2013

Business Management and Strategy Session 9

K. David Hirschey, MAIR, SPHR, GPHR Minneapolis, MN

2013 K. David Hirschey, Minneapolis, MN

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Topics for Session 9

11% PHR (19 questions) 30% SPHR (53 questions)

• The Strategic Role of Human Resources • Strategic Planning • Environmental Scanning • Business Perspective: Operating Environments and Structures • Business Strategy • Strategic Human Resource Planning • Ethical Issues Affecting Human Resources


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ROLE OF HUMAN RESOURCE’S IN ORGANIZATIONS Historical Human Resource Roles The developing role of Human Resources encompasses an ever-widening scope of responsibilities. Increasingly, administrative responsibilities are subordinated to allow Human Resource professionals to focus on those expanding job responsibilities that contribute more directly to the organization’s bottom line. Human Resource professionals have traditionally advised and assisted line managers in the management of Human Resources. The role of Human Resources has been to develop, educate, and influence management, not to perform the line manager’s job. Newer Human Resources responsibilities include helping employees balance work and family obligations, organizing Employee Assistance Programs, training employees on wellness issues, and establishing quality initiatives. Human Resource professionals are also taking part in planning strategy, facilitating change, and integrating and coordinating Human Resource functions as well as becoming involved in governmental, public, and community affairs. Advisory – educate and influence management. Advising line management includes gathering facts, diagnosing problems, providing solutions, and offering objective assistance and guidance on employee-related problems. For example, Human Resources provides a line manager with specific policy and procedure steps for dealing with an employee’s grievances. Rather than stepping into the situation, the Human Resource professional directs the personnel and industrial relations functions back to line management and provides the assistance that line managers need to increase productivity and satisfaction in work. Service – diverse customers and clients. Part of Human Resources operations has included providing service to the organization, its employees, and the public-at-large. As a service function, Human Resources has diverse customers – upper management, line management, employees, peers, departments, legal and regulatory agencies, vendors, applicants, retirees, families of deceased employees, and payroll. Control – review and measure performance – monitor supervisors. Control has involved reviewing and measuring performance to monitor how well supervisors and employees are meeting the objectives and needs of the organization. Controls can serve as a basis for evaluating supervisory and employee performance, correcting deficiencies, and motivating supervisors and employees. Control measures:

− Policy: A broad statement that reflects an organization’s philosophy, objectives, or standards concerning a particular set of management or employee activities. For example, a policy may describe what an employee is entitled to in terms of sick pay. The policy statement provides a basis for Human Resource management practices and a framework within which these practices are established. The Human Resource function should review organizational policies periodically and revise those that are obsolete so they no longer influence decision making.

− Procedure: A detailed, step-by-step description of the customary methods of handling activities. Using the example mentioned above, a procedure for sick pay might establish necessary actions in the case of illnesses to determine if the absence is excuse, paid or not paid, or eligible for the Family and Medical Leave Act.

− Rules: Reflect management decisions that actions be taken—or avoided—in a given situation. For instance, most companies want to help ensure that alcoholic beverages are not consumed during work hours. Management may therefore


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establish a rule that alcoholic beverages cannot be brought onto or consumed on company property.

Current Human Resource Roles The developing role of Human Resources encompasses an ever-widening scope of responsibilities. Increasingly, administrative responsibilities are subordinated to allow Human Resource professionals to focus on those expanding job responsibilities that contribute more directly to the organization’s bottom line. Newer Human Resources responsibilities include helping employees balance work and family obligations, organizing Employee Assistance Programs, training employees on wellness issues, and establishing quality initiatives. Human Resource professionals are also taking part in planning strategy, facilitating change, and integrating and coordinating Human Resource functions as well as becoming involved in governmental, public, and community affairs. Strategic – global, long-term, and forward-thinking focus Operational – day-to-day tasks Administrative – compliance and record keeping Facilitating Change A primary role Human Resource professionals fulfill is that of assisting the organization and its employees as they deal with organizational and social change. The change-agent role requires that Human Resources anticipate change and then conceptualize, design, and implement methods for adapting to the change. Employees can be prepared for change in a number of ways. Among the most common are:

• Training • Changing or adapting the culture of the organization • Increasing Employee Involvement (EI) and commitment

As change agents, Human Resource professionals explain the needs of the organization, describe the process for the change, seek funding for the change, and often explain or defend the required change to others within the organization.


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Evolution of Human Resources Function 1900 1940s and 1950s 1960s and 1970s 1980s and 2000s 2010’s …

• Began as specialized service, primarily handling clerical tasks

• Significant rise of labor unions • ‘Employment’s’ role in the collective

bargaining process • Broad social legislative initiatives and

enactments • Increased concern for legalities of

policies and practices, employee rights • Expanding role and responsibilities of

Human Resource Management function

• Increasing emphasis on Human

Resource’s role in strategic planning • International Human Resource

Management

• TBD

2011 K. David Hirschey, Minneapolis, MN 6

Changes in Human Resources Dimensions and Roles Changes in Emphasis in Human Resource Functions and Roles over time … 1980’s 1995+ 2013+ Compensation Compensation Recruiting and Retention Employee Relations Planning Total Compensation (Rewards) Management Development Staffing Work force management EEO Management Development - Diversity Initiatives Employment Communications - Skills Training Benefits Employee Relations - Employee Involvement Labor Relations Benefits International Human Resources Planning Work force management Communication Forums

Training EEO Management and Employee

Development Labor Relations Strategic and Work Planning Benefits Management Employee Relations EEO

Labor / Management Relations


The Human Resource Professional The Society for Human Resource Management (SHRM) had its beginnings as the American Society for Personnel Administration (ASPA) in 1948. In the mid-1960s, ASPA, along with a group from Cornell University, asked the United States Department of Labor, “What constitutes a profession?” The Department of Labor said that there were five characteristics, which separated a profession from other occupations. The characteristics as they relate to Human Resources follow. National Organization Code of Ethics

To qualify as a profession, an occupation must have a national organization or some other type of recognized common voice that can speak for its members and foster development of the field. The Society for Human Resource Management (SHRM) fulfills that role. Membership currently exceeds 245,000 individuals worldwide. A profession also requires a Code of Ethics that identifies standards of behavior relating to fairness, justice, truthfulness, and social responsibility. In 2001, SHRM modified the previous 11 items in their code of ethics, to the following 5 principals and all members pledge to honor this code. See the article on “Code of Ethics” in Session 10 regarding Ethics in Human Resource arena.

• Professional responsibility: Human Resource professionals are responsible for adding value to the organizations they serve and contributing to the ethical success of those organizations. They accept professional responsibility for their individual decisions and actions and are advocates for the profession, engaging in activities that enhance its credibility and value.

• Professional development: Human Resource professionals must strive to meet the highest standards of competence and commit to strengthen their competencies on a continuous basis.

• Ethical leadership: Human Resource professionals are expected to exhibit individual leadership as a role model for maintaining the highest standards of ethical conduct.

Human Resource professionals are ethically responsible for promoting and fostering fairness and justice for all employees and their organizations.


Research

Body of Knowledge

• Conflicts of interest: Human Resource professionals must maintain a high level of trust with stakeholders. In the interest of professional integrity, they must protect the interests of stakeholders and should not engage in activities that create actual, apparent or potential conflicts of interest.

• Use of information: Human Resource professionals

consider and protect the rights of individuals, especially in the acquisition and dissemination of information while ensuring truthful communications and facilitating informed decision-making.

The Code of Ethics for members of the Society for Human Resource Management has been adopted to promote and maintain the highest standards of personal conduct and professional standards among its members. Adherence to this code is required for membership in the Society and serves to ensure public confidence in the integrity of Human Resources management professionals. A third qualification for a profession is the practice of applied research to develop the field. Each year, the SHRM Foundation funds research into new and emerging areas of Human Resources. The fourth requirement of a profession is that it must possess a defined body of knowledge. The Human Resource Certification Institute (HRCI) uses a codification process to define the Human Resource body of knowledge for practitioners in the field. This knowledge is disseminated to Human Resource professionals through journals and publications, some of which are sponsored by SHRM.


Credentialing Finally, a profession must have a credentialing organization, which sets professional standards in the field. The Human Resource Certification Institute’s certification eligibility requirements and examinations fulfill this requirement (e.g. PHR & SPHR, GPHR).

There are additional groups that provide Human Resource professionals credentialing (e.g. CEBS, IFEBP, WaW (formerly ACA), CPP, EACA, etc.).

Primary Functions of Management

− Planning involves selecting goals and then establishing the related policies, programs and procedures to accomplish those goals.

− Organizing includes determining activities to achieve the goals, grouping those activities, assigning the groups of activities to personnel, delegating appropriate authority and coordinating authority with the organization.

− Directing pertains to the guidance and supervision of subordinates. − Controlling involves comparing actual performance to plans and making adjustments if

necessary. Evolving role of Human Resource – more planning and consultation – more strategic, more toward rewards and recognition, recruiting and retention.

• Human Resource role as a strategist. • Human Resource role as a change agent – Training, change culture, increase Employee

Involvement and commitment. • Integrating Human Resource functions – e.g. traditional areas need to cooperate more

on issues. • Human Resource Specialists vs. Human Resource Generalists – shift more to

generalists. • Outsourcing Human Resource functions (usually a top-down decision – ask for RFP –

go through process. • Reasons for outsourcing: improve focus, access to world class capabilities, accelerate

reengineering, share risks, free resources for other purposes, make capital available, cash infusion, control operating costs, find resources not avail internally, control functions that are difficulty to manage.

MANAGING PROJECTS A project is a sequence of events or activities that:

• Has a specific and measurable objective. • Has a specific beginning and completion time frame. • Has a specific budget limit. • Utilizes dedicated resources (money, people, equipment, time, etc.).


Project Management involves planning and monitoring a sequence of events or activities to achieve a desired objective:

• Within a desired time frame. • Within a desired cost structure. • With a desired performance or completion level. • With an effective and efficient utilization of resources.

Project Life Cycle Phases and Roles 1. Conception: Project is conceived, and gain senior management support / sponsorship is

obtained, goals and objectives are established. 2. Establish Project Plan: Project Manager and project team members are identified. 3. Implement Plan: Planning, Scheduling, Monitoring, and Control systems. 4. Monitor, Control, and Adjust. 5. Evaluation: Project effectiveness and results are evaluated. Project Roles 1. Project Sponsor: Individual from senior management whose role is to support the project and

communicate status to senior management. 2. Project Champion: Often thought of as project ‘Cheerleader’. Communicates project benefits. 3. Project Manager: Three primary roles: Interpersonal, Informational, and Decisional. 4. Project Team: Individuals brought together for specific project. Project Planning Tools Two commonly used project management tools are the Gantt Chart and PERT Chart.

Gantt Chart: Also known as a horizontal bar chart, a milestone chart, or an activity chart, the Gantt chart graphically displays activities of a project in sequential order and plots them over a time line.

PERT Chart: Essentially an arrow diagram or roadmap identifying all major project events. Time is the common denominator; the two key inputs – project events and sequence of these events.

Numbers = Weeks

Legend:

Event

Critical Path

F

Activity

15

2

22

2

BAC

DE

January February March MayApril

Development of RFP for new medical insurance plan

Identification of possible providers

Issuance of RFP

Evaluation of proposals

Company presentations

Selection

Presentation of new plan to employees

Development of plan


MANAGING CHANGE § To thrive, organizations need to be flexible and adjust – anticipate – profit from change. § People often resist change: fear of the unknown, not want it imposed, take-aways, and disrupt

stable friendships and relationships. § Change management: Human Resource plays a key role – involve people, keep top

management visible, communicate through the process, reinforce change through incentives, educate employees.

Understanding Change in Organizations

1. Determine the need or desire for change 2. Prepare tentative plans 3. Discuss alternative and probable reactions 4. Make a final decision 5. Establish a project plan and a timeline 6. Communicate the change 7. Implement and evaluate the change

Organizational Culture, Development and Change

§ Organizational culture – “the shared attitudes and perceptions in an organization” – made up of corporate values and behaviors as well as environmental and organizational realities that influence the organization. Often informal – shared way of life § Values – what is important to the organization – may be written and formal – or informal § Behaviors – observed – easier to change than values § Strong cultures – shared values, same goals, sense of mission § Culture is not always uniform throughout an organization – e.g. marketing, production,

creative, etc. § John P. Kotter and James L. Heskett reported the findings of their corporate culture

research in their book Corporate Culture and Performance. The following summarizes their findings.

1. Corporate culture can have a significant impact on a firm’s long-term economic

performance. Firms with cultures that emphasized customer, stockholders, and employees and expected leadership from managers at all levels outperformed firms that did not have those cultural traits by a huge margin. Over an 11-year period, the companies with strong corporate culture:

a) Increased revenues by an average of 682% versus 166% for companies lacking strong

cultural traits. b) Expanded their work forces by 282% versus 36%. c) Grew their stock prices by 901% versus 74%.

2. Corporate culture will probably be an even more important factor in determining the

success or failure of organizations in the next decade. Performance-degrading cultures have a negative financial impact for a number of reasons, the most significant being their tendency to inhibit the adoption of needed strategic or tactical changes. In a world that is changing at an increasing rate, it’s predictable that unadaptive cultures will have an even larger negative financial impact in the future.


3. Corporate cultures that inhibit long-term financial performance are not rare; they develop easily, even in firms that are full of reasonable and intelligent people. Cultures that encourage inappropriate behavior and inhibit change to more appropriate strategies tend to emerge slowly and quietly over a period of years, usually when companies are performing well. Once these cultures exist, they can be enormously difficult to change, because they are often invisible to the people involved and they help support the existing power structure.

4. Although tough to change, corporate cultures can be made more performance enhancing.

Such change is complex. It takes time and requires leadership that is guided by a realistic vision of what kinds of cultures enhance performance.

Human Resource plays a key role in reinforcing an organization’s culture – e.g. orientation, training, reward and recognition, policies, job descriptions, compensation, etc. Employee communications:

§ Employee handbooks – first day of work – Handbooks should state: § Do not create a contract, express or implied § Are not all-inclusive – only guidelines § Not alter “at-will” employment § Not guarantee employment for a length of time § Categories of employees covered § Supercedes previous handbooks, etc. § Can be changed by the employer at any time

Reengineering – “redesign of critical work processes within an organization to achieve increased quality, efficiency, and cost effectiveness”.

§ Can be perceived negatively if done overzealously (think of business transformation, downsizing, right sizing, restructuring, streamlining, layoffs, cuts, the shaft, etc.).

§ Reengineering process: Define project, new idea or redesign, do cost/benefit analysis, plan and implement a solution, measure results.

§ Success factors in reengineering: top mgmt sponsorship, alignment w/ company's direction, compelling bus case for change, consider co culture, line ownership, reengineering team that has depth and breadth.

§ Human Resource – opportunities for reengineering – shifts in employer scope, Human Resource practices, and technology.

Outsourcing Process

1. Analyze needs and define goals 2. Define budget 3. Create Request for Proposal (RFP) 4. Send RFPs to chosen contractors 5. Evaluate contractor proposals 6. Choose contractor 7. Negotiate contractor


Trends in Technology The Electronic Signatures in Global and National Commerce Act (the E-Sign Act). The E-sign Act that took effect October 1, 2000 gives electronically transmitted signatures the same legal standing as signatures written with pen on paper making electronic signatures legally binding. ‘Traditional’ Human Resource Functional Responsibilities

1. Employee and Labor Relations 2. Workforce Planning and Employment 3. Human Resource Development 4. Compensation and Benefits 5. Risk Management - Occupational Health, Safety and Security 6. Business Management and Strategy

STRATEGIC PLANNING Human Resource professionals have a unique opportunity to help create the appropriate culture to build the proper organization. They have a great deal to offer an organization in terms of strategies that will support the company with the challenges of the new century. But if the organizational leadership views Human Resources as implementers rather than developers, Human Resource professionals won’t be asked to participate in planning. For the benefit of the organization, Human Resources should work in conjunction with senior management to resolve the company’s Human Resource issues and contribute to the company’s ability to meet its objectives. When the organizational mission has been established, strategic planning can effectively support it. Strategic plans are conducted by following these steps. 1) Strategy Formulation Organizational Mission and Vision of what the owner or key managers want the organization to become

§ Who the organization is; What the organization does; Where the organization is headed. § Understanding and defining the business. § Deciding upon strategic mission changes. § Communicating the mission.

2) Strategy Development Environmental scanning is a process of examining the data about external changes (i.e., events, developments, and trends) to:

• Identify and interpret strategic issues that may affect the organization. • Assess how the external changes may affect Human Resources. • Identify long-term objectives. • Identify strategies to achieve objectives.


SWOT Analysis: A method of systematic group or individual reflection. SWOT is an acronym, which stands for Strengths, Weaknesses, Opportunities, and Threats. Its purpose is to gather, analyze, and evaluate information and identify strategic options facing an organization or individual at a given time. Sample SWOT Matrix

Strengths Positive characteristics and advantages of the issue, situation, or technique.

Weaknesses Negative characteristics and disadvantages of the issue, situation, or technique.

Opportunities Factors, situations that can benefit, enhance or improve the issue, situation, or technique.

S-O Analysis How can strengths be employed to take advantage of development opportunities?

W-O Analysis How can weaknesses be overcome to take advantage of development opportunities?

Threats Factors, situations that can hinder the issue, situation, or technique.

S-T Analysis How can strengths be used to counteract threats that tend to hinder achievement of objectives and pursuit of opportunities?

W-T Analysis How can weaknesses be overcome to counteract threats that tend to hinder achievement of objectives and pursuit of opportunities?

Before a company can forecast Human Resources supply and demand and other issues, an organizational strategy must be developed which sets long-term directions. The Human Resource professional must then review the organization’s corporate, unit, and functional strategies and forecast Human Resource needs and availability's in fulfilling the strategies. • Corporate or Organizational Strategy: An organization’s strategy focuses on questions like:

∗ What are our strengths as a business? ∗ How can we expand our market share? ∗ How can we utilize our competitive advantages more fully?

• Business Unit Strategy: A unit is a specific part of an organization. These parts may also be

referred to as business units, lines of business (LOBs), or profit centers. Strategic decisions at the unit level concentrate on the best way to compete in their specific market.

• Functional Strategy: A function may be a whole department or it may be an individual,

depending on the size of the organization. Functional strategies focus on how the functional area can contribute to the achievement of unit and corporate goals.


3) Strategy Implementation Placing strategic plan into action:

• Identify short-term objectives. • Establish action plans. • Allocate resources. • Motivate employees to manage or implement the plan.

An effective business strategy includes objectives at each of these levels to help ensure that the corporate mission will be achieved. In planning for Human Resources, an organization must consider changing Human Resource conditions over long periods. The changes will depend on the corporate strategy and organizational goals. Generally, planning periods can be divided into three groups.

a. Short-term plans should be completed in six months to one year.

b. Intermediate or Mid-term (or tactical) plans can be anywhere from one year to three years.

c. Long-term (or strategic) plans aim for accomplishment in three to five years.

Typically, the longer the range, the more difficult it is to plan. It’s hard to anticipate which variables that affect the plan may change over time. 4) Strategy Evaluation

§ Review Strategy. § Performance is measured. § Corrective action implemented.

Human Resource’s Role in Strategic Planning

1. To serve the organization. 2. To be familiar with organization’s industry. 3. Consultant versus Decision Maker. 4. Use facts and objective data to support positions. 5. Build organizational-wide partnerships.


Environmental Scanning (External) Environmental scan – “Process that systematically surveys, identifies, and interprets relevant events and conditions that may affect the organization”.

1. Economic conditions § An important part of environmental scanning is observing economic conditions as an

indication of where the economy is and where it is headed. Knowing this information helps the Human Resource professional plan more effectively.

§ Organizational decisions to hire additional people, lay off employees, or approve salary increases are all influenced by economic conditions. Indicators of current economic conditions include interest rates, the Gross Domestic Product (GDP), the Consumer Price Index (CPI), and consumer confidence measures.

2. International Factors § European Union § Wage comparisons § Trade agreements § Globalization

3. Technological Factors Another factor that affects Human Resource planning is technological advances. Changes in technology can alter jobs or make jobs obsolete, create a need for new skills, and change the type of training employee’s need. Technological change occurs constantly, and the rate of change has increased dramatically as a result of the computer age. Although change is constant, a sudden critical change (such as a merger or an acquisition) can cause extreme disruption for an organization and its employees. Managing this kind of change is difficult. In many instances, new technologies require new job designs. For this reason, technological advances must be considered in planning for Human Resource needs.

4. Social Factors § Overall worker quality / skills – lacking in reading and math – basic skills § Corporate Responsibility § Population Shifts

5. Employment Factors Labor force trends influence the Human Resource professional’s planning decisions. The labor force is constantly changing, and Human Resources has to look at the best ways to accommodate the trends. § Immigration § Migration § Occupational and industry shift – more toward service industries § Recruitment – geographic scope § Unions § Work force indicators – unemployment, turnover, wages § Relocation

6. Demographic Factors Geographic and demographic considerations often have an impact on the Human Resource function. The factors influenced by geography and demographics include recruitment, relocation, migration, international management, and supply and demand. § Aging workforce … § Gender presence in leadership roles within organizations § Sandwich generation – baby boomers care for both children and parents § Traditionalist Workforce Generation – (born 1925 -1945): Conservative approach, savers, …


§ Baby Boomer Generation – (born 1946 -1964): Health revolution, two income families, …

§ Generation X – (born 1965 -1977): Computer literate – out of the box thinkers, … § Generation Y – (born 1978 -1994): Latchkey kids, parents in the workforce, … § Nontraditional workforce

7. Political Factors New legislation affecting Human Resource management and labor relations is continually being enacted at the federal, state, and local levels. Assessing trends in government is no easy task, since federal, state, and local jurisdictions may move in conflicting directions. Changes are also made through court litigation.

§ Government and regulatory agencies: 1. Labor regulations and laws 2. Equal Employment Opportunity/Affirmative Action 3. Social Security 4. Retirement 5. Work and Family legislation 6. …

INTERNAL ORGANIZATIONAL PARTNERS Organizations need a framework or structures within which to achieve their organizational objectives. The organizational structure determines the channels through which authority is delegated and performance is controlled. It’s critical that a company uses a structure that enables it to realize the competitive advantages. 1. Finance and Accounting The most important numbers for every emerging business owner to know to best manage the financial side of your business: Business by the Numbers: Know Your Numbers - It's just as important in business as it was in elementary school! Entrepreneur's Start-Ups magazine - October 2010 By Bill Fiduccia If you're a typical entrepreneur, you likely have the confidence, intelligence and ambition to implement and execute your business plan. And if you have all those qualities—plus one more essential ingredient—then you have an excellent shot at business success. The problem is, this one critical ingredient often gets the least attention. So what is this all-important ingredient? Having a complete understanding of the numbers that drive your business. Entrepreneurs are, by nature, focused and driven. They're focused on the next product and the next sale, yet when asked what last month's revenues were, or what accounts receivable are today, they may only have a foggy notion at best—even though the financials are the tools that help manage successful business ventures over the long haul.


For example, consider the emerging company with sales growing at 10 to 15 percent every month. The company is profitable, but never seems to have enough cash. A common error in this situation is to continue ignoring the numbers, and ultimately the business fails because it's strangled for cash. But the informed business owner with an eye on the financials can see that if sales are slowed and the collection of receivables is stepped up, then cash flow will magically increase. This allows the business to pay suppliers and vendors promptly and get working capital back to appropriate levels. So what are the most important numbers for every emerging business owner to know? Keep your eyes on these numbers to best manage the financial side of your business:

1. Working capital. Working capital is the capital you have available to work with today. This is determined by subtracting current liabilities from current assets. A rule of thumb says you should have $1.50 to $2 of current assets for every $1 of current liabilities.

2. Revenues. Know your sales on a monthly, quarterly and year-to-date basis. Compare these to

your plan to see if you are behind or ahead.

3. Gross profit. Revenues less the direct costs of producing your product are your gross profit. In most cases, there should be 50 percent or more of your sales volume left over after you subtract your direct costs (cost of goods sold).

4. Profit margin. Subtract the total of your general and administrative expenses from your gross

profit, and then divide that number by your sales. This number will tell you how profitable the business is. If the number is negative, you are losing money. Make sure the number is as good as or better than others in your industry. If the typical profit margin in your industry is 12 percent and yours is 5 percent, you are not managing your business as well as your competitors. Find out what you need to do to improve that margin.

5. General and administrative expenses. There are typically three biggies over which the

business owner has a great deal of control. Know these numbers, and be prepared to adjust them to the current business environment. They include:

6. Compensation. This is often one of the largest expenses for any business. When business

slows, you need to be positioned to reduce compensation quickly and decisively. This isn't always fun, but it's a decision that a business owner who knows the numbers must make.

7. Marketing expenses. The largest marketing expense is often advertising. You should be able

to turn up or slow down your sales by adjusting your advertising expenditures. If there does not appear to be a correlation between advertising and sales, then there may be something wrong with your advertising strategy. The important point is that if you do not compare your advertising expenses and sales, how will you know the effectiveness of your advertising?

8. Research and development. R&D effectiveness is not as easy to quantify as advertising.

However, the savvy manager sets a budget based on anticipated costs necessary to achieve a certain goal. Be certain to periodically measure your progress by comparing the amount spent with the proximity to the goal. Like compensation and marketing, this is a variable number that must be monitored and adjusted quickly to meet current needs.


Entrepreneurs who know their numbers have a tremendous advantage over those who do not. The financials tell a story—and understanding the story behind your numbers can be one of the most important ingredients for long-term success. Bill Fiduccia is a founding partner of BizPlanIt, a professional business planning consulting firm that helps early-stage, emerging-growth and established companies prepare clear, concise and compelling business plans that get results. Financial Management: A good financial management system tells you how your business is doing--and why. While a well-organized bookkeeping system is vital, even more critical is what you do with it to establish your methods for financial management and control. Think of your bookkeeping system as the body of a car. A car body can be engineered, painted and finished to look sleek and powerful. However, the car body won’t get anywhere without an engine. Your financial management system is the engine that will make your car achieve peak performance. You may be wondering what exactly is meant by the term “financial management.” It is the process you use to put your numbers to work to make your business more successful. With a good financial management system, you will know not only how your business is doing financially, but why. And you will be able to use it to make decisions to improve the operation of your business. Why is financial management important? Because a good financial management system enables you to accomplish important big picture and daily financial objectives. A good financial management system helps you become a better macro-manager by enabling you to:

1. Manage proactively rather than reactively. 2. Borrow money more easily; not only can you plan ahead for financing needs, but

also sharing your budget with your banker will help in the loan approval process. 3. Provide financial planning information for investors. 4. Make your operation more profitable and efficient. 5. Access a great decision-making tool for key financial considerations.

Financial planning and control help you become a better micromanager by enabling you to:

6. Avoid investing too much money in fixed assets. 7. Maintain short-term working capital needs to support accounts receivable and

inventory more efficiently. 8. Set sales goals; you need to be growth-oriented, not just an “order taker.” 9. Improve gross profit margin by pricing your services more effectively or by

reducing supplier prices, direct labor, etc., that affect cost of goods sold. 10. Operate your business more efficiently by keeping selling and general and

administrative expenses down more effectively. 11. Perform tax planning. 12. Plan ahead for employee benefits. 13. Perform sensitivity analysis with the different financial variables involved.

The first step in developing a financial management system is the creation of financial statements. To manage proactively, you should plan to generate financial statements on a monthly basis. Your financial statements should include an income statement, a balance sheet and a cash flow statement.


A good automated accounting software package will create the monthly financial statements for you. If your bookkeeping system is manual, you still can use an internal or external bookkeeper to provide you with monthly financial statements. Excerpted from Start Your Own Business: The Only Start-Up Book You'll Ever Need, by Rieva Lesonsky and the Staff of Entrepreneur Magazine, © 1998 Entrepreneur Press

The Balance Sheet Also called a statement of financial position, a balance sheet is a financial "snapshot" of your business at a given date in time. It lists your assets, your liabilities, and the difference between the two, which is your owner's equity, or net worth. The accounting equation (assets = liabilities + owner's equity) is the basis for the balance sheet. The balance sheet is prepared after all adjusting entries are made in the general journal, all journal entries have been posted to the general ledger, the general ledger accounts have been footed to arrive at the period end totals, and an adjusted trial balance is prepared from the general ledger amounts. Financial statements normally do not show cents. All amounts should be rounded to the nearest dollar. The following is an example of a balance sheet for a sole proprietorship:

Loriann’s Sales Company

Balance Sheet December 31, 2011

Assets Liabilities and Capital

Current Assets Current Liabilities Cash $12,300 Accounts payable $ 8,900 Accounts receivable 22,900 Wages payable 11,525 Inventory 32,090 Total Current Liabilities $20,425 Prepaid Insurance 2,500 Total Current Assets $69,790 Long-Term Liabilities

Bank Loan Payable 17,500 Fixed Assets Total Long-Term Liability 17,500 Equipment 100,200 Less: Accum. Deprec. (78,321) Total Liabilities 37,925 Total Fixed Assets 21,879 Capital (Shareholder’s Equity) Tom Beta’s Capital 53,744 Total Assets $91,669 Total Liabilities/Capital $91,669


2. Marketing and Sales 1. Product 2. Place (aka Distribution) 3. Price 4. Promotion

3. Operations

1. Capacity 2. Standards 3. Scheduling 4. Inventory 5. Control

4. Information Technology 5. Employees

1. Human Capital investments 2. Fostering Creativity


The Balanced Scorecard The balanced scorecard is a management tool designed for organizational development that provides a concise picture of the overall organization in four quadrants: financial goals, customer perspective, internal processes and learning and innovation. All metrics should link back to key success factors and represent a balance among all stakeholders. Because a balanced scorecard initiates a change process many stumbling blocks can occur in implementation without strong leadership and top-down support, uncomplicated and on-going training programs and involvement of all employees. Experts suggest that organizations focus first upon results-based measures then, evolve into a "change-ready" culture. Identification of drivers and cause and effect relationships is essential to link short and long-term goals. Ongoing efforts to examine and re-examine strategies in an "if-then" format will help align strategies. The balanced scorecard is a management tool for organizational development and incentive programs developed by Robert Kaplan and David Norton in 1992. It is designed to give managers a fast, concise and comprehensive picture of both financial and operational measures. Ideally, a small number of critical measures are summarized in one management report. The process simultaneously allows significant operational areas to be examined to see whether one result may have been achieved at the expense of another. Business consultants on organizational change, management and organizational development advocate that the scorecard is the only method for survival in today's environment. They claim that businesses must develop an overall method of measuring up to the competition and of adapting quickly to environmental conditions (e.g., demographics, economy, technology). Detailed environmental scanning, competitive analysis and meticulous ongoing scorecard planning is encouraged. The scorecard presents the big picture while allowing managers to view critical operational factors and their interrelationships with current and future performance in mind. Emphasis is upon the organizational vision and long-term success. (Kaplan, Robert and Norton, David P., The Balanced Scorecard -- Measures that Drive Performance, Harvard Business Review, January-February, 1992). The balanced scorecard contains four main measurement categories or quadrants as follows: Category Key Concepts and Basic Measures Financial Goals

How do we look to stakeholders? A range of measures from traditional accounting measures to sophisticated value-added measures linking managerial goals to stakeholder interests.

Customer Perspective

How do customers see us? Responsiveness, quality, value added to customers through services or products; number of repeat customers, fewer errors, etc. See that surveys and questionnaires have an acceptable rate of return and validity.

Internal Processes

What must we excel at? Performance in operations or production.

Learning and Growth or Innovation

Can we continue to improve and create value? How the organization develops and improves employee skills, knowledge, technology and information systems.


Organizational Life Cycle and Human Resources Activities Phase I: Introduction: During the introduction phase, the organization may have a spirit of high energy and creativity. Management is attempting to get their product or service off the ground by the most effective means. Accordingly, they generally:

• Recruit experience personnel - meet or exceed pay range to recruit talented, knowledgeable work force.

• Training on the run, offer equity or stock, etc. • Establishment of basic employee policies and practices, but less structure.

Phase II: Growth: The growth phase is characterized by change and expansion in terms of facilities, marketing, and personnel to keep up with the demand for products or services. This phase is often accompanied by backlogs and scheduling problems while the organization adjusts to increased demand. This phase is characterized by:

• Change and expansion – backlogs – adjust to increased demands; expanding facilities, marketing, and personnel requirements.

• Responding to increased demand for products or services. • Policies, procedures and rules begin to be formalized – increased structure. • Formalizing recruiting and selection processes to staff new positions.

Phase III: Maturity: The organization is probably introducing additional products or services, and demand for various products or services may fluctuate. Training gains added emphasis in this phase to maintain the flexibility and skills of the work force and improve productivity. Controlling labor costs also becomes a factor. They:

• Introduce additional products or services. • Focus on compensation and Human Resource planning • Train employees to maintain skills, flexibility, and improve productivity. • Provide team-building activities – Organizational Development focus. • Lost cost control an issue

Phase IV: Decline: Decline usually occurs when the organization becomes entrenched in rules and policies and management becomes resistant to changes in the market. When management realizes that the organization is in decline, they will often employ a series of efforts to turn the tide, including:

• Entrenched in rules and structure – resistant to change. • Attempting different approaches to offset the ‘current’ downturn. • Reduce work force: attrition, early ret., layoffs, and close facilities, contract work out. • Outsourcing services and activities. • Layoff employees. • Provide outplacement services. • Cross training of remaining employees.


Competitive Strategies Organizations today must choose their business and strategies carefully. Often, this consists of narrowing the focus of the company to appeal to a specific segment of buyers. To remain profitable, organizations must offer customers a competitive advantage. Any number of features can be viewed as a competitive advantage, but generally competitive advantages fall into one of two categories: Cost Advantage or Differentiation. Cost Advantage (Operational Excellence): To achieve cost advantage, an organization has to be the low-cost producer in its industry. Sources of cost advantage vary depending on the industry. Cost advantages may emanate from economies of scale, proprietary technology, or preferential access to raw materials, among other factors. Successful low-cost producers find and exploit all sources of cost advantage. Historically, companies have ordered large quantities of parts to get the greatest discount or have paid the invoice promptly to receive additional savings on the order. However, in situations in which management is more concerned about effective inventory control and Just-In-Time production, or the cost of money, these traditional practices are being challenged. The finished products of low-cost producers are sold at prices that beat the competition. While the competition may have greater profit on comparable products because of higher prices, cost-advantage industries depend on volume to provide profit. Consumers must perceive the cost-advantage products as comparable. If a cost leader doesn’t pay a certain amount of attention to differentiating factors, buyers will be less like to buy the product and prices will have to be further discounted. Human Resource – increase efficiency and productivity, centralized decision-making, cross-training, process improvements. Product Differentiation: Differentiation strategies focus on setting the product apart from its competition by giving it unique characteristics that consumers value and will be willing to pay a premium price for. Differentiation can come from a variety of factors. Some of these include product features, the marketing approach, quality, and the delivery system. Even with the differentiation strategy, an organization has to pay attention to its cost position. The cost for uniqueness can’t exceed what customers are willing to pay. To strike this balance, organizations generally attempt to reduce costs in all areas not related to the differentiation. Human Resource – strong R & D and Marketing department, staffing department, quality training, decentralize decisions.


Competition is another factor that the Human Resource professional needs to take into account during planning. Some of the questions to be asked include:

1. What market share does the organization have? 2. What is the organization’s mission? 3. What is necessary to accomplish the mission? 4. Does the organization want to expand operations locally, nationally, or internationally? 5. Are more employees needed to manage the anticipated increase? 6. Are fewer employees needed, with reduced overhead, to focus the company’s efforts?

The answers to these questions help Human Resources define who their competition is and what might be the best strategy for outpacing the competition. Organizational Structures 1. Formal Authority Overall organizational structure is greatly influenced by an organization’s strategy of managerial centralization or decentralization. Centralization: A strategy of centralization is characterized by a concentration of authority at top management levels. Centralization of staff function is recommended when any of the following conditions exist.

• Conflicting goals and strategies among operating units. • Need for corporate-level economy of scale and uniform policy. • Need for contractual negotiations with external agents. • Economic benefits in performing the work centrally.

Decentralization is characterized by dissemination of authority in the organization. The decentralization of staff functions is recommended when any of these conditions exist.

• Organizational tasks that are unique to product and market factors of the operating unit. • Need for collaboration within operating units. • Competence of operating unit’s staff to perform organizational tasks.

This centralization/decentralization strategy applies to an organization’s Human Resources department. In centralized organizations, corporate headquarters makes Human Resource policy decisions and coordinates Human Resources activities and programs. In decentralized organizations, corporate staff develops Human Resource policies, which are then carried out by local Human Resources staff. For example, in the case of a large bank with branches spread out over a multi-state area, corporate staff may set the policies, which the branches then have, flexibility in implementing. 2. Departmental Structures Organizations need a framework or structure within which to achieve their organizational objectives. The organizational structure determines the channels through which authority is delegated and performance is controlled. It’s critical that a company uses a structure that enables it to realize the competitive advantages.


Organizations can be structured in different ways, depending on their needs. Four of the most common structural types are Functional, Divisional, Customer, and Matrix. Functional: The functional organization is usually more centralized, and its departments are specialized and arranged by function, such as marketing, finance, manufacturing, and Human Resources. A field Human Resource unit may report directly to regional or corporate headquarters. This has traditionally been the most common organizational structure. A related type is the horizontal structure. Horizontal structures have few levels of management. This flatter structure can reduce bureaucracy by forcing a streamlining of the reporting channels. Decisions can get approval or rejection faster because there are fewer levels, and work can continue without long waiting periods. Horizontal structures are often referred to as process design. Divisional: The divisional structure is generally more decentralized than the functional one, because the divisions are separated on the basis of product, market, or region. Usually, all the resources necessary to manufacture and sell the product or to supply the market are put under the control of a particular division or operating unit. This approach is gaining in popularity, especially in larger organizations anxious to reinforce local authority and accountability. Under this model, Human Resources would most likely report to the general manager of the field unit, with functional or “dotted line” accountability to the corporate Human Resources staff. Customer: The customer structure is usually built around easily identifiable, distinct markets. Matrix: The matrix structure reflects both a function and a reporting orientation. It creates a dual rather than single chain of command. As a result, some employees report to two managers rather than one, with neither manager assuming a superior role. For example, the director of training could report to both the vice president of sales and the vice president of marketing. 3. Concentrated Organizational Structures Concentrated structures are useful when situations do not fit appropriately in the existing organizational structure. Such structures include Committees, Task Forces, and Project Teams. Committee: A committee is a group of employees within the organization who are formally assigned to meet for the purpose of discussing or solving some specific problem or situation. For example, a committee could be organized for the purpose of discussing possible employee incentive programs. Committees may be permanent or temporary. The advantage of committees is their ability to bring together diverse interests in an organization. Task Force: A task force is a group of employees assembled to resolve an important non-routine issue. Its purpose is to propose a concrete course of action for the organization. A task force may study the findings of a committee and make a recommendation. Referring to the example described above, a task force might be responsible for suggesting which incentive programs would be appropriate for their particular industry.


A task force should be a temporary structure. A continuous task force is an indicator of an inappropriate organizational structure. Project Teams: A project team is a large group of employees organized to manage and solve problems and take practical action. A project team is usually a temporary structure. When problems arise, project teams should be allowed to shift from the routine structure to their project team structure. To return to our example, a project team might be responsible for implementing the incentive program recommended by the task force. Recently, many organizations have instituted project teams that work outside of ordinary organizational boundaries. These teams, also called skunk works, consist of bands of eight or ten employees dedicated to a specific task. The employees may come from different disciplines within the company so they have unique and useful perspectives to offer. These smaller autonomous teams can often accomplish great feats in a fraction of the time it may take a significantly larger group of employees operating through conventional methods and chains of command. Other Structural Issues

§ Span of control – “the number of individuals that report to a supervisor” § Narrower span of control when tasks are complex, subordinates are poorly trained or

inexperienced, or a team effort is required § Line vs. Staff § Specialized vs. Enlarged task assignments

§ Job specialization (also known as job simplification) – standardizing work procedures and employing people in clearly defined and specialized tasks

§ Job enlargement – “broadening the scope of a job by expanding the number of different tasks to be performed”


Ethical Issues Affecting Human Resources

Organizational ethics are rules and standards that guide workplace behavior and moral principles. Many organizations establish a "code of ethics" that sets company expectations regarding ethical issues such as privacy, conflict of interest, discrimination and harassment and workplace diversity. Human Resources personnel are charged with setting standards that promote ethical behavior in the workplace. Ethics – system of moral principles and values that establish appropriate conduct – includes rules or standards governing the conduct of members of a profession. There appears to be a recent shift in Corporate America toward the creation of a written code of ethics or credo and strategic planning that not only addresses policy areas, but also is becoming a management tool to articulate corporate values and to manage risks of unethical conduct. This shift presents an enormous challenge for the human resources executive in the corporate ethics area. Ethics primarily concerns the interrelationships that exist between individuals. Most often ethics is defined as "honesty," integrity, or "fairness." Proper ethical conduct involves the application of these values. Senior management, Human Resource executives, and employees in all organizations must consider the ethics of all of their decisions and actions. The impact of ethical or unethical behavior has a profound impact either positive or negative on the organization and its primary constituents, its people. Raising these provocative issues may encourage Human Resource professionals to conduct a careful and broad examination of the organizational ethics posture of their companies as it pertains to effectively creating a more trusting and productive workplace. Human Resources can assume a key role in ensuring ethical behavior in the organization The complexities of business and our human/social society makes corporate ethics a very interesting study. To a practicing manager in the working world today, this becomes critically important, especially if they don’t get it! And many obviously have not and still do not. The questions are really simple to ask - yet hard to answer:

• What does good business today really mean? • What does ethics have to do, if anything, with good business? • What impact can the human resource function have on either? • Within business, what is my responsibility as a Human Resource professional?

During this nation’s past, business ethics have wrought some of the most heated debates. (One could even argue that our Civil War was in a large part due to business ethics.) No doubt free markets and capitalism has benefited our nation. However, the cost has been great. Consider the ethics of cigarette manufacturers, nicotine and their advertising — not to mention the false and misleading testimony of several leading executives before congress; the Ford Motor Company and the Pinto, Bronco, and Explorer; General Motors and its fuel tanks in its pick up trucks, Al Dunlap and Sunbeam’s sales and marketing scandal and Sunbeam’s subsequent bankruptcy; the drop in value of Countrywide Financial due to its sub-prime lending practices; the housing loan debacle in general; Japanese bureaucrats and Lockheed’s bribery transgressions; and Johns Manville and its handling of asbestos.


There are some fundamental and apparent universal truths: Ethical issues are important, and ethical violations are not all that uncommon. Ethical issues in the workplace are often invisible. Ethics sometimes fall by the wayside when organizations do not have a solid value-based culture starting from the top and working its way down. When this occurs, it is typically Human Resources that is called to get involved. Issues such as sexual harassment toleration, knowingly hiring illegal immigrants, violation of privacy, biased performance reviews, wage and hour violations for the sake of saving overtime dollars, terminating whistle-blowers for reasons totally unrelated to performance, and tolerable discrimination are but a few of the areas to be most vigilant. Discrimination and Harassment Human resources professionals must ensure the organization remains compliant with anti-discrimination and harassment laws. Employee discrimination and harassment on the basis of race, gender or religion is an ethical issue human resources personnel face daily. Laws that prohibit discriminatory behavior such as the Civil Rights Act and Americans With Disabilities Act help HR representatives develop training and awareness programs to prevent discrimination and harassment in the workplace. These laws also establish procedures human resources may use to report and discipline workers who display inappropriate discriminatory behavior. Privacy Human resources are involved in most aspects of employee relations including hiring, firing, compensation, benefits and leaves. Human resources representatives have access to extremely sensitive information. Keeping this information private is an ethical matter facing the function. Human Resources personnel have an obligation to maintain the confidentiality of an employee's personal data. Diversity Workplace diversity encompasses the various qualities, characteristics and experiences that distinguish one worker from another. These characteristics can be differences in race, gender, age, social status or other traits that make an individual unique. Treating a person differently because of these differences poses an ethical issue that faces human resources. HR personnel implement policies that promote diversity in the workplace and welcome the differences of the entire workforce. Health and Safety One area of ethical consideration for employers is how to balance expense control with the health and safety interests of employees. Manufacturing plants and other workplaces where employees use dangerous equipment or engage in physically demanding work should have strong safety standards that not only meet federal requirements, but that also makes eliminating accidents a priority. Even standard office workplaces pose health risks to employees who are asked to sit or stand all day. Unfortunately, certain organizations opt to cut corners on safety controls, equipment and training to save money. This is both unethical and potentially damaging in the long run if major accidents occur.


Technology Advancements in technology and the growth of the Internet in the early 21st century have produced a slew of ethical dilemmas for companies. Company leaders have to balance the privacy and freedom of workers while also maintaining standards that require that company technology use is for legitimate business purposes. Certain companies go so far as to monitor all online use and email communication from employee computers and work accounts. A company may have this right, but its leaders need to understand the potential concern about privacy and autonomy among employees. Transparency Prominent business and accounting scandals have made it imperative that companies operate with openness and transparency. For public corporations, this includes honest, accurate and complete reporting on mandated financial accounting reports. For large and small businesses, transparency includes communicating messages, including marketing messages, that aren't open to misinterpretation and that clearly represent the intentions of the company and its messages. Being caught in a lie or avoiding full disclosure may cause irreparable harm to small businesses. Fair Working Conditions Companies are generally expected to provide fair working conditions for their employees in the business environment, but being responsible with employee treatment typically means higher labor costs and resource utilization. Fair pay and benefits for work are more obvious elements of a fair workplace. Another important element is provision of a nondiscriminatory work environment, which again may have costs involved for diversity management and training. For Human Resource – includes issues of fairness, justice, truthfulness, and social responsibility Ethical issues may include:

• Privacy in the workplace – specifically: Ø Access to employment information Ø Credit investigations Ø Polygraph tests Ø Drug testing Ø Surveillance Ø Technology – e.g. use of e-mail and the internet

§ Whistle blowing § Conflict of interest § Bribes, payoffs, and kickbacks § Deceptive practices § Organizational abuse § Insider trading § Diversity § Copyrights § Corporate responsibility


To ensure or establish ethical behavior: 1. State your corporate values – in a few sentences. 2. Act according to your corporate values. 3. Conduct ethical-awareness training for employees. 4. Outline specific responsibilities for decision making to ensure accountability. 5. Encourage open discussion about controversial issues, ethical questions, and anything that might

fall into gray areas. Questions / Considerations: Is Legal Compliance the same as Ethical Behavior? Where are you most vulnerable for ‘ethical challenges’? Organizational and Social Responsibility No matter how small or large an organization's charitable giving program, they can direct the donations to strategic efforts that can boost performance by focusing on philanthropy, rather than charity. First and foremost, philanthropy is about aligning donations with an organizations strategic goals and objectives. Philanthropy is a commitment to partnering with nonprofit organizations, schools, districts and other grantees to work toward mutual goals, share knowledge and resources and get results. Philanthropy is no longer a silo, reactive activity but a critical part of a corporation’s citizenship.

Phase 1: Reactive corporate philanthropy:

Phase 2: Strategic contributions:

Phase 3: Mainstream involvement:

Phase 4: Corporate accountability:


Executing Human Resource Strategy Key Human Resource management activities include: Expansion, aka: ____________

• Extensive recruiting internally or externally • Training programs • Establishing potential career paths • Promoting qualified employees • • • •

Transition, aka: ____________

• Transfer employees to benefit the organization • Cross-train employees in differing functions • Re-train employees for new technology • Focus on margins / costs • • • •

Contraction, aka: ____________

• Attrition • Early retirement • Layoffs • Benefit ‘give-backs’ • • • •

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