Effective strategic planning articulates not only where an organization is going and the actions needed to make progress, but also how it will know if it is successful. Strategic Planning processes: Bryon states that the ten steps “should lead to action, results and evaluation. ” The numbers are links to the purpose of and approach to the step. The linked words are definitions and evaluation criteria. Ten steps as per Bryon are as below: 1. Initiate and agree upon a strategic planning process. 2. Identify organizational mandates. 3. Clarify organizational mission and values. 4.
Assess the organization’s external and internal environments to identify strengths, weaknesses, opportunities, and threats. 5. Identify the strategic issues facing the organization. 6. Formulate strategies to manage these issues. 7. Review and adopt the strategic plan or plans. 8. Establish an effective organizational vision. 9. Develop an effective implementation process. 10. Reassess strategies and the strategic planning process. Benefits of strategic Planning: Improved performance -Study after study has consistently proven that if conducted properly, strategic planning can positively impact the performance of the organization.
In a mission-based organization that may mean the ability to serve more clients, access additional resources, or enhance the quality or scope of service. Solutions to major organizational issues/challenges -If facilitated properly, strategic planning gives the stakeholders of the organization an opportunity to develop consensus solutions to long-term issues and/ r challenges that have been affecting the organization. Forward thinking Organizations can get so caught up in day-to-day survival that they fail to stop and view the forest from the trees.
Strategic planning gives an organization the opportunity to pause and revisit the mission and create a long-term vision that provides a focus for all effort. Clear future direction -Even though change is occurring rapidly, strategic planning allows stakeholders to gaze into the future and clarify how they will plan for this future and properly respond to this change. Enhanced fundraising – More and more fenders expect mission- eased organizations to conduct strategic planning in an effort to become more focused and effective.
Additionally, fenders want to see more strategic partnerships among similar agencies developed through formal planning. Improved teamwork -By working together in envisioning your future, you will experience an enhanced sense of teamwork and commitment, which leads to better implementation. Doing more with less – With the current environment every organization has to do more with less. A well-developed strategic plan becomes the foundation for making all resource allocation decisions in a unified assign. Improved performance evaluation – The achievement of the plan and outcomes developed during the plan become excellent metrics for judging organizational and personnel performance. Mutual understanding between board and staff -By clarifying the roles and responsibilities of the board and staff in the strategic planning process and working collaboratively to craft the plan will enhance current relationships. Be Proactive – Strategic Planning allows you to plan around and take advantage of opportunities and trends, instead of reacting to them.
Limitations of Strategic planning: Although strategic management brings many benefits to the company it also has its limitations: 1 . The costs of engaging in it are huge. 2. The process is complex. 3. Success is not guaranteed. Above are the reasons why small and medium enterprises are usually reluctant to have their own strategic departments. (ii). CAPITAL BUDGETING: Definition: Capital budgeting (also known as investment appraisal) is the process by which a company determines whether projects (such as investing in R, opening a new branch, replacing a machine) are worth pursuing.
A project is worth pursuing if it increases the value of the company. A project typically adds value to the company if it earns a rate of return that exceeds the cost of capital. The opportunity cost of capital (also known as the hurdle rate) is the expected return that is forgone by investing in the project rather than in comparable financial securities, such as shares, with the same risk as the project under consideration. While capital budgeting is a fairly straightforward process from a conceptual viewpoint, it can be very challenging in practice.
Not only is it difficult to determine the group’s appropriate cost of capital, it is often even trickier to accurately forecast the incremental cash flows that result from taking on the project. The Importance of Capital Budgeting: Capital budgeting is important for many reasons: – Since projects approved via capital budgeting are long term, the firm becomes tied to the project and loses some of its flexibility during that period. When making the decision to purchase an asset, managers need to forecast the revenue over the life of that asset. – Lastly, given the length of the projects, capital-budgeting decisions ultimately define the strategic plan of the company. Drawbacks of Capital budgeting: The drawbacks of capital budgeting are as follows: – It has long term implementations which can’t be used in short term and it is used as operations of the business. A wrong decision in the early stages can affect the long-term survival of the company.
The operating cost gets increased when the investment of fixed assets is more than required. – Inadequate investment makes it difficult for the company to increase it budget and the capital. – Capital budgeting involves large number of funds so the decision has to be taken carefully. – Decisions in capital budgeting are not modifiable as it is hard o locate the market for capital goods. – The estimation can be in respect of cash outflow and the revenues/saving and costs attached which are with projects.
PROCESS OF CAPITAL BUDGETING: The process of capital budgeting is as below: Corporate Goal Strategic Planning investment Purport entities Preliminary Screening Financial appraisal, Quantitative analysis, Project evaluation or Project analysis Qualitative factors, judgments and gut feelings Accept/ reject decisions on the projects Reject Accept Implementation Facilitation, monitoring, control and review Continue, expand or abandon project Post implementation audit METHODS OF CAPITAL BUDGETING: There are number of appraisal methods which may be recommended for evaluating the capital Investment proposals.
We shall discuss the most widely accepted methods. These methods can be grouped into the following categories: I. Traditional Methods: Traditional methods are grouped in to the following: (1) Pay-back period method or Payout method. (2) Improvement of Traditional Approach to Pay-back Period Method. (a) Post Pay-back profitability Method. (b) Discounted Pay-back Period Method. (c) Reciprocal Pay-back Period Method. (3) Rate of Return Method or Accounting Rate of Return Method. II. Time Adjusted Method or Discounted Cash Flow Method Time Adjusted Method further classified into: (1) Net Present Value Method. 2) Internal Rate of Return Method. (3) Profitability Index Method. (iii). STRATEGIC HUMAN RESOURCE MANAGEMENT: Human resource management: Developments in the field of HARM are now well documented in the management literature (see e. G. Boxful, 1992; Legged, 1995; Schuler and Jackson, 2007; Session and Storey, 2000; Darlington et al. , 2005). The roots of HARM go back as far as the asses, when writers like Trucker and McGregor stressed the need for visionary AOL-directed leadership and management of business integration (Armstrong, 1987).
This was succeeded by the ‘behavioral science movement’ in the asses, headed by Moscow, Arises and Herbert. These scholars emphasized the ‘value’ aspect of human resources (HER) in organizations and argued for a better quality of working life for workers. This formed the basis of the ‘organizational development movement’ initiated by Bennie in the asses. The ‘human resource accounting (HEAR) theory developed by Falmouth (1974) was an outcome of these sequential developments in the field of HARM and is considered to be the origin of HARM as a defined school of thought.
HEAR emphasized human resources as assets for any organization. This ‘asset’ view began to gain support in the asses (Henry and Pettier, 1990). The last twenty-five years or so have then witnessed rapid developments in the field of FIRM, which are an outcome of a number of factors such as growing competition (mainly to US/UK firms by Japanese firms), slow economic growth in the Western developed nations, realization about the prospects of Harm’s contribution towards firms’ performance, creation of HARM chairs in universities and HARM-specific positions in the industry, introduction of
HARM into MBA curricula in the early asses, and a continuous emphasis on the involvement of HARM strategy in the business strategy. The debate relating to the nature of HARM continues today although the focus of the debate has changed over time. It started by attempting to delineate the differences between ‘Personnel Management’ and ‘HARM’ (see e. G. Legged, 1989; Guest, 1991 and moved on to attempts to incorporate Industrial Relations into HARM (Darlington et al. 2005), examining the relationship of HARM strategies, integration of HARM into business strategies and development of HARM to line managers (Lenience-Hail ND Lenience-Hail, 1989; Brewster and Larson, 1992; Buddha and Sparrow, 1997) and then the extent to which HARM can act as a key means to achieve competitive advantage in organizations (Barney, 1991).
Most of these developments have taken place over the last couple of decades or so, and have precipitated changes in the nature of the HER function from being reactive, prescriptive and administrative to being proactive, descriptive and executive (Boxful, 1994; Legged, 1995). At present then, the contribution of HARM in improving a firm’s performance and in the overall success of any organization (alongside other actors) is being highlighted in the literature (see e. G. Guest, 1997; Schuler and Jackson, 2005; 2007).
In relation to the last debate, three perspectives emerge from the existing literature: universalistic, contingency, and configuration (Cookout and Buddha, 2006; 2007). The ‘universalistic’ perspective posits the ‘best’ of HER practices, implying that business strategies and HARM policies are mutually independent in determining business performance. The ‘contingency perspective emphasizes the fit between business strategy and HARM policies and strategies, implying that business strategies are followed by HARM policies n determining business performance.
The ‘configuration’ perspective posits a simultaneous internal and external fit between a firm’s external environment, business strategy and HER strategy, implying that business strategies and HARM policies interact, according to organizational context in determining business performance. Emergence of strategic human resource management (SHRIMP) The above developments in the field of HARM highlight the contribution it can make towards business success and an emphasis on HARM to become an integral part of business strategy (Lenience-Hall and Lenience-Hall, 1 988; Brewster and
Larsen, 1992; Bamberger and Mausoleum, 2000; Schuler and Jackson, 2007). The emergence of the term ‘strategic human resource management’ (SHRIMP) is an outcome of such efforts. It is largely concerned with ‘integration’ of HARM into the business strategy and ‘adaptation’ of HARM at all levels of the organization (Guest, 1987; Schuler, 1992). What is strategic HARM (SHRIMP)? The field of strategic HARM is still evolving and there is little agreement among scholars regarding an acceptable definition.
Broadly speaking, SHRIMP is about systematically linking people with the organization; more specifically, it is about he integration of HARM strategies into corporate strategies. HER strategies are essentially plans and programmer that address and solve fundamental strategic issues related to the management of human resources in an organization (Schuler, 1992). They focus is on alignment of the organization’s HER practices, policies and programmer with corporate and strategic business unit plans (Greer, 1995).
Strategic HARM thus links corporate strategy and HARM, and emphasizes the integration of HER with the business and its environment. It is believed that integration between HARM and business strategy contributes to effective management of human resources, improvement in organizational performance and finally the success of a particular business (see Hellhole, 1999; Schuler and Jackson, 1999). It can also help organizations achieve competitive advantage by creating unique HARM systems that cannot be imitated by others (Barney, 1991; Hustled et al. 1997). In order for this to happen, HER departments should be forward-thinking (future-oriented) and the HER strategies should operate consistently as an integral part of the overall business plan (Strop and Caligula, 1998). The HER-related future-orientation approach of organizations ores them to regularly conduct analysis regarding the kind of HER competencies needed in the future, and accordingly core HER functions (of procurement, development and compensation) are activated to meet such needs (see Hellhole, 1999).
Lenience-Hawaii and Lenience-HaIl (1 999:29-30) summaries the variety of topics that have been the focus of strategic HARM writers over the past couple of decades. These include HER accounting (which attempts to assign value to human resources in an effort to quantify organizational capacity); HER planning; responses of HARM to strategic changes in the business environment; itching human resources to strategic or organizational conditions; and the broader scope of HER strategies.
For these writers, strategic HARM is a multidimensional process with multiple effects. Such writing also highlights the growing proactive nature of the HER function, its increased potential contribution to the success of organizations and the mutual relationships (integration) between business strategy and HARM. Two core aspects of SHRIMP are: the importance given to the integration of HARM into the business and corporate strategy, and the development of HARM to line managers instead of response specialists.
Brewster and Larsen (1992: 411-12) define integration as ‘the degree to which the HARM issues are considered as part of the formulation of the business strategy’ and development as ‘the degree to which HARM practices involve and give responsibility to line managers rather than personnel specialists’. Research in the field (see Lenience-Hall and Lenience-Hall, 1988; Purcell, 1989; Schuler, 1992; Storey, 1992; Buddha and Sparrow, 1997; Truss et al. , 1 997; Buddha, AAA; Bibb) highlights a number of benefits of integration of HARM into the corporate strategy.
These include: providing a broader range of solutions for solving complex organizational problems; assuring the successful implementation of corporate strategy; contributing a vital ingredient in achieving and maintaining effective organizational performance; ensuring that all human, technical and financial resources are given equal and due consideration in setting goals and assessing implementation capabilities; limiting the subordination and neglect of HER issues to strategic considerations; providing long-term focus to HARM; and helping a firm to achieve competitive advantage.
In animal vein, researchers (Buddha and Sparrow 1997; 2002; Hope-Hailed et al. , 1997; Truss et al. , 1997; Session and Storey, 2000) have highlighted the benefits of development of HARM to line managers.
These include: highlighting certain issues that are too complex for top management to comprehend alone; developing more motivated employees and more effective control; local managers responding more quickly to local problems and conditions; resolving most routine problems at the ‘grassroots level’; affording more time for personnel specialists to perform strategic functions; helping to systematically prescribe ND monitor the styles of line managers; improving organizational effectiveness; preparing future managers by allowing them to practice decision-making skills; and assisting in reducing costs by redirecting traditionally central bureaucratic personnel functions.
Despite the highlighted benefits of the devolution of HARM to the line management, it is still not widely practiced in organizations. On the basis of earlier studies in the UK and their own in-depth investigations into the topic, McGovern et al. (1997: 14) suggest that devolution of responsibility for HARM to line managers is constrained by short-term pressures on businesses (such s minimizing costs), the low educational and technical skill base of supervisors and a lack of training and competence among line managers and supervisors. An important issue for top decision-makers is how to evaluate the extent to which both strategic integration and development are practiced in their organizations.
The level of integration of HARM into the corporate strategy can be evaluated by a number of criteria: these include representation of specialist people managers on the board; the presence of a written people management strategy (in the form of mission statement, guideline or rolling plans, emphasizing the importance ND priorities of human resources in all parts of the business); consultation with people management specialists from the outset in the development of corporate strategy; translation of the people management strategy into a clear set of work programmer; the growing proactive nature of people management departments through the creation of rolling strategic plans (emphasizing the importance of human resources in all parts of the business); through mission statements; by aligning HER policies with business needs through business planning processes; by use of participative management processes and committee meetings; and via HER audits.
The level of development of HARM to line managers in an organization can be evaluated on the basis of measures such as: the extent to which primary responsibility for decision-making regarding HARM (regarding pay and benefits, recruitment and selection, training and development, industrial relations, health and safety, and workforce expansion and reduction) lies with line managers; the change in the responsibility of line managers for HARM functions; the percentage of line managers trained in people management in an organization; the feedback given to managers/line managers regarding HER related strategies; through insulations and discussions; the extent to which line managers are involved in decision- making; by giving the line managers ownership of HARM; and by ensuring that they have realized / accepted it by getting their acknowledgement (for more details see Buddha and Sparrow, 1997; 2002; Buddha, AAA).
Stages of the evolution of strategy and HARM integration Greer (1995) talks about four possible types of linkages between business strategy and the HARM function / department of an organization: ‘Administrative linkage’ represents the scenario where there is no HER department ND some other figurehead (such as the Finance or Accounts executive) looks after the HER function of the firm. The HER unit is relegated here to a paper- processing role. In such conditions there is no real linkage between business strategy and HARM. * Next is the ‘one-way linkage’ where HARM comes into play only at the implementation stage of the strategy. * ‘Two-way linkage’ is more of a reciprocal situation where HARM is not only involved at the implementation stage but also at the corporate strategy formation stage. * The last kind of association is that of ‘integrative linkage’, where HARM has equal involvement with there organizational functional areas for business development.
Purcell (1989) presents a two-level integration of HARM into the business strategy ‘upstream or first-order decisions’ and ‘downstream or second-order decisions’: * First-order decisions, as the name suggests, mainly address issues at the organizational mission level and vision statement; these emphasis where the business is going, what sort of actions are needed to guide a future course, and broad HER-oriented issues that will have an impact in the long term. * Second- order decisions deal with scenario planning at both strategic and divisional levels or the next 3-5 years. These are also related to hardcore HER policies linked to each core HER function (such as recruitment, selection, development, communication). Guest (1987) proposes integration at three levels: * First he emphasizes a ‘fit’ between HER policies and business strategy. Second, he talks about the principle of ‘complementary’ (mutuality) of employment practices aimed at generating employee commitment, flexibility, improved quality and internal coherence between HER functions. Third, he propagates ‘internationalist’ of the importance of integration of HARM and equines strategies by the line managers (also see Legged, 1995). Linking organizational strategy and HARM strategy: Theoretical developments The literature contains many theoretical models that highlight the nature of linkage between HARM strategies and organizational strategies. The strategic fit or the hard variant of HARM Bombproof et al. ‘s (1984) ‘matching model’ highlights the ‘resource’ aspect of HARM and emphasizes the efficient utilization of human resources to meet organizational objectives. This means that, like other resources of organization, human resources have to be obtained cheaply, used sparingly ND developed and exploited as fully as possible.
The matching model is mainly based on Chandler’s (1962) argument that an organization’s structure is an outcome of its strategy. Bombproof et al. (1984) expanded this premise in their model of strategic HARM, which emphasizes a ‘tight fit’ between organizational strategy, organizational structure and HARM system. The organizational strategy is pre-eminent; both organization structure and HARM are dependent on the organization strategy. The main aim of the matching model is therefore to develop an appropriate ‘human resource system’ that will characterizes those HARM strategies that contribute to the most efficient implementation of business strategies.
The matching model of HARM has been criticized for a number of reasons. It is thought to be too prescriptive by nature, mainly because its assumptions are strongly Unitarian (Buddha and Deborah, 2001 ). As the model emphasizes a ‘tight fit’ between organizational strategy and HER strategies, it completely ignores the interest of employees, and hence considers HARM as a passive, reactive and implementations function. However, the opposite trend is also highlighted by research (Storey, 1992). It is asserted that this model fails o perceive the potential for a reciprocal relationship between HER strategy and organizational strategy (Lenience-Hall and Lenience-Hall, 1988).
Indeed, for some, the very idea of ‘tight fit’ makes the organization inflexible, incapable of adapting to required changes and hence ‘misstated’ to today’s dynamic business environment. The matching model also misses the ‘human’ aspect of human resources and has been called a ‘hard’ model of HARM (Guest, 1987; Storey, 1992; Legged, 1995). The idea of considering and using human resources like any other resource of an organization seems unpatriotic in the present world. Despite the many criticisms, however, the matching model deserves credit for providing an initial framework for subsequent theory development in the field of strategic HARM. Researchers need to adopt a comprehensive methodology in order to study the dynamic concept of human resource strategy. Do elements of the matching model exist in different settings?
This can be discovered by examining the presence of some of the core issues of the model. The main propositions emerging from the matching models that can be adopted by managers to evaluate scenario of strategic HARM in their organizations are: Do organizations show a ‘tight fit’ between their HARM and organization strategy where the former is dependent on the latter? Do specialist people managers believe they should develop HARM systems only for the effective implementation of their organization’s strategies? Do organizations consider their human resources as a cost and use them sparingly? Or do they devote resources to the training of their HRS to make the best use of them? Across different levels of employees? The soft variant of HARM Do HARM strategies vary The ‘Harvard model’ of strategic HARM is another analytical ramekin, which is premised on the view that if general managers develop a viewpoint of ‘how they wish to see employees involved in and developed by the enterprise’ then some of the criticisms of historical personnel management can be overcome. The model was first articulated by Beer et al. (1984). Compared to the matching model, this model is termed ‘soft’ HARM (Storey, 1992; Legged, 1995; Truss et al. , 1997). It stresses the ‘human’ aspect of HARM and is more concerned with the employer-employee relationship.
The model highlights the interests of different stakeholders in the organization (such as shareholders, management, employee groups, government, community and unions) and how their interests are related to the objectives of management. This aspect of the model provides some awareness of the European context and other business systems that emphasis ‘co-determination’. It also recognizes the influence of situational factors (such as the labor market) on HARM policy choices. The actual content of HARM, according to this model, is described in relation to four policy areas, namely, human resource flows, reward systems, employee influence, and works systems. Each of the four policy areas is characterized by a series of tasks to which managers must attend.
The outcomes that these four HER policies need to achieve are commitment, competence, congruence, and cost effectiveness. The aim of these outcomes is therefore to develop and sustain mutual trust and improve individual / group performance at the minimum cost so as to achieve individual well-being, organizational effectiveness and societal well-being. The model allows for analysis of these outcomes at both the organizational and societal level. As this model acknowledges the role of societal outcomes, it can provide a useful basis for comparative analysis of HARM. However, this model has been criticized for not explaining the complex relationship between strategic management and HARM (Guest, 1991).
The matching model and the Harvard analytical framework represent two very different emphases, the former being closer to the strategic management literature, the latter to the human relations tradition. Based on the above analysis, the main propositions emerging from this model that can be used for examining its applicability and for determining the nature of SHRIMP in different contexts are: What is the influence of different stakeholders and situational and contingent variables on HARM policies? To what extent is communication with employees used to maximize commitment? * What level of emphasis is given to employee development through involvement, empowerment and devolution?
The contextual emphasis Based on the human resource policy framework provided by the Harvard model, researchers at the Centre for Corporate Strategy and Change at Warwick Business School have developed an understanding of strategy- making in complex organizations and have related this to the ability to transform HARM practices. They investigated empirically based data (collected through in- PPTP case studies on over twenty leading British organizations) to examine the link between strategic change and transformations, and the way in which people are managed (Henry et al. , 1988; Henry and Pettier, 1992). Henry and associates argue that HARM should not be labeled as a single form of activity. Organizations may follow a number of different pathways in order to achieve the same results.