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Chapter 2

COMMERCE 2BC3 Chapter Notes - Chapter 2: Outsourcing

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Chapter 2 notes-Strategic Human Resource Management
- goal of strategic management in an organization is to deploy and allocate
resources in a way that gives it a competitive advantage (physical, organizational
and human resources)
What is a business model?
- how the firm will create value for customers, and, how it will do profitably
- fixed costs are generally considered the costs that are incurred regardless of the
number of units produced (rent)
- variable costs are those that vary directly with the units produced (materials that
go into producing an object)
- “contribution margins”: margins are the difference between what you charge for
your product and the variable costs of that product. They are called contribution
margins because they are what contributes to your ability to cover your fixed costs
- gross margin: total amount of margin you made and is calculated as the number of
units sold times the contributed margin
What is strategic management?
- process, an approach to addressing the competitive challenges an organization
Components of the Strategic Management Process
- has two components: strategy formulation and strategy implementation
- strategy formulation: strategic group decide on the strategic direct by defining the
company’s mission and goals, its external opportunities and threats and its internal
strengths and weaknesses.
- Strategy implementation: organization follows through on the chosen strategy
Role of HRM in strategy Formulation
- 4 levels of integration between the HRM function and the strategic management
- administrative linkage (lowest level): HRM function’s attention is focused on day-
to-day activities. HRM department is completely divorced from any components
of the strategic management process in both strategy formulation and strategy
- one-way linkage: firm’s strategic business planning function develops the
strategic plan and then informs the HRM function of the plan. It does recognize
the importance of human resources in implementing the strategic plan, it
precludes the company from considering human resource issues while
formulating the strategic plan
- two-way linkage: allows for consideration of human resource issues during the
strategy formulation process. 3 steps 1)strategic planning team informs the HRM
function of strategies the company is considering 2)HRM execs analyze the
human resource implications of strategies 3)after the strategic decision has been

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made, the strategic plan is passed on the HRM executives, who develop programs
to implement it
- Integrative linkage: dynamic and multifaceted, based on continuing rather than
sequential interaction. These companies have their HRM function built into the
strategy formulation and implementation process
Strategy Formulation
- Organization mission: mission is a statement of the organization reason for being;
it usually specifies the customers served, the needs satisfied and/or the values
received by the customers, and the technology used
-External analysis: examining the organization’s operating environment to
identify the strategic opportunities and threats
-Internal analysis: identify the organization’s strength and weaknesses
Strategy Implementation
- after org has chosen a strategy, it has to execute it
- organization has a variety of structural forms and organizational processes to
choose from when implementing a given strategy and these choices make an
economic difference
- 5 important variables determine success in strategy implementation:
organizational structure; task design; the selection, training, and development of
people; reward systems; and types of information and information systems
- 1) for the strategy to be successfully implemented, the tasks must be designed and
grouped into jobs in a way that is efficient and effective
- 2) HRM function must ensure the org. is staffed with people who have the
necessary skills, knowledge, and ability to perform their part
- HRM functions:
o1) ensuring the company has proper number of employees with the levels
and types of skills required by the strategic plan
o2) develop “control” systems that ensure that employees act in ways to
promote the achievement of goals
- “vertical alignment”: HR practices and processes are aimed at addressing the
strategic needs of the business
Strategic Types
- 2 types according to Porter: cost and differentiation
- value can be added by reducing costs
- value can also be added by differentiating a product or service in such a way that
it allows the company to charge a premium price relative to its competitors
- overall cost leadership focuses on becoming the lowest-cost producer in an
- differentiation can come from creating a brand image, from technology, from
offering unique features, or from unique customer service
HRM needs in Strategic Types
- different strategies require different employees with specific skills and behaviours
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