What has strategy

got to do with it?

Everything.
Our program today

• Questions?
• Reminders
• HRM & strategy
• Case: Southwest
Any questions related to practicalities?

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Digitalization session with Dr. Johannes
Gartner is on 14.11!

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Human Resource Management (HRM)
Practices
Employer branding
HR planning Job design Rewards
Recruitment Objective setting
Evaluation

Selection Specification Performance Appraisal Outplacement

Feedback

Development
Career planning & development Formal & informal
Talent pools; Succession planning Coaching, mentoring
& training

+ Labor Relations, Employee Communication & Influence, Diversity Management,

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What is SHRM today?
Belief in the effectiveness of ‘high performance HR(M) practices’
Concerned with questions concerning alignment and differentiation:
 Alignment with strategy and intended organizational capabilities
 Internal consistency across HR practices
 Differentiation across employee groups, locations, and from other firms

Integrated part of control & coordination, change management

Associated with enhanced social capital (structural, relational,
cognitive)
Associated with management of knowledge, learning & innovation
Key issue in alliances and mergers & acquisitions
Key roles played by top management, line managers and HR function

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Everything is thus interlinked
• Culture
• Management
• Context
• None of these should be separate from each other
• Personnel/people and managing them/talent/training etc is
and should be interlinked / fit with all other activities
• Thus no individual training program / trick is going to create
a winning strategic HRM approach

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 McKinsey 7- S Framework:
Excellence-orientated culture
1. Strategy: The direction and scope of the company over long term.
2. Structure: The basic organization of the company, its departments, reporting
lines, areas of expertise, and responsibility.
3. Systems: Formal and informal procedures, covering everyday activities.
4. Skills: The capabilities and competencies, what the company does best.
’Soft’ 5. Shared values: The values and beliefs that guide employees towards desired
behavior.
6. Staff: How employees are developed, trained, and motivated.
7. Style: The leadership approach of top management and overall operating
approach.

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Objective of this course
Focus: Strategic People Management
= intersection between competitive strategy and human resource management
(HRM)

Provides you with an overview of key concepts, issues and decisions

related to strategic people management
• facilitation of value creation through the means of control & coordination, and
social architecture
• challenges related to managing people; in particular those related to
performance and talent management

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Resource based View (RBV)
• The RBV is a theory of sustainable competitive advantage (strategic management)
that can be achieved with organisational level resources
 It is based on two assumptions:
A) Resources are diverse
B) Resources are immobile

 Resources that are

Valuable
Rare
In-imitable People are seen as this
Non-substitutable kind of resource

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Strategic HRM

Strategy Talent HRM

1. Clear strategy and business model: How to be a market leader?

2. Talent: What kind of talent do we need to make our strategy

happen?

3. HRM: What are the necessary HR-policies to make this

possible/happen?

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Case Southwest
Airlines
Typical pitfall when analyzing teaching cases and
real-life situations: Jumping straight into the
(details) forest!

1. “STEP BACK” - What’s the big picture? Think helicopter view

2. THEN USE YOUR THEORY GLASSES TO MAKE SENSE OF THE PROBLEM

AND TO COME UP WITH POTENTIAL SOLUTIONS

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Questions:
1. What are the bases of Southwest’s competitive advantages? Are
they sustainable?
2. What in your opinion are their key strategic HR policies? Why?
3. What do you see as potential future threats and what should the
firm do about them?

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Southwest Airlines: Strategy
Simple (e.g., in pricing)
Point-to-point, short flights
Offers good value (on time!) and make travel “fun”
Clear target market (cost-sensitive, time-conscious traveller)
Low cost, high frequency
 Quick turnarounds
 Maximize equipment utilization
 Equipment standardization (reduces training & maintenance costs; easier to redeploy)
 High productivity
 Locate in under-utilized sites (cheaper leases, etc.)
Gradual expansion

Well integrated system of complementary activities!

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Possible answers

People management policies…

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How
Selection
does Southwest manage its people?
 Intensive competition
 Based on attitude/fit, rather than skills
 Extensive interviews by teams of peers (and sometimes even customers)
 Tap networks of existing employees
 Focus on internal promotions
Employment stability
 Minimal use of temporary or part-time employees
 Retirees recalled on occasion
Flexible deployment
 Broad jobs, few work rules
 Team work but also supervisors important
Training
 Intensive and continuous
 Oriented both toward culture (socialization) as well as skills (training)
 Very specific to Southwest
 Managers go through it first

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How does Southwest manage people (2)
Reward System
 Compressed pay and perks
 Lower base wages (strong reliance on intrinsic motivation); wages tied to hours worked
and more hours are available; seniority
 Profit-sharing
 Use of non-monetary rewards (parties, recognition, etc.)
Job security Information Sharing
 Openness and egalitarianism
 Strong emphasis on performance/cost metrics
Ownership
 Broad employee ownership (11 percent of company stock): Reinforces long-term
orientation; Puts strong emphasis on growth
People Department responsible for HRM
 Must have line experience to work there!
 Runs culture committees

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Strong employer branding!!
Work-Life Rewards!!
Intensive competition between Balance “Motivation to perform and
candidates (good employer ”Parties, Having fun” remain with organization”
branding attracts lot’s of people)
Compressed base pay and benefits
(status equality)
Job Design Lower base wages than
Broad, flexible, competitors; wages tied to hours
much responsibility worked and more hours are
available; also seniority
and empowerment Tough Extensive profit-sharing with
Objective holdings mostly in company stock
Selection Team work (employees 11% of stock)
Performance Setting and Use of non-monetary rewards
Attitudes/ Performance (parties, recognition, team events,
Wide sharing of tracking etc.)
Organization fit performance information

Supervisors attitudes
Focus on internal Development
promotions and
competence important
Extensive interviews by Intensive and continuous
teams of peers (and Formal training; outdoor team
sometimes even customers) JOB SECURITY building events; coaches for new
employees
Tap networks of existing - Never fired employees! Oriented both toward culture (e.g.
employees -Minimal use of temporary socialization) as well as skills
or part-time employees (training)
- Retirees recalled on occasion Managers go through training
programs first; builds connections &
ensures quality
 No meals No baggage
Focused transfer
passenger No connect-
service ions
No seating

Frequent, Valuable, rare, unimitable

Short,
reliable capabilities? direct routes
departures between midsize
Only
cities &
Boeing 737
aircraft
secondary
15-minute Low (base) airports
Limited gate turn- pay for all
specialization arounds employees
of tasks
Very low Limited use
prices of travel
Flexible agents
Employee High aircraft
union
contracts stock utilization
ownership
Profitable since 1972, consistently
positive customer satisfaction
Possible answers

INTANGIBLE ASSETS

Organizational culture

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The Southwest culture
Some key values
Belief in people
Having fun & working hard, together
Customer service
Keep it simple
Cost consciousness
Metaphors
Family
‘The underdog’
“People Department” responsible for HRM:
Must have line experience to work there!
Runs culture committees to preserve and develop company culture

Good fit with the intended organizational

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Why you cannot copy it?
 Competitors are pursuing different strategies in different contexts (e.g. United
airlines which initially tried to copy Southwest)
 They are trying to select only particular elements of the Southwest practices
and culture, failing to recognize the interdependence among its elements
 They lack Southwest’s leadership and management long-term commitment to
people as assets

Southwest illustrates what it means for employees to be ‘partners’

 Their HRM practices are a constraint on their business strategy (e.g., few
mergers and acquisitions; gradual expansion), not just vice versa
 The system is tested in tough times; when challenged, they reaffirm -- not
deviate from -- their time-honored HRM practices (e.g. employment security;
training and development)
 People are “invested in,” not “expensed

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Source: Southwest Airlines home page

Warrior Spirit Servant’s Heart Fun-LUVing Attitude

Work Hard Follow The Golden Rule Have FUN
Desire to be the best Adhere to the Principles Don't take yourself too seriously
Be courageous Treat others with respect Maintain perspective
Display urgency Put others first Celebrate successes
Persevere Be egalitarian Enjoy your work
Innovate Demonstrate proactive Be a passionate Teamplayer
Customer Service
Embrace the SWA Family

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Source: Southwest Airlines home page

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Shared Values, Norms, and Beliefs

The features of strong organizational cultures:

Values, Norms, and Beliefs are widely shared and
intensively held

Lessons learnt over time become shared beliefs and

behavioral norms that are rarely questioned

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The Advantages of Strong Cultures

Guides decision-making processes and behavior at every

level
Promotes belonging and togetherness, leading to shared
organizational identity and employee commitment
Common behavioral norms, values and beliefs facilitate
collaboration across borders
Increased interpersonal and inter-unit trust

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But…
Strong cultures also tend to be associated with:
 Self-sufficiency and complacency
 Mental blindness to surroundings
 Embedded routines and traditions that are not critically evaluated
 Difficulties in implementing necessary changes in strategy and
operational routines

Shared values, beliefs, and norms must be challenged!

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Mechanisms influencing organizational
culture Adapted from: Edgar Schein (1992)

What does the leader(s) pay attention to, measure & control?
How are resources, power and status allocated?
HRM system: Recruitment & selection, socialization, training & development,
performance appraisal, rewards, promotion, relocation, layoffs
But also other forms of corporate ‘management of meaning’
Value statements: how they have been developed, communicated &
Corporate visions translated into policies and practices
Formal structure, systems and procedures
Rituals, design of space, buildings, and symbols of different kind
Myths and stories about persons and events
Slogans
The values have survived tough times = credibility!
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”Managing culture” is far from easy
Heavy-handed efforts to manipulate the culture may back-fire
Managing culture successfully requires care
• Understanding of factors influencing human behavior
• Clear distinction between the cultural elements that should be maintained and
those need to be changed
• Involvement of employees from different parts of the organization in the
process as well as leaders who “walk the talk”
• Recognizing the effects of change on employees
• Recognizing the need to realign a whole range of HR practices
• Long-term perspective and top management commitment

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Possible answers (cont.)
INTANGIBLE ASSETS
Culture (deeply embedded in the history of the firm):
• Consistent clear shared values: Belief in people; Having fun & working hard, together;
Customer service; Keep it simple, Cost consciousness
• Metaphors: Family, ‘The underdog’
Brand, both as service provider and employer
Human: Founder & Chairman of the Board ’Herb’ Kelleher
TANGIBLE ASSETS?
CAPABILITIES
Ability to manage a complex system of very well aligned activities, and replicate it in new
locations
HRM system well aligned with activity system & culture – supports strategy
implementation

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Challenges ahead for Southwest
Growth, expansion, and acquisitions may be hard for Southwest to
manage - how to maintain the culture?
Stock ownership program puts a premium on growth
Can Southwest upsize and downsize fast enough in response to demand
cycles?
Will it be more difficult to attract more short-term salary oriented young
people?
‘Competence trap’ for a firm with strong values, a tightly integrated
system of activities and a history of success?
Will the system outlive Kelleher?

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Customer complaints 2006 The American airline
industry

Ín most other Southwest’s annual report this figure looks essentially the same!
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Annual report 2006
Consistently emphasizing the role of its employees:

“The Company’s 2006 earnings growth represented an enormous

accomplishment.
Coming into 2006, our goal of 15 percent earnings growth was one that few
outside of Southwest believed was possible to achieve.
However, our People believed and, once again, demonstrated that they are the
best and will do whatever is necessary to stay on top in the brutally competitive
and difficult airline industry.
Over the past five years, our Employees have adapted to significant changes
in airport security and continue to innovate and implement the changes
necessary to secure our future and protect our Low-Cost Leadership. “

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Update on Southwest
Has been profitable every single year
Largely unchanged strategy over the last 30+ years
• Gradual expansion, 97 destinations in February 2016
• Longer flights added: coast-to-coast in 2003, now also to adjacent countries
• On-line booking main change, wifi introduced on all planes
9/11, 2001: Hired people when others laid off; gaining market shares
2001: Jim Baker new CEO, Colleen Barrett president; 2004: Jim Kelly CEO; Kelleher finally
stepped down as chairman in 2008
Still ranked as no. 1 in customer satisfaction in the US (US Department of Transportation)
Employee stock purchase plan, profit sharing, but tougher union negotiations
Still lots of applicants, somewhat higher turnover during the first 18 months

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SHRM Practices: Guiding Principles
Starting point: Internal consistency
• Fit across HR practices
• Fit with other parts of the work organization & culture
• Consistency between HRM strategy, policies, & actual practices
Differentiation?
• Internally across employee groups, and
• Across units in the corporation
• Externally from other firms
Balancing dualities: Too strong linkages (consistency) or too high degree
of differentiation?
At Southwest Airlines?
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Southwest’s HRM and the RBV
They have (had) a sustained competitive advantage which is difficult to break due to
Historical uniqueness (cf. Barney, 1991)
 They were among the first low cost airlines and have created considerable intangible resources in
terms of reputation (including employer brand), organizational culture, human, social and organizational
capital. Perhaps not imitable in other contexts
Social complexity (cf. Barney, 1991)
 There may be no rational way (regardless of context) to create and manage human resources the way
they have done and continue to do...
Causal ambiguity (cf. Barney, 1991)
 People may still doubt the role of HRM in their success & perhaps do not understand it how works
“Asset mass efficiences” (cf. Dierickx and Cool, 1989)
 E.g. the people employed at Southwest clearly attract other similarly minded people
 E.g. the effect of adding one more twist to their HRM practices will be leveraged by the effect of all
existing ones
“Interconnectedness of asset stocks” (cf. Dierickx and Cool, 1989)
 E.g. in terms of their HRM practices (compensation) and their organizational performance
 E.g. their selection process (being highly selective based on attitude) and their employer brand
providing them with a large pool of applicants
“Time compression diseconomies” (cf. Dierickx and Cool, 1989)
 At least impossible to build “overnight” the workforce & culture they have built over the long run

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Take-Aways
Why difficult for incumbents to imitate Southwest:
• They are pursuing different strategies in different contexts
• They are trying to select particular elements of the Southwest practices and
culture, failing to recognize the interdependence among its elements
• They lack Southwest’s leadership and management commitment to
people as assets

Southwest illustrates what it means for people to be an ‘asset’

• The system is tested in tough times; when challenged, they strive to reaffirm
their time-honored practices
• People are “invested in,” not “expensed”

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HRM is important because for success
and effectivity one needs people
“To me the most logical argument [for the importance of HRM] is that:
organizational effectiveness is achieved only through its
employees. If you don't know how to bring the best competencies into
your organization, don't know how to motivate and reward them, don't
know how to build a strong, positive organizational culture, etc., your
organization will sub-optimize its performance.

People are the last great opportunity to gain a competitive advantage

in business. What's not to understand here?”

William J. Heisler, Ph.D.

Associate Professor, Troy University

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Thanks and see you tomorrow!

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