The bottom-up approach analyzes human resource needs starting at the lowest level of the organizational structure. The company starts forecasting HR needs of frontline employees. On the other hand, trend analysis is used in human resource management to predict future HR needs based on current needs. For example, Walmart analyzes the series of recent HR changes and uses this information to extrapolate future HR needs.
A current trend that shows an increasing demand for human resources indicates a larger workforce requirement in the future. In addition, the Delphi method forecasts future HR needs based on expert opinion. For example, HR experts can opine about the HR needs in opening a new Walmart store of a certain size.
Walmart faces minimal concerns about the shortage of employees, especially sales personnel. The company receives a continuous influx of applicants for sales positions. However, Walmart experiences HR surplus when aggregate consumption declines. Such surplus is a challenge to human resource management because it translates to lower HR cost-effectiveness. Walmart uses the following approaches to determine HR needs and prevent surpluses or shortages:. An increase in workforce size usually happens when the company expands or opens new stores.
A significant gap means reduced HR cost-effectiveness or inadequacy in meeting organizational needs. Walmart uses gap analysis to decide on changing recruitment efforts. The company has a gap allowance or threshold. Balancing Supply and Demand. Walmart balances HR supply and demand by adjusting the compensation strategy and recruitment efforts. These adjustments are based on trends in internal human resource demand and the rate of applicant entry.
Walmart can easily adjust its recruitment efforts without significantly impacting financial performance. On the other hand, changes in compensation are also used to prevent an imbalance in HR supply and demand. Theoretically, higher wages attract more applicants. Organizational Design. This organizational structure makes it easy to specify distinct characteristics for each job. The structure has clear lines of authority, lines of communication, and lines of command.
Walmart has clear and distinct definitions for every job position and level of the structure. Because the company establishes detailed benchmarks across its process network, it can give all participants valuable insight into their particular strengths and weaknesses. The result is a powerful platform for continuous performance improvement. Because it does not make or sell any products under its own brand, it can offer the services of its process network to any and all product vendors without worrying about conflicts of interest.
Other companies operate closed process networks—networks that they orchestrate to make or sell their own, branded products.
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Nike, for instance, coordinates a far-flung network of suppliers to produce its athletic gear, and Cisco manages complex groups of both suppliers and distributors to make and sell its networking equipment. As a basis for growth, open networks are generally more powerful than closed ones. But the growth of an open network is not constrained by the market shares of any particular products.
Whether open or closed, all process networks operate in similar ways—and differ considerably from traditional business processes. Corporate processes are traditionally overseen by internal process managers, who coordinate the work of various departments. In a process network, one company, acting as the orchestrator, plays the key coordination role and reaps the benefits of leveraged growth.
The orchestrator performs a range of critical functions:. All the other participants act as service providers, performing activities and delivering outputs specified by the orchestrator. Companies cannot join a process network on their own initiative. The orchestrator serves as the gatekeeper, certifying the capabilities of the companies before they are admitted. Once in, companies must regularly be recertified to ensure that they continue to meet the performance criteria.
The number of service providers in a network tends to expand over time. In part, this is due to the economic benefits of broadening the network—more service providers means more flexibility, greater reach, and a broader basis for performance measurement and enhancement. But network growth is also the result of a natural process of increasing specialization. As a result of the ongoing benchmarking and certification efforts, service providers will tend to focus on ever narrower sets of activities—those in which they have truly distinctive capabilities—and the orchestrator will divide the process into finer and finer segments, having additional providers populate each segment.
Process networks are best thought of as modular systems, with each member company serving as a discrete module. As the modules become more specialized and refined, the entire system becomes more adaptable in its ability both to precisely meet customer needs and to achieve ever stronger levels of performance. As the number of enterprises involved in a process expands, however, such micromanagement becomes less tenable. It would be unusual for one company to have the power to impose rigid work rules on a large number of other companies.
It manages the process at a more macro level, deciding which participants to involve at what points and specifying their outputs. It manages, in other words, the connections between modules, not the activities within modules. Each service provider decides what it needs to do to deliver the specified outputs. If the service provider performs well—meeting or exceeding time and quality requirements for its outputs—it is rewarded with more work. If it performs poorly, the orchestrator shifts work to other service providers.
Fragmented and imperfect information becomes a source of inefficiency. But to manage a more loosely coupled process network, the orchestrator can be more selective in processing information and need only exchange key bits of information with service providers at key moments. The service providers typically need two types of operating information from the orchestrator. First, they must have detailed information on product specifications to perform the task at hand.
Cisco, for instance, provides its channel partners with regular updates regarding the evolution of its product line. Defining and tracking milestones thus becomes critical to the overall performance of the process network. The orchestrator needs to know when a milestone is completed or is in danger of being missed. If a milestone is in jeopardy, the orchestrator can call in another service provider to get the process back on track or modify the process to minimize any disruption. So-called event notification systems are, not surprisingly, mainstays in the information architectures of process networks.
At a technical level, the collection and communication of the limited types of information required to operate a process network are fairly straightforward. The real challenge is a business one: identifying the right information to exchange and the right milestones to track. There are two reasons for this.
First, highly scripted processes are by their nature hard to change.
If you alter an activity at one point in the process, it can disrupt the process at many other points. Second, rigidity precludes experimentation: Every participant is required to obey the established rules. Because major breakthroughs in performance rarely happen, even state-of-the-art processes are eventually overtaken by competitors.
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External benchmarking has often been promoted as a solution to this problem. By regularly comparing your own processes to those of other companies, the theory goes, you can ensure that your processes never fall behind. But benchmarking has never lived up to its promise. Gathering detailed information on the operating performance of many different companies—and ensuring its comparability—usually requires large teams of highly trained staffers and experienced consultants, people who are expensive and in short supply.
As a result, major benchmarking initiatives tend to occur infrequently, forcing companies to constantly play catch-up. And even if management were able to maintain a clear and up-to-date understanding of performance gaps, it would still be hard to fill those gaps on a routine basis. The very factors that initially make hardwired business processes so efficient make them very difficult to reengineer over the long haul. Detailed specifications need to be developed for every activity in the process, and changes to activities often require the redesign of information systems that are equally hardwired and difficult to modify.
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Given these challenges, it is not surprising that companies often go five or ten years between major reengineering initiatives—and some defer reengineering indefinitely. First off, bench-marking, rather than being an occasional event, is an intrinsic part of process management. It then shares the information with all of them, giving them a detailed understanding of their performance gaps, ideas for addressing them, and strong incentives for taking action.
Different companies use different approaches to carry out similar tasks, and the orchestrator quickly pinpoints the best approaches. In this way, diversity and experimentation lead to rapid refinement. On a broader level, orchestrators can often achieve major performance improvements simply by reconfiguring the participants in the process—swapping out weaker performers and replacing them with stronger ones. This does not necessarily mean that the poorly performing participants are ejected from the process network.
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They may, in fact, excel in a different context. Orchestrating a process network is a particularly powerful kind of growth strategy. Other forms of leveraged growth involve the aggregation of resources rather than the orchestration of activities. Charles Schwab, for example, has grown by pioneering one form of resource aggregation: the value-added service portfolio.
If customers want more tailored information and investment advice, Schwab will help connect them with one of more than 5, independent investment counselors who participate in its network. In this way, Schwab reproduces the capabilities of a full-service brokerage and attracts a whole new set of customers.
Like a process network orchestrator, Schwab carefully qualifies and monitors the performance of all the services it aggregates, mainly because its reputation hinges on their quality. It is up to the investor, though, to decide which, if any, of these third-party resources he wants to use and when. Unlike an orchestrator, an aggregator plays little or no role in managing sequences of activities.
Another form of resource aggregation, popular in the computer business, is the vendor-sponsored community. Hardware and software companies like IBM and Oracle long ago recognized that the value of their offerings depends on a broad range of complementary products and services. They also realized that users of their products would derive more value if they could compare notes with one another.
As a result, computer companies routinely sponsor both user communities and third-party organizations like developer groups. Product manufacturers like Harley-Davidson and service providers like eBay have also successfully used vendor-sponsored communities to help users derive more value from their products.
Most vendors manage their communities passively.
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They act as gatekeepers in modest ways, maintaining the quality of the interactions and ejecting disruptive participants, and they play an even more modest role in guiding the sequence of interactions among participants. The vendors may structure informational sessions at conferences or on-line forums, but otherwise the exchanges are shaped by the members themselves. Still, the vendor reaps important benefits. As users generate more value from the product or service, they tend to buy more of it, as well as related items the vendor sells. They also become more active referral agents, attracting other customers.
Users are motivated not only by a desire to increase the return on their investment in the product but also by the status and recognition they can achieve in these communities. Bottom line: The vendor generates more revenue without significantly increasing operating expenses or asset commitments. Harley-Davidson exemplifies the benefits of this approach—it spends very little on advertising and yet attracts an intensely loyal customer base. Possibly the subtlest of the leveraged growth strategies is shaping an economic web.
Think of the way Microsoft and Intel have been able to grow so explosively over the past 20 years. The intercompany relationships in such economic webs are much looser than in process networks. Participants enter and leave on their own initiative, guided by their own interests. But the shapers do play an important indirect role in influencing who joins or leaves the web by the choices they make in shaping the underlying platform. For instance, as Microsoft has modified its operating system to function in portable devices, it has attracted a broad range of portable-device manufacturers and related product and service vendors into its web.
This has expanded operating system sales. When it comes to determining sequences of interactions among participants, shapers play an even more passive role than aggregators do. The interactions of economic webs are determined almost entirely by market dynamics. Intel, for example, has little control over how customers purchase computers containing its chips.
They may choose to buy the machines directly from a manufacturer, or they may go through a specialized value-added reseller. Individual vendors, like Compaq, may create their own closed process networks to mobilize specific subgroups of web participants—and the market will determine whether those subgroups thrive or perish in the broader economic web.
Here again, though, the shapers can exert indirect influence through their control of the platform. If, for example, Microsoft sees a technology that might undermine the power of its shaping platform, it can try to co-opt the technology to neutralize its potential impact. Economic webs woven around technology standards are the most advanced that have emerged in business to date. Take customer profiles, for instance. Currently, different companies assemble their data on customers into proprietary electronic profiles.
For example, if someone buys a number of guidebooks for Rome, this person may be interested to learn about special fares to Rome from airlines or special rates on hotel rooms in Rome. Of course, the person might search for that information on her own, but she might find it more convenient to be presented with tailored messages about special offers. Such a company could, in effect, become a gateway for reaching customers in much more targeted ways than would otherwise be possible.
Companies with rich stores of customer data—Schwab, Amazon, and Travelocity come immediately to mind—could potentially create this kind of shaping platform. Webs might also be formed around protocols for coordinating business relationships. As one small illustration, the challenge of representing color in a simple, standardized way has made it difficult to coordinate production activities among apparel manufacturers. Standards like these are critical to enabling broad collaboration in specific industries. Whoever controls the de facto standards could become the center of a very broad web of relationships.
In the future, smart executives will think deeply about the different roles their companies might play in leveraging growth.
Do we have opportunities to form a process network, perhaps, so as to orchestrate a supply chain or orchestrate a group of distributors or service providers? Should we build a network to sell our own products, or should we become a pure-play orchestrator operating an open network?