Strategy and strategic planning deal with a process of looking at our organization and its environment—both today and in the expected future—and determining what our organization decides to do to meet the requirements of that expected future. This process of strategic analysis and building a coherent strategy is more critical today than it has ever been before. This is because in most worldwide industries today, we have far more competition and capacity than ever before, making it more difficult to create the sustainable competitive advantage that we need in order to survive over the long term.

Strategic planning is about planning for the long-term future; and to be successful, you need to plan using goals and measurable standards. Our internal (company) and external (competitors, customers, governments, etc.) environments largely determine how we as managers must act to provide the organization with the right combination of people to help us reach our strategic goals. HRM is a critical component of meeting organizational goals, because without the right people with the right types of education, skills, and mind-set, we cannot expect to accomplish the objectives that we set for ourselves.

The external environment consists of a series of influences that originate outside the organization and that the company cannot control. Each of these forces acts on the firm and requires it to change and adapt, usually in the form of strategic responses to these environmental changes.

Research has shown that HRM is an important strategic business function that influences the performance of both large and small firms. At its most basic level, a strategy is a plan of action designed to achieve a particular set of objectives. It looks at the external (industry and macro) environment and the internal (organizational) environment in order to create strategic advantage. Strategic advantage occurs when you analyze the environment better and react to it quicker than your competitors do while using all of your internal resources efficiently, thus creating the sustainable competitive advantage.