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1

Chapter

Human Resource
Management: Gaining a
Competitive Advantage

Objectives
After reading this chapter, you should be able to:
1. Discuss the roles
and activities of a
companys human
resource
management
function.
2. Discuss the
implications of the
new economy and
e-business for
human resource
management.

3. Discuss how
human resource
management
affects a
companys
balanced
scorecard.

5. Identify the
characteristics of
the workforce and
how they
influence human
resource
management.

4. Discuss what
companies should
do to compete in
the global
marketplace.

6. Discuss human
resource
management
practices that
support highperformance work
systems.

7. Provide a brief
description of
human resource
management
practices.

At The Container Store, the


focus is on keeping employees
loyal, motivated, trained, and
compensated well. In turn,
there is a very low turnover rate
and a high rate of customer
satisfaction.

Enter the World of Business


Kodak and
The
Container
Store:
Human
Resource
Management
Excellence
Takes
Different
Forms
The management of
human resources is critical to company success.
But the way that human
resources are managed
takes many different
forms. Eastman Kodak,
based in Rochester,
New York, is prepared
to expand its market

share of the imaging industry by helping consumers and commercial


customers use computerized formats for displaying pictures. Although the snapshots
taken to record birthdays, anniversaries,
graduations, and important family events remain the core of
Kodaks business, the
company has expanded
into other markets for
its imaging products,
including X rays, microfilm, satellite photography, and large film format for the motion
picture industry. Kodak
has 80,650 employees
worldwide with just
over half in U.S. locations. Kodaks defined
HRM staff includes a director of human resources for the consumer division, HRM
directors of five geo-

graphic regions, and


four office staff. They
are currently working
with managers on three
HRM challenges: building employee confidence in the future
following a period of
layoffs, effectively competing for talent, and
understanding the implications of e-business
in Kodaks traditional
culture. Kodak was
forced to abandon its
policy of lifetime employment in the early
1990s with workforce
downsizing. Today few
Kodak employees are
under 30, and a large
proportion are nearing
retirement age. Kodaks
worldwide operations
are key to its future success. The company is
trying to move from a
culture of producing
what it could invent to
a culture of inventing

products that consumers are demanding.


Consistency and continuity ensure that everyone is working toward
the same goals. Given
the worldwide demand
for talent, human resource managers at
Kodak have had to
strive for work schedules, dress codes, and a
work atmosphere that
create the kind of place
talented workers will
choose.
The Container
Store, a retailer of
boxes, bags, racks,
and shelves that organize everything from
shoes to spices, has
become respected for
its commitment to employees and has
gained many rewards
for its HRM leadership.
The Dallas-based company has 2,000 employees in 11 states.

4 Chapter 1

Human Resource Management: Gaining a Competitive Advantage

The store interiors


have an open layout,
which is divided into
sections marked with
brightly colored banners such as Closet,
Kitchen, Office, and
Laundry. Wherever you
look in the store,
someone in a blue
apron is ready to help
solve the tiniest of
storage problems to
the most intimidating
organizational challenges. The company
has been ranked as the
best U.S. organization
to work for by Fortune
and has received other
awards for its outstanding people management strategies
(such as The Workforce
magazine Optimas
Award in 2001).
The company attributes its success to a
1520 percent turnover
rate in an industry
where 100 percent
turnover is common.
The Container Store
culture is directly responsible for the low
turnover rate and employees providing high
levels of customer
service. The companys
few uncomplicated
guidelines, such as always being flexible,
are based on a set of
humanistic philosophies that emphasize
treating others as you
want to be treated. A

strong customer service philosophy allows


employees to take
ownership of the company and make decisions they believe will
benefit customers. The
company treats employees with respect,
and in turn employees
enthusiastically serve
customers. Employees
ability to create a customized organizational
product solution for
each customer is the
key to increased sales.
The Container Store
does not have a large
HRM department. In
fact, until recently HRM
was viewed as working
against the company
culture. According to
Elizabeth Barrett, vice
president of operations, the company has
always trusted supervisors to attract, motivate, and retain employees. Managers are
responsible for many
traditional HRM tasks
because they are closest to employees. The
Container Store believes that people have
to fit into the companys culture to succeed. The company
has a focused people
strategy: hire for fit,
train comprehensively,
and pay and support
for long tenure. Fortyone percent of new
employees are recom-

mended by current
employees. Many new
employees are the
companys customers,
are usually college educated, and want their
quality of life at work
to reflect their lifestyle,
beliefs, and values.
The company invests
more than 235 hours
of training in first-year
employees, well above
the industry average of
7 hours per year. After
their first year, employees receive an average
of 160 hours of training each year. The
company spends considerable time measuring the direct impact
of training on store
sales. Most retailers
focus primarily on merchandise. The Container Store managers
believe that loyal employees will pay off
handsomely with increased sales and customer service. So they
pay store employees
50 to 100 percent
above the industry average, share financial
information with everyone, and offer benefits
to both full- and parttime employees.
The company now
has a semiformal HRM
structure with recruiting, training, payroll,
and benefits departments. HR managers
are also given respon-

sibility for other areas


of the company, such
as store operations,
and are required to
take store-level positions so they can better understand the
companys purpose
to serve customers.
Most HRM employees
start out as salespeople so they will understand more about serving customer needs.
Despite the new HRM
structure, managers
take the lead in recruiting and evaluating potential employees as
well as in the extensive
employee training. The
company has seen its
human resource strategy pay off. The Container Store is continuing to expand
strategically from coast
to coast and beyond,
and the company
grows at an average
annual rate of 2025
percent. In 2001 sales
were expected to
reach $262 million.
SOURCE: Based on R. Laglow,
Container Store Does Great
HRMEven Without an HR
Department, HR Executive,
August 2001, p. 23; J. Labbs,
Thinking outside the Box at The
Container Store, Workforce,
March 2001, pp. 3438; C. Cole,
Kodak Snapshops, Workforce,
June 2000, pp. 6472; Visit The
Container Stores website at
www.containerstore.com.

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 5

Introduction
Both Kodak and The Container Store illustrate the key role that human resource
management (HRM) plays in determining the effectiveness and competitiveness of
U.S. businesses. Competitiveness refers to a companys ability to maintain and gain
market share in its industry. Both Kodaks and The Container Stores human resource
management practices have helped the companies provide services the customer values. The value of a product or service is determined by its quality and how closely the
product fits customer needs.
Competitiveness is related to company effectiveness, which is determined by
whether the company satisfies the needs of stakeholders (groups affected by business
practices). Important stakeholders include stockholders, who want a return on their
investment; customers, who want a high-quality product or service; and employees,
who desire interesting work and reasonable compensation for their services. The
community, which wants the company to contribute to activities and projects and
minimize pollution of the environment, is also an important stakeholder. Companies
that do not meet stakeholders needs are unlikely to have a competitive advantage
over other firms in their industry.
Human resource management (HRM) refers to the policies, practices, and systems that influence employees behavior, attitudes, and performance. Many companies refer to HRM as involving people practices. Figure 1.1 emphasizes that there
are several important HRM practices. The strategy underlying these practices needs
to be considered to maximize their influence on company performance. As the figure
shows, HRM practices include analyzing and designing work, determining human resource needs (HR planning), attracting potential employees (recruiting), choosing
employees (selection), teaching employees how to perform their jobs and preparing
them for the future (training and development), rewarding employees (compensation), evaluating their performance (performance management), and creating a
positive work environment (employee relations). The HRM practices discussed in
this chapters opening highlighted how effective HRM practices support business
goals and objectives. That is, effective HRM practices are strategic! Effective HRM
has been shown to enhance company performance by contributing to employee
and customer satisfaction, innovation, productivity, and development of a favorable
FIGURE 1.1
Human Resource Management Practices

Competitiveness
A companys ability
to maintain and gain
market share in its
industry.

Human resource
management
(HRM)
Policies, practices,
and systems that
influence
employees
behavior, attitudes,
and performance.

6 Chapter 1

Human Resource Management: Gaining a Competitive Advantage

reputation in the firms community.1 The potential role of HRM in company performance has only recently been recognized.
As the opening examples illustrate, many companies such as Kodak have human
resource management departments. However, others such as The Container Store see
HRM as the daily responsibility of managers. Even at companies like Kodak HRM is
also a day-to-day activity of managers. We begin by discussing the roles and skills that
a human resource management department and/or managers need for any company
to be competitive. The second section of the chapter identifies the competitive challenges that U.S. companies currently face, which influence their ability to meet the
needs of shareholders, customers, employees, and other stakeholders. We discuss how
these competitive challenges are influencing HRM. The chapter concludes by highlighting the HRM practices covered in this book and the ways they help companies
compete.

What Responsibilities and Roles Do HR


Departments Perform?
Only recently have companies looked at HRM as a means to contribute to profitability, quality, and other business goals through enhancing and supporting business operations.
Table 1.1 shows the responsibilities of human resource departments. The average
ratio of HR department staff to total number of employees has been 1.0 for every 100
employees served by the department. The median HR department expenditure per
employee was $813, with wholesale and retail trade organizations spending the least
($282) and finance, insurance, real estate, advanced manufacturing, and communications and information companies the most ($1,300). As with other business funcTABLE 1.1
Responsibilities of
HR Departments

Employment and
recruiting
Training and
development
Compensation
Benefits
Employee services
Employee and
community relations
Personnel records
Health and safety
Strategic planning

Interviewing, recruiting, testing, temporary labor


coordination
Orientation, performance management skills training,
productivity enhancement
Wage and salary administration, job descriptions,
executive compensation, incentive pay, job evaluation
Insurance, vacation leave administration, retirement
plans, profit sharing, stock plans
Employee assistance programs, relocation services,
outplacement services
Attitude surveys, labor relations, publications, labor law
compliance, discipline
Information systems, records
Safety inspection, drug testing, health, wellness
International human resources, forecasting, planning,
mergers and acquisitions

SOURCE: Based on SHRM-BNA Survey No. 66, Policy and Practice Forum: Human Resource
Activities, Budgets, and Staffs, 20002001. Bulletin to Management, Bureau of National Affairs
Policy and Practice Series, June 28, 2001. Washington, DC: Bureau of National Affairs.

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 7

tions, HR expenditures relative to operating costs have been fairly stable over the past
few years.
The HR department is solely responsible for outplacement, labor law compliance,
record keeping, testing, unemployment compensation, and some aspects of benefits
administration. The HR department is most likely to collaborate with other company
functions on employment interviewing, performance management and discipline,
and efforts to improve quality and productivity. Large companies are more likely than
small ones to employ HR specialists, with benefits specialists being the most prevalent. Other common specializations include recruitment, compensation, and training
and development.2
The chapter opening vignette showed that no two human resource departments
have the same roles and responsibilities. Many different roles and responsibilities can
be performed by the HR department depending on the size of the company, the characteristics of the workforce, the industry, and the value system of company management. The HR department may take full responsibility for human resource activities
in some companies, whereas in others it may share the roles and responsibilities with
managers of other departments such as finance, operations, or information technology. In some companies the HR department advises top-level management; in others
the HR department may make decisions regarding staffing, training, and compensation after top managers have decided relevant business issues.
The roles and responsibilities of the HR department are summarized in Figure 1.2.
The vertical dimension represents the focus of a future or strategic orientation versus
a day-to-day operational orientation. The activities are shown as people versus process
along the horizontal dimension.3 The figure shows that the HR function can play
roles in the management of strategic human resources (strategic partner), the management of company infrastructure (administrative expert), the management of
transformation and change (change agent), and the management of employee contribution (employee advocate). These roles are discussed next.
The role of HRM has evolved over time. As we saw in the opening vignettes, it
has now reached a crossroads. Although it began as a purely administrative function,
most HRM executives now see the functions major role as much more strategic.
Future/Strategic
Focus
Management of
strategic human
resources

Management of
transformation
and change

Management of
firm infrastructure

Management of
employee
contribution

Processes

FIGURE 1.2
HR Roles in Building
a Competitive
Organization

People

Day-to-Day/Operational
Focus
SOURCE: Reprinted with permission of Harvard Business School Press. From
Human Resource Champions, by D. Ulrich. Boston, MA, 1998, page 24.
Copyright 1998 by the President and Fellows of Harvard College. All rights
reserved.

8 Chapter 1

Human Resource Management: Gaining a Competitive Advantage

However, this evolution has resulted in a misalignment between the skills and capabilities of members of the function and the new requirements placed on it. Virtually
every HRM function in top companies is going through a transformation process to
play this new strategic role while successfully fulfilling its other roles.
Strategic Partner. One of the most important roles that HRM can play today is that
of a strategic partner. Aligning HRM strategies to business strategies is important to
help the company execute its business strategy.4
For example, when Continental Airlines began its turnaround, Gordon Bethune
proposed a four-pronged strategy of Fly to Win (achieve the top quartile in industry
margins), Fund the Future (reduce debt), Make Reliability a Reality (have an industry-leading product), and Working Together (have a company where employees enjoy
coming to work every day). Ken Carrig, VP of HR at Continental, helped to lead
HRM to develop systems and plans that would ensure the execution of strategy. For
example, they kept the base pay low relative to competitors (to create a labor cost advantage) but then heavily leveraged the variable pay to create an opportunity for employees to earn above the industry average if company performance improved. This
variable pay consisted of (1) an on-time bonus where all employees received a $65
bonus check in any month in which Continental was in the industrys top three in
on-time arrivals and (2) a profit-sharing plan that paid out if Continental returned to
profitability. These incentives played a critical role in moving Continental to the top
of the industry in on-time performance as well as profitability.5
Administrative Expert. Playing the role of administrative expert requires designing
and delivering efficient and effective HRM systems, processes, and practices.6 These
include systems for selection, training, developing, appraising, and rewarding employees.
Continental also exemplifies this efficient delivery of HR systems. As part of its effort to turn the airline around, the HRM function examined its delivery of HRM systems and found a number of inefficiencies. Through outsourcing and streamlining of
its processes, it achieved HRM operating ratios (such as HR FTEs to total FTEs, and
HR expense to total expense) far below the industry average. In fact, this efficiency
saved the company $4.5 million per year.7
Employee Advocate. The employee advocate role entails managing the commitment
and contributions of employees.8 No matter how skilled workers may be, if they are
alienated or angry, they will not contribute their efforts to the firms success, nor will
they stay with the firm for long. Thus the role of employee advocate is of great importance for firms seeking to gain competitive advantage through people.
For example, in its role as employee advocate within Continental, the HRM function developed a number of communication mechanisms both for informing employees of company developments and plans, and for informing company officers of employee concerns. One such mechanism was the town meeting, where CEO Bethune
would meet with large groups of employees to let them ask questions and air their
grievances. Employees commitment and trust grew as they saw their concerns being
taken seriously by the leadership of the company.9
Change Agent. The final role, change agent, requires that HRM help transform organizations to meet the new competitive conditions. In todays fast-changing competitive world, firms need to both constantly change and develop a capacity for
change. HR managers must help identify and manage processes for change.10
Continentals turnaround required both massive changes in operating performance
and large-scale change in the culture of the organization. Increasing operating per-

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 9

formance required developing more realistic schedules as well as getting employees


committed to meeting those schedules. Realistic schedules were created and reviewed
by employee committees, and their participation and the on-time incentive increased
their determination to meeting the schedules. The culture of antagonism and mistrust
had to be replaced by one of cooperation and trust. The profit-sharing plans, revamping of the top management team (36 of 48 officers were fired), burning of the
800-page employee manual, and town meetings all contributed to changing the culture at Continental.11

What Skills Do HRM Professionals Need?


Figure 1.3 shows the competencies that HRM professionals need to be successful.
These competencies are organized according to the four roles (strategic partner, administrative expert, employee advocate, and change agent). These competencies
include the ability to consider current and future business goals and how HRM
can contribute, as well as being able to analyze turnover, retention, productivity, and
customer service problems to recommend potential HRM solutions (strategic partner). They also include overcoming resistance to new HRM policies and procedures,
technology, and work designs (change agent); coaching and counseling employees
and representing their views to management (employee advocate); and designing and
delivering effective HRM systems and understanding how technology can make
HRM systems more efficient and less costly (administrative expert).12

How Is the HRM Function Changing?


The amount of time that the HRM function devotes to administrative tasks is decreasing, and its roles as a strategic business partner, change agent, and employee
FIGURE 1.3
Human Resource
Roles and
Competencies

SOURCE: Adapted from The Changing Human Resource Function, The


Conference Board, 1990 (New York: The Conference Board Inc.), p. 11.

10

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

Self-service
Giving employees
online access to HR
information.

Outsourcing
The practice of
having another
company provide
services.

advocate are increasing.13 HR managers face two important challenges: shifting their
focus from current operations to strategies for the future14 and preparing non-HR
managers to develop and implement human resource practices (recall The Container
Stores HRM philosophy from the chapter opener).
The role of HRM in administration is decreasing as technology is used for many
administrative purposes, such as managing employee records and allowing employees
to get information about and enroll in training, benefits, and other programs. Advances in technology such as the Internet have decreased the HRM role in maintaining records and providing self-service to employees.15 Self-service refers to giving
employees online access to information about HR issues such as training, benefits,
compensation, and contracts; enrolling online in programs and services; and completing online attitude surveys. For example, MCI Worldcom has moved beyond
using technology for online employee directories, handbooks, and employee record
updates.16 Using the Internet, employees at MCI Worldcom can purchase stock and
reallocate retirement account investments, fill out electronic forms, and view electronic pay stubs before they are paid. They can also view streaming video of managers
providing briefings or discussing strategic issues, see best practices, and sign up for
training courses they will participate in using their desktop computers.
Outsourcing of the administrative role has also occurred. Outsourcing refers to the
practice of having another company (a vendor, third-party provider, or consultant)
provide services. Outsourcing is being used for payroll administration and for training, selecting, and recruiting employees. For example, Bank of America signed a 10year contract with Exult Inc. to manage much of the banks HR function.17 Among
the functions being outsourced are payroll, accounts payable, and benefits. Other
services being handled by Exult include delivery of HR services and a call center for
human resource and benefits information. Recruiting, compensation, and legal counsel will remain at the Bank of America. HR managers inside Bank of America are free
to work on strategy and vision and focus on HRM responsibilities that add value to
the business.
Traditionally, the HRM department (also known as Personnel or Employee Relations) was primarily an administrative expert and employee advocate. The department took care of employee problems, made sure employees were paid correctly, administered labor contracts, and avoided legal problems. The HRM department
ensured that employee-related issues did not interfere with the manufacturing or sales
of products or services. Human resource management was primarily reactive; that is,
human resource issues were a concern only if they directly affected the business. Although that still remains the case in many companies that have yet to recognize the
competitive value of human resource management, other companies believe that
HRM is important for business success and therefore have expanded the role of HRM
as a change agent and strategic partner.
Other roles such as practice development and strategic business partnering have
increased. One of the most comprehensive studies ever conducted regarding HRM
concluded that human resources is being transformed from a specialized, stand-alone
function to a broad corporate competency in which human resources and line managers build partnerships to gain competitive advantage and achieve overall business
goals.18 HR managers are increasingly included on high-level committees that are
shaping the strategic direction of the company. These managers report directly to the
CEO, president, or board of directors and propose solutions to business problems.
For example, the vice presidentrelationship leader of human resources for Corporate Services at American Express spends considerable time during his workday on

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 11


TABLE 1.2
1.
2.
3.
4.
5.
6.
7.

What is HR doing to provide value-added services to internal clients?


What can the HR department add to the bottom line?
How are you measuring the effectiveness of HR?
How can we reinvest in employees?
What HR strategy will we use to get the business from point A to point B?
What makes an employee want to stay at our company?
How are we going to invest in HR so that we have a better HR department
than our competitors?
8. From an HR perspective, what should we be doing to improve our marketplace
position?
9. Whats the best change we can make to prepare for the future?

SOURCE: Data from A. Halcrow, Survey Shows HR in Transition, Workforce (June 1988), p. 74.

HR projects supporting business initiatives.19 He spends two hours reviewing service


delivery and drivers of employee satisfaction. Service delivery and drivers of employee
satisfaction are inherent in a Corporate Services vision statement known as The
Stand. (Three goals of The Stand include making people successful, inspiring customer loyalty, and continually transforming industries. Corporate Services progress
toward reaching these goals is assessed by an annual employee survey.) Issues discussed in the two-hour meeting include how The Stand relates to competencies and
behaviors as well as team training effectiveness, with a review of the current reward
structure. Later in the day, he mentors a new directorrelationship leader who supports government services and the corporate purchasing card group. (American Express services more than 1 million federal employees who use the Government Card
when they travel.) He conducts an orientation with her that emphasizes the need to
(1) understand the government services business and (2) gain an understanding of
the key HRM challenges and start to develop an effective working relationship.
Table 1.2 provides several questions that managers can use to determine if HRM is
playing a strategic role in the business. If these questions have not been considered,
it is highly unlikely that (1) the company is prepared to deal with competitive challenges or (2) human resources are being used to help a company gain a competitive
advantage! We will discuss strategic human resource management in more detail in
Chapter 2.
Why have HRM roles changed? Managers see HRM as the most important lever
for companies to gain a competitive advantage over both domestic and foreign competitors. We believe this is because HRM practices are directly related to companies
success in meeting competitive challenges. In the next section we discuss these challenges and their implications for HRM.

The HRM Profession


There are many different types of jobs in the HRM profession. Table 1.3 shows various HRM positions and their salaries. The salaries vary depending on education and
experience as well as the type of industry. As you can see from Table 1.3, some positions involve work in specialized areas of HRM like recruiting, training, or labor and

Questions Used to
Determine if Human
Resources Are
Playing a Strategic
Role in the Business

12

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

TABLE 1.3

POSITION

SALARY

Organization development executive


Corporate labor/industrial relations directors
EEO/diversity managers
HR managers
Technical trainers
Manager, professional recruiters
Human resource information system specialist

$155,100
153,000
90,000
88,800
58,100
59,200
52,000

Median Salaries for


HRM Positions

SOURCE: Based on Society for Human Resource ManagementMercer Survey 2001 as reported in
the Bureau of National Affairs website, www.bna.com, August 28, 2001.

industrial relations. HR generalists usually make between $50,000 and $70,000 depending on their experience and education level. Generalists usually perform the full
range of HRM activities including recruiting, training, compensation, and employee
relations.
A college degree is held by the vast majority of HRM professionals, many of whom
also have completed postgraduate work. Business typically is the field of study (human
resources or industrial relations), although some HRM professionals have degrees in
the social sciences (economics or psychology), the humanities, and law programs.
Those who have completed graduate work have masters degrees in HR management,
business management, or a similar field. Professional certification in HRM is less common than membership in professional associations. A well-rounded educational background will likely serve a person well in an HRM position. As one HR professional
noted, One of the biggest misconceptions is that it is all warm and fuzzy communications with the workers. Or that it is creative and involved in making a more congenial atmosphere for people at work. Actually it is both of those some of the time,
but most of the time it is a big mountain of paperwork which calls on a myriad of skills
besides the people type. It is law, accounting, philosophy, and logic as well as psychology, spirituality, tolerance, and humility.20
The primary professional organization for HRM is the Society for Human Resource
Management (SHRM). SHRM is the worlds largest human resource management association with more than 160,000 professional and student members throughout the
world. SHRM provides education and information services, conferences and seminars, government and media representation, and online services and publications
(such as HR Magazine). You can visit SHRMs website to see their services at
www.shrm.org.

Competitive Challenges Influencing


Human Resource Management
Four competitive challenges that companies now face will increase the importance of
human resource management practices: the challenge of the new economy, the global
challenge, the challenge of meeting stakeholders needs, and the high-performance
work system challenge. These four challenges are shown in Figure 1.4.

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 13


FIGURE 1.4
Competitive Challenges Influencing U.S. Companies

Competing in the New Economy


Several changes in the economy have important implications for human resource
management. Some key statistics about the economy and the workforce are shown
in Table 1.4. These include the changing structure of the economy, the development
of e-business, and more growth in professional and service occupations. Growth in
these occupations means that skill demands for jobs have changed, with knowledge
becoming more valuable. Not only have skill demands changed, but remaining
competitive in a global economy requires demanding work hours and changes in
TABLE 1.4
The economy is expected to add 20 million new jobs.
The jobless rate is expected to remain low by historical standards (5 percent or
less).
Professional specialty and service occupations are expected to account for 46
percent of the total job growth between 1996 and 2006.
70 percent of the fastest-growing occupations require postsecondary education
and training.
There will be a shortage of 4.6 million workers, of which 3.5 million will need
college-level skills.
38 percent of job applicants tested for basic skills lack the reading, writing, and
math skills needed for the jobs they are seeking.
Immigration will add 1 million persons to the workforce each year through
2006.
The projected median age of the labor force by 2010 is 40.

SOURCE: Based on BLS Releases New 19982008 Employment Projections, from the U.S. Bureau
of Labor Statistics website, http://stats.bls.gov; H. N. Fullerton, Labor Force Projections to 2008:
Steady Growth and Changing Composition, Monthly Labor Review, November 1999, pp. 1932;
N. Saunders and B. Su, U.S. Economy to 2008: A Decade of Continued Growth, Monthly Labor
Review, November 1999, pp. 518; and J. Day, Population Projections of the United States by Age,
Sex, Race, and Hispanic Origin: 1995 to 2050, U.S. Bureau of the Census Current Population
Reports, P25-1130 (Washington, DC: U.S. Government Printing Office, 1996), p. 1.

Summary of Key
Labor Statistics
Influencing HRM

14

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

traditional employment patterns. The creation of new jobs, aging employees leaving
the workforce, slow population growth, and a lack of employees who have the skills
needed to perform the jobs in greatest demand means that demand for employees will
exceed supply. This has created a war for talent that has increased the attention
companies pay to attracting and retaining human resources.
Electronic business
(e-business)
Any process that a
business conducts
electronically.

Development of Electronic Business (E-Business). The way business is conducted


has changed rapidly during the past few years and will continue to do so. Many companies are connecting to the Internet to gain an advantage over competitors. About
one-third of all American teens and adults are online regularly, with that number expected to grow as Internet access increases and its cost decreases.21 Electronic business (e-business) includes any process that a business conducts electronically. It includes buying and selling, as well as providing services such as
Business to consumer transactions (such as purchasing books and tickets, and services conducted online, such as banking).
Business to business (transactions between companies such as manufacturers, retailers, wholesalers, and construction firms).
Consumer to consumer (individuals buying and selling goods and services through
auctions).22
E-business relies on the Internet to enable buyers to obtain product information
online, directly order products and services, receive after-sale technical assistance,
and view the status of orders and deliveries. Internet sites may also have e-mail,
which allows the customer and seller to communicate with each other. Companies
are also creating customer service centers that use e-mail or live telephone connections to provide assistance, advice, or product information not found on their websites. The development of e-business has created electronic HRM applications that
let employees enroll in and participate in training programs, change benefits, and
communicate with coworkers online. We will discuss e-HRM in more detail later in
the chapter.
Consumer reaction to the Internet has been slower than expected. To win the
hearts of consumers, e-commerce has to be better, cheaper, and faster than traditional
retailing, entertainment, or information sources.23 One thing the Internet can do better than any other medium is search through information. Companies that take advantage of this feature lower the costs of making sales and therefore improve profits.24
Some e-businesses, such as those in the online travel business dealing with purchasing airline tickets, hotel rooms, and rental cars online, have been successful. The
profitable companies provide services that are information-intensive, rely on old
economy roots, and have little or no physical transportation of products. For example, eBay takes a cut of each sale on its site but is not directly involved transporting
items between buyers and sellers. Monster.com charges companies to post job openings and see resumes but does not set up interviews between job candidates and employees. Travel websites such as Travelocity.com earn a commission if the customer
purchases a ticket or rents a car or a hotel room. Other old economy businesses with
strong brand recognition, such as FTD, the floral delivery service, have successfully
used the Internet to complement telephone and flower store business. FTD can rely
on local retailers to receive and ship orders using their own delivery vehicles. The Internet has given customers a new way to place orders.

COMPETING
IN THE NEW
ECONOMY

There are many HRM challenges in a dot-com company.


They include the need to
quickly identify and hire talented employees, work through
the stresses of a downsizing or
business restructuring, and respond to and reduce the
chances of potential legal problems. For example, within the
first six months of Jessica
Keims tenure as HR manager
for Multex.com, an online financial services firm, the company
grew from 350 to 500 employees by acquiring two
companies. Potential legal
problems exist because young,
inexperienced managers of
many dot-coms have created a
fraternity-party culture that is
needed for innovation and creativity but may cultivate sexual
harassment. Its also not unusual to find incomplete
personnel folders or poor documentation about when and why
employees were terminated.
This occurs because to be
successful dot-coms have to
focus so intently on bringing a
product or service to market
and making sales to survive
that they do not have time to
develop HRM policies, procedures, or standards. Also, the

HRM at Dot-Coms:
Hyperchallenges,
Hyperspeed, and Many
Rewards
work environment tends to be
casual, dress codes may be
loose, and work schedules are
flexible. HRM needs to maintain
a balance between accommodating the unique needs of an
unstructured and creative
workforce and enforcing necessary policies and procedures.
Managers and employees
often dont know how to nurture or mentor people, so
counseling is needed. One
HR professional summarized
the experience as being like
a counselor at a day care
camp.
Despite these challenges,
dot-coms offer a dynamic, exciting HRM work environment.
Their small size allows HR professionals to speak directly to
the CEO. Because of the important role that HRM practices
such as recruiting, selection,
and compensation play in a
growing company, HRM is
asked to get involved with
strategic decision making. As
Beth Skrzyniarz, vice president
of HRM for NetFolio Inc., an
Internet-based investment advisor firm, says, Youre invited to
sit at the table a lot more . . .
you are heard a lot more than
you would be in a big corpora-

tion. Because of the numerous


HRM needs of small dot-coms,
HRM sees its decisions implemented, quickly sees the
impact on the business, and receives personal recognition for
successful actions. Successful
candidates for HRM positions
in dot-com companies are flexible and resilient to chaos and
like challenge. They have a passion for the Internet and
e-commerce. HR professionals
are expected to work without
much structure and be confident in their decisions. They
need to be able to constantly
refine the HRM services the
company offers to meet or exceed those of the competition.
The dot-com environment is
challenging but offers the opportunity to work with
intelligent, energetic, and enthusiastic people. The pace is
fast, and decisions can be
made quickly without a lot of
red tape. HRM professionals
have the opportunity to build
the HR function from scratch,
something that is virtually impossible in a large, more
established company.
SOURCE: L. Grensing-Pophal, Are You
Suited for a Dot-Com? HR Magazine,
November 2000, pp. 7580.

What are the HRM demands in e-business? The Competing in the New Economy
box above highlights human resource management at dot-com companies, which are
considered e-businesses.
15

16

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

Structure of the Economy. The competition for labor is affected by the growth and
decline of industries, jobs, and occupations. Competition for labor is also influenced
by the number and skills of persons available for full-time work. Figure 1.5 shows expected job openings due to new jobs (growth and job openings resulting from having
to replace employees due to retirement, disability, or leaving the workforce to attend
school or stay at home). Most of the new job growth in professional specialties is expected among teachers, librarians, and counselors; computer, mathematical, and operations research occupations; and health assessment and treatment occupations.
Computer-related positions, such as computer engineers, computer support specialists, system analysts, and computer database administrators, are projected to be four
of the fastest-growing jobs in the economy.25 The largest number of job openings will
be in occupations requiring a bachelors degree and on-the-job training. Employees
with the most education will have greater opportunities in the job market and better
chances of landing higher-paid jobs. Retail will continue to provide jobs for unskilled
workers.26
Service occupations make up the next fastest-growing job group, with an expected
addition of 46 million jobs. This has important implications for HRM. Research
FIGURE 1.5
Job Openings Due
to Growth and
Replacement Needs
by Major
Occupational
Group, Projected
19982008.

SOURCE: Tomorrows Jobs in the 200001 Occupational Outlook Handbook, chart


11. From website http://stats.bls.gov/oco/oco2003.htm.

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 17

shows that employee perceptions of HRM practices are positively related to customer
evaluation and service quality. To maximize customer service, companies with service jobs should consider creating both a positive experience for the customer and progressive HRM policies.
Increased Value Placed on Knowledge. By one estimate, up to 75 percent of the
source of value in a company is intangible intellectual capital, which refers to the creativity, productivity, and service provided by employees.27 Effective management of
people is key to boosting the value of intellectual capital. This includes understanding
what the company is about, what it does, the expectations for performance, how and
why performance will be rewarded, and how employee talents will be developed. Today
more companies are interested in developing intellectual capital to gain an advantage
over competitors. As a result, companies are trying to attract, develop, and retain
knowledge workers. Knowledge workers are employees who own the means of producing a product or service. Such employees cannot simply be ordered to perform
tasks; rather, they must share knowledge and collaborate on solutions. Knowledge
workers contribute specialized knowledge that their managers may not have, such as
information about customers. Managers depend on them to share information. Knowledge workers have many job opportunities; if they choose, they can leave a company
and take their knowledge to a competitor. Knowledge workers are in demand because
of the growth of service-producing jobs requiring them. This includes jobs in health
services, business services, social services, engineering, and management.
To completely benefit from employees knowledge requires a management style
that focuses on developing and empowering employees. Empowerment means giving
employees responsibility and authority to make decisions regarding all aspects of
product development or customer service.28 Employees are then held accountable for
products and services; in return, they share the resulting rewards and losses. HRM
practices related to performance management, training, work design, and compensation are important. For empowerment to succeed, managers must be trained to link
employees to resources within and outside the company (people, websites, and so on),
help employees interact with staff throughout the company, and ensure that employees are updated on important issues and cooperate with each other. Employees must
also be trained to use the Internet, e-mail, and other tools for communicating, collecting, and sharing information.
As more companies become knowledge-based, they must promote and capture
learning at the employee, team, and company levels. Buckman Laboratories, for example, is known for its knowledge management practices.29 Buckman Laboratories
develops and markets specialty chemicals. Buckmans CEO, Robert Buckman, has developed an organizational culture, technology, and work processes that encourage the
sharing of knowledge. Employees have laptop computers so they can share information anywhere and anytime via the Internet. The company set up rewards for innovation and knowledge creation and exchange by measuring performance based on the
percentage of sales of new products. Buckman also changed the focus of the companys information systems department, renaming it the knowledge transfer department to better match the service it is supposed to provide.
Skill Requirements. As the occupational structure of the U.S. economy has shifted
to emphasize knowledge and service work, skill requirements have changed.30 The demand for specific skills is being replaced by a need for cognitive skillsmathematical
and verbal reasoning abilityand interpersonal skills related to being able to work in
teams or to interact with customers in a service economy (such as patients, students,

Intellectual capital
Creativity,
productivity, and
service provided by
employees.

Knowledge
workers
Employees who own
the means of
producing a product
or service.

Empowerment
Giving employees
responsibility and
authority to make
decisions.

18

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

vendors, and suppliers). Many jobs, especially those in e-business, require employees
to have technology-related skills (like using the Internet, spreadsheets, and statistical
software packages). Cognitive and interpersonal skills are important because in the
service-oriented economy employees must take responsibility for the final product or
service. Variety and customization requires employees who are creative and good
problem solvers. Continuous innovation requires the ability to learn, especially as
technology changes jobs. To add novelty and entertainment value for customers,
workers must be creative.
Most companies relate these skills to educational attainment, using a college degree as a standard to screen prospective new employees. However, some companies
who are unable to find qualified employees rely on training to correct skill deficiencies after hiring.31 Other companies team up with universities, community colleges,
and high schools to design and teach courses ranging from basic reading to design
blueprint reading. The skills gap has decreased competitiveness because it makes it
difficult for companies to upgrade technology, reorganize work, and empower employees, which are key elements in high-performance work systems.

Psychological
contract
Expectations of
employee
contributions and
what the company
will provide in
return.

Alternative work
arrangements
Independent
contractors, on-call
workers, temporary
workers, and
contract company
workers who are not
full-time employed
by the company.

Changes in the Employment Relationship. Economic downturns will continue to


occur, resulting in layoffs in all industries. For example, recently Xerox laid off 12,000
employees and Cisco Systems 3,000 employees. Due to excessive optimism about the
Internet, nearly 600 dot-coms such as e-Tots Inc and Webvan Group Inc. (which delivered groceries ordered over the Internet) have gone out of business since January
2000. Layoffs and bankruptcies have played a major role in changing the employment
relationship. The psychological contract describes what an employee expects to contribute and what the company will provide to the employee for these contributions.32
Unlike a sales contract, a psychological contract is not written. Traditionally, companies expected employees to contribute time, effort, skills, abilities, and loyalty. In
return, companies would provide job security and opportunities for promotion. However, in the new economy a new type of psychological contract is emerging.33 The
competitive business environment demands frequent changes in the quality, innovation, creativeness, and timeliness of employee contributions and the skills needed to
provide them. This has led to company restructuring, mergers and acquisitions, layoffs, and longer hours for many employees. Companies demand excellent customer
service and high productivity levels. Employees are expected to take more responsibility for their own careers, from seeking training to balancing work and family. In
exchange for top performance and working longer hours without job security, employees want companies to provide flexible work schedules, comfortable working
conditions, more autonomy in accomplishing work, training and development opportunities, and financial incentives based on how the company performs. Employees
realize that companies cannot provide employment security, so they want employabilitythat is, they want their company to provide training and job experiences to
help ensure that employees can find other employment opportunities. The human resource management challenge is how to build a committed, productive workforce in
turbulent economic conditions that offer opportunity for financial success but can
also quickly turn sour, making every employee expendable.
As a result of this changing psychological contract, companies are using more
alternative work arrangements. Alternative work arrangements include independent
contractors, on-call workers, temporary workers, and contract company workers. The
Bureau of Labor Statistics estimates that there are 12.2 million nontraditional
workers, including 8.2 million independent contractors, 2 million on-call workers, 1.2

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 19

million temporary workers, and approximately 800,000 contract company workers


(workers employed by a company that provides them to other companies under a contract). These alternative work arrangements constitute about 10 percent of employees.34
More workers in alternative employment relationships are choosing these arrangements. Most independent contractors and contract workers have chosen this type of
arrangement, whereas temporary agency workers and on-call workers prefer traditional
full-time employment. There is some debate whether nontraditional employment relationships are good or bad. Some labor analysts argue that alternative work arrangements are substandard jobs characterized by low pay, fear of unemployment, poor
health insurance and retirement benefits, and dissatisfying work. Others claim that
these jobs provide flexibility for both companies and employees in a tight labor market.
Alternative work arrangements allow companies to more easily modify their hiring levels and are more cost-effective when demand for products and service fluctuates. Alternative arrangements also allow employees to balance work with nonwork activities.
Demanding Work, but with More Flexibility. The globalization of the world economy and the development of e-commerce have made the notion of a 40-hour work
week obsolete. As a result, companies need to be staffed 24 hours a day, seven days a
week. Employees in manufacturing environments and service call centers are being
asked to move from 8- to 12-hour days or to work afternoon or midnight shifts. Similarly, professional employees face long hours and and work demands that spill over
into their personal lives. E-mail, pagers, and cell phones bombard employees with information and work demands. In the car, on vacation, on planes, and even in the
bathroom, employees can be interrupted by work demands. More demanding work results in greater employee stress, less satisfied employees, loss of productivity, and
higher turnoverall of which are costly for companies.
Many companies are taking steps to provide more flexible work schedules, protect
employees free time, and more productively use employees work time. Workers consider flexible schedules a valuable way to ease the pressures and conflicts of trying to
balance work and nonwork activities. Employers are using flexible schedules to recruit
and retain employees and to increase satisfaction and productivity. For example, International Paper plants need to run paper-producing machinery 24 hours a day,
seven days a week. The challenge for the company was to devise a schedule that keeps
the machines running while allowing employees to balance work and rest. At its plant
in DePere, Wisconsin, employees are asked to rotate between daytime work hours to
nighttime shifts and back again. Typically, such rotating shifts force employees to
continually adjust to different sleep patterns and disrupt social activities. At the
DePere plant, shifts have been extended from 8 to 12 hours. The typical rotation follows a pattern of four days on, two off, three on, three off, three on, and four off. This
means employees work only 190 days a year and can balance the demands of work and
family life. As another example, in response to the loss of talented computer service
employees who were forced to answer calls late at night and on weekends, HewlettPackard redesigned work schedules to allow employees to volunteer to work either
during the week or on weekends. As a result, turnover rates decreased and customer
response times improved.35 To protect employees nonwork time, some companies,
such as the consulting firm Ernst & Young, allow employees to wait until they return
to work to answer weekend or vacation voice mail and e-mail messages.36 At SCJohnson in Racine, Wisconsin, employees often had to take work home on the weekends
because they were so tied up in meetings from Monday through Friday that they had
to finish duties on their own time.37 SCJohnson now completely bans all meetings for

20

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

two Fridays each month. The policy helps employees rest on at least two weekends
and work at home on those Fridays because they wont be afraid of missing a meeting.

Finding and Keeping the Best Employees


There are several ways that companies are trying to win the war for talent; all involve
HRM practices. They include finding creative ways to avoid layoffs and retirement,
creating a positive work environment, and expanding the search for talent to the
global labor force.
Companies are coming up with creative ways to avoid layoffs or remain connected
to laid-off talented employees whom they worked hard to recruit.38 For example, Sun
Microsystems is trying to avoid layoffs by closing plants over the summer. Cisco Systems is paying some laid-off employees one-third of their previous salaries and will
continue to provide full benefits, including health insurance, use of a laptop, and access to the company gym. After a year the employees will get an additional two
months salary to help pay for a job search inside Cisco. Charles Schwab is promising
a $75,000 rehiring bonus to any of the 2,100 employees laid off who return within 18
months. Many companies are considering rehiring retired employees on a part-time
basis or as consultants, and rather than offering all-or-none retirement programs, they
are allowing employees to gradually phase out of work. For example, Monsanto Corporation has developed its own in-house temporary employment agency, the Retiree
Resource Corporation (RRC), to utilize retirees talents.39
Macys West has developed a comprehensive retention strategy that includes (1)
advising managers on how to run meetings and conduct performance evaluations in
a way that will motivate associates, (2) flexible schedules, (3) development opportunities to prepare associates to be managers.40 Executives at Macys are also held accountable for retention among the employees who report to them.
Consider how SAS Institute is trying to win the war for talent by giving employees the opportunity to do interesting work in a comfortable environment that permits
them to have both jobs and lives.41 SAS Institute is a privately held worldwide company that develops and markets statistical software. By any criteria, SAS is successful;
80 percent of the Fortune 500 companies use its software. SAS Institute operates on
the basis of trust. The company has no sick days or sick leave policy. Employees can
take as many days as they need; if they take advantage of the policy they are fired. The
companys approach to performance management involves setting high expectations
and giving employees the freedom to meet the expectations. SAS Institute is most
famous for its generous, family-friendly benefits and pleasant physical environment.
Every employee has a nice private office with computer equipment. Company policy
is for employees to work 35 hours a week or a 9-to-5 day with an hour for lunch or
exercise. The company is closed after 5 P.M. The company also has an on-site medical
facility, on-site day care, a fitness center, and a liberal snack policy. Every Wednesday
afternoon, plain and peanut M&Ms are distributed to snack areas on every floor in
every building (the company uses 22.5 tons of M&Ms per year). Not surprisingly,
SAS Institute has a low turnover rate. Many other high-tech and pharmaceutical
companies are located close to SASs headquarters in Cary, North Carolina, so competition for talented employees is high. However, SAS Institutes work environment
encourages employees to stay even if they have opportunities at other companies.
SASs business strategy will soon make it a publicly traded company. Although SAS
Institute will face challenges, its HRM practices will continue to give the company a
competitive advantage.

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 21

Companies are relying on the global labor market to find employees with specific
talent. In India, computer programmers and call center employees work part-time on
contracts for numerous companies around the world. Companies such as Conseco, an
insurance firm, are finding that by outsourcing or contracting business to India, they
can find a greater supply of better-educated persons than in the United States.42 The
Indian employees are excited about the type of customer service work offered and are
loyal and eager to learn, taking the initiative to improve business processes and please
their customers. In the United States it is difficult to find and retain the same type of
employees. The cost of doing business in India (such as wages and benefits) are much
cheaper, so this outsourcing helps improve the bottom line. Companies are also moving business operations to where employees are available.43 In Ireland more than 100
international companies have set up telemarketing operations, and the country is attracting employees from all over Europe.

The Global Challenge


Companies are finding that to survive they must compete in international markets as
well as fend off foreign corporations attempts to gain ground in the United States. To
meet these challenges, U.S. businesses must develop global markets, use their practices to improve global competitiveness, and better prepare employees for global assignments.
Development of Global Markets. Anecdotal evidence suggests that the most admired and successful companies in the world have not only created multinational corporations, but have created organizations with workforces and corporate cultures that
reflect the characteristics of the global markets in which they operate.44 Examples of
these companies include General Electric, Coca-Cola, Microsoft, Walt Disney, Intel,
Toyota Motors, ABB Asea Brown Boveri, and Hewlett-Packard.
These companies key priorities include traditional business objectives such as customer focus and innovation. However, a distinguishing characteristic is that these
companies believe that people are their most important asset. Believing that employees are the key to success translates into human resource management practices such
as rewarding employee performance, measuring employee satisfaction, using an intensive employee selection process, promotion from within, and investing in employee development.
Globalization has affected not only businesses with international operations. Companies without international operations buy or use goods that have been produced
overseas, hire employees with diverse backgrounds, and compete with foreign-owned
companies operating within and outside the United States. More companies are entering international markets by exporting their products overseas, building manufacturing facilities in other countries, entering into alliances with foreign companies,
and engaging in e-commerce. Globalization is not limited to a particular sector of the
economy or product market. For example, Procter & Gamble is targeting feminine
hygiene products to new markets such as Brazil. The demand for steel in China, India,
and Brazil is expected to grow at three times the U.S. rate. Developing nations such
as Taiwan, Indonesia, and China may account for over 60 percent of the world economy by 2020.45 Consider the market for Western goods from computers to hamburgers in China. China has a population of 1.2 billion with 200 million people living in
cities! And in Latin America, governments are selling state-owned businesses to private investors, and foreign investment is welcome. Global business expansion has

22

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

been made easier by technology. The Internet allows data and information to be instantly accessible and sent around the world. Using the Internet, e-mail, and videoconferencing, business deals can be completed between companies thousands of miles
apart. Mark Braxton, chief technology officer for GM OnStar-Europe, believes that
new technologies will open up opportunities for underdeveloped villages and communities in Africa, Asia, Europe, the United States, Central America, and South
America by allowing employers to consider locating telephone service centers where
companies would never have considered putting them.46 Economically deprived communities in Ireland, Brazil, and Mexico are being equipped with satellite links that
give them access to universities, local government offices, and businesses. This is not
to say that developing these markets will be easy. Political instability, poor roads and
communications, and poor economies increase the risks involved in doing global
business in developing countries.
Despite the risks, many U.S. competitors are willing to gamble and are realizing
high returns. They are reacting decisively to global changes and are positioning themselves as active participants in areas of the world that are expected to grow most rapidly. For example, ABB Asea Brown Boveri AG (Europes largest engineering company and a competitor of General Electric) was one of the first Western companies to
react to the Asian monetary crisis.47 With over 219,000 employees worldwide, ABB
was considered a global company well before the Asian monetary crisis. But to capitalize on the crisis, the company underwent a massive restructuring plan involving
layoffs in Europe and North America and production shifts to low-cost countries in
Asia. The company also did away with its regional reporting structure and organized
its businesses along global lines. ABB hopes to beat its rivals by capitalizing on Asias
low production costs, which are half of European costs.
Training has an important role in ABBs global business success. One of the biggest
problems that ABB has to overcome is resistance to the idea that Asian countries can
match the standards of European or North American factories and complete work on
time. Plant managers at its electrical motor facility in Shanghai, China, have been
trained in ABB quality standards by ABB employees on assignment in China (employees known as expatriates).
Competitiveness in Global Markets through HRM Practices. While many large
firms such as Exxon, Ford, and Procter & Gamble are already multinational corporations that span the globe, many medium-sized and small businesses are becoming increasingly international. To succeed in the global marketplace, the challenge for all
businessesregardless of sizeis to understand cultural differences and invest in
human resources. Consider how Starbucks Coffee handled its recent expansion into
Beijing, China.48 Competition for local managers exceeds the available supply. As a
result, companies have to take steps to attract and retain managers. Starbucks researched the motivation and needs of the potential local management workforce.
The company found that managers were moving from one local Western company to
another for several reasons. In the traditional Chinese-owned companies, rules and
regulations allowed little creativity and autonomy. Also, in many joint U.S.China
ventures, local managers were not trusted. To avoid local management turnover, in
its recruiting efforts Starbucks emphasized its casual culture and opportunities for development. Starbucks also spends considerable time in training. New managers are
sent to Tacoma, Washington, to learn the corporate culture as well as the secrets of
brewing flavorful coffee.
To compete in the world economy, U.S. companies need to put greater effort into

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 23

selecting and retaining talented employees, employee training and development, and
dismantling traditional bureaucratic structures that limit employees ability to innovate and create.49
Preparing Employees for International Assignments. Besides taking steps to ensure
that employees are better used, U.S. companies must do a better job of preparing employees and their families for overseas assignments. The failure rate for expatriates is
higher than that for European and Japanese expatriates.50 U.S. companies must carefully select employees to work abroad based on their ability to understand and respect
the cultural and business norms of the host country, their language skills, and their technical ability. (See the Competing through Globalization box.) Additionally, U.S.
companies must be willing to train and develop foreign employees to win foreign business. Several companies (such as Boeing and CSX Corporation) bring foreign workers
to the United States for training and then return them to their home countries.51 For
example, Boeing brings workers from India and Poland to the United States. They return home with needed knowledge in aircraft design and manufacturing.

The Challenge of Meeting Stakeholders Needs


As we mentioned earlier, company effectiveness and competitiveness are determined
by whether the company satisfies the needs of stakeholders. Stakeholders include
stockholders (who want a return on their investment), customers (who want a highquality product or service), and employees (who desire interesting work and reasonable compensation for their services). The community, which wants the company to
contribute to activities and projects and minimize pollution of the environment, is
also an important stakeholder.

The Balanced Scorecard: Measuring Performance to Stakeholders


The balanced scorecard gives managers an indication of the performance of a company based on the degree to which stakeholder needs are satisfied; it depicts the
company from the perspective of internal and external customers, employees, and
shareholders.52 The balanced scorecard is important because it brings together most
of the features that a company needs to focus on to be competitive. These include
being customer-focused, improving quality, emphasizing teamwork, reducing new
product and service development times, and managing for the long term.
The balanced scorecard differs from traditional measures of company performance
by emphasizing that the critical indicators chosen are based on the companys business
strategy and competitive demands. Companies need to customize their balanced scorecards based on different market situations, products, and competitive environments.
Using the Balanced Scorecard to Manage Human Resources. Communicating the
scorecard to employees gives them a framework that helps them see the goals and
strategies of the company, how these goals and strategies are measured, and how they
influence the critical indicators. For example, Chase Manhattan Bank used the balanced scorecard to change the behavior of customer service representatives.53 Before
the company implemented the scorecard, if a customer requested a change in a banking service, the representative would have simply met the customers need. Based on
knowledge of the scorecard, the customer service representative might now ask if the
customer is interested in the banks other services such as financial planning, mortgages, loans, or insurance.

Balanced scorecard
A means of
performance
measurement that
gives managers a
chance to look at
their company from
the perspectives of
internal and external
customers,
employees, and
shareholders.

COMPETING
THROUGH
GLOBALIZATION

As companies expand globally,


they are spending more time
and energy assessing employees cultural fit for overseas
assignments. Research and
practice indicate that the
biggest mistake companies
make is choosing people who
have the technical skills needed
to perform the job, but ignoring personality characteristics
and family support. One estimate is that the cost of each
failed overseas assignment
ranges from $200,000 to
$500,000. These costs relate to
lost productivity, relocation, recruitment, and severance
(buyout of employment) for the
unsuccessful employee. Overseas assignments typically fail
because the employee or family
becomes homesick, or the employee cannot cope with the
nuances of interacting with others in a different culture.
Tricon Restaurants International, based in Dallas, Texas,
has 100 expatriates; 20 are

Success in Global Fast Food


Depends on Careful Choice
for Overseas Assignments
Americans working overseas. Tricon is the franchiser for over
10,000 overseas Kentucky Fried
Chicken, Pizza Hut, and Taco
Bell Restaurants. Rather than
choosing candidates who are
merely excited about overseas
assignment and who have the
technical skills to perform the
job, Tricon is taking a closer look
at whether the candidates have
the necessary personality characteristics, especially their ability
to adapt to different situations,
and the family support needed
to succeed in overseas assignments. To identify employees for
overseas assignments, Tricon interviews candidates about the
position, the countrys culture,
and its marketplace. If there is
any doubt whether the candidate can make the adjustment,
a consulting firm is hired to further assess whether the
candidate has the personality
needed to succeed in an overseas assignment. Some of the
personality characteristics

needed include empathy, adaptability, and the ability to interact


with others (sociability). If candidates pass the interview, a
360-degree feedback survey,
which asks peers and their manager about their strengths and
weaknesses, is used to evaluate
their skills. If the evaluation is
positive, candidates and their
families are sent overseas for a
week. During the visit, local
managers evaluate the candidate while the family evaluates
the community. The family
spends time touring local
schools, potential housing
locations, and meeting with
other expatriates in the country
who help them understand the
local culture and environment. If
the local managers find the candidate acceptable, the
candidate, with input from family, can accept or reject the
position.
SOURCE: Based on C. Patton, Match
Game, Human Resource Executive, 2001,
pp. 3641.

The balanced scorecard should be used to (1) link human resource management
activities to the companys business strategy and (2) evaluate the extent to which the
HRM function is helping the company meet its strategic objectives. Measures of
HRM practices primarily relate to productivity, people, and process.54 Productivity
measures involve determining output per employee (such as revenue per employee).
Measuring people includes assessing employees behavior, attitudes, or knowledge.
Process measures focus on assessing employees satisfaction with people systems within
the company. People systems can include the performance management system, the
compensation and benefits system, and the development system. The Competing by
24

COMPETING
BY MEETING
STAKEHOLDERS
NEEDS

The U.S. Bureau of Labor Statistics reports that the typical


American worker holds nine
different jobs before age 32.
Turnover cannot be eliminated,
and it can be positive. Turnover
creates promotion opportunities and allows for the
recruitment of new talent. But
excessive turnover can disrupt
customer service, innovation,
and productivity, especially if
the employees who leave take
with them valuable industryspecific knowledge and
customer relationships. At
Athleta Corporation, a retail
catalog and online sports apparel company founded in 1997
in Petaluma, California, the
workforce is so committed to
the company that turnover is
less than 1 percent, productivity
is increasing, and the company
grew 500 percent last year.
Athleta offers clothing from

For Employee Retention


the Venue Makes a
Difference
companies like Patagonia, SheBeest, and Adidas, and it also
designs its own line of Athleta
Essentials bodywear and
technical apparel for running
and cycling. The work environment has contributed to
employee retention. The CEO
has created a culture in which
most of the 60 employees set
their own work schedules and
can take personal time during
the day. Work gets done because employees seek to learn
other employees jobs (crosstraining) and fill in for each
other during the day. Employees who take time off for
personal reasons willingly work
odd hours. The work environment is about enjoying work,
and team support is the rule.
That team also includes a number of canines, so if you visit
Athleta, youll likely be greeted
by a pack of friendly dogs curi-

ous to see what treats youve


brought them. The dogs offer
excellent running company and
the occasional wrestling match
or game of fetch to reduce
stress. Athleta encourages people to take time out and
participate in some type of
physical activity during the day.
The open space preserve behind the company facility is
used by runners; part of a storage area is a makeshift gym,
complete with weights, mats,
and a treadmill. Group fitness
classes, including kick-boxing
and circuit training, are also offered so employees can sweat,
laugh, and sometimes grimace
in pain togetherteam building at its finest!
SOURCE: Based on the Athleta Corporation
website, www.athleta.com, 9/22/01; and
K. Dobbs, Knowing How to Keep Your Best
and Brightest, Workforce, April 2001, pp.
5660.

Meeting Stakeholders Needs box shows how people systems can contribute to competitive advantage. For HRM activities to contribute to a companys competitive advantage, managers need to consider the questions shown in Table 1.5 and be able to
answer them!
For example, at Tellabs, a company that provides communication service products
(such as optical networking) around the world, key results tracked on the balanced
scorecard include revenue growth, customer satisfaction, time to market for new
products, and employee satisfaction.55 Every employee has a bonus plan; bonuses are
tied to performance as measured by the scorecard. The performance appraisal process
measures employee performance according to departmental objectives that support
the scorecard. At quarterly meetings, how employee performance is evaluated according to the scorecard is shared with every employee, and the information is also
available on the company Intranet website.
25

26

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

TABLE 1.5
The Balanced
Scorecard

PERSPECTIVE
Customer
Internal

QUESTIONS
ANSWERED

EXAMPLES OF CRITICAL
INDICATORS

How do customers
see us?
What must we
excel at?

Time, quality, performance, service,


cost
Processes that influence customer
satisfaction, availability of information
on service and/or manufacturing
processes
Improve operating efficiency, launch
new products, continuous
improvement, empowering of
workforce, employee satisfaction
Profitability, growth, shareholder value

Innovation and
learning

Can we continue to
improve and create
value?

Financial

How do we look to
shareholders?

Meeting Customer Needs for Quality

Total quality
management
(TQM)
A cooperative form
of doing business
that relies on the
talents and
capabilities of both
labor and
management to
continually improve
quality and
productivity.

Malcolm Baldrige
National Quality
Award
An award
established in 1987
to promote quality
awareness, to
recognize quality
achievements of
U.S. companies, and
to publicize
successful quality
strategies.

To compete in todays economy, whether on a local or global level, companies need


to provide a quality product or service. If companies do not adhere to quality standards, their ability to sell their product or service to vendors, suppliers, or customers
will be restricted. Some countries even have quality standards that companies must
meet to conduct business there. Total Quality Management (TQM) is a companywide effort to continuously improve the ways people, machines, and systems accomplish work.56 Core values of TQM include the following:57
Methods and processes are designed to meet the needs of internal and external customers.
Every employee in the company receives training in quality.
Quality is designed into a product or service so that errors are prevented from occurring, rather than being detected and corrected.
The company promotes cooperation with vendors, suppliers, and customers to improve quality and hold down costs.
Managers measure progress with feedback based on data.
There is no universal definition of quality. The major differences in its various definitions relate to whether customer, product, or manufacturing process is emphasized.
For example, quality expert W. Edwards Deming emphasized how well a product or
service meets customer needs. Phillip Crosbys approach emphasizes how well the
service or manufacturing process meets engineering standards. Table 1.6 contrasts the
HRM practices in companies recognized for successfully implementing TQM with
traditional management practices. To ensure the success of TQM, companies need to
create an environment that supports innovation, creativity, and risk taking to meet
customer demands. Participative problem solving involving managers, employees,
and customers should be used. Employees should not be afraid to communicate information regarding customer needs to managers.
The emphasis on quality is seen in the establishment of the Malcolm Baldrige National Quality Award and the ISO 9000:2000 quality standards. The Baldrige award,
created by public law, is the highest level of national recognition for quality that a
U.S. company can receive. To become eligible for the Baldrige, a company must complete a detailed application that consists of basic information about the firm, as well

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 27


TABLE 1.6
HRM Practices in Total Quality Companies
In companies that successfully implemented TQM, the corporate climate emphasized collective and cross-functional work,
coaching and enabling employees, customer satisfaction, and quality, rather than the traditional emphasis on individualism,
hierarchy, and profit.

HUMAN RESOURCE
MANAGEMENT
CHARACTERISTICS

TRADITIONAL MODEL

TOTAL QUALITY MODEL

Communications

Top-down

Voice and involvement

Employment at will
Suggestion systems

Job design

Efficiency
Productivity
Standard procedures
Narrow span of control
Specific job descriptions

Training

Job-related skills
Functional, technical

Performance measurement
and evaluation

Productivity
Individual goals
Supervisory review
Emphasize financial
performance
Competition for individual
merit increases and benefits

Top-down
Horizontal, lateral
Multidirectional
Due process
Quality circles
Attitude surveys
Quality
Customization
Innovation
Wide span of control
Autonomous work teams
Empowerment
Broad range of skills
Cross-functional
Diagnostic, problem solving
Productivity and quality
Team goals
Customer, peer, and supervisory review
Emphasize quality and service

Rewards

Health and safety

Treat problems

Selection and promotion


Career development

Selection by manager
Narrow job skills
Promotion based on
individual accomplishment
Linear career path

Team and group-based rewards


Financial rewards, financial and
nonfinancial recognition
Prevent problems
Safety programs
Wellness programs
Employee assistance programs
Selection by peers
Problem-solving skills
Promotion based on group facilitation
Horizontal career path

SOURCE: Academy of Management Executive, by R. Blackburn and B. Rosen. Copyright 1993 by Academy of Management.
Reproduced with permission of Academy of Management via Copyright Clearance Center.

as an in-depth presentation of how it addresses specific criteria related to quality


improvement. The categories and point values for the Baldrige award are found in
Table 1.7. It is important to note that human resources is recognized as an important
criterion. The award is not given for specific products or services. Three awards may
be given annually in each of these categories: manufacturing, service, small business,

28

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

TABLE 1.7
Categories and
Point Values for the
Malcolm Baldrige
National Quality
Award Examination

Leadership
125
The way senior executives create and sustain corporate citizenship, customer
focus, clear values, and expectations and promote quality and performance
excellence
Information and Analysis
85
Management and effectiveness of the use of data and information to support
customer-driven performance and market excellence
Strategic Planning
85
The way the company sets strategic direction, how it determines plan
requirements, and how plan requirements relate to performance management
Human Resource Focus
85
Companys efforts to develop and utilize the workforce and to maintain an
environment conducive to full participation, continuous improvement, and
personal and organizational growth
Process Management
85
Process design and control, including customer-focused design, product and
service delivery, support services, and supply management
Business Results
450
Companys performance and improvement in key business areas (product, service,
and supply quality, productivity, and operational effectiveness and related financial
indicators)
Customer and Market Focus
85
Companys knowledge of the customer, customer service systems, responsiveness
to customer, and customer satisfaction
Total Points
1,000

SOURCE: Based on Malcolm Baldrige National Quality Award 2000 Award Criteria (Gaithersburg,
MD: National Institute of Standards and Technology, 2000).

education, and health care. All applicants for the Baldrige Award undergo a rigorous
examination that takes from 300 to 1,000 hours. Applications are reviewed by an independent board of 400 examiners who come primarily from the private sector. Each
applicant receives a report citing strengths and opportunities for improvement.
HRM practices, especially training, play an important role in improving quality.
Operations Management International Inc. (OMI) is a 2000 Baldrige Award winner
in the service category. OMI operates and maintains more than 160 public- and
private-sector wastewater and water treatment facilities in 29 states and Brazil,
Canada, Egypt, Israel, Malaysia, New Zealand, the Philippines, and Thailand. OMIs
primary services are processing raw wastewater to produce clean, environmentally
safe effluent and processing groundwater and surface water to produce clean, safe
drinking water. Ninety-four percent of its customers are public, including cities and
counties; 5 percent are industrial; and 1 percent are international communities or
companies. Four strategic objectivescustomer focus, business growth, innovation,
and market leadershipenable OMI to design management systems and processes
that consistently achieve high performance, reduce operating costs, and satisfy customers and associates. Training is key to the success of the company. OMI provides a
broad array of training opportunities for its workforce, including a six-day Obsessed
with Quality orientation program, OMI University for management and leadership

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 29

development, on-the-job training, and mentoring. OMIs expenditures on training


and tuition almost doubled from 1996 to 2000. Overall research suggests that the
Baldrige award has had a positive impact in overall corporate performance (including
better employee relations and increased productivity, customer satisfaction, and
market share).58
The ISO 9000:2000 standards were developed by the International Organization
for Standardization in Geneva, Switzerland.59 ISO 9000 is the name of a family
of standards (ISO 9001, ISO 9004) that includes requirements such as how to establish quality standards and document work processes to help workers understand quality system requirements. ISO 9000:2000 has been adopted as a quality standard
in nearly 100 countries, including Austria, Switzerland, Norway, Australia, and
Japan. The ISO 9000:2000 standards apply to companies in many different industriesfor example, manufacturing, processing, servicing, printing, forestry, electronics, steel, computing, legal services, and financial services. ISO 9001 is the most comprehensive standard because it covers product or service design and development,
manufacturing, installation, and customer service. It includes the actual specification
for a quality management system. ISO 9000 provides a guide for companies that want
to improve.
Why are standards useful? A customer may want to check that a product ordered
from a supplier meets the purpose for which it is required. One of the most efficient
ways to do this is having the specifications of the product defined in an international
standard. That way, even if they are based in different countries, both supplier and
customer are both using the same references. Today many products require testing for
conformance with specifications or compliance with safety or other regulations before
they can be put on many markets. Even simpler products may require supporting
technical documentation that includes test data. One example of an ISO standard is
on the inside cover of this book and nearly every other book. On the inside cover
there is something called an ISBN, which stands for International Standard Book
Number. Publishers and booksellers are familiar with ISBNs because they are the
method through which books are ordered and bought. Try buying a book on the Internet, and you will soon learn the value of the ISBNthere is a unique number for
the book you want! And it is based on an ISO standard.
In addition to competing for quality awards and seeking ISO certification, many
companies are using the Six Sigma process. The Six Sigma process refers to a system
of measuring, analyzing, improving, and then controlling processes once they have
been brought within the narrow Six Sigma quality tolerances or standards. The objective of Six Sigma is to create a total business focus on serving the customerthat
is, deliver what customers really want when they want it. For example, at General
Electric introducing the Six Sigma quality initiative meant going from approximately
35,000 defects per million operations (which is average for most companies, including GE) to fewer than 4 defects per million in every element of every process GE businesses performfrom manufacturing a locomotive part to servicing a credit card account to processing a mortgage application to answering the telephone.60 Training is
an important component of the process. Six Sigma involves highly trained employees known as Champions, Master Black Belts, Black Belts, and Green Belts who lead
and teach teams focused on an ever-growing number of quality projects. The quality
projects improve efficiency and reduce errors in products and services. Today GE has
over 100,000 employees trained in Six Sigma and working on over 6,000 quality projects. Since 1996, when the Six Sigma quality initiative was started, it has produced
more than $2 billion in benefits for GE.

ISO 9000:2000
Quality standards
adopted worldwide.

Six Sigma process


System of
measuring,
analyzing,
improving, and
controlling
processes once they
meet quality
standards.

30

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

Composition of the Labor Force


Internal labor force
Labor force of
current employees.
External labor
market
Persons outside the
firm who are actively
seeking
employment.

Company performance on the balanced scorecard is influenced by the characteristics


of its labor force. The labor force of current employees is often referred to as the
internal labor force. Employers identify and select new employees from the external
labor market through recruiting and selection. The external labor market includes
persons actively seeking employment. As a result, the skills and motivation of a companys internal labor force are influenced by the composition of the available labor
market (the external labor market). The skills and motivation of a companys internal labor force determine the need for training and development practices and the effectiveness of the companys compensation and reward systems.
The Bureau of Labor Statistics, a part of the U.S. Department of Labor, tracks
changes in the composition of the U.S. labor force and projects employment trends.61
Over the 19962006 period, the labor force is projected to increase by 15 million
from 134 million to 149 million workers. This is an increase of 11 percent, less than
the 14 percent increase between 1986 and 1996. The composition of the labor force
will change because of shifts in the U.S. population. The youth labor force (ages 16
to 24) is expected to grow more rapidly than the overall labor force for the first time
in 25 years. The labor force aged 45 to 64 will grow faster than any other age group
as the baby boom generation (born from 1946 to 1964) continues to age. An aging
workforce means that employers will increasingly face HRM issues such as career
plateauing, retirement planning, and retraining older workers to avoid skill obsolescence. Companies will struggle with how to control the rising costs of benefits and
health care. Growth in the youth labor force suggests that employers will have to find
ways to attract, train, and retain younger employees.
As Figure 1.6 shows, the U.S. workforce is becoming increasingly diverse. It is projected that by 2006 the workforce will be 72 percent white, 11 percent black, 12 percent Hispanic, and 5 percent Asian and other minorities. Labor force participation of
women in all age groups is expected to increase, while mens participation rates are
expected to continue to decline for all age groups under 45 years. The Asian and
other labor force and Hispanic labor force are projected to increase faster than other
groups because of immigration and higher-than-average birthrates.

FIGURE 1.6
Changes in the U.S.
Workforce, 1996
and 2006

SOURCE: Bureau of Labor Statistics, BLS Releases New 19962006 Employment Projections,
www.bls.gov/new.release/ecopro.nws.htm. Numbers rounded to nearest percentage may not add to
100%.

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 31

Immigration is an important factor contributing to the diversity of the workforce.


Immigrants will likely account for an additional 1 million persons in the workforce
each year through 2006.62 About 70 percent of these new workers will be Hispanics
and Asians. There is considerable disagreement regarding the impact of immigration
on employment prospects for U.S.-born workers and the U.S. economy. The U.S.
economy has benefited by acquiring talented, intelligent workers from other countries, but it is unclear whether an influx of skilled workers from other countries lowers wages or increases unemployment for U.S.-born employees. Immigrants who enter
the United States illegally (from formerly communist countries, for example) tend to
have less education and depend more on the welfare system than those who enter
legally.63
The heterogeneous composition of the workforce challenges companies to create
HRM practices that ensure that the talents, skills, and values of all employees are
fully utilized to help deliver high-quality products and services.
Managing Diversity. Because the workforce is predicted to become more diverse
in terms of age, ethnicity, and racial background, it is unlikely that one set of values
will characterize all employees.64 For example, Generation Yers (born between 1976
and 1995) begin their career with the assumption they will frequently change jobs.
They place a high value on money as well as on helping others. Baby busters (employees born between 1965 and 1975) value unexpected rewards for work accomplishments, opportunities to learn new things, praise, recognition, and time with the
manager. Traditionalists, employees born between 1925 and 1945, tend to be uncomfortable challenging the status quo and authority. They value income and employment security.
Most employees, however, value several aspects of work regardless of their background. Employees view work as a means to self-fulfillmentthat is, a means to more
fully use their skills and abilities, meet their interests, and allow them to live a desirable life-style.65 One report indicated that employees who are given opportunities to
fully use and develop their skills, receive greater job responsibilities, believe the promotion system is fair, and have a trustworthy manager who represents the employees
best interests are more committed to their companies.66 Fostering these values requires companies to develop HRM practices that provide more opportunity for individual contribution and entrepreneurship.67 Because many employees place more
value on the quality of nonwork activities and family life than on pay and production,
employees will demand more flexible work policies that allow them to choose work
hours and locations where work is performed.
The implications of the changing labor market for managing human resources are
far-reaching. Because labor market growth will be primarily in female and minority
populations, U.S. companies will have to ensure that employees and human resource
management systems are free of bias to capitalize on the perspectives and values that
women and minorities can contribute to improving product quality, customer service,
product development, and market share. Managing cultural diversity involves many
different activities, including creating an organizational culture that values diversity,
ensuring that HRM systems are bias-free, facilitating higher career involvement of
women, promoting knowledge and acceptance of cultural differences, ensuring involvement in education both within and outside the company, and dealing with employees resistance to diversity.68 Table 1.8 presents ways that managing cultural diversity can provide a competitive advantage. Traditionally, in many U.S. companies
the costs of poorly managing cultural diversity were viewed mainly as increased legal

32

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

TABLE 1.8
How Managing
Cultural Diversity
Can Provide
Competitive
Advantage

1. Cost argument

2. Resource
acquisition
argument

3. Marketing
argument

4. Creativity
argument

5. Problem-solving
argument

6. System
flexibility
argument

As organizations become more diverse, the cost of a poor


job in integrating workers will increase. Those who handle
this well will thus create cost advantages over those who
dont.
Companies develop reputations on favorability as
prospective employers for women and ethnic minorities.
Those with the best reputations for managing diversity will
win the competition for the best personnel. As the labor
pool shrinks and changes composition, this edge will
become increasingly important.
For multinational organizations, the insight and cultural
sensitivity that members with roots in other countries bring
to the marketing effort should improve these efforts in
important ways. The same rationale applies to marketing
to subpopulations within domestic operations.
Diversity of perspectives and less emphasis on conformity
to norms of the past (which characterize the modern
approach to management of diversity) should improve the
level of creativity.
Heterogeneity in decisions and problem-solving groups
potentially produces better decisions through a wider
range of perspectives and more thorough critical analysis
of issues.
An implication of the multicultural model for managing
diversity is that the system will become less determinate,
less standardized, and therefore more fluid. The increased
fluidity should create greater flexibility to react to
environmental changes (i.e., reactions should be faster and
cost less).

SOURCE: Academy of Management Executive, by T.H. Cox and S. Blake. Copyright 1991 by
Academy of Management. Reproduced with permission of Academy of Management via Copyright
Clearance Center.

fees associated with discrimination cases. However, as Table 1.8 illustrates, the implications of successfully managing a diverse workforce go beyond legal concerns. How
diversity issues are managed has implications for creativity, problem solving, retaining good employees, and developing markets for the firms products and services. To
successfully manage a diverse workforce, managers must develop a new set of skills,
including
1. Communicating effectively with employees from a wide variety of cultural backgrounds.
2. Coaching and developing employees of different ages, educational backgrounds,
ethnicity, physical ability, and race.
3. Providing performance feedback that is based on objective outcomes rather than
values and stereotypes that work against women, minorities, and handicapped
persons by prejudging these persons abilities and talents.
4. Creating a work environment that makes it comfortable for employees of all
backgrounds to be creative and innovative.69

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 33

Many U.S. companies have already made a commitment to ensuring that diversity
in their workforce is recognized and effectively used for competitive advantage. A recent survey of HR professionals found that the most common diversity initiatives included recruiting efforts to increase diversity within the organization and training
programs.70 Ninety-one percent believed that their companys diversity initiative
helped the company maintain a competitive advantage. And 75 percent believed this
was accomplished by improving both the corporate culture and employee satisfaction.
Texaco developed a state-of-the-art diversity program after the company had to
pay more than $175 million to settle a racial discrimination lawsuit.71 The lawsuit
made public accusations that company executives were using racial slurs. Prior to the
lawsuit, Texacos diversity program consisted of a workshop presented to top executives on practical tips for managing a diverse workforce. Today all Texaco employees
are required to attend a two-day diversity learning experience that emphasizes
awareness of what it feels like to be excluded, develops employee sensitivity to others, and improves communications skills needed for interacting with diverse peers.
However, managing diversity at Texaco goes far beyond attending workshops; it is
part of a culture change. As you will see in Chapter 7, Texacos diversity effort includes programs designed to stop discrimination in hiring, retention, and promotion.
The bottom line is that to gain a competitive advantage in the next decade, companies must harness the power of the diverse workforce. These practices are needed
not only to meet employee needs but to reduce turnover costs and ensure that customers receive the best service possible. The implication of diversity for HRM practices will be highlighted throughout this book. For example, from a staffing perspective, it is important to ensure that tests used to select employees are not biased against
minority groups. From a work design perspective, employees need flexible schedules
that allow them to meet nonwork needs. From a training perspective, it is clear that
all employees need to be made aware of the potential damaging effects of stereotypes.
From a compensation perspective, new benefits such as elder care and day care need
to be included in reward systems to accommodate the needs of a diverse workforce.

Legislation and Litigation


Five main areas of the legal environment have influenced human resource management over the past 25 years.72 These areas include equal employment opportunity legislation, employee safety and health, employee pay and benefits, employee privacy,
and job security.
Employers and the courts continue to struggle with identifying what constitutes religious discrimination. Employers are being asked to juggle the demands of workers
who want to express their faith with those who find such expressions offensive.73
The increased use of and access to electronic databases by employees and employers suggest that in the near future legislation will be needed to protect employee privacy rights. Currently no federal legislation outlines how employee databases should
be used to protect privacy and confidentiality.
Legislation mandating access to technology for physically challenged employees
will likely be debated. The Americans with Disabilities Act (ADA) covers access of
disabled persons to the physical work environment and attempts to eliminate discrimination against physically challenged persons in hiring and other HRM practices.
(We will discuss the ADA in detail in Chapter 3.) However, no law helps eliminate
disabled persons disadvantages in access to technology such as the Internet, cell
phones, and other electronic devices. Disabled peoples computer usage and Internet

34

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

access are only about half that of persons without disabilities. Legislation will probably soon be considered to incorporate accessibility into technology.74 Such accessibility might include adding screen readers to websites, providing voice recognition
technology to computer users, or changing computer design to make them easier to
use for employees with limited mobility.
There is also likely to be continued discussion about legislation to prohibit discrimination by employers and health insurers against employees based on their genetic makeup. Advances in medicine and genetics allow scientists to predict from
DNA samples a persons likelihood of contracting certain diseases. To reduce health
care costs, companies may want to use this information to screen out job candidates
or reassign current employees who have a genetic predisposition to a disease that is
triggered by exposure to certain working conditions. Legislation is being debated that
permits genetic testing only to monitor the adverse effects of exposure to hazardous
workplace exposures (such as chemicals) and prohibits the requirement to provide or
request predictive genetic information.
Although women and minorities are advancing into top management ranks, glass
ceilings are still keeping women and minorities from getting the experiences necessary to move to top management positions. A recent survey showed that 97 percent
of top U.S. managers are white and at least 95 percent of them are male.75 We are
likely to see more challenges to sex and race discrimination focusing on lack of access
to training and development opportunities that are needed to be considered for top
management positions.
An area of litigation that will continue to have a major influence on HRM practices involves job security. As companies are forced to close plants and lay off employees because of restructuring, technology changes, or financial crisis, cases dealing
with the illegal discharge of employees have increased. The issue of what constitutes
employment at willthat is, employment that can be terminated at any time without noticewill be debated. As the age of the workforce increases, the number of
cases dealing with age discrimination in layoffs, promotions, and benefits will likely
rise. Employers work rules, recruitment practices, and performance evaluation systems will need to be revised to ensure that these systems do not falsely communicate
employment agreements the company does not intend to honor (such as lifetime employment) or discriminate on the basis of age.

Ethical Considerations
Many decisions related to managing human resources are characterized by uncertainty. Ethics can be considered the fundamental principles by which employees and
companies interact.76 These principles should be considered in making business decisions and interacting with clients and customers. Recent surveys suggest that the general public and managers do not have positive perceptions of the ethical conduct of
U.S. businesses. For example, in a survey conducted by The Wall Street Journal, 4 out
of 10 executives reported they were asked to behave unethically.77
As a result of unfavorable perceptions of U.S. business practices and an increased
concern for better serving the customer, U.S. companies are becoming more aware of
the need for all company representatives to act responsibly.78 They have an interest
in the way their employees behave because customer, government agency, and vendor perceptions of the company play an important role in maintaining the relationships necessary to sell products and services.
Ethical, successful companies can be characterized by four principles.79 First, in

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 35

their relationships with customers, vendors, and clients, these companies emphasize
mutual benefits. Second, employees assume responsibility for the actions of the company. Third, such companies have a sense of purpose or vision the employees value
and use in their day-to-day work. Finally, they emphasize fairness; that is, another persons interests count as much as their own.
The Raytheon Company has a checklist including several questions that is distributed to each employee to use when considering whether an action is ethical:80

Is the action legal?


Is it right?
Who will be affected?
Does it fit with Raytheons values?
How will I feel afterward?
How will it look in the newspaper?
Will it reflect poorly on the company?

Raytheon reinforces its ethics codes with formal training programs, a toll-free ethics
line, and full-time ethics offices and officers in all of its major business units. Mandatory one-hour ethics training for all employees uses case studies to make employees
aware of the ethical problems that may occur at work.
Human resource managers must satisfy three basic standards for their practices to
be considered ethical.81 First, HRM practices must result in the greatest good for the
largest number of people. Second, employment practices must respect basic human
rights of privacy, due process, consent, and free speech. Third, managers must treat
employees and customers equitably and fairly. Throughout the book we will highlight
ethical dilemmas in human resource management practices.

The High-Performance Work System Challenge


For U.S. companies to compete with foreign competitors, they will have to learn to
better utilize employees talents and skills and new technology. The challenge that
companies face is how to integrate technology and structure to gain a competitive
advantagethat is, competing through high-performance work systems. Highperformance work systems maximize the fit between the companys social system (employees) and its technical system.82
Technological advances in manufacturing, transportation, telecommunications,
and microprocessors are changing how work is performed, managers and employees
roles, and organizational structure. Technology also has made human resource information databases more available and accessible and has created a need to develop
HRM practices that integrate technology with people.
Change in Employees Work Roles and Skill Requirements. New technology causes
changes in basic skill requirements and work roles and often results in combining
jobs.83 For example, computer-integrated manufacturing uses robots and computers to
automate the manufacturing process. The computer allows the creation of different
products that meet market demands simply by reprogramming the computer. As a result, laborer, material handler, operatorassembler, and maintenance jobs may be
merged into one position. Computer-integrated manufacturing requires employees to
monitor equipment and troubleshoot problems with sophisticated equipment, share
information with other employees, and understand the interaction between components of the manufacturing process.84

High-performance
work systems
Work systems that
maximize the fit
between employees
and technology.

36

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

Technology is often a means to achieve product diversification and customization.


As a result, employees need job-specific product knowledge and basic learning skills
to keep up with product development and design improvements. To customize products and services, employees must listen to and communicate with customers. Interpersonal skills, such as negotiation and conflict management, and problem-solving
skills are more important than physical strength, coordination, and fine-motor skills,
which were previously required for many manufacturing and service jobs.
Increase in the Use of Teams to Perform Work. As the information needed to improve product quality and customer service becomes more available to employees at
the point of sale or point of production because of advances in microprocessing systems, employees are expected to make more decisions concerning how their jobs are
performed. One of the most popular methods of increasing employee responsibility and
control is work teams. Work teams involve employees with various skills, who interact
to assemble a product or provide a service. Work teams frequently assume many of the
activities usually reserved for managers, such as selecting new team members, planning
work schedules, and coordinating activities with customers and other units within the
firm. Work teams also perform inspection and quality-control activities while the product or service is being completed, an important component for achieving total quality.
Due to technological advances work teams may also be virtual teams. Virtual team
refers to a team that has little or no face-to-face interaction, relying on telecommunications and information technology to collaborate on projects and services.
Besides the potential motivational advantages of work teams, labor costs can also
be reduced for companies adopting teams. A number of companies are reorganizing
assembly operationsabandoning the assembly line in favor of hybrid operations
combining mass production with jobs in which employees perform multiple tasks, use
many skills, control the pace of work, and assemble the entire final product.85 One example of this type of teamwork is Compaq Computers assembly cells. In manufacturing sites in Scotland and Texas, computers are built by four-person teams. One person assembles parts, another builds components, and two people assemble the
computer unit. The new teams helped raise labor productivity 51 percent. The Competing through High-Performance Work Systems box highlights BP Explorations
use of virtual teams.
Changes in the Nature of Managerial Work. To gain the maximum benefit from the
introduction of new technology in the workplace, managers must be able to move
away from the military model of management, which emphasizes controlling, planning, and coordinating activities, and instead focus on creating work conditions that
facilitate employee creativity and innovation. Because of advances in technology, information is more readily accessible to employees at all levels of the company, and decision making increasingly is decentralized. As a result, it is difficult, and certainly not
effective, for managers to attempt to directly control interactions between work
teams or between work teams and customers.
The managers job will increasingly be to empower employees. Empowerment
means giving employees responsibility and authority to make decisions regarding
all aspects of product development or customer service.86 Employees are then held
accountable for products and services and, in return, share the rewards and failures
that result. For empowerment to succeed, managers must serve in a linking and
coordinating role.87 The linking role involves representing employees (or teams)
by ensuring that adequate resources are provided to perform the work (external link-

COMPETING
THROUGH
HIGHPERFORMANCE
WORK SYSTEMS
Virtual teams reduce travel expenses and allow employees to
be fast and competitive in disseminating information. BP
Exploration, the division of BP
that explores for and produces
oil and gas, organized its regional operating centers into
42 autonomous business units.
BP wanted these units to be
freed to develop the processes
and solutions appropriate to
their specific problems; best
practices and innovations could
be shared in other places in the
company. As a result, BP
launched a project called The
Virtual Teamwork Program, designed to develop effective
ways for team members to collaborate across different
locations. The programs goal
was to build a network of people to allow knowledgeable

Developing Electronic
Relationships at Work

people to communicate. The


hardware and software used for
the program included desktop
videoconferencing equipment,
multimedia e-mail, shared
chalkboards, document scanners, groupware, and a Web
browser. This equipment was
chosen because it captured the
richness of communications, allowing human interactions to
be as real as possible. Training
showed employees how to use
the technology and helped
them understand how it could
make them more effective. The
trainers, known as coaches because the learning process was
interactive, and employees
communicated using virtual
team stations to demonstrate
the systems value for collaborative work and knowledge
exchange. The emphasis was

on personal contact and human


needs. Eighty percent of the
coaches time was devoted to
helping team members link
their business objectives to the
system capabilities and helping
them to consider new ways of
working made possible by the
equipment. One example of
the programs success comes
from the North Sea. When an
equipment failure occurred on
a North Sea drilling ship, the
ships engineers used the video
equipment and a satellite link
to transmit images of the faulty
equipment to a drilling equipment expert miles away. He
quickly diagnosed the problem
and guided the engineers to
make the necessary repairs.
SOURCE: Based on T. Davenport and
L. Prusak, Working Knowledge (Boston:
Harvard Business School Press, 1998).

ing), facilitating interactions across departments (informal linking), and ensuring


that employees are updated on important issues and cooperate by sharing information
and resources (internal linking). In addition, managers who successfully perform the
internal linking role must be available and willing to help employees deal with problems daily.
Although strong interpersonal and communications skills are required by both
managers and employees, managers have to be able to either answer technical issues
or, more likely, refer employees to persons within or outside the firm who can provide
insight into technical problems. This means that managers have to be more aware of
various resources available within the company and the community.
Changes in Company Structure. The traditional design of U.S. companies emphasizes efficiency, decision making by managers, and dissemination of information from
the top of the company to lower levels. However, this structure will not be effective
37

38

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

in the current work environment, in which personal computers give employees


immediate access to information needed to complete customer orders or modify product lines. In the adaptive organizational structure, employees are in a constant state
of learning and performance improvement. Employees are free to move wherever
they are needed in the company. The adaptive organization is characterized by a core
set of values or a vital vision that drives all organizational efforts.88 Previously established boundaries between managers and employees, employees and customers,
employees and vendors, and the various functions within the company are abandoned. Employees, managers, vendors, customers, and suppliers work together to improve service and product quality and to create new products and services. Line employees are trained in multiple jobs, communicate directly with suppliers and
customers, and interact frequently with engineers, quality experts, and employees
from other functions.

Human resource
information
systems (HRIS)
A system used to
acquire, store,
manipulate, analyze,
retrieve, and
distribute HR
information.

Electronic human
resource
management
(e-HRM)
The processing and
transmission of
digitized information
used in HRM.

38

Increased Availability of Human Resource Management Databases and e-HRM.


Improvements in technology related to computers and software have also had a major
impact on the use of information for managing human resources. Large quantities of
employee data (including training records, skills, compensation rates, and benefits
usage and cost) can be easily stored on personal computers and manipulated using userfriendly spreadsheets or statistical software packages. A human resource information
system (HRIS) is a system used to acquire, store, manipulate, analyze, retrieve, and
distribute information related to the companys human resources.89 From the managers
perspective, an HRIS can be used to support strategic decision making, to avoid litigation, to evaluate programs or policies, or to support daily operating concerns.
Performance management, succession planning, and training and employee-development applications are becoming increasingly important. For example, projections
of the level of skills that will be available in the future workforce suggest that math
and reading competencies will be below the level required by new jobs. Changing
technology can easily make the skills of technical employees obsolete. These trends
demand that employees skills and competencies be monitored carefully. Complicating this need for information is the fact that many employees are geographically dispersed across several locations within the same city or country, or across countries. In
response to these needs companies have implemented global human resource management systems. Northern Telecom Limited (a Canadian telecommunications company that has facilities in 90 countries, including the United Kingdom, China, and
the United States) needed access to information about employees located worldwide.
The company has created a central database built on a common set of core elements.
Anyone with authorization can view employee records from around the globe. Head
count, salary, and recruiting data are continually updated as changes are made around
the world. Although the system is customized to specific country needs, several common data fields and elements are used globally. Northern Telecoms system has enabled managers around the world to obtain up-to-date employee data to meet customer needs and address internal staffing issues.90
Electronic human resource management (e-HRM) refers to the processing and
transmission of digitized information used in HRM, including text, sound, and visual
images, from one computer or electronic device to another. E-HRM has the potential
to change all traditional human resource management functions. Table 1.9 shows the
implications of e-HRM. For example, employees do not have to be in the same geographic area to work together. Use of the Internet lets companies search for talent

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 39


HRM PRACTICE

IMPLICATIONS OF E-HRM

Analysis and
design of work

Employees in geographically dispersed locations can


work together in virtual teams using video, e-mail, and
the Internet.
Post job openings online; candidates can apply for jobs
online.
Online learning can bring training to employees
anywhere, anytime.
Online simulations, including tests, videos, and e-mail,
can measure job candidates ability to deal with real-life
business challenges.
Employees can review salary and bonus information and
seek information about and enroll in benefit plans.

Recruiting
Training
Selection

Compensation and
benefits

without geographic limitations. Recruiting can include online job postings, applications, and candidate screening from the companys website or the websites of companies that specialize in online recruiting, such as Monster.com or HotJobs.com. Employees from different geographical locations can all receive the same training over
the companys intranet. Because the globalization of business requires employees to be
located throughout the world, to meet customer demands employees need to work in
teams with members who have different functional skills and are in different places.
This global reach allows companies to reduce travel and lodging costs associated with
having to find and identify potential recruits or bring geographically dispersed employees to one location for meetings and training. It also can increase the speed with
which employees can bring a product to market by facilitating communications between employees on virtual teams using Internet discussion forums, video- and audioconferencing, and global scheduling. For example, at Procter & Gamble a team of
employees from two different divisions, paper and cleaning agents, developed the
Swiffer, a broom containing disposable cloths, in just 10 monthshalf the usual
time. The team used the Internet to analyze markets, demographics, and cost information; it also had the ability and authority to access any of the companys engineers,
who are located in 23 sites around the world.91
Competitiveness in High-Performance Work Systems. Unfortunately, many managers have tended to consider technological and structural innovations independent
of each other. That is, because of immediate demands for productivity, service, and
short-term profitability, many managers implement a new technology (such as a
networked computer system) or a new work design (like service teams organized by
product) without considering how a new technology might influence the efficiency or
effectiveness of the way work is organized.92 Without integrating technology and
structure, a company cannot maximize production and service.
Human resource management practices that support high-performance work systems are shown in Table 1.10. The HRM practices involved include employee selection, performance management, training, work design, and compensation. These
practices are designed to give employees skills, incentives, knowledge, and autonomy.
Research studies suggest that high-performance work practices are usually associated

TABLE 1.9
Implications of
e-HRM for HRM
Practices

40

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

TABLE 1.10
How HRM Practices
Support HighPerformance Work
Systems

Teams perform work.


Employees participate in selection.
Employees receive formal performance feedback and are actively involved in
the performance improvement process.
Ongoing training is emphasized and rewarded.
Employees rewards and compensation relate to the companys financial
performance.
Equipment and work processes are structured and technology is used to
encourage maximum flexibility and interaction among employees.
Employees participate in planning changes in equipment, layout, and work
methods.
Work design allows employees to use a variety of skills.
Employees understand how their jobs contribute to the finished product or
service.

SOURCE: Based on J. A. Neal and C. L. Tromley, From Incremental Change to Retrofit: Creating
High-Performance Work Systems, Academy of Management Executive 9 (1995), pp. 4254; M. A.
Huselid, The Impact of Human Resource Management Practices on Turnover, Productivity, and
Corporate Financial Performance, Academy of Management Journal 38 (1995), pp. 63572.

with increases in productivity and long-term financial performance.93 Research also


suggests that it is more effective to improve HRM practices as a whole, rather than
focus on one or two isolated practices (such as the pay system or selection system).94
There may be a best HRM system, but whatever the company does, the practices must
be aligned with each other and be consistent with the system if they are to positively
affect company performance.95 We will discuss this alignment in more detail in Chapters 2 and 16.
GE Fanuc Automation North America is a good example of the holistic approach
needed for high-performance work practices to be effective. This joint venture between General Electric Company and FANUC Ltd. of Japan has developed a highinvolvement workforce. Based in Charlottesville, Virginia, the joint venture employs
1,500 people. Recognition of the companys commitment to quality is reflected in its
being one of the first U.S. firms to become a certified ISO 9000 manufacturer.
GE Fanuc Automation achieved its reputation and recognition for quality as a result of the use of high-performance work practices. Central to its practices is the idea
that employees closest to the work have the best improvement ideas. As a result, employees must be encouraged to voice their opinions and make changes.
How does the company use high-performance work practices? The facility has
three layers of management, and over 40 work teams set their own goals and measure
success factors based on the overall business goals. Each team spends at least one hour
per week measuring the goals and discussing new ways to be effective. To ensure team
effectiveness, all employees receive more than 100 hours of training. Employees are
also guaranteed that they will never lose their jobs due to an idea developed by the
teams. Managers (known as coaches) are evaluated based on their support of the
teams. Each functional team within the business has a dedicated HR manager who
helps the team develop its strategies, accompanies the team on sales calls, and does
whatever she can to help the team.96

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 41

Meeting Competitive Challenges


through HRM Practices
We have discussed the global, stakeholder, new economy, and high-performance work
system challenges U.S. companies are facing. We have emphasized that management
of human resources plays a critical role in determining companies success in meeting
these challenges. HRM practices have not traditionally been seen as providing economic value to the company. Economic value is usually associated with equipment,
technology, and facilities. However, HRM practices have been shown to be valuable.97
Compensation, staffing, training and development, performance management, and
other HRM practices are investments that directly affect employees motivation and
ability to provide products and services that are valued by customers. Research has
shown that companies that attempt to increase their competitiveness by investing in
new technology and becoming involved in the quality movement also invest in stateof-the-art staffing, training, and compensation practices.98 Figure 1.7 shows examples

FIGURE 1.7
Examples of How
HRM Practices Can
Help Companies
Meet Competitive
Challenges

42

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

FIGURE 1.8
Major Dimensions of
HRM Practices
Contributing to
Company
Competitiveness

of human resource management practices that help companies deal with the four challenges. For example, to meet stakeholder needs, companies need to identify through
their selection processes whether prospective employees value customer relations and
have the levels of interpersonal skills necessary to work with fellow employees in
teams. To meet all four challenges, companies need to capitalize on the diversity of values, abilities, and perspectives that employees bring to the workplace.
HRM practices that help companies deal with the four competitive challenges can
be grouped into the four dimensions shown in Figure 1.8. These dimensions include the
human resource environment, acquiring and preparing human resources, assessment
and development of human resources, and compensating human resources. In addition,
some companies have special issues related to labor management relations, international human resource management, and managing the human resource function.

Managing the Human Resource Environment


Managing internal and external environmental factors allows employees to make the
greatest possible contribution to company productivity and competitiveness. Creating a positive environment for human resources involves
Linking HRM practices to the companys business objectivesthat is, strategic
human resource management.
Ensuring that HRM practices comply with federal, state, and local laws.
Designing work that motivates and satisfies the employee as well as maximizes customer service, quality, and productivity.

Acquiring and Preparing Human Resources


Customer needs for new products or services influence the number and type of employees businesses need to be successful. Terminations, promotions, and retirements
also influence human resource requirements. Managers need to predict the number
and type of employees who are needed to meet customer demands for products and
services. Managers must also identify current or potential employees who can successfully deliver products and services. This area of human resource management
deals with
Identifying human resource requirementsthat is, human resource planning, recruiting employees, and selecting employees.
Training employees to have the skills needed to perform their jobs.

Assessment and Development of Human Resources


Managers need to ensure that employees have the necessary skills to perform current
and future jobs. As we discussed earlier, because of new technology and the quality

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 43

movement, many companies are redesigning work so that it is performed by teams. As


a result, managers and employees may need to develop new skills to succeed in a team
environment. Companies need to create a work environment that supports employees work and nonwork activities. This area of human resource management addresses
Measuring employees performance.
Preparing employees for future work roles and identifying employees work interests, goals, values, and other career issues.
Creating an employment relationship and work environment that benefits both
the company and the employee.

Compensating Human Resources


Besides interesting work, pay and benefits are the most important incentives that
companies can offer employees in exchange for contributing to productivity, quality,
and customer service. Also, pay and benefits are used to reward employees membership in the company and attract new employees. The positive influence of new work
designs, new technology, and the quality movement on productivity can be damaged
if employees are not satisfied with the level of pay and benefits or believe pay and benefits are unfairly distributed. This area of human resource management includes
Creating pay systems.
Rewarding employee contributions.
Providing employees with benefits.

Special Issues
In some companies, employees are represented by a labor union. Managing human resources in a union environment requires knowledge of specific laws, contract administration, and the collective bargaining process.
Many companies are globally expanding their business through joint ventures,
mergers, acquisitions, and establishing new operations. Successful global expansion
depends on the extent to which HRM practices are aligned with cultural factors as
well as management of employees sent to work in another country. Human resource
management practices must contribute to organizational effectiveness.
Human resource management practices of both managers and the human resource
function must be aligned and contribute to the companys strategic goals. The final
chapter of the book explains how to effectively integrate human resource management practices.

Organization of This Book


The topics in this book are organized according to the four areas of human resource
management and special issues. Table 1.11 lists the chapters covered in the book.
The content of each chapter is based on academic research and examples of effective company practices. Each chapter includes examples of how the human resource
management practice covered in the chapter helps a company gain a competitive advantage by addressing global, stakeholder, new economy, or high-performance work
system challenges.

44

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

TABLE 1.11
Topics Covered in
This Book

I The Human Resource Management Environment


2 Strategic Human Resource Management
3 The Legal Environment: Equal Employment Opportunity and Safety
4 The Analysis and Design of Work
II Acquisition and Preparation of Human Resources
5 Human Resource Planning and Recruitment
6 Selection and Placement
7 Training
III Assessment and Development of Human Resources
8 Performance Management
9 Employee Development
10 Employee Separation and Retention
IV Compensation of Human Resources
11 Pay Structure Decisions
12 Recognizing Employee Contributions with Pay
13 Employee Benefits
V Special Topics in Human Resource Management
14 Collective Bargaining and Labor Relations
15 Managing Human Resources Globally
16 Strategically Managing the HRM Function

A Look Back
The chapter opening vignette illustrated two different approaches to managing
human resources. Kodak has a large human resource function, whereas The
Container Store, a much smaller organization than Kodak, has a smaller human
resource function and expects managers to actively participate in human resource
activities such as recruiting.

Questions
1. Consider the HRM practice dimensions shown in Figure 1.8. For each dimension describe the role of managers and the HR function.
2. Should line managers play an important role in HRM regardless of the size of
the company? Explain.

Discussion Questions
1. Traditionally, human resource management practices
were developed and administered by the companys
human resource department. Line managers are now
playing a major role in developing and implementing
HRM practices. Why do you think non-HR managers
are becoming more involved in developing and implementing HRM practices?
2. Staffing, training, compensation, and performance
management are important HRM functions. How can

each of these functions help companies succeed in


the new economy? Meet stakeholders needs? Highperformance work system challenges? Global challenges?
3. This book covers four human resource management
practice areas: managing the human resource environment, acquiring and preparing human resources, assessment and development of human resources, and compensating human resources. Which area do you believe

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 45


contributes most to helping a company gain a competitive advantage? Which area do you believe contributes the least? Why?
4. What is the balanced scorecard? Identify the four perspectives included in the balanced scorecard. How can
HRM practices influence the four perspectives?
5. Is HRM becoming more strategic? Explain your answer.
6. Explain the implications of each of the following labor
force trends for HRM: (1) aging workforce, (2) diverse
workforce, (3) skill deficiencies.

7. What role do HRM practices play in a business decision to expand internationally?


8. Is business emphasis on quality a fad? Why or why not?
What might a quality goal and high-performance work
systems have in common in terms of HRM practices?
9. What disadvantages might result from outsourcing
HRM practices? From employee self-service? From increased line manager involvement in designing and
using HR practices?

Web Exercise
In this chapter we discuss four competitive challenges that
companies face (the new economy, global competition,
managing stakeholders, and high-performance work systems). Go to the Society for Human Resource Management (SHRM) home page on the Web. SHRM is an
important professional society for human resource management. The address is www.shrm.org. Here you will
find current articles related to HRM issues. SHRM also
publishes HR Magazine, a business magazine for human resource managers.

Questions
1. How are companies dealing with the competitive challenges? Use Web resources to find an article that relates
to how a company is dealing with the competitive
challenges. Go to HR Channels. Click on any of the
HR practices listed to find an article.
2. Summarize the main topic of the article.
3. Identify how it relates to one of the competitive challenges discussed in the chapter.

Managing People: From the Pages of BusinessWeek


The Human Factor
Julie Jones jumped at the chance to take a sabbatical when
Accenture Ltd. (ACN) offered one in June. Although she
had been a consultant in the firms Chicago office for just
two and a half years, the 25-year-old expert in accounts
payable software had long wanted to work for AmeriCorps, the national volunteer group. So in July, Jones,
whos single, headed out to Los Angeles for a year to join
an AmeriCorps group that helps nonprofits with technology problems. Accenture, the former consulting arm of
Andersen Worldwide, will pay 20 percent of her salary,
plus benefits, and let her keep her work phone number,
laptop, and e-mail. This gives me the security of knowing
Ill have a job when I come back, says Jones.
Accenture hopes the program will offer it some security, too. The economic slowdown has pinched the companys business, forcing it to rein in costs. But after years
of scrambling to find scarce talent, Accenture is reluctant
to lay off workers it hopes to need when the economy
turns north again. Accenture did cut 600 support staff jobs
in June. But to retain skilled employees, it cooked up the
idea of partially paid sabbaticals, such as the one Jones is
taking. About 1,000 employees took up the offer, which
allows them to do whatever they want for 6 to 12 months,
says Larry Solomon, Accentures managing partner in

charge of internal operations. This is a way to cut costs


that gives us the ability to hang onto people we spent so
much time recruiting and training, he says.
Plenty of other employers are feeling the same way.
The slumping economy has put pressure on companies to
slash expenses and boost sagging profits. But the United
States has just sailed through five years of labor shortfalls
on a scale not seen in more than three decades. Whats
more, the unemployment rate, while rising, remains at
historically low levels. Many employers are wary about
dumping too many workers just to find themselves scrambling later to refill the positions.
Even companies that have handed out pink slips often
did so with caution rather than abandon. When Charles
Schwab Corp. (SCH) first saw business deteriorate last
fall, it put projects on hold and cut back on such expenses
as travel and entertainment to avoid layoffs, says human
resources vice president Ruth K. Ross. In December, as it
became clear that more was needed, top executives all
took pay cuts: 50 percent for the companys two co-CEOs,
20 percent for executive vice presidents, 10 percent for
senior vice presidents, and 5 percent for vice presidents.
Schwab took further steps this year before finally cutting
staff. It encouraged employees to take unused vacation and

46

Chapter 1 Human Resource Management: Gaining a Competitive Advantage

to take unpaid leaves of up to 20 days. Management designated three Fridays in February and March as voluntary
days off without pay for employees who didnt have clients
to deal with. Only in March, after the outlook darkened yet
again, did Schwab announce 2,000 layoffs out of a workforce of 25,000. Even then, the severance package includes
a $7,500 hire-back bonus that any employee will get if
theyre rehired within 18 months. We felt the markets will
turn at some point, and the cost of hiring people back with
the bonus is small compared to what it would be to pay for
recruiting and retraining new employees, says Ross.
Employers also are trying to protect their core workers by
axing temps and contract employees. Throughout the
1990s, many companies built up buffer workforces so they
could more easily adjust staffing levels. Since 1990 the
number of temporary employees tripled, to a peak of 3.6
million last fall. But since then their ranks have fallen by
half a million as companies have tried to adjust to slower
sales.
Slashing work hours is another way to reduce payroll
without lopping off heads. The workweek has edged
steadily downward as the economy slowed, to 34.3 hours for
most of this year. Manufacturers, hit the hardest by the economic slump, have dialed back the most. Factory overtime
has fallen by about 15 percent from last year, to four hours
a week in June. The factory workweek has plunged by a similar amount, to 40.7 hours. Businesses have aggressively cut
hours worked, which is the first thing you do if you want to
hang onto staff, says Mark M. Zandi, chief economist at
Economy.com Inc. in West Chester, Pennsylvania.
The result of all these trends has been a relatively modest upturn in unemployment. The jobless rate has jumped
up to 4.5 percent since hitting a 30-year low of 3.9 percent
last fall. But thats still below the 5 percent or even 6 percent that most experts had considered full employment for
some two decades. Its also much lower than the spike that
occurred during the last recession, in 1991. Back then, unemployment soared from a low of 5 percent to a peak of
7.8 percent. The rate probably will continue to inch
higher throughout the year as companies face up to the
fact that the sales volumes they had geared up for in 2000
arent going to materialize. But if the consensus among
economists is right, labor, especially the more skilled kind,
will remain scarce for the foreseeable future. Even if we
get unemployment up over 5 percent, it wont free up
more nurses or computer programmers, says David A.

Wyss, chief economist at Standard & Poors, a unit of


BusinessWeeks publisher, The McGraw-Hill Companies.
There arent enough of them to go around.
Even high-tech workers are likely to remain in demand. Employers will have about 900,000 job openings
this year for programmers, software engineers, techsupport personnel, and similar workers, according to an
April survey by the Information Technology Association
of America (ITAA), an industry group based in Arlington, Virginia. Thats down sharply from 1.6 million openings in 2000. But the survey found that even this year,
companies believe that they will be unable to fill nearly
half of those jobs, or 420,000 positions. Demand for
workers remains strong, the report concluded.
Part of the reason is that most of these posts arent at
high-tech companies, which have borne the brunt of the
sharp falloff in demand for computers and telecom equipment. Roughly 90 percent of the countrys 10.4 million
tech workers are employed by nonhigh-tech companies,
the ITAA found in its survey. Employers say they will have
a total of about 640,000 openings this year.
Still, even battered tech companies would like to hire
260,000 skilled workers this yearand expect to be able
to find just half of those they need, according to the survey. Were still hiring for some critical areas, like electrical engineers, says Matt McKinney, a spokesman for
Texas Instruments Inc., which announced 2,500 layoffs in
April. Every year, the universities graduate fewer students
in these areas, so the available talent pool is shrinking. Yet
demand still goes up.
Absent a full-blown recession, though, skilled workers
are likely to remain in short supply. The same may not
hold true at the bottom of the labor market, which is unlikely to see solid wage growth without a return to the extraordinary growth levels of 2000. That leaves the United
States facing renewed social cleavages as those on the top
continue to gain while the rest struggle to keep up.
SOURCE: Reprinted from August 27, 2001 issue of BusinessWeek by special
permission. Copyright 2001 by The McGraw-Hill Companies.

Questions
1. How can companies offer some degree of job security to
employees in this type of economy? Should they offer
job security? Explain.
2. What HRM practices may be useful for attracting
scarce skilled workers?

Notes
1. A.S. Tsui and L.R. Gomez-Mejia, Evaluating
Human Resource Effectiveness, in Human Resource
Management: Evolving Rules and Responsibilities, ed.

L. Dyer (Washington, DC: BNA Books, 1988),


pp. 1187227; M.A. Hitt, B.W. Keats, and S.M.
DeMarie, Navigating in the New Competitive

CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 47


Landscape: Building Strategic Flexibility and Competitive Advantage in the 21st Century, Academy of
Management Executive 12, no. 4 (1998), pp. 2242;
J.T. Delaney and M.A. Huselid, The Impact of
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