Beruflich Dokumente
Kultur Dokumente
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.
4 Chapter 1
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-
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
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.
Employment and
recruiting
Training and
development
Compensation
Benefits
Employee services
Employee and
community relations
Personnel records
Health and safety
Strategic planning
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.
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
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-
10
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
SOURCE: Data from A. Halcrow, Survey Shows HR in Transition, Workforce (June 1988), p. 74.
Questions Used to
Determine if Human
Resources Are
Playing a Strategic
Role in the Business
12
TABLE 1.3
POSITION
SALARY
$155,100
153,000
90,000
88,800
58,100
59,200
52,000
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.
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
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.
COMPETING
IN THE NEW
ECONOMY
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-
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
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.
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
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.
20
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.
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.
22
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
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.
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
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
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
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?
Innovation and
learning
Can we continue to
improve and create
value?
Financial
How do we look to
shareholders?
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.
HUMAN RESOURCE
MANAGEMENT
CHARACTERISTICS
TRADITIONAL MODEL
Communications
Top-down
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
Treat problems
Selection by manager
Narrow job skills
Promotion based on
individual accomplishment
Linear 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.
28
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
ISO 9000:2000
Quality standards
adopted worldwide.
30
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%.
32
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
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
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.
34
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
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
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.
High-performance
work systems
Work systems that
maximize the fit
between employees
and technology.
36
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
38
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
IMPLICATIONS OF E-HRM
Analysis and
design of work
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
TABLE 1.10
How HRM Practices
Support HighPerformance Work
Systems
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.
FIGURE 1.7
Examples of How
HRM Practices Can
Help Companies
Meet Competitive
Challenges
42
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.
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.
44
TABLE 1.11
Topics Covered in
This Book
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
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.
46
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.
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.
48
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72.
73.