TEACHER: Hi, Student.

As you an almost everybody else- knows, the way a firm manages its scarce capital resources is a key to its success. Not so obviously, a very precious and scarce resource of a firm is its "human capital"; and managing it well is a critical management task. Are you surprised about the phrase "human capital", Student? STUDENT: Not really, Teacher. Actually and I said that several times already- I come from an "old IBM family", and I know that the phrase "human capital" was already in use in those pre-historic times, the 1960s, implicating that it was as important a resource for IBM as financial capital. But I wouldnt mind if you gave me a definition of Human Resource Management, Teacher. TEACHER: Fine. Human Resource Management is the aggregate of procedures and basic beliefs used in a company for actions targeted at its employees:

Hiring and training Exiting (firing, retiring) Career planning Rewarding Supporting (medical and other emergencies) Overall treatment

You said that the "old" IBM already recognized the importance of the human capital; and this was a company that had a dominant position in its market, to say the least. You may imagine how important this capital is today, in an environment of intense global competition. STUDENT: I am eager to hear about the effective "administration" of the firms personnel! TEACHER: Sorry, but you wont. Because the concept has evolved from a simple "personnel administration" to the effective management of a vital strategy-supporting resource. This does not mean, of course, that all organizations have completely accepted and actually implemented an effective human resource strategy; but the tendency is there and it is strong. STUDENT: Can you help me with an outline of the basic HR activities? TEACHER: Summarizing what I said before, we can outline the "cycle" of procedures that are the kernel of the Human Resource Management (HRM) activity as follows:

First the HR people must

Select and hire an employee.

- The employee will deliver a certain:

Performance (by the employee) HR appraises the employees performance. On the basis of the employees performance,

- HR generates:

Rewards, and or Training (development, correction of weaknesses). Naturally, training and development can also be pre-planned and not triggered by a weakness.

As you can see, there is a continuous reinforcement of a "good" behavior; the correction of weaknesses and proper training creates a "virtuous cycle". STUDENT: The way you put it, it sounds as a very simple procedure. What is the catch? TEACHER: The catch is that in HR we got people dealing with people; and peoples reactions are unpredictable to a high degree. And this is the challenge for the HR manager: to encourage positive attitudes from all employees, including his/her own people, the employees working in HR. Selection STUDENT: I have a question on the first process of the HR cycle, selection. Im sure that not all firms have the same procedures, but how different can they be? TEACHER: Let me tell you a story. I consulted in Brazil some time ago; in this country several international car manufacturers operate large plants. At one of the plants belonging to a Japanese corporation-, applicants for assembly line jobs are asked to write an essay on their life goals, explaining why they think that working for the firm will help them in reaching those goals. A low percentage of applicants passes this initial screening, as candidates expectations are matched with the actual chances offered by the position. The people who pass the first screening are then interviewed and tested, and eventually some are selected on the basis of their personal capabilities.

They are given several weeks of intensive training before being assigned to a job on the assembly line. On the other hand, I have witnessed how at times other automakers hired workers on the spot and immediately assigned them to work on low-skill activities at the assembly line without any training. Any comments, Student? STUDENT: Seems rather obvious that the quality of employees at the Japanese plan must be much higher! TEACHER: Which naturally must have some influence on the quality of the product. According to independent appraisals, a Honda Civic made in Brazil is on the same quality level as one made in Japan or in the USA; something that cant be said of other international car brands made in Brazil. Which brings us back to our first statement: HRM is a strategic activity very important for the achievement of competitive advantage. In the words or a former Johnson & Johnson CEO, James Burke: "The only competitive advantage that we have is whats in the minds of employees". STUDENT: The example you gave is surprising because of the great importance given to the selection and training of comparatively low level position, such as assembly line worker. One would assume that companies actually paid attention to the hiring, appraising and training of higher level employees only. TEACHER: Good observation. In fact many companies do as you say, but many pay a high price for it. We have seen in other courses of this program how important it is to "empower" employees at all levels. How can we empower people effectively if we do not pay a lot of attention to their hiring, appraisal, rewarding and training? Sure, every firm has defined some positions as having to be held by "key employees" who receive special attention. But in the present highly competitive environment, the performance of each employee affects the firm, regardless of the position the employee has at the moment. STUDENT: I may add that the fact that "low level" employees notice that they are considered important must be a highly motivating feeling, right? TEACHER: Sure; as I said, we are dealing with people here, not machines, and the psychological reaction is very important. People with a "sense of belonging" will be much more effective than people who take their job just as a way to make a living.

STUDENT: Until know we seem to have focused on selecting and hiring people from outside the company. What about internal promotion? TEACHER: Promotion from within is very important. Many companies nowadays make an internal recruitment announcement when they have to fill a position. The position and the requirements for filling it are described and published in the firms bulleting boards, house organs and websites. Only if no current employee is interested or considered fit for the job is an external recruitment process begun. STUDENT: Am I to understand the it is always better to promote from inside than to hire from outside? TEACHER: Not necessarily. While internal promotion has several advantages (motivating employees who see a path for promotion, filling positions with people who know the company), it is wise to get a mix; people who have been in the company for considerable time, as well as people who have worked for other companies and may contribute valuable know-how not available internally. Ill complete this part of the Module, "Selecting", with a few caveats and some advice.

Never conduct "fake" internal searches. Some HR departments do that in order to please employees trying to show that they look inside before looking outside, while actually they have already decided to do the latter; or worst, they already have an internal or external candidate ear-marked for the position. People are not stupid and find out, and this is harmful for the firm/employee relationship. When publishing a search, internal or external, never list expected qualifications other than the ones that are actually needed. Adding phrases like "preferably with a knowledge of foreign languages" should be omitted. Why? Because this causes potentially valuable candidates who do not possess the "preferable" skill not to participate. Especially for external searches, when candidates may have to take leave from their present jobs and incur travel expenses, schedule as many meetings as possible on a single visit. It is a sign of disrespect to ask a candidate to appear several times to be interviewed by different persons, when this could be done on a single visit. The visit by the candidate must be carefully planned and activities scheduled; and the candidate should be let know in advance on what will go on during his visit, like interviews, tests, writing of an essay, etc. Naturally the candidate should be informed on the approximate duration of the visit to the firm. As soon as a decision has been taken, people who participated and are not selected should be advised of this fact and thanked for having participated.

Tests for evaluation technical or psychological- should be tailored for the type of person needed for a particular job.

STUDENT: Sounds like good advice coming from an expert, Teacher. TEACHER: Thanks, Student. And now lets discuss: Performance Appraisal STUDENT: This is an easy one, isnt it? Once a year the manager gets together with the employee and tells him what he or she is doing right and wrong and both agree on a course of action geared to correct weaknesses. TEACHER: You are wrong, but I cant blame you, since this is still the belief of many HR managers. They check that the actual yearly evaluations take place, that the employees are "color coded" according to performance and potential usually from blue (very good) to red (on the verge of being fired), and file the evaluation form. STUDENT: I am surprised. Are you saying that this yearly evaluation is useless? TEACHER: No. What Im saying is that the yearly evaluation and the form to be prepared and filed should be no more than a condensation of the interaction that must happen during the year. Managers must observe and advice employees on their performance all the time. Managers must give continues feedback, be it positive or negative. In the former case, praising an employee is highly motivating in itself. In the latter case, negative feedback must always include counsel on how to improve, and concrete plans to help the employee in reaching the desired level of performance. STUDENT: I see you point. I now remember people telling me that they were surprised by the evaluation they received in a yearly meeting. TEACHER: Exactly. There should be no surprises; the yearly meeting must be just a summary of the previous interaction. If an employee is not performing well in February according to the manager-, why should he or she find out only next December about this situation? The time for a feedback from the manager is now, not 10 or 11 months from now. It must be stressed that the evaluation meeting should be a two-way communication opportunity. The employee must be encouraged to openly express his or her opinions on every aspect of his or her relationship with the company, and even any personal situation that could affect his or her performance.

STUDENT: I have also heard from experienced people that many managers feel bad about giving negative feedback, and thus avoid giving it. TEACHER: This is so. Obviously in this case no procedure for improvement is established, and the employee assumes that his performance is good and will be surprised when he or she doesnt get an expected salary rise or promotion. or worst, when he or she is fired. One of the deadly sins often committed by line managers is to tell the employee a "lighter" version of the evaluation that the one written down on the evaluation form. One way to "supervise the supervisor" is to have the immediate manager of each employee discuss the evaluations with his or her own boss; and eventually having the latter conduct a short interview with the employee, to make sure that what is written on the form is what the employee was told by his or her immediate superior. STUDENT: Shall I assume that a good evaluation procedure leads to effective people to be promoted and all positions filled with capable people? TEACHER: I am sure you are familiar with this rule; "most people are eventually promoted to their level of inefficiency". It stresses an important point: the fact that employee John is performing Job A very well, does not necessarily mean the he will also be proficient in a different position, Job B. And assuming he happens to also be very good at Job B, and is promoted to Job C based on that, he may not be good at Job C because the required talents and knowledge for this latter job are different. So eventually as John is promoted based on his good performance in different positions, he will end up being promoted to a job he is not well qualified for. STUDENT: I see. What I can conclude is that evaluations, especially in the aspect of potential for promotion, should very well establish the nature of the potential being evaluated. TEACHER: Very well, Student. As an evaluator, I may think that my subordinate Salesman John has a high potential to become a good sales manager, but it must not be inferred from that judgment that John has the potential to become a good marketing manager. Now let me tell you about the Growth and Development Management STUDENT: Obviously a key HR function, Teacher. Lets hear about it.

TEACHER: I agree with you that Growth and Development Management is a key HR function; but let me add that unfortunately in many firms this is not well understood. Naturally this failure results in a waste of talent; capable people get bored and leave, or perform well below their actual potential. STUDENT: Fine, and when should an employee begin to be subjected to this type of growth and development procedures? TEACHER: Ideally, on his or her first day on the job; and it should not end until the employee exits the company. Employees should be helped to quickly acquire a good knowledge of the firm they work for, and get a realistic feel of how personal expectations can be realized. STUDENT: Oh yes, this is what is called "induction" of new employees; learning about corporate procedures and culture. I read that Disney has a program called "Traditions" to tell new employees about the history of the firm and the vision of Walt Disney and how it is being implemented by the company. TEACHER: Exactly. At firms such as Colgate-Palmolive and Procter & Gamble, new employees considered as possessing potential to become future managers, are assigned to temporary work at different sectors of the firm sales, production, marketing, finance, etc. The idea of this rotation is to give them an overall picture of the corporation before assigning them to a specific function within the organization. And I bet you heard about the famous McDonalds Hamburg University, Student. STUDENT: I did. All this is about "induction". It is easy to understand that initial technical training must also be provided. What about keeping employees effectively trained as they change jobs, or the innovation process requires the updating of their know-how? TEACHER: Training may be part of the HR function or not. Companies operating in an environment where considerable, continues technical knowledge updating is essential, tend to have education or training functions that are not part of the HR hierarchical structure. On the other hand, training of more conventional and stable skills such as those needed for clerical jobs is usually part of the HR function. Many companies also encourage employees to take external courses of all types, specific or of a general nature. Employees may benefit from tuition refund programs and free time to attend technical training classes, or even college and university degree courses.

STUDENT: I know it is also quite common for multinational corporations to offer language courses. TEACHER: This is a normal practice especially at foreign subsidiaries; people are encouraged and helped to learn the "language of the corporation" usually the language of the firms national origin-; English, French, German or whatever the case may be. And of course English is highly valued at every large firm, since it is now by far the "lingua franca", the international language. How does it feel to work here? It is a fact that happy employees are more efficient and effective, and tend to be more creative and to communicate their ideas. HRM includes the creation of as good as possible a human environment in the company. STUDENT: Any specific actions youd mention here, Teacher? TEACHER: Imagination is the limit; but the main point is that employees notice if management has genuine interest in them, or is just going through a list of "things to do in order to keep employees happy" without being truly involved. To answer your question, we can exemplify by mentioning the following: all types of social events such as holiday parties or family picnics; "speak-up" programs to encourage people to vent any type of grievances without fear of retaliation; an "open door" policy granting employees the right to speak to their immediate supervisors boss if they feel the former isnt responding appropriately; implementing effective safety procedures; etc. etc. STUDENT: All these seem to be low-cost activities, and probably highly costeffective. STUDENT: Knowing that Id take this course I rented a video of an old picture, "the Man in the Gray Flannel Suit", since I had heard it was considered a good illustration of the psychological contract between employer and employee common decades ago. TEACHER: Oh yes, a good 1956 film starring Gregory Peck. Well, in those days as seen in the picture- white-collar (clerical) employees could expect periodic pay rises, some promotion, and employment for life. Not anymore, of course. And this makes good HRM much more difficult. And the type of "unwritten contract" shown in the picture was never applicable to factory workers (blue-collar) In the US, except at a few companies such as IBM. This type of employment for life policy is still partially

in effect in some countries, such as Japan and parts of Europe; but it is slowly disappearing due to the pressures of global competition. STUDENT: Of course, we frequently hear of massive layoffs in the US, due to restructuring and downsizing. TEACHER: Many people get fired, and many new employees with different skills are hired in an attempt to adjust the workforce to the constantly changing technology and market demand. HRM must deal with a large number of hirings and exitings. We have already discussed the former. As for exiting employees, and even if we leave apart any human consideration, it is a very delicate procedure. It is important for the company that its prestige in the labor market is as little damaged as possible; and it is important that the remaining employees are as little affect as possible in their morale and feelings towards the corporation. STUDENT: It must be a traumatic experience for everyone; because after all the people being let go are actually "good people". TEACHER: True. Many firms offer outplacement support, in the form of counseling, financial support, contacts with its suppliers and customers, and even in some cases paying for "reverse headhunters" -firms specializing in finding new jobs for people being terminated. STUDENT: As an aside, let me ask you this; is this US practice of "easy firing" good or bad? TEACHER: Most employees being fired will obviously find it a bad practice. From an overall economic point of view, there are good reasons to believe that this great flexibility to adjust employment to changing situations is one of the advantages of the US economy vs. Europe and Japan, where it is much harder to fire employees. And now I will give you a list of: Best human asset management practices Values: There is a constant focus on adding value in everything rather than simply doing something. In addition, there is a conscious, ongoing, and largely successful attempt to balance human and financial values.

Commitment: Dedication to a long-term core strategy. Actions geared towards building an enduring institution while changing methods but avoiding the temptation to chase management fads. Culture: Proactive application of the corporate culture. Management is aware of how culture and systems can be linked together for consistency and efficiency. Communication: An extraordinary concern for communicating with all stakeholders. Constant and extensive two-way communication using all media and sharing all types of vital information is the rule. Partnering: New markets demand new forms of operation. They involve people within and outside the company in many decisions. This includes the design and implementation of new programs. Collaboration: A high level of cooperation and involvement of all sections within functions. They study, redesign, launch, and follow up new programs in a collective manner, enhancing efficiency and cohesiveness. Innovation and Risk: Innovation is recognized as a necessity. There is a willingness to risk shutting down present systems and structure and restarting in a totally different manner while learning from failure. Competitive passion: A constant search for improvement. They set up systems and processes to actively seek feedback and incorporate ideas from all sources. STUDENT: Well, Teacher, I must read all that again several times to really "digest" it, but at first sight it looks like great advice! You are a true genius! TEACHER: I would be flattered if it was my work, but this is a quotation from Jac Fitz-enzs article 'The Truth about Best Practices" published in Human Resource Management, spring 1997, vol. 36, No. 1, p. 100. My only merit is having found it and relaying Jac Fitz-enz's wisdom to you. And now let me finish by giving you some... Principles for good future-oriented HR management 1. Human resource strategy must be anchored in the business strategy.2. Human resource management is not about programs; its about relationships.

3. The human resource department must be known as an organization that anticipates change and understands what is necessary to implement it. 4. Human resources should be an outspoken advocate of employee interests, yet it must understand that business decisions have to balance a range of factors that often conflict with one another. 5. The effectiveness of HR depends on staying focused on issues rather than personalities. 6. Human resource executives must accept that constant learning and self enhancement are essential to their being contributors to the business. STUDENT: Fine, Teacher. Now tell me, please: from whom did you "steal" this last piece of wisdom? TEACHER: It isnt stealing if its a short quotation and due credit is given to the author/s and the publication is mentioned. The Principles are part of the article by Clifford J. Ehrlich, "Human Resource Management: A Changing Script for a Changing World," published in the same resource mentioned before. STUDENT: No offense intended, Teacher. I was just kidding! I know that finding good, relevant quotations is hard work. TEACHER: I know you were kidding, Student. And I know you have a high regard for me! Bye now!