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Introduction to Human Resource Management

Introduction to HRM
Two questions: Does it matter? Why does it matter? What is HRM? Organizations methods and procedures for managing people to enhance skills and motivation Activities to enhance the organizations ability to attract, select, retain and motivate people

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Management 412 / Intro to HRM

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The Death of HR ?
Traditional personnel function Recordkeeping Perceived as a dumping ground The death of HR? HRs rebirth

Sources: Caudron (2003); Schuler (1990); Schuler & Walker (1990); Stewart (1996); Sunoo & Laabs (1999); Ulrich (2000); Wells (2003)

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Outsourcing HR
Would it just make more sense to

outsource HR functions?
Many organizations are doing just this Recordkeeping and administrative, perhaps Basic functions..

Sources: Caudron (2003); Stewart & Woods (1996); Zimmerman (April 2001)
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Approaches to Revitalizing HR
Accounting for human resources Managing people for competitive


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Accounting for Human Resources

Cascios costing approach:
Cost accounting for employee outcomes Calculate cost of interventions and outcomes on individual


Tracking costs and contributions to firm net

Human capital approach
Employees are intangible assets, but can still be valued Based on assumed contribution of employees to corporate

Sources: Cascio (1982); Sheley (1996) Solomon (2000); Stewart (1995); Zimmerman (February 2001)
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Costing HR: Example

The costs of turnover per individual:

Exit interviews Unemployment tax Recruitment advertising Staff time to interview applicants Reference checking, medical exams Training new employees

Calculated per person, then totaled

Costs of reducing turnover

Additional training Realistic job previews

Net savings
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Source: Cascio (1982) Fall 2008

Human Capital: The Steps

Determine three years total pretax earnings Determine average assets over same three years Calculate firms return on assets (ROA) Determine industry average ROA Calculate excess returns Subtract taxes Calculate net present value of excess return Result: intangible value of firms human capital
Sources: Stewart (October 1995); Zimmerman (February 2001)
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Human Resources and Competitive Advantage

The basic idea: establishing and maintaining

competitive advantage through people.

Competitive advantage: Valuable, rare, inimitable, nonsubstitutable Achieved not through strategy, but strategy implementation

Source: Pfeffer (1994, 1998)

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Traditional Sources of Competitive Advantageand Where Theyve Gone

Product and process technology

Technological innovations make innovation easier and faster Development and manufacturing technology freely available Move to global economy Deregulation Global capital market Venture capital Fragmented markets Less important with advances in technology

Protected and regulated markets

Access to financial resources

Economies of scale

So, whats leftpeople

Source: Pfeffer (1994, 1998)
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Competitive Advantage Through People

Viewing the work force as an asset, not an

expense The result:

Harder work, from increased involvement and

commitment Smarter work, through enhanced skills and competence Lower overhead, by pushing responsibility downward

High performance work systems

Source: Pfeffer (1994, 1998)
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High-Performance Work Systems: The Seven Practices

Employment security Selective hiring Self managed teams and decentralized decision

making High compensation, based on organizational performance Extensive training Reduced status distinctions Extensive information sharing (both financial and performance)

Source: Pfeffer (1994, 1998)

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Critical to remember that all of these are part of a system

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Management 412 / Intro to HRM

The Research Evidence

Garment manufacturing Steel minimills Initial public offerings

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Garment Manufacturing
Bundle system = traditional assembly line (the

employee receives a bundle of garments, does one thing, then passes the bundle on to the next worker)
Modular system = small cross-trained and self-

managed work teams, team pay

Performance Measure Gross margin Operating profit Average discount Sewing throughput (days)
Source: Pfeffer (1998)
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Bundle 26.0% 7.9% 14.6% 9.5 days

Modular 31.6% 13.0% 10.2% 1.8 days

The Minimills
Management Practice Wages % of employees in teams Decentralization * General training * Labor hours / ton Scrap rate % Control Commitment Improvement $18.07 $21.52 19% 36.6% 2.42 1.92 52.4% 3.04 3.35 43% 26% 74%

- 34% - 63%

* 1 = very little to 6 = very much

Source: Pfeffer (1998)
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The Case of the IPOs

Probability of 5 Year Survival of IPO
Top 16% of Firms Bottom 16% of Firms

79% 60%

87% 45%

HR Value
Source: Pfeffer (1998)
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Why Not? The Downward Performance Spiral

Performance Problems Low profits High costs Poor customer service Low stock price Organizational Response Reduce training Layoffs Salary freeze Contingent staffing

Individual Behaviors Decreased motivation More accidents Higher turnover Reduced effort
Source: Pfeffer (1998)
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Aligning Strategy and HR

Determine the firms strategy Determine the competencies needed to carry

out the strategy

Examine current management practices Determine congruence
Do the current practices work to enhance

needed competencies?
Are the current practices internally consistent?
Source: Pfeffer (1998)
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External Influences on HRM

Economic conditions Legal requirements and constraints Demographics Technology

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General Economic Conditions

Global economy
Lower wage levels vs. quality and productivity Ethical issues and political considerations

Domestic factors
Move from manufacturing economy to service / information

Mergers duplication of functions layoffs

Supply and demand of labor influences price Supply and demand of companys product, which

determines available resources

Sources: Challenger (2003); Cole, et al. (2003)
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Changes in the U.S. Economy, 1939 to Present

100% 80% 60% 40% 20% 0% 1939 1944 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004
Natural Resources & Mining Manufacturing Information Leisure & Hospitality
Source: U.S. Department of Labor, Bureau of Labor Statistics Page 21 Management 412 / Intro to HRM Fall 2008

Construction Trade, Transportation & Utilities Professional & Business Services Government

N et wo r k sy st em s an d da ta co m m

Fastest Growing Occupations, 2006-2016 (by percentage growth)

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100.0% 20.0% 40.0% 60.0% 80.0%
Pe r


so na l& ho m e ca re ai de s un ic at ...

C om pu te r so ftw ar e en g in ee rs ,a pp li c at io ns de s ai al th he om e H

Ve te rin a ry te c hn ol og is ts an d te ch ni c lf in an th ea tri c al ci an d M ed ic Su bs ta nc e al a pe

Source: Department of Labor, Bureau of Labor Statistics

M ak eu p ar tis ts , so na Pe r ia ns dv rfo al ab us iso rm rs an ce as si st an e an d be h Ve te rin a av i or al d

Management 412 / Intro to HRM

Technology Age Society


ria n Sk in is ca re or d sp e

s e. .. cia l

is ts

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Fastest Growing Occupations, 2006-2016 (by number of jobs)

Number ofJobs (000)
1,000 2,000 3,000 4,000 5,000 6,000 0

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C Fo o d pr ep ar a tio n an d se rv i ng w or ke rs , in . .. es en ta t iv es re pr rv ic e on s se rs er pe us to m sa le s N R et ai l R O f fi ce cle rk s, ge n ca re co nd d cle a in g ne rs ,e N ur s ai d Bo ok ke e es pi n ,o g, er a e

Source: Department of Labor, Bureau of Labor Statistics

Pe rs on a la nd ho m l ai ar y xc ep t rd ac co er li Ja ni to rs an Po st -s e de s te ac he m ai d es ,a un tin s nd g, a W ai rs an d. .. at te nd nd te rs au

Management 412 / Intro to HRM

Jobs in 2006 Growth

an ts di ti an d

ng w

c. .. ai t re ss e

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Largest Job Losses, 2006-2016

Number ofJobs (000)
St oc k cl er ks an d

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1,000 2,000 3,000 4,000

C as hi er s, e rs xc ep t ga m in g rs ,h an d or

de rf ille

Pa c ke rs an d pa ck a ge

Fi le Fa rm er s & cl er ra n ks ch er s Se wi n El ec t C ric al ut ti ng , an d pu n O rd g el m ac h ec tro ch in ni c g, an er in cl e er ks op e eq d ui p pr es

Management 412 / Intro to HRM

ra to rs m en t s m ac hi ne Te l a. .. s. em ar .. ke te rs

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Legal Requirements and Constraints

Government now an intermediary in the

relationship between employers and employees

Legal requirements and constraints are

usually a reflection of social attitudes and opinions

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Supply of labor (number of people, skills, etc.)
New skills needed, but are they present in workforce? Basic skills availability?

Different needs of different groups in the population

Increasing number of women in paid workforce Dual-earner families Family friendly benefits Aging population

Sources: Challenger (2003); Cole, et al. (2003)

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Participation in the Paid Labor Force by Gender: 1948 to 2007

% Labor Force Participation 100 90 80 70 60 50 40 30 20 10 0
19 48 19 53 19 58 19 63 19 68 19 73 19 78 19 83 19 88 19 93 19 98 20 03
Source: Department of Labor, Bureau of Labor Statistics Page 27 Management 412 / Intro to HRM Fall 2008


Labor Force By Age, 2006-2016

Projected % Change in Labor Force By Age, 2006-2016
75 and older 65 to 74 55 to 64 25 to 54 16 to 24

Labor Force By Age, 2006

65 + 4%

Labor Force By Age, 2016





65 + 6%

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New jobs; old jobs vanish Need for new skills Need for continuous skills development Managing the HR function Data management Employee communications

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HR Functions: What Well Be Looking At

Planning Employee and Labor Relations Legal Compliance

Training and Development Reward Systems

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Fall 2008