CHAPTER 10 Human Resources Management Human resources management (HRM), historically known as personnel management, deals with formal systems for managing people at work. It is a pervasive aspect of organizational and managerial life. When you look for a job, your first formal interactions with employers will likely involve the human resources function. You will continue interacting with this important function throughout your career. Strategic Human Resources Management HRM plays a vital strategic role as organizations attempt to compete through people. Recall (Chapter 4) that firms hold a competitive advantage when they possess or develop resources that are valuable, rare, inimitable, and organized. We can use the same criteria to talk about the strategic impact of human resources when it: 1. Creates value. People can increase value through their efforts to decrease costs or provide something unique to customers. Companies such as Corning and Xerox use empowerment programs, total quality initiatives, and continuous improvement efforts designed to increase the value that employees bring to the bottom line. 2. Is rare. People provide competitive advantage when their skills, knowledge, and abilities are better than competitors’ and hard to find. Top companies invest a great deal to hire talented people and train them well. Google and top consulting firms hire top students in a wide variety of majors, and the recruits develop new skills with training, work assignments, and other methods. 3. Is difficult to imitate. People provide advantage when their capabilities and contributions cannot be copied by others. Kayak, Etsy, and W. L. Gore are known for creating unique cultures that get the most from employees (through teamwork and motivation) and are difficult to imitate. 4. Is organized. People provide advantage when organizations know how to deploy them as needed based on their experience, skills, and potential. In the long run, organizations are best served when HR leaders are strong advocates for at least four sets of values: strategic, ethical, legal, and financial.7 But on a day-to-day basis, HR managers also have many other concerns regarding people and the overall personnel puzzle. Which HR activities require the most attention depends in part on whether the organization is growing, declining, or standing still. This leads to the practical issues involved in HR planning. The HR Planning Process “Get me the right kind and the right number of people at the right time.” It sounds simple enough, but it requires HR planning based on knowing your firm’s strategic purpose. The HR planning process occurs in three stages: planning, programming, and evaluating. First, to ensure that the right number and types of people are available, HR managers need to know the organization’s business plans: where the company is headed, the mix of businesses and the industries they will compete in, expected future growth, and so forth. The second element of the HR planning process is to choose and implement specific human resources activities, such as recruitment, training, and performance appraisals. In this stage, the company’s plans are implemented. Third, human resources activities are evaluated to determine whether they are producing the results needed to contribute to the organization’s business plans. Exhibit 10.1 illustrates the components of the human resources planning process. Demand Forecasts Perhaps the most difficult part of human resources planning is conducting demand forecasts—that is, determining how many and what types of people are needed. Demand forecasts for people needs stem from organizational plans. Companies consider current sales and projected future sales growth as they estimate the plant capacity needed to meet future demand, the sales force required, the support staff needed, and so forth. Labor Supply Forecasts Managers also forecast the supply of labor—how many and what types of employees are available to do the work. In performing a supply analysis, managers estimate the number and quality of current employees as well as the available external supply of workers. To estimate internal supply, managers typically rely on their experiences with (and ideally data about) turnover, terminations, retirements, promotions, and transfers. Reconciling Supply and Demand Once managers have a good idea of the supply of and the demand for various types of employees, they can start developing ways to reconcile the two. In some cases, they need more people than they currently have (a labor deficit). Then, organizations can hire new employees, promote current employees to new positions, or outsource work to contractors. In other cases, organizations have more people than they need (a labor surplus). Job Analysis First, it tells the HR manager about each job’s specific and essential tasks, duties, and responsibilities. This information is the job description. The job description for an accounting manager might specify that the position will be responsible for preparing monthly, quarterly, and annual financial reports; and supervising an accounting department. Second, job analysis describes the skills, knowledge, abilities, and other characteristics needed to perform the job. This is called the job specification. For our accounting manager, the job requirements might include a degree in accounting or business, prior managerial experience, and excellent communication skills. Ultimately, job analysis helps increase the value that employees add because it clarifies what is really required to perform effectively. Staffing Once HR planning is completed, managers can focus on staffing the organization. The staffing function consists of three related activities: recruitment, selection, and outplacement. Recruitment Recruitment activities increase the pool of candidates who can be hired. Recruitment may be internal to the organization (considering current employees for promotions and transfers) or external. Each approach has advantages and disadvantages. Internal Recruiting The advantages of internal recruiting are that employers know their employees, and employees know their organization; external candidates may find they don’t like working there. A big advantage is that opportunities for promotions can encourage employees to remain with the company, work hard, and perform well. Internal staffing has some drawbacks. If employees lack needed skills, internal recruitment yields a limited applicant pool, leading to poor selections. External Recruiting External recruiting brings in new blood and can inspire innovation. Employers prefer referrals by current employees and online job boards.19 Some companies encourage employees to refer their friends by offering cash rewards. For specialized positions, more companies use networking sites such as LinkedIn, Facebook, and Twitter because the job boards generate many unqualified leads that are overwhelming to process. Selection Selection builds on recruiting and is a decision about whom to hire. As important as these decisions are, they sometimes are made in careless or cavalier ways. Here we describe a number of selection practices to which you may soon be exposed, if you haven’t been already. Applications and resumes Interviews Reference check Background checks Personality test Drug testing Cognitive ability test Performance test Integrity test Workforce Reductions Hiring is not the only type of staffing decision. Unfortunately, managers sometimes must make difficult decisions to terminate people’s employment. Layoffs Over two recent decades, three companies alone—IBM, Citigroup, and Sears Roebuck— laid off a combined 160,000 employees. Dismissing anyone is tough, but laying off a substantial portion of the workforce is devastating. What can be done to manage downsizing as well as possible? First, firms should avoid excessive hiring to avoid needing major or multiple downsizings. Other common mistakes are making slow, small, frequent layoffs; implementing voluntary early retirement programs that entice the best people to leave; and laying off so many people that the company’s work can no longer be performed. Instead, firms can engage in a number of positive practices to ease the pain and increase the effectiveness of downsizing (see Exhibit below). Employers can offer outplacement: helping dismissed people regain employment elsewhere. Termination People sometimes get fired for poor performance. Employment-at-will or termination-at-will means that an employee may be fired for any reason. The logic is that if an employee can quit at anytime, the employer can dismiss at any time. Employers can avoid the pitfalls of dismissals by developing progressive and positive disciplinary procedures.38 In this context, progressive means that a manager takes graduated steps in attempting to correct unwanted behaviors. For example, an employee who has been absent receives a verbal reprimand for the first offense. Legal Issues and Equal Employment Opportunity Many laws govern employment decisions and practices. They will directly affect your day-to-day work as a manager as well as your employer’s human resource function. One common reason employers are sued is adverse impact—when an employment practice has a disproportionately negative effect on a group protected by the Civil Rights Act. For example, if equal numbers of qualified men and women apply for jobs but a particular employment test results in far fewer women being hired, the test had an adverse impact and can be challenged legally on that basis. Developing the workforce Competitive environments require managers to upgrade continually the skills and performance of employees—as well as their own. Training and Development Although we use the general term training here, training sometimes is distinguished from development. Training usually refers to teaching lower-level employees how to perform their current jobs, whereas development involves teaching managers and professional employees broader skills needed for their current and future jobs. Overview of the Training Process Training usually starts with a needs assessment. Managers conduct an analysis to identify who and what needs training. Job analysis and performance measurements are useful for this purpose. Types of Training Orientation training is used to familiarize new employees with their new jobs, work units, and the organization in general. Team training teaches people the skills they need to work together and stimulates interaction among team members. Before the start of the 2016 holiday season, Target set out to hire 70,000 part-time workers. Because some new hires would be new to retailing. Diversity training builds awareness of diversity’s advantages and challenges, and teaches skills for strengthening work relationships—the kinds of things you will learn in the next chapter. Management training programs often seek to improve managers’ people skills—their ability to delegate effectively, motivate their subordinates or direct reports, and communicate and inspire high performance. Coaching—receiving customized personal training from a boss or consultant— can be one of the most effective management development tools. Performance Appraisal One of the most important responsibilities you will have as a manager is performance appraisal (PA), the assessment of employees’ job performance. Done well, it can help employees improve their performance, pay, and chances for promotion; foster communication between managers and employees; and increase individual, team, and organization effectiveness. Done poorly, it has negative effects—resentment, a drop in motivation, lower performance, and sometimes lawsuits. What Do You Appraise? Performance appraisals assess three basic categories of employee performance: traits, behaviors, and results. Trait appraisals involve subjective judgments about employee characteristics related to performance. Trait scales are common because they are simple to use and provide a standard measure for all employees. But often they are not valid as performance measures. Because they tend to be ambiguous as well as highly subjective—does the employee really have a bad attitude, or is he or she just shy? — they tend to have low validity and can be unsuitable for feedback purposes. Behavioral appraisals, although still subjective, focus on more observable aspects of performance. They were developed in response to the problems of trait appraisals. These scales focus on specific, prescribed behaviors that can help ensure that all parties understand what the ratings are really measuring. Because they are less ambiguous, they can provide useful feedback. Results appraisals are more objective, focusing on production data such as sales volume (for a salesperson), units produced (for a line worker), or profits (for a manager). One approach to results appraisals—management by objectives (MBO)—involves a subordinate and a supervisor agreeing in advance on specific performance goals (objectives). They then develop a plan that describes the time frame and criteria for determining whether the objectives have been reached. The aim is to agree on a set of objectives that are clear, specific, and reachable. For example, an objective for a salesperson might be “Add three big new customers during the following year.” MBO has several important advantages. First, it avoids the biases and measurement difficulties of trait and behavioral appraisals. At the end of the review period, employees are judged on actual job performance as compared against objectives. Second, because the employee and manager have agreed on objectives, the employee is likely to understand and be more committed to reaching them. Third, MBO allows employees to adapt their approach as needed (within limits, for instance legal and ethical), to achieve the desired results. In choosing an appraisal method, the following guidelines can help: 1. Base performance standards on job analysis. 2. Communicate performance standards to employees. 3. Evaluate employees on specific performance-related behaviors rather than on a single global or overall measure. 4. Document the PA process carefully. 5. If possible, use more than one rater (discussed in the next section). 6. Have a formal and fair appeal process. 7. Always take legal considerations into account. Designing reward system Incentive Systems and Variable Pay Various incentive systems have been devised to encourage and motivate employees to be more productive.58 The most common type of incentive system is the individual incentive plan. An individual incentive system uses an objective standard against which a worker’s performance is compared. Pay for each person is determined accordingly. Sales jobs commonly use such plans— for example, a salesperson will receive extra compensation for exceeding a sales target. Another widely used individual incentive is management bonuses. When designed effectively, individual incentive plans can be highly motivating. Some companies, including Walmart, use them for nonmanagers. In the second quarter 2016, the retailer paid over $200 million in bonuses to a million hourly employees. Walmart hopes that using bonuses to reward hourly employees for meeting sales, profit, and inventory targets each quarter will improve job satisfaction and reduce turnover. Group incentive plans base pay on group performance. These plans can give employees a sense of shared participation and even ownership in the performance of the team or unit. Gainsharing plans reward employees for increasing productivity or saving money in areas under their direct control.60 For example, if the usual waste allowance in a production line has been 5 percent and the company wants production employees to reduce that number, it could offer to split any savings with the employees. Profit-sharing plans usually apply to a division or organization as a whole, although some incentives may still be tailored to subunit performance. In most companies, the profit-sharing plan uses a formula that allocates an annual amount to each employee if the company exceeds a profit target. One disadvantage of profit-sharing plans is that they do not reward individual performance. However, they do give all employees a stake in the company’s success, and thereby motivate efforts to improve the company’s profitability. When objective performance measures are not available but the company still wants to base pay on performance, it uses a merit pay system. Individuals’ pay raises and bonuses are based on the merit rating they receive from their boss. For the other and detailed forms of reward systems, read book chapter 10.
