Human Resource
Management: Gaining
a Competitive Advantage
1
C H A P T E R
LEARNING OBJECTIVES
After reading this chapter, you should be able to:
2
LO 1-1
Discuss the roles and activities of a company’s human
resource management function. page 6
LO 1-2
Discuss the implications of the economy, the makeup of the
labor force, and ethics for company sustainability. page 16
LO 1-3
Discuss how human resource management affects a
company’s balanced scorecard. page 29
LO 1-4
Discuss what companies should do to compete
in the global marketplace. page 46
LO 1-5
Identify how new technology, such as social networking, is
influencing human resource management. page 50
LO 1-6
Discuss human resource management practices that
support high-performance work systems. page 53
LO 1-7
Provide a brief description of human resource
management practices. page 56
>>>
ENTER THE WORLD OF BUSINESS
Mars Incorporated: HR Practices Help Create Sweet Success
You may have enjoyed Mars Incorporated products if you have had M&Ms, Snickers, Lifesavers,
Wrigley’s Juicy Fruit, or Uncle Ben’s Converted
Rice. But are you aware that the “Ms” on M&Ms
stand for Forrest Mars and R. Bruce Murrie, the
son of the president of competitor Hershey’s,
which supplied Mars with chocolate when there
was limited availability of cocoa during World
War II? Mars is the third largest private company
in the United States with 72,000 employees
located in the U.S. and 72 other countries around
the world. It operates in six business segments
including food, drinks, pet care, chocolate,
gum and confections, and symbioscience (a
technology-based health and life sciences business focused on product development). Today,
Mars includes eleven brands with revenues of
$1 billion or more. Granted some of that success
is attributed directly to the quality of and demand
for the products that Mars offers consumers (who
doesn’t like M&Ms?). But a lot of the success is
due to the HR practices that Mars uses to attract,
motivate, and retain high-caliber employees. This
has resulted in Mars ranking #95 on the 2013 Fortune 100 Best Companies to Work For.
It all starts with the Five Principles of Mars—
Quality, Responsibility, Mutuality, Efficiency and
Freedom—which are the foundation of the company culture and business approach. The Five
Principles, found on the walls in its offices and
manufacturing plants throughout the world, provide a common bond for all employees regardless of their business segment, location, national
language, or generation. All employees are
familiar with the Five Principles and they influence their daily work. Mars believes that quality
work is the first ingredient of quality brands and
the source of the company’s reputation for high
standards. All associates are asked to take direct
responsibility for results, to exercise initiative and
judgment, and to make decisions as required.
Mutuality refers to the company’s belief that all
business relationships should be measured by the
degree to which mutual benefits are created. The
actions of Mars should never be at the expense,
economic or otherwise, of others. Efficiency is
seen as a strength of the company. It allows the
company to organize physical, financial, and
human assets for maximum productivity. It also
contributes to making and delivering products
and services with the highest quality, lowest possible costs, and lowest consumption of resources.
Finally, Mars cherishes the freedom of being a
privately held company, which allows it to make
decisions free of short-term earnings reports and
to be financially answerable to no one. This gives
management and employees the ability to experiment with ideas and take the time to develop
talents for longer-term gains.
Mars employees love the products they make
but they also love the HR practices that help put
the Five Principles into action. The turnover of non–
sales force employees is only 5%. What is responsible for the low turnover as well as $33 billion in
global revenue in 2012? Perhaps one reason is that
Mars has an egalitarian workplace with no fancy
offices or special perks for managers. Employees
are officially called “associates” but because of
the unifying value of the Five Principles, they often
refer to themselves as Martians. Most employees
have to “punch in” at their worksite every day, even
the company president. Employees who are late
are docked 10% of their pay. Also, the principle of
Responsibility means that all employees, not just
managers, have a “voice” and are expected to put
themselves in the position of the consumer. They
are encouraged to speak up rather than ever provide an inferior product or service.
CONTINUED
3
Mars does not offer stock options or company
pensions or game rooms or private chefs for its
employees. It does provide vending machines
that provide employees with free candy, and
chewing Wrigley’s gum at meetings is encouraged. Perhaps another reason for the low turnover and high revenues is that employees have
many career and development opportunities
both within their current business and in new
ones. All new employees attend The Essence
of Mars training program which introduces and
reinforces the Five Principles. Mars also has
a corporate university (Mars University) which
offers online and classroom-based courses in
functional topics as well as on leadership skills.
Forty percent of associates have participated in a
program offered by Mars University. Also, many
employees have mentors, even executives who
learn about social media from younger employees. Mars insures that all employees regardless
of background have the opportunity to grow and
advance. For example, Mars was ranked #25 in
the 2012 World’s Best Multinational Workplaces
list, the world’s first global workplace excellence
ranking by Great Place to Work®, for its high percentage of women in executive and senior management positions.
Or, maybe turnover is low and revenues are
high because of the bonuses that employees
can earn which range from 10 to 20% of their
salaries if their team performs well. Contributing to employees’ motivation to earn their
bonuses is the availability of performance data.
Flat screens displays current financials including sales, earnings, cash flows, and factory
efficiency. Mars also encourages community
involvement, which gives employees opportunities to gain new insights and make meaningful contributions. The Mars Volunteer Initiative
offers paid time off for associates to clean parks,
teach courses, help pets find homes, work in
medical clinics, and plant gardens. In 2012,
employees devoted 50,000 hours to volunteering! The Mars Ambassadors is a select program
in which employees spend six weeks working
with Mars partners in developing areas of the
world. In late 2012, seven Mars Drinks Associates traveled from all over the globe and met
in Kenya. Their objective was to learn about
the coffee farming process and about how
Mars Drinks supports and improves the farming
business through a partnership with Sustainable Management Services (SMS). During their
week-long trip, that objective was met, and the
experience became much more than a simple
learning opportunity. As one Drinks Associate
from France noted, “I realized that selling or
buying coffee in Europe can have great repercussions in third world countries.” Sustainability
is not just a marketing operation but is a way of
living and needs to be sponsored by everyone.
SOURCE: Based on D. Kaplan, “Inside Mars,” Fortune, February 4,
2013, p. 82; www.mars.com, website for Mars Incorporated, accessed
March 15, 2013.
Introduction
Competitiveness
A company’s ability to
maintain and gain market share in its industry.
4
Mars Incorporated illustrates the key role that human resource management
(HRM) plays in determining the survival, effectiveness, and competitiveness of
U.S. businesses. Competitiveness refers to a company’s ability to maintain and
gain market share in its industry. Mars’ human resource management practices
are helping support the company’s business strategy and 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
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 5
Figure 1.1
Human Resource Management Practices
Employee
relations
Performance
management
Compensation
Training and
development
Selection
Recruiting
HR
planning
Analysis and
design of work
Strategic HRM
Company
Performance
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 chapter’s 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 reputation in the firm’s community.1 The potential
role of HRM in company performance has only recently been recognized.
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.
Human Resource
Management
(HRM)
Policies, practices,
and systems that
influence employees’
behavior, attitudes,
and performance.
6
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
What Responsibilities and Roles Do
HR Departments Perform?
LO 1-1
Discuss the roles and
activities of a company’s human resource
management function.
Only recently have companies looked at HRM as a means to contribute to profitability, quality, and other business goals through enhancing and supporting
business operations.
Table 1.1 shows the responsibilities of human resource departments. How
many HR professionals should a company employ? High performing small
companies (fewer than 100 employees) have approximately 6 human resource
staffers per 100 employees, while in high performing large companies with
50,000 employees or more the ratio is 1 HR staffer per 100 employees.2
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.3
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
Table 1.1
Responsibilities of HR Departments
FUNCTION
RESPONSIBILITIES
Analysis and design of work
Recruitment and selection
Job analysis, work analysis, job descriptions
Recruiting, posting job descriptions, interviewing, testing, coordination use of temporary employees
Training and development
Orientation, skills training, development programs, career
development
Performance management
Performance measures, preparation and administration of performance appraisals, feedback and coaching, discipline
Compensation and benefits
Wage and salary administration, incentive pay, insurance, vacation,
retirement plans, profit sharing, health and wellness, stock plans
Employee relations/Labor relations
Attitude surveys, employee handbooks, labor law compliance,
relocation and outplacement services
Personnel policies
Policy creation, policy communications
Employee data and information systems Record keeping, HR information systems, workforce analytics,
social media, Intranet and Internet access
Legal compliance
Policies to ensure lawful behavior; safety inspections, accessibility
accommodations, privacy policies, ethics
Support for business strategy
Human resource planning and forecasting, talent management,
change management, organization development
SOURCES: Based on Bureau of Labor Statistics, U.S. Department of Labor, Occupational Outlook Handbook, 2012–13 Edition, “Human Resources
Specialists,” on the Internet at www.bls.gov/ooh/business-and-financial/human-resources-specialists.htm, visited March 26, 2013; SHRM-BNA
Survey no. 66, “Policy and Practice Forum: Human Resource Activities, Budgets, and Staffs, 2000–2001,” Bulletin to Management, Bureau of
National Affairs Policy and Practice Series (Washington, DC: Bureau of National Affairs, June 28, 2001).
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 7
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.
One way to think about the roles and responsibilities of HR departments
is to consider HR as a business within the company with three product lines.
Figure 1.2 shows the three product lines of HR. The first product line, administrative services and transactions, is the traditional product that HR has historically
provided. The newer HR products—business partner services and the strategic
partner role—are the HR functions that top managers want HR to deliver.
For example, at Move Inc., an online real estate company with around 1,000
employees, the chief financial officer and HR leaders work on annual business
plans and budgeting, including decisions about merit pay increases.4 HR used
data to make a business case for not having annual merit increases rather than
emphasizing that merit pay increases had to be given to employees because of
past practice. At Ingersoll Rand, a company with 25,000 employees and operations in more than 60 countries, HR was transformed from just doing traditional HR work such as recruitment, benefits, training, and compensation into
a team of consultants whose job was to work with managers to understand the
issues and problems they faced in managing the company’s human capital.5 As
consultants, HR focuses on identifying gaps or barriers preventing employees
and managers from attaining business goals, finding ways to fill the gaps, and
developing and delivering talent management solutions that include drawing
from traditional HR responsibilities but in a problem-focused way. For example,
Ingersoll-Rand’s business strategy is to grow in emerging markets around the
world. To be successful requires highly talented managers. HR is contributing
to meeting the need for highly talented managers by using workforce planning to determine how many managers are needed and in what locations. HR
Figure 1.2
HR as a Business with Three Product Lines
Administrative Services and
Transactions:
Compensation, hiring,
and staffing
• Emphasis: Resource efficiency
and service quality
Business Partner Services:
Developing effective
HR systems and helping
implement business plans,
talent management
• Emphasis: Knowing the
business and exercising
influence—problem solving,
designing effective systems to
ensure needed competencies
Strategic Partner:
Contributing to business
strategy based on
considerations of human
capital, business capabilities,
readiness, and developing
HR practices as strategic
differentiators
• Emphasis: Knowledge of HR
and of the business,
competition, the market,
and business strategies
SOURCE: Adapted from Figure 1, “HR Product Lines,” in E. E. Lawler, “From Human Resource Management to Organizational Effectiveness,”
Human Resource Management 44 (2005), pp. 165–69.
8
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
is working with managers to identify the competencies, skills, and knowledge
needed by high performing company managers. The competencies and skills
profiles are used to evaluate potential country managerial job candidates from
outside the company as well as to develop plans for current employees who
have the potential to become country managers.
Strategic Role of the HRM Function
Shared service
model
A way to organize
the HR function that
includes centers of
expertise, service
centers, and business
partners.
Self-service
Giving employees
online access to HR
information.
Outsourcing
The practice of having
another company provide services.
The amount of time that the HRM function devotes to administrative tasks
is decreasing, and its roles as a strategic business partner, change agent, and
employee advocate are increasing.6 HR managers face two important challenges:
shifting their focus from current operations to strategies for the future7 and preparing non-HR managers to develop and implement human resource practices
(recall the role of HR in Mars’ success from the chapter-opening story). To ensure
that human resources contributes to the company’s competitive advantage many
HR departments are organized on the basis of a shared service model. The shared
service model can help control costs and improve the business relevance and
timeliness of HR practices. A shared service model is a way to organize the HR
function that includes centers of expertise or excellence, service centers, and business partners.8 Centers of expertise or excellence include HR specialists in areas
such as staffing or training who provide their services companywide. Service centers are a central place for administrative and transactional tasks such as enrolling in training programs or changing benefits that employees and managers can
access online. Business partners are HR staff members who work with businessunit managers on strategic issues such as creating new compensation plans or
development programs for preparing high-level managers. We will discuss the
shared service model is more detail in Chapter 16.
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. The availability of the Internet has decreased the HRM role
in maintaining records and providing self-service to employees.9 Self-service
refers to giving employees online access to, or apps which provide, information
about HR issues such as training, benefits, compensation, and contracts; enrolling online in programs and services; and completing online attitude surveys.
Companies that use the services of ADP can download a free mobile app that
enables employees to access their payroll and benefits information.10 Employees can use the app to fill out their time sheet or look up their retirement plan
contributions and balance. The app can also be used by companies to deliver
news to employees or offer a directory with contact information. Watson Pharmaceuticals has developed an app for its corporate university, allowing pharmaceutical representatives to access training videos and product knowledge
from their iPhones.11
Many companies are also contracting with human resource service providers to conduct important but administrative human resource functions such as
payroll processing, as well as to provide expertise in strategically important
practice areas such as recruiting. Outsourcing refers to the practice of having another company (a vendor, third party or consultant) provide services.
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 9
The most commonly outsourced activities include those related to benefits
administration (e.g., flexible spending accounts, health plan eligibility status),
relocation, and payroll. The major reasons that company executives choose to
outsource human resource practices include cost savings, increased ability to
recruit and manage talent, improved HR service quality, and protection of the
company from potential lawsuits by standardizing processes such as selection
and recruitment.12 ADP, Hewitt, IBM, and Accenture are examples of leading
outsource providers.
Goodyear Tire and Rubber Company reenergized its recruitment and hiring
practices through outsourcing recruiting practices.13 The recruiting outsource
provider worked with the company to understand its culture, history, and its
employees’ recruitment experiences. The recruiting outsourcing service provider
was able to help Goodyear streamline the recruiting process through providing hiring managers with online access to create new job requisitions, providing
interview feedback, scheduling interviews, generating customized job offer
letters, and gaining a real-time perspective on job candidates’ progress in the
recruitment process. Goodyear recognized several benefits from outsourcing
recruitment including improving the timeliness of job offers, diversity and quality of new hires, and reducing turnover.
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. That still remains the case in many
companies that have yet to recognize the competitive value of human resource
management, or among HR professionals who lack the competencies and skills
or understanding needed to anticipate problems and contribute to the business
strategy. However, 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.
A discussion group of company HR directors and academic thought-leaders
reported that increasingly HR is expected to lead efforts focused on talent
management and performance management.14 Also, HR should take the lead
in helping companies attract, develop, and retain talent in order to create the
global workforces that companies need to be successful. HR professionals
have to be able to use and analyze data to make a business case for ideas and
problem solutions. In many companies top HR managers report directly to the
CEO, president, or board of directors to answer questions about how people
strategies drive value for the company. For example, at Yahoo the executive
vice president of people and development’s goal is to help turn around the
company.15 One of her jobs is to help integrate employees from small firms
that Yahoo acquires to bring in top engineering talent and software developers.
Acquisition of small start-up companies and their talent is part of Yahoo CEO
Marissa Mayer’s plan to revitalize the company. Another job is to fix Yahoo’s
compensation structure that motivated top employees to leave the company
for its competitors.
10
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
Consider the role of HR at VF Corporation.16 The CEO of VF Corporation, a
global clothing business including Nautica, Lee, and Wrangler brands, understands that he needs strong finances, winning brands, and talent to drive business
growth. HR’s role is to develop talent, focusing on the top management group of
1,500 people. The company conducts senior talent assessment reviews two times
each year. These reviews include meeting with the company’s operating committee, the vice president for human resources, business leaders, and the head of HR
for each business unit. Top managers are each individually reviewed to discuss
their strengths and weaknesses, how to improve them, and their possibilities for
career advancement. This is critical for the company to prepare and have ready
the necessary management talent necessary to meet two key growth drivers for
the company: global expansion and aggressive acquisitions of other businesses.
Also, the vice president for human resources plays a key role in developing the
time frame for expansion and preparing managers for international positions. In
addition, the vice president for human resources plays an important role in helping understand the available talent in companies targeted for acquisition as well
as taking steps to retain talented employees in the acquired company needed to
support the brand. The vice president for human resources also is responsible for
gathering information about changes in business expectations and growth projects from the vice presidents for human resources at the business unit level and
communicating that information to the CEO.
Table 1.2 provides several questions that managers can use to determine if
HRM is playing a strategic role in the business. If these questions have not been
considered, it is highly unlikely that (1) the company is prepared to deal with
competitive challenges or (2) human resources are being strategically used to
help a company gain a competitive advantage. The bottom line for evaluating
the relationship between human resource management and the business strategy is to consider this question: “What is HR doing to ensure that the right people with the right skills are doing the right things in the jobs that are important
for the execution of the business strategy?”17 We will discuss strategic human
resource management in more detail in Chapter 2.
Why have HRM roles changed? Managers see HRM as the most important
lever for companies to gain a competitive advantage over both domestic and
Table 1.2
Questions to
Ask: Are Human
Resources Playing a
Strategic Role in the
Business?
1.
2.
3.
4.
5.
6.
What is HR doing to provide value-added services to internal clients?
Do the actions of HR support and align with business priorities?
How are you measuring the effectiveness of HR?
How can we reinvest in employees?
What HR strategy will we use to get the business from point A to point B?
From an HR perspective, what should we be doing to improve our marketplace
position?
7. What’s the best change we can make to prepare for the future?
8. Do we react to business problems or anticipate them in advance?
SOURCES: Based on A. Halcrow, “Survey Shows HR in Transition,” Workforce, June 1988, p. 74; P. Wright,
Human Resource Strategy: Adapting to the Age of Globalization (Alexandria, VA: Society for Human Resource
Management Foundation, 2008); J. Mundy, “Be a Strategic Performance Consultant,” HR Magazine, March 2013,
pp. 44–46.
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 11
foreign competitors. We believe this is because HRM practices are directly
related to companies’ success in meeting competitive challenges. These challenges and their implications for HRM are discussed later in the chapter.
DEMONSTRATING THE STRATEGIC VALUE OF HR:
HR ANALYTICS AND EVIDENCE-BASED HR
For HR to contribute to business goals there is increasing recognition that it is necessary to use data to answer questions such as “Which practices are effective?”
“Which practices are cost effective?” and to project the outcomes of changes
in practices on employees’ attitudes, behavior, and company profits and costs.
This helps show that time and money invested in HR programs are worthwhile
and HR is as important to the business as finance, marketing, and accounting!
Evidence-based HR refers to the demonstration that human resources practices have a positive influence on the company’s bottom or key stakeholders
(employees, customers, community, shareholders). Evidence-based HR requires
the use of HR or workforce analytics. HR or workforce analytics refers to the
practice of using quantitative methods and scientific methods to analyze data
(sometimes called Big Data) from human resource databases, corporate financial
statements, employee surveys, and other data sources to make evidence-based
human resource decisions and show that HR practices influence the organization’s “bottom line” including profits and costs.18 For example, consider how
Catalyst IT Services is using and analyzing Big Data.19 Catalyst IT Services, a
technology outsourcing company that assembles teams for programming jobs,
predicts that it will screen more than 10,000 job candidates this year. Traditional
recruiting methods take too long and the subjective hiring choices of managers often result in new employees who perform poorly or are dissatisfied and
leave the company because their skills don’t match the job. As a result, Catalyst
now asks job candidates to complete an online assessment that collects information about the candidate. The assessment might give a math problem to a job
candidate, who is not expected to know how to answer it. However, Catalyst
is interested in how much time the applicant spends on the question (do they
answer quickly, skip it, or review it later?) as an indicator of how they will deal
with challenges. Analyzing the assessment data can help show what attributes
candidates have that fit in specific situations such as a job requiring a careful,
methodological approach to be successful. As a result of the use of analytics,
turnover at Catalyst is only 15% per year compared to more than 30% for its U.S.
competitors. Because evidence-based HR and analytics are important for showing the value of HR practices and how they contribute to business strategy and
goals, throughout each chapter of the book we provide examples of companies’
use of workforce analytics to make evidenced-based HR decisions or to evaluate
HR practices.
THE HRM PROFESSION: POSITIONS AND JOBS
There are many different types of jobs in the HRM profession. Table 1.3 shows
various HRM positions and their salaries. A survey conducted by the Society
of Human Resource Management to better understand what HR professionals
Evidence-Based HR
Demonstrating that
human resource
practices have a positive influence on the
company’s bottom
line or key stakeholders (employees, customers, community,
shareholders).
HR or Workforce
Analytics
The practice of using
data from HR databases and other data
sources to make
evidence-based human
resource decisions.
12
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
Table 1.3
Median Salaries for
HRM Positions
POSITION
SALARY
Top HR Executive
Management Development Manager
Health and Safety Manager
HR Manager
Employee Benefits Manager
Campus Recruiter
Entry-level HRIS Specialist
HR Generalist
Entry-level Employee Training Specialist
Compensation Analyst
Mid-level Labor Relations Specialist
$170,784
108,106
94,422
87,781
87,493
59,371
49,605
49,254
46,504
55,001
70,035
SOURCE: Based on data from Salary Wizard, www.salary.com, accessed March 26, 2013.
do found that the primary activities of HR professionals are performing the HR
generalist role (providing a wide range of HR services), with fewer involved in
other activities such as the HR function at the executive level of the company,
training and development, HR consulting, and administrative activities.20 Projections suggest that overall employment in human resource–related positions
is expected to grow by 21 percent between 2010 and 2020, much faster than the
occupational average.21
Salaries for HR professionals vary according to position, level of experience,
training, location, and firm size. As you can see from Table 1.3, some positions
involve work in specialized areas of HRM like recruiting, training, or labor and
industrial relations. HR generalists usually make between $31,000 and $80,000
depending on their experience and education level. HR generalists perform a
wide range of activities including recruiting, selection, training, labor relations,
and benefits administration. HR specialists work in one specific functional area
such as training or compensation. Although HR generalists tend to be found in
smaller companies, many mid- to large-size companies employ HR generalists
at the plant or business levels and HR specialists at the corporate, product, or
regional levels. Most HR professionals chose HR as a career because they found
HR appealing as a career, they wanted to work with people, or they were asked
by chance to perform HR tasks and responsibilities.22
EDUCATION AND EXPERIENCE
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, or law. Those who have completed graduate work have master’s
degrees in HR management, business management, industrial organizational
psychology or a similar field. This is important because to be successful in HR,
you need to speak the same language as the other business functions. You have
to have credibility as a business leader, which means understanding business
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 13
fundamentals such as how the company makes money and who the competition
and customers are. This is necessary to build a business case for HR activities.
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.”23
COMPETENCIES AND BEHAVIORS
HR professionals need to have the nine competencies shown in Figure 1.3. These
are the most recent competencies developed by the Society for Human Resource
Management (SHRM). SHRM developed the competencies based on a literature review, input from over 1,200 HR professionals, and a survey of over 32,000
respondents.24 The full version of the competency model, which can be found on
the SHRM website (www.shrm.org), provides more detailed information on each
competency, behaviors, and standards for proficiency for HR professionals at
entry, mid, senior, and executive career stages. Demonstrating these competencies
can help HR professionals show managers that they are capable of helping the HR
function create value, contribute to the business strategy, and shape the company
culture. They also help the HR department effectively and efficiently provide the
three HR products discussed earlier and shown in Figure 1.2. These competencies
and behaviors show that although the level of expertise required may vary by
career level, all HR professionals need to have a working knowledge of strategic
business management, human resource planning, development, compensation
and benefits, risk management (safety, quality, etc.), labor relations, HR technology, evidence-based decision making, and global human resources. HR professionals need to be able to interact and coach employees and managers, yet engage
in ethical practice through maintaining confidentiality and acting with integrity.
Many top-level managers and HR professionals believe that the best way to
develop competencies of the future effective professionals needed in HR is to
train employees or put them into experiences that help them understand the
business and HR’s role in contributing to it. Consider how Google and Southwest Airlines are developing the right mix of HR skills and experience to best
contribute to the business.25 At Google, approximately one-third of the HR
team’s employees have HR backgrounds and expertise in specialty skill areas
such as employment law, compensation, and benefits. Another one-third have
little or no human resource experience and were recruited from consulting firms
or within Google’s engineering or sales functions. The final one-third is a workforce analytics group with employees who have doctorates in finance, statistics,
and organizational psychology. Each group has its strengths. For example, HR
staff who have limited HR experience are very skilled in problem solving and
how the company works outside HR. To capitalize on the unique perspectives
and skills that each group brings to working on human resource issues, the vice
president of global people operations encourages interactions and knowledge
14
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
Figure 1.3
Competencies and Example Behaviors for HR Professionals
Example behaviors:
Remains current on
relevant laws, legal
rulings, and regulations;
develops and
utilizes best practices
Example behaviors:
Demonstrates a capacity for
understanding the business operations
and functions within the organization,
understands organizational metrics
and their relationship to business
success.
Business Acumen
Ability to understand business
functions and metrics within
the organization and industry
Example behaviors:
Gathers critical information,
makes sound decisions
based on evaluation of
available information
Critical Evaluation
Skill in interpreting information
to determine return on
investment and organizational
impact in making recommendations
and business decisions
Human Resource
Technical Expertise
and Practice
The ability to apply the
principles of human
resource management
to contribute to the
success of the business
Competencies
for HR
Professionals
Ethical Practice
Integration of core values,
integrity, and accountability
throughout all organizational
and business practices
Example behaviors:
Maintains conidentiality,
acts with personal,
professional, and
behavioral integrity
Global and Cultural
Effectiveness
Managing human
resources both within
and across boundaries
Example behaviors:
Embraces inclusion,
works effectively with
diverse cultures and
populations
Example behaviors:
Provides customer service to
organizational stakeholders,
insures alignment within HR
when delivering services and
information to the organization
Relationship
Management
The ability to manage
interactions with and
between others with the
speciic goal of providing
service and organizational
success
Consultation
Provide guidance to stakeholders
such as employees and leaders
seeking expert advice on a
variety of circumstances and
situations
Organizational Leadership
and Navigation
The ability to direct initiatives
and processes within the
organization and gain buy-in
from stakeholders
Communications
The ability to effectively
exchange and create a free
low of information with and
among various stakeholders
at all levels of the organization
to produce meaningful outcomes
Example behaviors:
Serves as a workforce
and people management
expert, develops
consultative and
coaching skills
Example behaviors:
Fosters collaboration,
exhibits behaviors consistent
with and conforming to the
organization culture
Example behaviors:
Provides constructive feedback
effectively, helps managers
communicate not just on HR
issues
SOURCE: Based on SHRM Elements for HR Success, Society for Human Resource Management, 2012, accessed from www.shrm.org, March 21, 2013.
sharing among the entire group of team members. Google develops human
resources or key people operations staff through a year-long training program
that includes HR specialist training, a business curriculum, and development
of skills related to working with clients, communicating with senior executives,
and solving business problems. The training is designed for HR employees with
at least two years of experience and is taught by People Operations department employees. Google recruits top MBA program graduates, enticing them
to consider HR because the opportunity to influence change in the company
is greater than is common in other specialty areas and career advancement is
faster. Southwest Airlines was concerned that its HR function had become too
distant from the company’s business units. To develop a stronger team of HR
generalists and get them to be valued partners and consultants to operations,
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 15
managers, and other internal customers, Southwest Airlines retrained and relocated HR specialists into the field. Southwest recognizes that to deal with the
fast pace of change in the airline industry HR generalists need to have a continuous improvement philosophy, business savvy, and both interpersonal and
strategic skills.
The primary professional organization for HRM is the Society for Human
Resource Management (SHRM). SHRM is the world’s largest human resource
management association with more than 250,000 professional and student
members throughout the world. If you are interested in HR, you should join
SHRM! SHRM provides education and information services, conferences
and seminars, government and media representation, and online services
and publications (such as HR Magazine and free videos and reports from the
SHRM Foundation). You can visit SHRM’s website to see their services at
www.shrm.org.
Competitive Challenges Influencing
Human Resource Management
Three competitive challenges that companies now face will increase the importance of human resource management practices: the challenge of sustainability,
the global challenge, and the technology challenge. These challenges are shown
in Figure 1.4.
Competing through
Sustainability
Competing through
Technology
Competing through
Globalization
• Provide a return
to shareholders
• Provide high-quality
products, services, and
work experience for
employees
• Increased value placed
on intangible assets
and human capital
• Social and environmental responsibility
• Adapt to changing
characteristics and
expectations of the
labor force
• Legal and ethical issues
• Effectively use new
work arrangements
• Expand into
foreign markets
• Prepare employees
to work in foreign
locations
• Change employees‘
and managers‘
work roles
• Create high-performance
work systems through
integrating technology
and social systems
• Development of
e-commerce and
e-HRM
• Use of social networking
tools
• Development of
HR dashboards and use
of HR analytics in
problem solving
U.S. Business Competitiveness
Figure 1.4
Competitive
Challenges
Influencing U.S.
Companies
16
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
As you will see in the following discussion, these competitive challenges
are directly linked to the HR challenges that companies are facing including
developing, attracting, and retaining talented employees, finding employees
with the necessary skills, and breaking down cultural barriers to create a global
company.26
THE SUSTAINABILITY CHALLENGE
Sustainability
A company’s ability to
meet its needs without
sacrificing the ability of
future generations to
meet their needs.
Stakeholders
The various interest groups who have
relationships with, and
consequently, whose
interests are tied to
the organization (e.g.,
employees, suppliers,
customers, shareholders, community).
LO 1-2
Discuss the implications of the economy,
the makeup of the
labor force, and ethics for company
sustainability.
Traditionally, sustainability has been viewed as one aspect of corporate social
responsibility related to the impact of the business on the environment.27 However, we take a broader view of sustainability. Sustainability refers to the
company’s ability to meet its needs without sacrificing the ability of future generations to meet their needs.28 Organizations pursuing a sustainable strategy
pursue the “triple bottom line”: economic, social, and environmental benefits.
Company success is based on how well the company meets the needs of its
stakeholders. Stakeholders refers to shareholders, the community, customers,
employees, and all of the other parties that have an interest in seeing that the
company succeeds. Sustainability includes the ability to deal with economic and
social changes, practice environmental responsibility, engage in responsible and
ethical business practices, provide high-quality products and services, and put
in place methods to determine if the company is meeting stakeholders’ needs;
that is, HR systems that create the skills, motivation, values, and culture that
help the company achieve its “triple bottom line” and insure the long-term benefits for the organizations stakeholders.
The economy has important implications for human resource management.
Some key statistics about the economy and the workforce are shown in Table 1.4.
These include the structure of the economy, the development and spread of
social networking, and growth in professional and service occupations. Growth
in these occupations means that skill demands for jobs have changed, with
knowledge becoming more valuable. Not only have skill demands changed,
but remaining competitive in a global economy requires demanding work
hours and changes in 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 high-demand jobs
means that companies need to give more attention to HR practices that influence attracting and retaining employees.
The Economy
The recession experienced in the United States between 2007 and the summer of 2009 was one of the worst ever with the unemployment rate reaching
over 10 percent in October 2009.29 Although many experts believe that falling
back into another recession is unlikely, the recovery of the U.S. economy since
the recession of 2009 can be characterized as slow and choppy. This is due
to several reasons. Positive signs for the economy include the unemployment
rate which, at around 7.7%, is at its lowest level in four years. The Dow Jones
Industrial Average reached a record in March 2013, and encouraging signs suggest growth in the gross domestic product (GDP), the total of all goods and
services produced.30 If GDP growth occurs it will be due to recovery in the
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 17
Table 1.4
Highlights of 2010–2020 Employment Projections
• Total employment will rise from 2010 to 2020 from 143.1 million to 163.5 million.
• The fastest job growth is expected in health care, personal care, and community and social services
occupations.
• Today, 92% of U.S. jobs are nonagriculture wage and salary jobs; 12.5% of the jobs are in goodsproducing industries (mining, construction, manufacturing) and 79.7% are in service-providing industries.
The distribution of jobs across industries is projected to be similar in 2020.
• 33.7 million job openings will result from the need to replace workers who permanently leave an occupation, creating opportunities in every occupation, even those where employment is declining and no
growth is expected.
• Today, approximately 43% of jobs require a high school degree for entry, 16% a Bachelor’s degree.
• The median age of the labor force will increase to 42.8 years old, the highest ever.
• The labor force is expected to increase by 10.5 million in the next decade reaching 164.4 million in 2020.
SOURCE: D. Sommers and J. Franklin, “Overview of Projections to 2020,” Monthly Labor Review, January 2012, pp. 3–20; C. Lockard and
M. Wolf, “Occupation Employment Projections to 2020,” Monthly Labor Review, January 2012, pp. 84–108; M. Toossi, “Labor Force Projections
to 2020: A More Slowly Growing Workforce,” Monthly Labor Review, January 2012, pp. 43–64; R. Henderson, “Industry Employment and Output
Projections to 2020,” Monthly Labor Review, January 2012, pp. 65–83.
housing market, increased consumer confidence, business investment in workers and capital such as plant, equipment, and technology, and expansion of
exports of U.S. goods to other countries.31 Less optimistic signs are that many
employers are delaying hiring, millions of Americans are still finding it difficult to get a job, and the long-term unemployment rate remains high. Many
workers including college graduates are underemployed, doing jobs that
require less than their level of education.32 The number of job openings has
increased to levels not seen since before the financial crisis but jobs are staying
unfilled longer than before pre–financial crisis levels. Some of this may be due
to the mismatch between the skills required by the jobs and skills held by the
unemployed but it also is due to employers waiting to fill job openings due
to uncertainties until there are higher levels of economic growth and agreement on federal fiscal policies.33 For example, in January 2013, 12.3 million U.S.
workers wanting a job could not find one. The rate of long-term employment,
around 3 percent, is still three times the 2001–07 average and for over 30 consecutive months more unemployed workers stopped looking for a job than
found one. Long-term unemployment might shrink if the economy grows and
the U.S. gets further out of the recession. Long-term unemployment is difficult
to predict even if new jobs are created because employers may have eliminated
some jobs during the recession through replacing workers with automation or
combining job responsibilities.
Unfortunately, the economic recovery will likely remains slow for some time
and could stop entirely if a solution is not found for the debt crisis in European
countries as well as the huge budget deficit in the United States.
There are several implications of this economic period for human resource
management. Despite the reduction in number of layoffs, hiring remains slow as
many companies are finding ways to increase productivity and efficiency without having to add new employees. Also, companies are waiting for product and
18
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
service demand to improve and if and when it does they will first call back laidoff employees and restore pay cuts and benefits such as paid holidays before
hiring new employees. For example, Honeywell International, which makes
products for aviation, automobiles, and residential and commercial heat systems has only been hiring two employees for every four who leave the company.34 Honeywell plans to slow its hiring until the U.S. GDP grows from its
current rate to close to 3%. Like other large U.S. companies, profits have been
increasing faster than sales. Honeywell has increased profits through cutting
costs, charging higher prices for its products, or reducing employees. Also,
Honeywell plans to raise its profit margin through increasing sales from international markets such as the Middle East and China where growth rates are
higher. Since 2009 Honeywell has added 10,000 jobs globally while eliminating
2000 positions in the United States.
Many HR departments are helping companies recover from the recession
and preparing them to be well-positioned as business conditions improve. For
example, Capital One asks its managers to determine current workloads and
staffing needs.35 HR projects changes in the workforce based on this information. This has allowed Capital One to forecast labor needs with more precision,
helping the company avoid hiring new employees only to potentially have to
lay them off.
During the recession, Philips Electronics cut its training budget but continued
to offer its Inspire program for high-potential employees, emphasizing business strategy and personal leadership topics.36 Philips believes that investing
in leadership development will better position the company to retain top talent
and meet demands for managerial talent as business grows and the economy
recovers.
Also, companies are under pressure to increase employee productivity to
alleviate higher costs such as health care.37 To control costs and increase the
effectiveness of the U.S. health care system, President Obama signed the Patient
Protection and Affordable Care Act. However, provisions of this act are now just
being implemented. Companies are uncertain as to the implications of the act
for their health care costs, and continue to look for ways to cut costs, including
reducing employee and retiree health care benefits and pension contributions
and increasing the employee contribution to pay for these benefits. Employers
including Sears Holding Corporation and Darden Restaurants Inc., owner of
Olive Garden and Red Lobster restaurant chains, are giving employees a monetary allocation to use toward health benefits.38 This allows them to decide to
pay more monthly premiums for more expensive plans or choose cheaper ones
which have higher deductibles for certain services, requiring them to pay more
out-of-pocket fees. Many employees are willing to choose lower-priced plans
that require them to pay more out of their pockets for health care. We discuss
what companies are doing to offset health care and pension costs in Chapter 13,
Employee Benefits.
HR programs and the HR function are under pressure to relate to the business strategy and show a return on investment. Customer focus needs to be
included in all HRM practices. New technology means that administrative and
transactional HR activities will be delivered via technology, creating less need
for HR professionals to provide these activities. The aging workforce combined
with reduced immigration because of security concerns may lead employers to
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 19
focus more on retraining employees or encouraging older, skilled workers to
delay retirement or work part-time.39
Table 1.4 highlights 2010–2012 employment projections. Our discussion
of employment projections is based on the work done by the U.S. Bureau of
Labor Statistics.40 Population is the most important factor in determining the
size and composition of the labor force. The size of the labor force will increase
but less than levels experienced over the previous 10 years. The median age of
the workforce will be the highest ever. Because the U.S. population is expected
to become increasingly diverse so is the workforce. Immigration is expected to
add 1.5 million persons every year from 2010–2020 to the U.S. population. As a
result every race and ethnicity will grow from 2010–2020 but the share of nonwhite Hispanics is expected to decline (we discuss the diversity and aging of the
workforce in more detail later in this chapter).
The importance of the service sector in the U.S. economy is emphasized
by considering industry and occupational employment rates and future projections. Almost 80% of jobs are in the service sector. Currently, the largest
percentage of jobs are found in health care and social assistance, leisure and
hospitality, state and local government, professional and business services,
and retail trade. The service-providing sector is expected to have the most
job growth from 2010–2020 with the number of wage and salary workers
increasing from 112.7 million to 130.7 million. Health care and social assistance sector and the professional and business services sector will add more
than one-third of new jobs and will account for almost 25% of total employment by 2020.
Table 1.5 provides examples of the largest percentage growth in jobs from
2010–2020. Overall, the occupations with the largest increase in jobs include
health care support and personal care, community and social services, construction and extraction, and computer and mathematical occupations. The fastest
growing jobs in these occupations include jobs such as personal care aids (provide services such as cooking meals), home health aids (provide services such
as administering medicines), veterinary technologist and technicians, software
developers, marriage and family therapists, and brick masons. Ten of the fastest
30 growing occupations are from either the health care practitioner and technical occupations group or the health care support occupations group. The growth
of these occupations is likely due to increased demand for health care from the
aging U.S. population’s health care demands. In the case of the growth of the
construction and extraction occupations some of it is due to the recovery of jobs
lost during the recession as well as the growth in new jobs.
There are several occupational groups that are projected to experience declines
in jobs. Farmers, ranchers, and agricultural managers will lose over 96,000 jobs,
more than any other occupation, as technological improvements and consolidation in the food industry reduce the numbers of workers needed. Textile,
apparel, and furnishings occupations will experience declines due to increased
imports of furniture, shoes, and clothing. Occupations and jobs related to the
postal service are also expected to decline as the U.S. Postal Service continues
to cut costs.
Education plays an important role in meeting occupational or job requirements and in employee earnings. Job growth will be faster for occupations
that need some type of post-secondary education. Across all occupations the
20
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
Table 1.5
Examples of the
Occupations with
the Largest Growth
in Jobs
EMPLOYMENT
CHANGE 2010–2020
NUMBER (IN
THOUSANDS)
PERCENT
MOST SIGNIFICANT
EDUCATION OR
TRAINING
Personal care aides
607
71
Less than high school
Home health aides
OCCUPATION
706
69
Less than high school
Biomedical engineers
10
62
Bachelor’s degree
Helpers: brick masons, block
masons, stone masons
Helpers: carpenters
18
60
Less than high school
26
56
Less than high school
Veterinary technologists and
technicians
Reinforcing iron and rebar
workers
42
52
Associate’s degree
9
49
High school diploma
or equivalent
Physical therapist assistants
31
46
Associate’s degree
Helpers: pipe fitters,
plumbers
26
45
High school diploma
or equivalent
Meeting, convention event
planners
31
44
Bachelor’s degree
SOURCE: Based on C. Lockard and M. Wolf, “Occupation Employment Projections to 2020,” Monthly Labor
Review, January 2012, pp. 84–108.
greatest growth is expected in those requiring a Master’s degree. For the 30
fastest growing occupations, a Bachelor’s or graduate degree is needed for 12
of the occupations, 5 require an associate’s degree, and 13 need a high school
diploma or less. However, those that require a high school diploma may
also require additional training such as an apprenticeship for construction
occupations such as brickmasons, stonemasons, and reinforcing iron workers. Today, the median annual wage for jobs with less than high school was
estimated to be approximately $20,000 compared to $34,000 for those with
a high school diploma, $44,000 for those with some college, $61,000 for an
associate’s degree, $63,000 for a Bachelor’s degree and $87,000 for a doctorate
degree. The discrepancy in earnings by degree is expected to remain the same
in the future.
The future U.S. labor market will be both a knowledge economy and a service economy.41 There will be many high-education professional and managerial
jobs and low-education service jobs. High-tech manufacturing jobs will require
specialized skills such as blue print reading, repair, troubleshooting, operations
of computerized machines, and understanding how to improve quality and productivity on the factory floor. Boundaries between knowledge and service work
are blurring, creating “technoservice” occupations that combine service technology and software application. Software application engineers, technical support, engineering, and scientific consulting jobs work directly with customers,
and customers influence the product design process.
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 21
Despite the availability of unemployed and underemployed workers and
new high school and college graduates, companies are having a difficult time
finding employees with the right skills. Several studies illustrate the skill deficit companies are experiencing.42 A study by the Business Roundtable found
that 62% of employers report they are having difficulty finding qualified job
applicants to fill job openings. More than half indicated that at least 16% of
their workforce has skills gaps that adversely affect productivity. Similarly a
study by a consortium of Society for Human Resource Management, American
Society for Training and Development, The Conference Board, and Corporate
Voices for Working Families found that regardless of their education level only
half the companies surveyed rated new employees as adequately prepared
for work. Companies’ greatest basic skills needs were in reading, writing, and
math. Many employers also feel that they are having a difficult time finding
employees with the right “soft skills” such as work ethic, teamwork, and communications that they believe are more important for success on the job than
job-specific or “hard skills” such as blueprint reading or writing. Interpersonal
skills, the ability to learn, creativity, and problem solving are especially important in the service economy because employees have responsibility for the final
product or service provided.
The skills shortage is worldwide. Bill Gates and other business leaders have
expressed concerns about the comparatively low numbers of U.S. students in
the science and engineering fields and the low numbers of U.S. engineering
graduates compared to countries such as Korea.43 Due to migration, educational systems that have inconsistent quality, or declining birthrates, countries
in developing economies such as India and Russia, as well as Japan and Western
Europe are experiencing difficulties in finding workers for the skilled trades,
sales, technicians, engineers, and managers.44
Skill deficits are not limited to any one business sector, size of company
industry, or job. Companies such as Broseh and Aegis Sciences Corporation are
either training their employees or working in partnerships with schools to help
develop the skills that employees need.45 Broseh and 20 other manufacturers
partnered with Tarrant Community College to create a nine-week course. The
course teaches blueprint and gauge reading, math skills, work ethics, and computer numeric control to develop machinists who use machines to help form
metal parts. The companies donated machinery so the students can get handson experience. All of the machinists who completed the program have been
hired. Aegis Sciences Corporation with 580 employees conducts drug-screening
services and forensic testing. Scientist and lab technician positions remain
unfilled because the company cannot find enough experienced employees for
those jobs. As a result, Aegis Sciences is hiring and training recent chemistry
graduates who lack experience working at a professional lab with high standards for quality control and consistency. The graduates are trained in needed
skills such as how to extract materials from blood or urine and analyze the drug
content of the samples.
Increased Value Placed on Intangible Assets and Human Capital. Today more
and more companies are interested in using intangible assets and human capital
as a way to gain an advantage over competitors. A company’s value includes three
types of assets that are critical for the company to provide goods and services:
financial assets (cash and securities), physical assets (property, plant, equipment),
22
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
Intangible Assets
A type of company
asset including human
capital, customer capital, social capital, and
intellectual capital.
and intangible assets. Table 1.6 provides examples of intangible assets. Intangible
assets include human capital, customer capital, social capital, and intellectual
capital. Intangible assets are equally or even more valuable than financial and
physical assets but they are difficult to duplicate or imitate.46 By one estimate, up
to 75 percent of the source of value in a company is in intangible assets.47
Intangible assets have been shown to be responsible for a company’s competitive advantage. Human resource management practices such as training,
selection, performance management, and compensation have a direct influence
on human and social capital through influencing customer service, work-related
know-how and competence, and work relationships. Consider the effort that
Macy’s put into developing human capital, social capital, and customer capital.48 Almost half of Macy’s department store customer complaints are focused
on interactions with sales associates. To cut costs to survive during the recession
Macy’s closed stores and invested in technology to improve efficiency which
diverted attention away from customer service. But now Macy’s is making a
considerable investment in training its sales associates to provide better customer service. The new training program requires new sales associates to attend
a three-hour training session and includes refresher courses and coaching from
managers when they are working on the sales floor. The Magic Selling Program
(Magic stands for meet and make a connection, ask questions and listen, give
options and advice, inspire to buy, and celebrate the purchase) is designed to
help sales associates make more personal connections with shoppers. Positive interactions with sales associates contribute to the number of items that
Table 1.6
Examples of
Intangible Assets
Human capital
• Tacit knowledge
• Education
• Work-related know-how
• Work-related competence
Customer capital
• Customer relationships
• Brands
• Customer loyalty
• Distribution channels
Social capital
• Corporate culture
• Management philosophy
• Management practices
• Informal networking systems
• Coaching/mentoring relationships
Intellectual capital
• Patents
• Copyrights
• Trade secrets
• Intellectual property
SOURCES: Based on L. Weatherly, Human Capital: The Elusive Asset (Alexandria, VA: 2003 SHRM Research Quarterly); E. Holton and S. Naquin, “New Metrics for Employee Development,” Performance Improvement Quarterly
17 (2004), pp. 56–80; M. Huselid, B. Becker, and R. Beatty, The Workforce Scorecard (Boston: Harvard University
Press, 2005).
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 23
a customer purchases and can help enhance Macy’s service reputation as customers share experiences on social network sites such as Twitter and Facebook.
Macy’s effort has paid off in strong sales growth.
Intangible assets have been shown to be related to a company’s bottom line.
A study by the American Society for Training and Development of more than
500 publicly traded U.S.-based companies found that companies that invested
the most in training and development had a shareholder return 86% higher than
companies in the bottom half and 46% higher than the market average.49
One way companies try to increase intangible assets is through attracting, developing, and retaining knowledge workers. Knowledge workers are
employees who contribute to the company not through manual labor, but
through what they know about customers or a specialized body of knowledge.
Employees cannot simply be ordered to perform tasks; 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
companies need their skills and jobs requiring them are growing (see Table 1.5).
Knowledge
Workers
Employees who own
the intellectual means
of producing a product
or service.
Emphasis on Empowerment and Continuous Learning
To completely benefit from employees’ knowledge requires a management style
that focuses on developing and empowering employees. Empowering means
giving employees responsibility and authority to make decisions regarding
all aspects of product development or customer service.50 Employees are then
held accountable for products and services; in return, they share the rewards
and losses of the results. For empowerment to be successful, managers must be
trained to link employees to resources within and outside the company (people,
websites, etc.), help employees interact with their fellow employees and managers throughout the company, and ensure that employees are updated on important issues and cooperate with each other. Employees must also be trained to
understand how to use the Web, e-mail, and other tools for communicating, collecting, and sharing information.
As more companies become knowledge-based, it’s important that they promote continuous learning at the employee, team, and company levels. A learning
organization embraces a culture of lifelong learning, enabling all employees to
continually acquire and share knowledge. Improvements in product or service
quality do not stop when formal training is completed.51 Employees need to
have the financial, time, and content resources (courses, experiences, development opportunities) available to increase their knowledge. Managers take an
active role in identifying training needs and helping to ensure that employees
use training in their work. Also, employees should be actively encouraged to
identify problems, make decisions, continuously experiment, and improve.
At Cheesecake Factory Inc., which operates about 170 restaurants in the
United States, the focus is on driving continuous learning related to guest satisfaction, perfect food, and execution of the many dishes on its menu.52 To do so,
the company is creating interactive learning content that employees access at
work. Through the VideoCafe employees can upload and share short videos on
topics such as customer greetings and food preparation. The company plans to
Empowering
Giving employees
responsibility and
authority to make
decisions.
Learning
Organization
A culture of lifelong
learning in which
Employees are continually trying to learn new
things.
24
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
develop interactive games including a simulation for building the perfect hamburger. Hands-on employee-driven learning is supported by managers observing employees and providing coaching and feedback to help them develop new
skills and reinforce their use in the workplace.
Social collaboration and social networking technology are also contributing to
the development of a learning organization.53 CareSource uses Wikis, websites
with content created by users, and discussion boards to encourage employees
to engage in critical thinking and learn from each other by sharing ideas about
how to apply skills that they have acquired in formal training programs. Coldwell Banker encourages its real estate professionals to develop and share videos
of best sales techniques using the company’s video portal. Coldwell Banker also
uses communities of practice to encourage employees to share best practices
and provide insights on how to best approach specific types of job assignments.
inVentiv Health Inc. uses tools on Facebook to help sales employees share information and update lessons learned.
Change
The adoption of a new
idea or behavior by a
company.
Need to Adapt to Change Change refers to the adoption of a new idea or behavior by a company. Technological advances, changes in the workforce or government regulations, globalization, and new competitors are among the many
factors that require companies to change. Change is inevitable in companies as
products, companies, and entire industries experience shorter life cycles.54 This
has played a major role in reshaping the employment relationship.55 New or
emergent business strategies that result from these changes cause companies to
merge, acquire new companies, grow, and in some cases downsize and restructure. This has resulted in changes in the employment relationship. Companies
demand excellent customer service and high productivity levels. Employees are
expected to take more responsibility for their own careers, from seeking training to balancing work and family. In exchange for top performance and working longer hours without job security, employees want companies to provide
flexible work schedules, comfortable working conditions, more autonomy in
accomplishing work, training and development opportunities, and financial
incentives based on how the company performs. Employees realize that companies cannot provide employment security, so they want employability—that is,
they want their company to provide training and job experiences to help ensure
that employees can find other employment opportunities. The human resource
management challenge is how to build a committed, productive workforce in
economic conditions that offer opportunity for financial success but can also
quickly turn sour, making every employee expendable.
Consider how the CEO of Extended Stay America is trying to facilitate change
to benefit the business.56 At Extended Stay America, the hotel chain, many
employees were fearful and stuck in survival mode after the company emerged
from bankruptcy. They avoided decisions that might cost the company money
such as repairing properties or giving an unhappy guest a free night’s stay. To
change this culture, Jim Donald, the new CEO, created “Get out of jail, free”
cards and is handing them out to employees. Employees can use the card when
they take a large risk on behalf of the company. This encourages employees
to take risks in hopes that they will generate new ideas that lead to business
growth and innovations. For example, one manager turned in her card after she
cold-called a movie production company that was filming in the local area. They
ended up booking $250,000 worth of business at the hotel!
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 25
Concerns with Employee Engagement. Employee engagement refers to the
degree to which employees are fully involved in their work and the strength of
their commitment to their job and the company.57 Employees who are engaged
in their work and committed to the company they work for give companies
competitive advantage including higher productivity, better customer service,
and lower turnover.58 What is the state of employee engagement in U.S. companies? One survey of 32,000 employees found that 63% of workers are not fully
engaged.59 Forty-three percent reported that managers failed to remove performance obstacles and only 26% believe that managers involve them in decisions
that affect them.
Many companies still trying to recover from the recession have not given
much attention to employee engagement in recent years, but some survey
results suggest that less than one-third of employees considered themselves as
engaged. Still, some companies have managed to sustain and improve engagement levels during the recession by systematically gathering feedback from
employees, analyzing their responses, and implementing changes. In these companies engagement measures are considered as important as customer service
or financial data. For example, at Pitney Bowes, about 80% of its employees
complete the survey each year, which gives them a chance to share their feelings
and perceptions and help the company address problems.60 The survey is also
used to determine if the company is doing enough to help employees reach their
career goals. Based on survey results the company is trying out a program that
is designed to help managers improve their skills in listening, change management, and problem solving. Pitney-Bowes managers are held accountable for
helping employees with their careers and this program insures they have the
skills necessary for success.
Perhaps the best way to understand engagement is to consider how companies
measure employee engagement. Companies measure employees’ engagement
levels with attitude or opinion surveys (we discuss these in detail in Chapter 10).
Although the types of questions asked on these surveys vary from company to
company, research suggests the questions generally measure 10 common themes
shown in Table 1.7. As you probably realize after reviewing the themes shown in
Table 1.7, employees’ engagement is influenced by how managers treat employees as well as human resource practices such as recruiting, selection, training and
Employee
Engagement
The degree to which
employees are fully
involved in their work
and the strength of
their job and company
commitment.
Table 1.7
Pride in employer
Satisfaction with employer
Satisfaction with the job
Opportunity to perform challenging work
Recognition and positive feedback from contributions
Personal support from manager
Effort above and beyond the minimum
Understanding the link between one’s job and the company’s mission
Prospects for future growth with the company
Intention to stay with the company
SOURCE: Based on R. Vance, Employee Engagement and Commitment (Alexandria, VA: Society for Human
Resource Management, 2006).
Common Themes
of Employee
Engagement
26
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
development, performance management, work design, and compensation. For
example, companies should recruit and select employees who are able to perform the job, are willing to work toward achieving the company strategy, and
will react favorably to the work environment. Performance management systems
need to provide employees with opportunities to receive performance feedback
and recognition for their accomplishments. Compensation including incentives,
benefits, and nonfinancial perks such as on-site day care or travel discounts contribute to employee engagement. Training and development gives employees the
opportunity for personal growth within the company. Work that is designed to be
meaningful and allows employees to use a variety of their skills relates to several
different aspects of engagement including satisfaction, intention to stay, pride,
and opportunity to perform challenging work.
Talent Management
A systematic planned
strategic effort by a
company to attract,
retain, develop,
and motivate highly
skilled employees
and managers.
Talent Management. Talent management refers to the systematic planned
strategic effort by a company to use bundles of human resource management
practices including acquiring and assessing employees, learning and development, performance management, and compensation to attract, retain, develop,
and motivate highly skilled employees and managers. This means recognizing
that all HR practices are inter-related, aligned with business needs, and help the
organization manage talent to meet business goals. For example, at Qualcomm,
a San Diego company, talent management is organized around core values that
emphasize recruiting smart, motivated employees and creating a work environment that allows them to innovate, execute, partner, and lead.61 When Qualcomm wanted to introduce technology for its performance management process
human resources generalists worked together with organizational development
and information technology specialists to ensure that what employees were
being evaluated on (performance management) and what employees were paid
and rewarded for (compensation and rewards) were aligned. HR trained managers to use the performance management system and now focus on identifying
employee skills gaps to identify opportunities to improve performance.
Survey results suggest that opportunities for career growth, learning, and
development and performing exciting and challenging work are some of the
most important factors in determining employees’ engagement and commitment to their current employer.62 As the economy improves, high-achieving
employees may be looking to leave companies if they do not feel they have
adequate opportunities to develop or move to positions in which they can best
utilize their skills. WD-40 has been changing its talent management strategy to
create a culture that allows all employees to capitalize on their talent. WD-40
has a learning culture which includes supporting any employee who wants
to be a leader.63 Employees can participate in a Leadership Academy which
also requires them to teach classes and coach other employees for two years.
Employees can also participate in its Leaders Coaching Leaders program. In this
program employees are matched with another employee who has the expertise
in their area of interest. In the company’s The Food 4 Thought training series
managers discuss workplace issues based on a scenario they are given to review.
Managers learn from each other by discussing and evaluating the scenario and
agreeing on how to best handle it. All employees have access to the same coach
used by the company CEO. If the coach notices employees reaching out to him
for the same reasons he provides this information to human resources so they
can create a course to address the issue or provide useful guidance.
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 27
Use of Alternative Work Arrangements. Alternative work arrangements include
independent contractors, on-call workers, temporary workers, and contract company workers. The Bureau of Labor Statistics estimates that alternative work
arrangements make up 11% of total employment.64 There are 10.3 million independent contractors, 2.5 million on-call workers, 1.2 million temporary help
agency workers, and approximately 813,000 workers employed by contract
firms. Contingent workers, or workers who do not expect their jobs to last or
who believe their jobs are temporary, account for approximately 2 to 4% of total
employment. Companies that provide temporary employees, such as Manpower,
Kelly Services, and Adecco are reporting high demand for their services.65 One
of the reasons for the growth of the use of contingent workers is because companies are adding temporary workers as the economy begins to improve but are
delaying adding new permanent employees until economic growth is more stable
and certain. Also, companies want to avoid going through the painful layoffs that
occurred during the recession.
More workers in alternative employment relationships are choosing these
arrangements. Alternative work arrangements can benefit both individuals and
employers. More and more individuals don’t want to be attached to any one company. They want the flexibility to work when and where they choose. They may
want to work fewer hours to effectively balance work and family responsibilities. Also, individuals who have been downsized may choose alternative work
arrangements while they are seeking full-time employment. From the company
perspective, it is easier to add temporary employees when they are needed and
easier to terminate their employment when they are not needed. Part-time workers can be a valuable source of skills that current employees may not have and
are needed for a specific project that has a set completion date. Part-time workers
can be less expensive than permanent employees because they do not receive
employer health benefits or participate in pension plans. Employing part-time
workers such as interns allows the company to determine if the worker meets
performance requirements and fits in with the company culture, and if so, to offer
the employee a permanent position. For example, Verigy, a semiconductor manufacturer in California, employs only a small number of permanent employees
and nonessential jobs are outsourced. When demand for its products increases,
engineers and other high-tech employees are hired through staffing companies
or as independent contractors.66 Alternative work arrangements have potential
disadvantages. These include concerns about work quality, inability to maintain
the company culture or team environment, and legal liability.67
Demanding Work, but with More Flexibility. The globalization of the world
economy and the development of e-commerce have made the notion of a
40-hour work week obsolete. As a result, companies need to be staffed 24 hours
a day, seven days a week. Employees in manufacturing environments and service call centers are being asked to move from 8- to 12-hour days or to work
afternoon or midnight shifts. Similarly, professional employees face long hours
and and work demands that spill over into their personal lives. Personal digital
assistants (PDAs), pagers, and iPhones bombard employees with information
and work demands. In the car, on vacation, on planes, and even in the bathroom, employees can be interrupted by work demands. More demanding work
results in greater employee stress, less satisfied employees, loss of productivity,
and higher turnover—all of which are costly for companies.
Alternative Work
Arrangements
Independent contractors, on-call workers,
temporary workers,
and contract company
workers who are not
employed full-time by
the company.
28
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
One study found that because of work demands 75% of employees report
having not enough time for their children, and 61% report not having enough
time for their husbands and wives. However, only half of employees in the
United States strongly agree that they have the flexibility they need to successfully manage their work and personal or family lives.68 Many companies are recognizing the benefits that can be gained by both the company and
employees through providing flexible work schedules, allowing work-at-home
arrangements, protecting employees’ free time, and more productively using
employees’ work time.69 The benefits include the ability to have an advantage in attracting and retaining talented employees, reduced stress resulting
in healthier employees, and a rested workforce that can maximize the use of
their skills. Approximately 9.5% or 13.4 million U.S. employees are working at
home at least one day a week.70 One in four home-based employees are in management, business, and finance, and half are self-employed. AmerisureMutual
Insurance in Farmington Hills, Michigan, built a work environment and provides flexible programs designed to increase employee retention and engagement.71 A new computer system makes it easier for employees to work at home
by giving them access to work files using their home computers. Employees
meet with their managers to discuss the feasibility of working off-site and how
their performance will be evaluated. Amerisure also allows employees to take
days off each year for volunteer work, and provides five paid days each year
for family commitments related to medical care such as ill grandparents and
immediate family members. The company’s turnover rate has dropped from
18% to 10% and employee engagement survey scores have increased. Fenwick
& West LLP, a law firm in San Francisco, California, with 245 employees has created special positions known as “workflow coordinators” and “balanced hour
advisors” who regularly review attorney’s hours to ensure that employees on
reduced assignments are not overworked or overlooked for key assignments.
KPMG uses Wellness Scorecards to determine if consultants are working too
much overtime or skipping vacations. Employees at Salesforce.com Inc. can
work from home and use Chatter, a Facebook-type application, to coordinate
projects.72 Managers can monitor whether employees working at home have
answered questions and finished reports.
The use of alternative work arrangements and work-at-home has resulted in
the development of co-working sites where diverse workers such as designers,
artists, freelancers, consultants, and other independent contractors pay a daily
or monthly fee for a guaranteed work space.73 The co-working site is equipped
with desks and wireless Internet and some provide access to copy machines,
faxes, and conference rooms. Co-working sites help facilitate independent contractors and, employees working at home, traveling, or telecommuting, who
have feelings of isolation, and give them the ability to collaborate and interact,
provide a more professional working atmosphere than coffee shops, and help
decrease traffic and pollution.
Meeting the Needs of Stakeholders, Shareholders,
Customers, Employees, and Community
As we mentioned earlier, company effectiveness and competitiveness are
determined by whether the company satisfies the needs of stakeholders.
Stakeholders include stockholders (who want a return on their investment),
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 29
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.
Measuring Performance to Stakeholders: The Balanced Scorecard. The balanced
scorecard gives managers an indication of the performance of a company based
on the degree to which stakeholder needs are satisfied; it depicts the company from the perspective of internal and external customers, employees,
and shareholders.74 The balanced scorecard is important because it brings
together most of the features that a company needs to focus on to be competitive. These include being customer-focused, improving quality, emphasizing
teamwork, reducing new product and service development times, and managing for the long term.
The balanced scorecard differs from traditional measures of company performance by emphasizing that the critical indicators chosen are based on the
company’s business strategy and competitive demands. Companies need to
customize their balanced scorecards based on different market situations, products, and competitive environments.
The balanced scorecard should be used to (1) link human resource management activities to the company’s business strategy and (2) evaluate the
extent to which the HRM function is helping the company meet its strategic objectives. Communicating the scorecard to employees gives them a
framework that helps them see the goals and strategies of the company, how
these goals and strategies are measured, and how they influence the critical indicators. Measures of HRM practices primarily relate to productivity,
people, and process.75 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. To show that
HRM activities contribute to a company’s competitive advantage, managers
need to consider the questions shown in Table 1.8 and be able to identify critical indicators or metrics related to human resources. As shown in the last column of Table 1.8, critical indicators of HR practices primarily relate to people,
productivity, and processes.
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.76 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. Some physicians employed by OhioHealth, a hospital system, receive
up to 10% of their pay based on a balanced scorecard consisting of quality,
service, financial performance, and employee engagement. 77
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.
LO 1-3
Discuss how human
resource management
affects a company’s
balanced scorecard.
30
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
Table 1.8
The Balanced Scorecard
QUESTIONS
ANSWERED
EXAMPLES OF CRITICAL
BUSINESS INDICATORS
EXAMPLES OF CRITICAL HR
INDICATORS
Customer
How do customers
see us?
Time, quality, performance,
service, cost
Internal
What must we
excel at?
Innovation
and learning
Can we continue
to improve and
create value?
Financial
How do we look to
shareholders?
Processes that influence customer
satisfaction, availability of information on service and/or manufacturing processes
Improve operating efficiency,
launch new products, continuous
improvement, empowering of
workforce, employee satisfaction
Profitability, growth, shareholder
value
Employee satisfaction with HR
department services
Employee perceptions of the
company as an employer
Training costs per employee,
turnover rates, time to fill
open positions
PERSPECTIVE
Employee/skills competency
levels, engagement survey
results, change management
capability
Compensation and benefits
per employee, turnover costs,
profits per employee, revenues per employee
SOURCE: Based on B. Becker, M. Huselid, and D. Ulrich, The HR Scorecard: Linking People, Strategy, and Performance (Boston: Harvard Business
School Press, 2001).
EVIDENCE-BASED HR
Caesars Entertainment is trying to understand how employees use health care in
order to reduce costs yet provide effective treatment options for its employees.78
Caesars analyzes employees and their family members’ health insurance claim
data. The data includes how employees use medical services such as emergency
room visits and whether they choose generic or brand name drugs. Analysis of
the insurance claim data identified locations where employees tended to use
more expensive emergency room visits rather than relying on less expensive
and as effective urgent care facilities. HR communicated a reminder to employees of the high cost of emergency room services and provided a list of alternative urgent care facilities. Since Caesars began tracking and analyzing the data
the company has saved over $4 million by shifting employees with emergencies
to urgent care services!
Social Responsibility. Increasingly, companies are recognizing that social
responsibility can help boost a company’s image with customers, gain access
to new markets, and help attract and retain talented employees. Companies thus try to meet shareholder and general public demands that they be
more socially, ethically, and environmentally responsible. For example, Bill
Gates, former chief executive officer and Microsoft Corporation founder,
through personal involvement in a charitable foundation dedicated to bringing science and technology to improve lives around the world, has improved
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 31
Microsoft’s corporate reputation. Coke is applying its product development
expertise along with its supply chain and distribution network to make
essential nutrition accessible to people in need.79 Coke offers a ready-to-drink
fortified juice product, Nursha, that addresses micronutrient deficiencies in
schoolchildren in Colombia and Ghana under the global trademark name
Nurisha. Coke is also working to economically empower women. In the Philippines, women own or operate more than 86% of the small neighborhood
stores that sell Coke products. Companies are realizing that helping to protect the planet can also save money.80 International Paper, a global paper and
packaging company, has focused on using less water and energy at its manufacturing operations. International Paper cut fossil fuel purchases by 21% by
burning tree limbs and debris from tree processing. PepsiCo is introducing
use of all-electric trucks in several places including California and Texas. The
trucks will cut PepsiCo’s diesel consumption by 500,000 gallons per year, significantly reduce annual maintenance costs, and help preserve the climate by
reducing greenhouse gas emissions.
The “Competing through Sustainability” box highlights the sustainable business practices of several companies.
Customer Service and Quality Emphasis
Companies’ customers judge quality and performance. As a result, customer
excellence requires attention to product and service features as well as to interactions with customers. Customer-driven excellence includes understanding
what the customer wants and anticipating future needs. Customer-driven excellence includes reducing defects and errors, meeting specifications, and reducing
complaints. How the company recovers from defects and errors is also important for retaining and attracting customers.
Due to increased availability of knowledge and competition, consumers are
very knowledgeable and expect excellent service. This presents a challenge for
employees who interact with customers. The way in which clerks, sales staff,
front-desk personnel, and service providers interact with customers influences
a company’s reputation and financial performance. Employees need product
knowledge and service skills, and they need to be clear about the types of decisions they can make when dealing with customers.
To compete in today’s economy, whether on a local or global level, companies
need to provide a quality product or service. If companies do not adhere to quality
standards, their ability to sell their product or service to vendors, suppliers, or customers will be restricted. Some countries even have quality standards that companies must meet to conduct business there. Total quality management (TQM) is
a companywide effort to continuously improve the ways people, machines, and
systems accomplish work.81 Core values of TQM include the following:82
• Methods and processes are designed to meet the needs of internal and external customers.
• Every employee in the company receives training in quality.
• Quality is designed into a product or service so that errors are prevented from
occurring rather than being detected and corrected.
• The company promotes cooperation with vendors, suppliers, and customers
to improve quality and hold down costs.
• Managers measure progress with feedback based on data.
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.
COMPETING THROUGH SUSTAINABILITY
Volunteerism and Going Green Are Reaping Dividends
for Employees, Communities, and the Environment
A growing number of companies have made sustainability
an important part of their business strategy. General Electric’s health care unit identified
maternal and infant mortality
as frequent causes of death in
India. For example, the infant
mortality rate for India, a country with 1.2 billion people is 55
children for every 1,000 births.
GE worked with nonprofit
organizations and hospitals to
understand patient and health
care needs. As a result, GE
identified opportunities to help
as well as gain a potential market for new products. About
700 million people can’t afford
maternal or birth services. Also,
to bring to market a product
required overcoming several
obstacles including power
outages, a lack of money and
space in hospitals for large,
costly equipment, high levels
of dust and pollution, and difficulty of getting replacement
parts through government
bureaucracy. GE developed a
baby warmer, called the Lullaby,
which provides heat for cradles.
The Lullaby is targeted to help
people and communities with
few financial assets. The Lullaby is easy to use: it uses only
buttons with pictures indicating
their function.
At General Mills, volunteerism is one of the ways that
the company lives its corporate
32
values. The CEO and senior
leaders serve on nonprofit
boards and are involved in the
community.
For example, employee volunteers are helping improve the
efficiency of a plant in Malawi
which produces a high-nutrient
peanut butter paste that is distributed to malnourished children across the country. Malawi
has 13 million people, most are
farm families living in poverty.
Pharmaceutical company
Novartis supports REPSSI, an
African-based philanthropic
organization that provides
emotional and psychological
support for children who lose
their parents or guardians to
AIDS. The program began in
a single district in Tanzania
and has expanded to 13 subSaharan African countries. The
company’s trainers provide
REPSSI’s employees with leadership development training.
REPSSI managers need training
in communication skills, providing feedback, intercultural
skills, and project management.
Novartis transformed its corporate training programs into
a form useful for REPSSI. The
training content is delivered
through instructor-led courses
and e-learning. Novartis and
training vendor partners, including business schools, send
speakers at their own expense
to Africa. Instructors are also
available for followup after each course is
completed.
Gilbane Building Company,
a construction business headquartered in Rhode Island,
has a strong commitment to
sustainability. Gilbane’s High
Performance Building Program
is a service offered to clients to
assist them with the development and implementation of
energy efficiency and sustainability goals in a project. Using
building practices in which construction wastes fewer materials
and uses less energy helps to
protect the environment as well
as providing customers with
available tax breaks for building “green” and lower heating
and cooling costs. As a result,
Gilbane can be both socially
responsible and profitable.
DISCUSSION QUESTION
How do companies sustainability
efforts help a company attract,
retain, and develop employees?
Explain your answer.
SOURCES: Based on M. Weinstein,
“Charity Begins @ Work,” Training, May 2008,
pp. 56–58; M. Laff, “Triple Bottom Line,”
T 1 D, February 2009, pp. 34–39; M. Bahree,
“GE Remodels Business in India,” The Wall
Street Journal, April 26, 2011, p. B8; Welcome to Citizenship@Novartis from www
.corporatecitizenship.novartis.com, April 26,
2011; General Mills Corporate Social Responsibility Report 2011, from www.generalmills
.com, accessed April 26, 2011; “Commitment
to Sustainability,” from www.gilbaneco.com,
accessed March 22, 2013.
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 33
One way that companies can improve the quality of their products or services is through competing for the Malcolm Baldrige National Quality Award
or gaining certification in the ISO 9000:2000 standards. The Baldrige award, created by public law, is the highest level of national recognition for quality that a
U.S. company can receive. To become eligible for the Baldrige, a company must
complete a detailed application that consists of basic information about the firm
as well as an in-depth presentation of how it addresses specific criteria related to
quality improvement.83 The categories and point values for the Baldrige Award
are found in Table 1.9. The award is not given for specific products or services.
Organizations can compete for the Baldrige Award in one of several different
categories, including: manufacturing, service, small business, education, health
care and non-profit. The Baldrige Award is given annually in each of the categories with a total limit each year of 18 awards. All applicants for the Baldrige Award undergo a rigorous examination process that takes from 300 to 1,000
hours. Applications are reviewed by an independent board of about 400 examiners who come primarily from the private sector. One of the major benefits of
applying for the Baldrige Award is the feedback report from the examining team
noting the company’s strengths and areas for improvement.84
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.
ISO 9000:2000
Quality standards
adopted worldwide.
Table 1.9
Leadership
The way senior executives create and sustain vision, values, and mission;
promote legal and ethical behavior; create a sustainable company and
communicate with and engage the workforce.
Measurement, Analysis, and Knowledge Management
The way the company selects, gathers, analyzes, uses, manages, and
improves its data, information, and knowledge assets
Strategic Planning
The way the company sets strategic direction, how it determines action
plans, how it changes strategy and action plans if required, and how it
measures progress
Workforce Focus
Company’s efforts to develop and utilize the workforce to achieve high
performance; how the company engages, manages, and develops the
potential of the workforce in alignment with company goals
Operations Focus
Design, management, and improvement of work systems and work
processes to deliver customer value and achieve company success and
sustainability
Results
Company’s performance and improvement in key business areas (product, service, and supply quality; productivity; operational effectiveness
and related financial indicators; environmental, legal, and regulatory
compliance); ethically and socially responsible
Customer Focus
Company’s knowledge of the customer, customer service systems,
current and potential customer concerns, customer satisfaction and
engagement
Total Points
120
90
85
85
85
450
85
1,000
SOURCE: Based on “2013–2014 Criteria for Performance Excellence” from the website for the National Institute of
Standards and Technology, www.nist.gov/baldrige.
Categories and
Point Values for the
Malcolm Baldrige
National Quality
Award Examination
34
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
The Baldrige Award winners usually excel at human resource practices.
For example, consider Lockheed Martin Missiles and Fire Control (MFC), a
2013 award recipient.85 MFC designs, develops, manufactures, and supports
advanced combat, missile, rocket, and sensor systems for the U.S. and also
foreign militaries. The company’s workforce of over 10,000 employees produces and delivers products through contracts in more than 60 countries. MFC
is headquartered in the Dallas, Texas, area with another facility in Orlando,
Florida. From financial, productivity, and quality perspectives MFC is impressive. MFC has attained a leading market share and sustained growth over the
past four years in each of its lines of business. Time reductions as a result of
process and performance improvement programs have occurred in all lines
of MFC’s businesses, yielding an estimated saving of $225 million annually.
Return on investment has grown at a 23 percent compound annual rate, faster
than the industry-best competitor at 13.7 percent. From 2006 to 2011, annual
orders from repeat customers have increased by 32 percent and international
orders have increased by almost 400 percent. MFC’s HR practices support its
quest for quality. To ensure ethical behavior at every site, all MFC employees
receive annual ethics awareness training. Results from employee surveys show
that MFC employees believe they are prepared to handle situations that might
violate MFC’s standards of ethical conduct. MFC organizes its workforce in
a matrix structure to accomplish its goals and meet the changing needs of its
customers. Throughout each product’s life cycle, cross-functional teams plan,
design, develop, produce, and support the product. MFC’s performance evaluation system for top company managers is based on objectives, goals, and metrics that are aligned with the strategic plan. Performance evaluation is weighted
70% on meeting commitments and 30% on behaviors related to the company’s
mission, vision, and values. Approximately 85% of employees said that they
were proud to work for MFC. Employee retention, which MFC considers a
measure of employee engagement, was 94% in 2012. MFC employees have recognized the need to “pay forward” to the communities in which they work and
live. Employees donated more than $11 million over five years to charities in
their local communities.
ISO (International Organization for Standardization), a network of national
standards institutes including 160 countries with a central governing body in
Geneva, Switzerland, is the world’s largest developer and publisher of international standards.86 The ISO develops standards related to management, as well
as a wide variety of other areas including education, music, ships, and even protecting children! ISO standards are voluntary but countries may decide to adopt
ISO standards in their regulations and as a result they may become a requirement
to compete in the market. The ISO 9000 is a family of standards related to quality
(ISO 9000, 9001, 9004, and 10011). The ISO 9000 quality standards address what
the company does to meet regulatory requirements and the customer’s quality
requirements while striving to improve customer satisfaction and continuous
improvement. The standards represent an international consensus on quality
management practices. ISO 9000:2000 has been adopted as the quality standard
in nearly 100 counties around the world meaning that companies have to follow
the standards to conduct business in those countries. The quality management
standards of the ISO 9000 are based on eight quality management principles
including customer focus, leadership, people involvement, a process approach,
a systems approach to management, continuous improvement, using facts to
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 35
make decisions, and establishing mutually beneficial relationships with suppliers. ISO 9001:2008 is the most comprehensive standard because it provides a
set of requirements for a quality management system for all organizations both
private and public. The ISO 9001:2008 has been implemented by over 1 million
organizations in 176 countries. ISO 9004 provides a guide for companies that
want to improve.
Why are standards useful? Customers may want to check that the product
they ordered from a supplier meets the purpose for which it is required. One
of the most efficient ways to do this is when the specifications of the product
have been defined in an International Standard. That way, both supplier and
customer are on the same wavelength, even if they are based in different countries, because they are both using the same references. Many products require
testing for conformance with specifications or compliance with safety or other
regulations before they can be put on many markets. In addition, national legislation may require such testing to be carried out by independent bodies, particularly when the products concerned have health or environmental implications.
One example of an ISO standard is on the back cover of this book and nearly
every other book. On the back cover is something called an ISBN. ISBN stands
for International Standard Book Number. Publishers and booksellers are very
familiar with ISBNs, because they are the method through which books are
ordered and bought. Try buying a book on the Internet, and you will soon learn
the value of the ISBN—there is a unique number for the book you want! And it
is based on an ISO standard.
In addition to competing for quality awards and seeking ISO certification, many companies are using the Six Sigma process and lean thinking. The
Six Sigma process refers to a process of measuring, analyzing, improving, and
then controlling processes once they have been brought within the narrow Six
Sigma quality tolerances or standards. The objective of Six Sigma is to create a
total business focus on serving the customer, that is, to deliver what customers
really want when they want it. For example, at General Electric introducing the
Six Sigma quality initiative meant going from approximately 35,000 defects per
million operations—which is average for most companies, including GE—to
fewer than four defects per million in every element of every process GE businesses perform—from manufacturing a locomotive part to servicing a credit
card account to processing a mortgage application to answering a phone.87
Training is an important component of quality programs because it teaches
employees statistical process control and how to engage in “lean thinking.” For
example, Six Sigma involves highly trained employees known as Champions,
Master Black Belts, Black Belts, and Green Belts who lead and teach teams that
are focusing on an ever-growing number of quality projects. The quality projects
focus on improving efficiency and reducing errors in products and services. The
Six Sigma quality initiative has produced more than $2 billion in benefits for
GE. Lean thinking is a way to do more with less effort, time, equipment, and
space, but still provide customers with what they need and want. Part of lean
thinking includes training workers in new skills or how to apply old skills in
new ways so they can quickly take over new responsibilities or use new skills to
help fill customer orders. In the past three years, Cardinal Fastener & Specialty
Co. Inc.’s sales to wind turbine manufacturers have grown more than 900%.88
The growth of the Cleveland, Ohio, based company started over 10 years ago
when under the leadership of the company’s founder and president, Cardinal
Six Sigma Process
System of measuring,
analyzing, improving,
and controlling processes once they meet
quality standards.
Lean Thinking
A process used to
determine how to use
less effort, time, equipment, and space but
still meet customers’
requirements.
36
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
began using “Lean Thinking,” involving all employees in the process of what
they referred to as “blowing up the company.” The goal was to eliminate waste
from the entire operation including manufacturing, administration, and sales.
As a result, manufacturing lead times went from six weeks to five days, productivity improvement increased 50%, and half of all sales now come from orders
that are manufactured and shipped the same day the order is taken. Because of
the company’s reputation for fast turnaround of specialty manufactured fasteners they received an order for a wind turbine project in Iowa. As a result of lean
thinking, machines were moved so that operators could make a bolt or fastener
complete from start to finish, resulting in a decrease in the time it takes to make
a finished product. Quality is near perfect, and inventory was reduced 54%.
In addition to developing products or providing services that meet customer
needs, one of the most important ways to improve customer satisfaction is to
improve the quality of employees’ work experiences. Research shows that satisfied employees are more likely to provide high-quality customer service. Customers who receive high-quality service are more likely to be repeat customers.
As Table 1.10 shows, companies that are recognized as providing elite customer
service emphasize state-of-the-art human resource practices including rigorous
employee selection, employee loyalty, training, and keeping employees satisfied
by offering generous benefits.
Table 1.10
Examples of HR
Practices That
Enhance Customer
Service
Wegmans
Gives away $59 million in scholarships to 19,000 employees. Senior managers sit
side-by-side with employees listening in on phones in the company’s call center.
Ritz Carlton
Despite having 20 service standards, front-line employees have flexibility to make
customers’ experiences more personal, unusual, and memorable.
Four Seasons Hotels
No employee gets a job before passing four interviews. Each employee receives
a free nights’ stay for himself or herself and a guest, along with free dinner at
employee orientation. The free stay helps employees, most of whom otherwise
could not afford to stay at the hotel, understand what being a customer feels like.
They grade the hotel services such as time for room service to arrive and number of
times a phone rings when calling the front desk.
Cadillac
Performance of repair technicians is carefully monitored to ensure they are not
repeating mistakes in repairs. Dealers who maintain good customer service ratings
based on customer surveys receive cash rewards.
Starbucks
Entry-level baristas get 24 hours of training that prepares them to stay calm and
courteous in busy times.
Publix Super Markets
Employees receive bonuses based on their unit’s performance and share grants as
part of their incentive plans.
Cabela
Job candidates must pass a difficult 150-question test that measures their outdoor
sports expertise.
SOURCE: Based on J. McGregor, “Customer Service Champs,” BusinessWeek, March 5, 2007, pp. 52–64.
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 37
Changing Demographics and Diversity of the Workforce
Company performance on the balanced scorecard is influenced by the characteristics of its labor force. The labor force of current employees is often referred to
as the internal labor force. Employers identify and select new employees from
the external labor market through recruiting and selection. The external labor
market includes persons actively seeking employment. As a result, the skills
and motivation of a company’s internal labor force are influenced by the composition of the available labor market (the external labor market). The skills and
motivation of a company’s internal labor force determine the need for training
and development practices and the effectiveness of the company’s compensation and reward systems.
Important changes in the demographics and diversity of the workforce are
projected. First, the average age of the workforce will increase. Second, the workforce will become more diverse in terms of gender, race, and generations, and
third, immigration will continue to affect the size and diversity of the workforce.
Internal Labor
Force
Labor force of current
employees.
External Labor
Market
Persons outside the
firm who are actively
seeking employment.
Aging of the Workforce. The labor force will continue to age and the number
of workers age 55 and older will grow from 19 to 25% by 2020. This is slightly
over two times the size of the 55 and older workforce in 1990.89 Figure 1.5 compares the projected distribution of the age of the workforce in 2010 and 2020.
The labor force participation of those 55 years and older is expected to grow
because older individuals are leading healthier and longer lives than in the past,
providing the opportunity to work more years; the high cost of health insurance and decrease in health benefits causes many employees to keep working
to keep their employer-based insurance or to return to work after retirement to
obtain health insurance through their employer; and the trend toward pension
plans based on individuals’ contributions to them rather than years of service
provides an incentive for older employees to continue working. The aging labor
force means companies are likely to employ a growing share of older workers—
many in their second or third career. Older people want to work and many say
they plan a working retirement. Despite myths to the contrary, worker performance and learning are not adversely affected by aging.90 Older employees are
willing and able to learn new technology. An emerging trend is for qualified
older workers to ask to work part-time or for only a few months at a time as
a means to transition to retirement. Employees and companies are redefining
the meaning of retirement to include second careers as well as part-time and
Figure 1.5
11%
67%
14%
64%
25%
19%
2010
16 to 24 years old
25 to 54 years old
55 years and older
2020
SOURCE: Based on M. Toossi, “Labor Force Projections to 2020: A More Slowly Growing Workforce,” Monthly
Labor Review, January 2012, pp. 43–64.
Comparison of the
Age Distribution of
the 2010 and 2020
Labor Force
38
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
temporary work assignments. An aging workforce means that employers will
increasingly face HRM issues such as career plateauing, retirement planning,
and retraining older workers to avoid skill obsolescence. Companies will struggle with how to control the rising costs of benefits and health care. Companies
face competing challenges with older workers. Companies will have to ensure
that older workers are not discriminated against in hiring, training, and workforce reduction decisions. At the same time companies will want to encourage
retirement and make it financially and psychologically acceptable.
Many companies are offering special programs to capitalize on older employees’ skills and accommodate their needs.91 CVS/pharmacy has stores in every
climate and region in the U.S. CVS created its Snowbirds Program to allow older
employees to move among locations according to their preferences. This is especially important for older employees who spend winters in the southern states
and summer in the northern states. Over 1,000 employees including retail clerks,
pharmacists, and managers have participated in the program.
As many older workers leave the workforce permanently or decide to work
part-time, another challenge companies face is how to capture their unique
knowledge and expertise so it can be used and shared with remaining employees. Recognizing that many talented employees would soon be retiring and their
knowledge would be lost or forgotten, LyondellBasell, a polymer manufacturer
located in Clinton, Iowa, asked key employees to record what they had learned
during their tenure, especially knowledge that they knew was not already documented. Employees were interviewed to better understand difficult tasks that
lacked well-documented procedures. For example, an interview with a chemical
specialist revealed that when a chemical reaches a specific fluidity and color it is
ready to use. That part of the interview was taped so that future employees would
have a reference to the correct color of the solution.92 Special People in Northeast,
Inc. (SPIN), a nonprofit that provides services for persons with disabilities, uses
“electronic how-to” manuals and flowcharts provided by key employees to ensure
that current practices and procedures are available to employees with less experience who are succeeding expert employees who are leaving the organization.93
Generational Differences. Because employees are working longer the workforce now has five generations, each one with unique characteristics and characteristics similar to the others. In Table 1.11 the year born, nicknames, and ages
of each generation are shown. Consider some of the attributes that are believed
to characterize each generation.94 For example, Millennials grew up with access
to computers at home and school and access to the Internet. They grew up with
diversity in their schools and were coached, praised, and encouraged for participation rather than accomplishment by their Baby Boomer parents. Millennials are characterized as being optimistic, willing to work and learn, eager to
please, technology literate, globally aware and as valuing diversity. They are
also believed to have high levels of self-esteem and narcissism. Generation Xers
grew up during a time when the divorce rate doubled, the number of women
working outside the home increased, and the personal computer was invented.
They were often left to their own after school (latchkey kids). They value skepticism, informality, practicality, seek work/life balance, and dislike close supervision. They tend to be impatient and cynical. They have experienced change all
of their lives (in terms of parents, homes, and cities). Baby Boomers, the “Me”
generation, marched against the “establishment” for equal rights and an end to
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 39
YEAR BORN
GENERATION
AGES
1925–45
Traditionalists
Silent Generation
Baby Boomers
Generation X
Millennials
Generation Y
Echo Boomers
Generation Z
Digital Natives
68–88
1946–64
1965–80
1981–95
1996
49–67
33–48
18–32
<18
the Vietnam War. They value social conscientiousness and independence. They
are competitive, hard working, and concerned with the fair treatment of all
employees. They are often considered to be workaholics and rigid in conforming to rules. Traditionalists grew up during the Great Depression and lived during World War II. They tend to value frugality, are patriotic and loyal, adhere to
rules, are loyal to employers, and take responsibility and sacrifice for the good
of the company.
Members of each generation may have misperceptions of each other causing
tensions and misunderstanding in the workplace.95 For example, Millennials may
think Generation X managers are bitter, jaded, abrasive, uninterested in them,
and poor delegators. In turn, their Generation X managers consider Millennials
too needy for attention, demanding, and overly self-confident. Millennials might
believe that Baby Boomers are too rigid and follow company rules too closely.
They believe employees in the older generations have been too slow in adopting
social media tools and overvalue tenure rather than knowledge and performance.
Traditionalists and Baby Boomers believe that Millennials don’t have a strong
work ethic because they are too concerned with work-life balance. Also, members
of the younger generations may resent Baby Boomers and Traditionalists who are
working longer before retiring, blocking promotions and career moves.
It is important to note that although generational differences likely exist,
members of the same generation are no more alike than members of the same
gender or race. This means that you should be cautious in attributing differences in employee behaviors and attitudes to generational differences or expecting all employees of a generation to have similar values. Research suggests that
the generations of employees have similarities as well as differences.96 Although
differences in work ethic have been found among Baby Boomers, Generation
Xers, and Millennials, Millennial employees are more similar than different
from other generations in their work beliefs, job values, and gender beliefs.
Most employees view work as a means to more fully use their skills and abilities, meet their interests, and allow them to live a desirable lifestyle. They also
value work-life balance, meaning flexible work policies are necessary to allow
them to choose where and when work is performed.
Gender and Racial Composition of the Workforce As Figure 1.6 shows, by
2020 the workforce is expected to be 79% white, 12% African American, 6%
Asian, and 3% other groups, which includes individuals of multiple racial origin, American Indian, Alaskan Native or Native Hawaiian, and other Pacific
Table 1.11
Generations in the
Workforce
40
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
Figure 1.6
The U.S. Workforce,
2020
79%
6%
3%
White
African American
Asian
Other groups
12%
SOURCE: Based on M. Toossi, “Labor Force Projections to 2020: A More Slowly Growing Workforce,” Monthly
Labor Review, January 2012, pp. 43–64.
Islanders.97 The diversity of the workforce is expected to increase by 2020. As
a result of different fertility rates and differences in immigration patterns, race
and ethnic groups will show different trends in labor force growth. Between
2008 and 2018 the projected annual growth rates for Hispanics (3.0%) and
Asians (2.7%) are higher for African Americans and other groups.
Many U.S. industries, including meatpacking, construction, farming, and
service, rely on immigrants from Mexico and other countries to perform
short-term or labor-intensive jobs. Immigration contributes to the diversity of
the U.S. population and workforce. One estimate is that there are 40 million
immigrants in the U.S. (13% of the population). The labor force includes 16%
of immigrants who have been granted status to work in the U.S. as well as
5% or 8 million who are unauthorized.98 U.S. immigrants come from countries around the world but most come from Asia, the Americas, and Central
America. Although a common belief is that immigrants have few skills, the
percentage of highly skilled immigrants now exceeds the percentage of low–
skilled immigrants. While the U.S. government is debating how to deal with
illegal immigration, many companies would face a labor crisis if they were
forced to terminate employment of illegal immigrants, many of whom have
lived and worked in the United States for years but lack the work authorizations and visas needed to work legally in this country. For example, an oysterprocessing operation in Maryland brings in workers from Mexico to perform
the dirty and smelly work needed to shuck oysters from October to February.
The family-owned business has tried to hire U.S. workers but so far has had
little success although the typical worker makes $12 per hour.99 Many business
owners believe the annual cap on visas is too low because they cannot find
enough employees to fill their jobs.
The implications of the changing labor market for managing human
resources are far-reaching. Managing diversity involves many different activities, including creating an organizational culture that values diversity, ensuring that HRM systems are bias-free, facilitating higher career involvement of
women, promoting knowledge and acceptance of cultural differences, ensuring involvement in education both within and outside the company, and
dealing with employees’ resistance to diversity.100 Table 1.12 presents ways
that managing cultural diversity can provide a competitive advantage. How
diversity issues are managed has implications for creativity, problem solving,
retaining good employees, and developing markets for the firm’s products
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 41
Table 1.12
1. Cost argument
2. Employee
attraction
and retention
argument
3. Marketing
argument
4. Creativity
argument
5. Problem-solving
argument
6. System flexibility
argument
As organizations become more diverse, the cost of a poor job
in integrating workers will increase. Those who handle this
well will thus create cost advantages over those who don’t.
Companies develop reputations on favorability as prospective employers for women and ethnic minorities. Those with
the best reputations for managing diversity will win the competition for talent. As the labor pool shrinks and changes
composition, this edge will become increasingly important.
The insight and cultural sensitivity that diverse employees
bring to the marketing effort should help the company enter
new markets and develop products and services for diverse
populations.
Diversity of perspectives and less emphasis on conformity to
norms of the past improves the level of creativity.
Heterogeneity in decisions and problem-solving groups
potentially produces better decisions through a wider range
of perspectives and more thorough critical analysis of issues.
Greater flexibility to react to changes in customer preferences
and tastes (i.e., reactions should be faster and cost less).
SOURCES: Academy of Management Executive, by T. H. Cox and S. Blake, 1991; N. Lockwood, Workplace Diversity: Leveraging the Power of Difference for Competitive Advantage (Alexandria, VA: Society for Human Resource
Management, 2005).
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.
5. Recognizing and responding to generational issues.101
Diversity is important for tapping all employees’ creative, cultural, and communication skills and using those skills to provide competitive advantage as
shown in Table 1.12. For example, the Latino Employee Network at Frito-Lay
played a key role during the development of Doritos Guacamole Flavored Tortilla Chips.102 The chips generated more than $500 million in sales during their
first year, making this one of the most successful product launches in the company’s history. Network members provided feedback on the taste and packaging
to ensure that the product would be seen as authentic in the Latino community. Disabled workers can also be a source of competitive advantage. Wiscraft
Inc., a Milwaukee company, contracts with companies such as Briggs & Stratton
Corporation and Harley-Davidson to do assembly, packaging, and machining
work.103 At least 75 percent of Wiscraft’s employees are legally blind. But the
company is not a charity. It competes with other companies for contracts. It
How Managing
Cultural Diversity
Can Provide
Competitive
Advantage
42
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
receives no subsidies from local, state, or federal governments. Employees have
to rely on public transportation or friends or relatives to get to work. Kathy Walters said she could have worked at another company but chose Wiscraft because
of its supportive culture. Walters, who is legally blind, believes she would have
had trouble finding a job that offered health benefits and paid as well as her job
at Wiscraft. The company has received ISO 9001:2000 certification, evidence that
it provides high-quality work and can compete internationally.
To make sure employees understand generational differences and how to
connect and communicate with employees from different generations, Aflac,
the insurance provider, offers a training program called “Connecting Generations.”104 Aflac believes that employees in all age groups will be more effective
if they understand how members of each generation approach their jobs. The
program reviews the characteristics of each generation represented in the workplace. It also describes the effects of family and world events on each generation,
analyzes their work styles and employment characteristics, and helps show connections to bridge generation gaps.
The bottom line is that to gain a competitive advantage, 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.
Legal Issues
There will likely be development and debate of new employment laws and regulations, as well as increased emphasis on enforcing specific aspects of current
laws and regulations.105 An emphasis on eliminating discrimination in recruitment and hiring will continue. The focus will likely be on pre-employment tests,
criminal background screening, and online searches that might reveal the age of
job applicants. Also, greater attention will be given to eliminating discrimination based on disability, pay rates, job category, and harassment. There are likely
to be more challenges of sex and race discrimination because of lack of access
to training and development opportunities that are needed for promotions to
better paying jobs or higher level management positions. Eliminating discrimination against veterans and people with disabilities, especially among federal
contractors, is likely.
Workplace safety will get more attention as new regulations are considered,
requiring companies to identify workplace hazards and either fix them or provide employees with protection. Companies in industries that are considered to
be the most dangerous for employees will be asked to meet additional reporting
and inspection requirements.
Health care reform will drive compliance issues. Starting in 2015, employers
with 50 or more full-time employees who decide not to offer health care coverage
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 43
will have to pay a penalty of $2,000 per employee. Companies will look to HR
for answers to whether it makes sense from a competitive perspective to offer
health insurance, which averages about $6,000 for an individual plan. The cost
savings from not offering health care may be offset by the company’s inability
to attract and retain talented employees who expect company-sponsored health
care benefits which offer attractive options not likely found in federal government plans. HR professionals and managers will have to work with legal counsel and benefits experts to understand new health care regulations and the form
that health care will take, if they decide to provide it.
Scrutiny of companies who employ unlawful immigrants or abuse laborers
will continue to increase. Companies can face criminal charges if immigration
and customs officials can show that they knowingly employed undocumented
and illegal immigrants. The number of company audits conducted by the Immigration and Customs Enforcement (ICE) has increased over the past several
years, resulting in over $10 million in fines.
The publication of classified documents by WikiLeaks and Wall Street insider
trading probes have resulted in companies more carefully scrutinizing datasecurity practices and increased concerns about protecting intellectual property.
This will likely influence human resource practices related to performance management such as the use of electronic monitoring and surveillance of knowledge workers. We may see more litigation related to employee privacy rights
and intellectual property rights as a result of companies terminating employees
or taking disciplinary action against them for data-security breaches, discussing employment practices using social media, or sharing or stealing intellectual
property for personal gain.
Ethical Issues
Many decisions related to managing human resources are characterized by uncertainty. Ethics can be considered the fundamental principles of right and wrong
by which employees and companies interact.106 These principles should be considered in making business decisions and interacting with clients and customers. Ethical, successful companies can be characterized by four principles shown
in Figure 1.7.107 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 person’s interests count as much as their
own. HR and business decisions should be ethical but that is not always the case.
A recent survey of employees found that 45% had witnessed some form of unethical conduct at their workplace. This probably helps explain the results of a Gallup poll on honesty and ethics in 21 professions. The poll results showed that only
18% of Americans rated business executives high or very high on honesty and
ethical behavior and close to twice as many rated them low or very low.108 It is
important to note that ethics refers to behavior that is not clearly right or wrong.
Compliance means that the company is not violating legal regulations. But a company can be compliant and still have employees engaging in unethical practices.
The Sarbanes-Oxley Act of 2002 sets strict rules for corporate behavior
and sets heavy fines and prison terms for noncompliance: organizations are
spending millions of dollars each year to comply with regulations under the
Ethics
The fundamental
principles of right
and wrong by which
employees and companies interact.
Sarbanes-Oxley
Act of 2002
A congressional act
passed in response to
illegal and unethical
behavior by managers
and executives. The
act sets stricter rules
for business especially
accounting practices
including requiring
more open and consistent disclosure of
financial data, CEOs’
assurance that the data
is completely accurate,
and provisions that
affect the employee–
employer relationship
(e.g., development
of a code of conduct
for senior financial
officers).
44
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
Figure 1.7
Principles of Ethical
Companies
Emphasize mutual
beneits in customer,
vendor, client,
and community
relationships
A sense of purpose
or vision valued
and used by
employees
in their work
Employees take
responsibility
for company
actions
Emphasize fairness in
treatment of
employees,
customers, vendors,
and clients
Sarbanes-Oxley Act, which imposes criminal penalties for corporate governing
and accounting lapses, including retaliation against whistle-blowers reporting
violations of Security and Exchange Commission rules.109 Due to Sarbanes-Oxley
and new Security and Exchange Commission regulations that impose stricter
standards for disclosing executive pay, corporate boards are paying more attention to executive pay as well as issues like leadership development and succession planning.110 This has resulted in an increase in the number of HR executives
and individuals with HR expertise who are being asked to serve on corporate
boards to provide data and analysis. For example, a CEO or chief financial officer
(CFO) who falsely represents company finances may be fined up to $1 million
and/or imprisoned for up to 10 years. The penalty for willful violations is up to
$5 million and/or 20 years imprisonment. The law requires CEOs and CFOs to
certify corporate financial reports, prohibits personal loans to officers and directors, and prohibits insider trading during pension fund blackout periods.111 A
“blackout” is any period of more than three consecutive business days during
which the company temporarily stops 50% or more of company plan participants or beneficiaries from acquiring, selling, or transferring an interest in any
of the company’s equity securities in the pension plan. The law also requires
retention of all documents relevant to a government investigation.
The law also has a number of provisions that directly affect the employer–
employee relationship.112 For example, the act prohibits retaliation against
whistle-blowers (individuals who have turned in the company or one of its officers for an illegal act) and government informants. The act also requires that publically traded companies disclose whether they have a code of ethics.113 Other
federal guidelines such as the Federal Acquisition Regulation also require or
provide incentives to encourage all businesses to adopt codes of conduct, train
employees on these codes, and create effective ways to audit and report ethical
and unethical behavior. This means that companies, with HR taking the lead,
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 45
should develop codes of conduct that clearly define ethics and professional
responsibility. HR professionals along with other top-level managers usually
play a key role in helping conduct ethics audits, develop ethical codes of conduct,
and respond to ethical violations. Guidelines for disciplinary actions for employees guilty of unethical behavior and conduct need to be developed. Managers
and employees will need to be trained on ethics policies to ensure that business
processes and procedures are correctly followed. HR professionals will need to
document the fact that employees have received these policies and have attended
training to ensure their compliance with the act. Because of the potential liability
for retaliation in the context of discrimination and harassment, policies should
include assurances that an employee will not be retaliated against for making
a complaint or for serving as a witness. Executive compensation programs will
need to be monitored to ensure that the program is in compliance with the no
personal loans and no sales of pension funds during blackout period provisions.
Consider the policies and practices that companies are using to help ensure
an ethical workplace.114 Nationwide, an insurance provider located in Columbus, Ohio, developed and adopted a detailed Code of Conduct. The Code of
Conduct applies to all employees, it protects employees who report code violations from retaliation, and it guides employees’ decision making when the correct action is unclear. The Code of Conduct covers discrimination, conflicts of
interest, financial reporting, business records, honesty in business communications, handling company assets, and political activities including gifts to public
officials. Nationwide has established an Office of Ethics and code violations can
be reported to them using e-mail, fax, or telephone. Cisco Systems has taken
steps to make its ethics and compliance programs more engaging and interesting for employees. Cisco worked with a consulting firm to create a four-episode
training module based on the American Idol popular television show. The episodes involve decisions related to sharing proprietary information from former
employers, how to pick new vendors, entertaining potential customers, and
accepting gifts from vendors. Employees watch each of the “contestants” talk
about a different ethical situation and listen while the three judges each provide
their opinion. Employees are then asked to vote on which of the three judges
gave the best response to each situation and they can instantly see how their
response matched up to the responses of other Cisco employees who have participated in the ethics training. At the end of each episode Cisco’s ethics office
provides the correct response to the situation based on the company’s ethics and
compliance standards. The new training program helped increase the visibility
of Cisco’s ethics office and raised employees’ awareness that the right answer to
each ethical dilemma they may encounter is not always obvious.
Human resource managers must satisfy three basic standards for their practices to be considered ethical.115 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.
To call attention to the important role of ethics in the workplace, throughout
the book we include “Integrity in Action” boxes that highlight the good (and
bad) decisions, related to ethical HR practices made by company leaders and
managers. The “Integrity in Action” box shows how the CEO of Dynergy has
made changes to the company culture and used HR practices to try to revitalize
a failing company.
I NTEGRI T Y I N AC T I O N
Leading a Turnaround Through People Practices
Many CEOs don’t practice what
they preach, but that isn’t the
case for Bob Flexon, CEO of
Dynergy, Inc. Flexon works out
of a cubicle similar to the ones
occupied by other employees
at the company’s headquarters.
This is one of many changes
Flexon made in policies and
practices in hopes of revitalizing
the employees and growth of
the power generation company, which recently emerged
from bankruptcy. He cut costs
(saved $5 million) and increased
interactions between employees by moving the company
headquarters offices to a single
open floor. He also is visible at
the company’s power plants,
banned employees from checking e-mail and phones during
meetings, and reinstated annual
performance reviews. The company’s highest ranking managers participated in a two-day
offsite meeting including trust
building exercises. Managers
resisted attending the offsite
meeting and many did not want
to exchange their private offices
for cubicles. Flexon also led the
development of a new purpose
statement for the company
(“Energizing You, Powering
Our Communities”) and placed
specific emphasis on three of
the six company core values
including safety, accountability,
and agility (the other company values are responsibility,
integrity, and collaboration).
The company estimates it will
have spent over $400,000 by
the end of the year to train
managers in the new culture.
Flexon and his management
team personally introduced
the new culture to employees
through plant visits. To reinforce
the new culture 15 employees
have been trained as “culture
champions” whose role it is to
insure that fellow employees’
behavior is consistent with the
new policies and practices. The
culture is also reinforced in performance management. One
part of the revised performance
management process includes
managers evaluating employees on
the extent to which
they behaved in accordance
with the core values.
What are the results of the
CEO’s efforts? Employee turnover is down from 8% to 5.8%.
Morale is up and employees
know that safety is a serious
issue. The bottom line still
needs to be fixed (the company lost over $1 billion for the
first nine months of 2012) but
Flexon believes that the new
culture and people practices
will make a difference in creating profits.
DISCUSSION QUESTION
Which HR practices do you
think have the greatest influence on a company’s turnaround effort? Which have the
least influence? Explain your
choices.
SOURCE: Based on J. Lublin, “This CEO
Used to Have an Office,” Wall Street Journal,
March 13, 2013, pp. B1, B7; www.dynergy
.com, accessed March 25, 2013.
THE GLOBAL CHALLENGE
LO 1-4
Discuss what companies should do to
compete in the global
marketplace.
46
Companies are finding that to survive they must compete in international markets as well as fend off foreign corporations’ attempts to gain ground in the
United States. To meet these challenges, U.S. businesses must develop global
markets, use their practices to improve global competitiveness, and better prepare employees for global assignments.
Every business must be prepared to deal with the global economy. Global
business expansion has been made easier by technology. The Internet allows
data and information to be instantly accessible and sent around the world. The
Internet, e-mail, social networking, and video conferencing enable business
deals to be completed between companies thousands of miles apart.
Globalization is not limited to any particular sector of the economy, product
market, or company size.116 Companies without international operations may
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 47
buy or use goods that have been produced overseas, hire employees with diverse
backgrounds, or compete with foreign-owned companies operating within the
United States.
Businesses around the world are attempting to increase their competitiveness and value by increasing their global presence, often through mergers and
acquisitions.
Entering International Markets
Many companies are entering international markets by exporting their products
overseas, building manufacturing facilities or service centers in other countries,
entering into alliances with foreign companies, and engaging in e-commerce.
One estimate is that developing economies and emerging markets such as those
found in the BRIC nations (Brazil, Russia, India, and China) will be responsible
for 68% of the growth of the world’s economy.117 The importance of globalization is seen in recent hiring patterns of large U.S. multinational corporations
that have increased their overseas workforce, particularly in Asia.118 Markets in
Brazil, China, and India have resulted in 60% of General Electric’s business outside the United States with 54% of employees overseas. Gap Inc. plans to open
as many as 20 more Old Navy stores in Japan in 2013.119 Old Navy opened its
first store outside of North America in Tokyo in 2012. The brand will launch
stores in key areas of Japan, including Nagoya, Kobe, Osaka and Yokohama.
Gap believes it needs to expand its international presence because the U.S. market is maturing and has many competitors. Yum! Brands, parent company of
KFC and Pizza Hut, has over 3,700 stores in China contributing to $1 billion in
operating profit. More than one store is opened every day in China as the company strives for its goal of 20,000 restaurants!120
Global companies are struggling both to find and retain talented employees, especially in emerging markets. Companies are moving into China, India,
eastern Europe, the Middle East, Southeast Asia, and Latin America, but the
demand for talented employees exceeds supply. Also, companies often place
successful U.S. managers in charge of overseas operations, but these managers
lack the cultural understanding necessary to attract, motivate, and retain talented employees. To cope with these problems, companies are taking actions to
better prepare their managers and their families for overseas assignments and
to ensure that training and development opportunities are available for global
employees. Cross-cultural training prepares employees and their families to
understand the culture and norms of the country they are being relocated to and
to return to their home country after the assignment. Cross-cultural training is
discussed in Chapter 10.
IBM obtains more than two-thirds of its revenue from outside the United
States and is seeking to build team leadership in order to compete in emerging markets around the world. IBM’s Corporate Service Program donates the
time and service of about 600 employees for projects in countries such as Turkey, Romania, Ghana, Vietnam, the Phillipines, and Tanzania.121 The goal of the
program is to develop a leadership team that learns about the needs and culture of these countries, at the same time providing valuable community service.
For example, eight IBM employees from five countries traveled to Timisoara,
Romania. Each employee was assigned to help a different company or nonprofit organization. One software-development manager helped GreenForest,
48
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
a manufacturer of office, hotel, school, and industrial furniture, reach its goal
of cutting costs and becoming more efficient by recommending computer
equipment and systems needed to increase production and exports to western
Europe. Another employee worked with a nonprofit organization that offers
services to disabled adults. Besides benefiting the companies, the employees
have also found that the experience has helped them understand cultural differences, improve their communication and teamwork skills, and gain insights
on global marketing and strategy. The “Competing Through Globalization” box
shows how frustrations with cultural differences, in this case France, can undermine global business expansion.
Offshoring & Reshoring
Offshoring
Exporting jobs from
developed to less
developed countries.
Reshoring
Moving jobs from overseas to the U.S.
Offshoring refers to the exporting of jobs from developed countries, such as the
United States, to countries where labor and other costs are lower. India, Canada,
China, Russia, Ireland, Mexico, Brazil, and the Philippines are some of the destination countries for offshored jobs. Why are jobs offshored?122 The main reason is
labor costs. Workers in other countries earn a fraction of the wages of American
workers performing the same job. For example, Indian computer programmers
receive about $10 an hour compared to $60 per hour earned by U.S. programmers. Other reasons include the availability of a highly skilled and motivated
workforce. Both India and China have high numbers of engineering and science
graduates. China graduates about four times as many engineers as the United
States, although they are not all trained at the same level as U.S. engineers.123
Japan graduates twice as many engineers and South Korea graduates nearly
as many engineers as the United States. Each year, India graduates 2 million
English-speaking students with strong technical and quantitative skills.124 Also,
skilled technical workers often have difficulties obtaining work visas. Currently,
only 65,000 H-1B visas for persons in highly skilled and technical occupations
are available each year. Finally, cheap global telecommunications costs allow
companies with engineers 6,000 miles away to complete design work and interact with other engineers as if they were located in the office down the hall.
The largest number of H-1B visas are issued for computer-related occupations (43%). U.S.-based Microsoft and Cisco Systems are two of the top 10 companies using H-1B visas but most are used by Indian companies such as Infosys
Technologies and Wipro Ltd.125
Although companies may be attracted to offshoring because of potential
lower labor costs, reshoring is becoming more common. There are several reasons for this, including concerns about the level of service customers receive
from overseas operations, demoralizing effects on U.S. employees, potential
negative affects of offshoring on the company’s public image, the need for
employees to be located close to business partners, and rising wages overseas
(e.g., China).126 For example, Dell opened a call center in Twin Falls, Idaho, after
closing one in India because of customer complaints. K’Nex Brands has moved
the production of its plastic building toys back to Hatfield, Pennsylvania, from
subcontractors in China.127 K’Nex believes that moving production closer to the
U.S. retail market can help it deliver popular toys quickly to the market and
provide greater control over quality and materials, which is an important safety
issue. Also, wages and transportation costs are increasing in China, reducing
cost advantages of producing there.
>>>
COMPETING THROUGH GLOBALIZATION
Bon or No Bon: Is It Better to Criticize
or Adapt to a Country Culture?
Maurice Taylor is chairman and
CEO of Titan International,
which was considering buying a tire factory in northern
France. He is known for his nononsense management style.
Titan wanted to buy an unprofitable factory put up for sale by
Goodyear Tire & Rubber. But
it decided to pull out of negotiations for the factory when
union employees would not
work longer hours to save jobs.
Taylor had visited the factory
several times and offered to
keep about half the factory staff
for two years, but his proposal
was rejected by the union,
which wanted their jobs secure
for seven years. In response to
his frustration at being unable
to negotiate favorable terms
for the purchase of the factory,
Taylor sent a letter to France’s
Industry Minister, who had
requested that Taylor continue
to negotiate for the plant. His
letter harshly criticized France
and the union. He stated that
it would be stupid to operate
in a country where workers get
high wages for little work. For
example, he pointed out that
the French workforce gets paid
high wages but works only three
hours a day. The other hours are
spent on lunch, breaks, and discussion among employees. In
the letter he went on to suggest
that France was not a competitive country for U.S. investment
and stated that Titan was going
to purchase a Chinese or Indian
tire factory, pay less than one
euro per hour wages (less than
three dollars), and ship all the
tires that France needs without
having to employ their workers.
France does have labor laws
that make it expensive to fire
employees. Recently, recognizing the potential barrier that
employment regulations pose
to getting foreign businesses to
locate there, France has moved
to push employers to try to
agree with unions on more flexible conditions of employment.
France’s President Francois
Hollande’s labor reform plans
include allowing companies to
reduce employees’ hours and
wages in difficult economic
conditions, change regulations
related to layoffs, and
limit the time employees can
appeal layoff decisions.
Will France lose all of its
industrial business as claimed
by Taylor? In response to
Taylor’s letter, France Industry
Minister Arnaud Montebourg
responded that France ranks as
one of the leading destinations
for company investment. He
also pointed out that Taylor’s
comments were both extreme
and insulting and illustrated his
ignorance of France.
DISCUSSION QUESTION
Should the CEO have insisted
that the French adopt work
hours and rules that were similar
to what we have in the U.S.?
Why or Why not? What things
could he have done to reach a
deal for the plant that was more
closely aligned with U.S. work
policies and practices?
SOURCE: G. Parussini, “U.S. CEO to France
How Stupid Do You Think We Are?” Wall
Street Journal, February 21, 2013, p. B1; E.
Jarry and C. Bremer, “U.S. Tire Executive Calls
French Slackers,” The Columbus Dispatch,
February 22, 2013, p. A2.
THE TECHNOLOGY CHALLENGE
Technology has reshaped the way we play, communicate, plan our lives, and
where we work. Many companies’ business models include e-commerce which
allows consumers to purchase products and services online. The Internet is a
global collection of computer networks that allows users to exchange data and
information. Americans’ use of the Internet has doubled over the last five years
with 48% reporting using the Internet more than one hour per day. Sixty percent
visit Google during the week and 43% have a Facebook page.128 Using Facebook,
Twitter, LinkedIn, and other social networking tools available on the Internet
49
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CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
accessed through iPhones, Blackberries, or personal computers, companies can
connect with job candidates and employers can connect with friends, family,
and co-workers.
Social Networking
LO 1-5
Identify how new technology, such as social
networking, is influencing human resource
management.
Social Networking
Websites and blogs
that facilitate interactions between people.
Table 1.13
Potential Uses of
Social Networking
Advances in sophisticated technology along with reduced costs for the technology are changing many aspects of human resource management. Technological advances in electronics and communications software have made possible
mobile technology such as personal digital assistants (PDAs), iPads, and iPods
and enhanced the Internet through developing enhanced capability for social
networking. Social networking refers to websites such as Facebook, Twitter,
and LinkedIn, Wikis, and blogs that facilitate interactions between people usually around shared interests. Table 1.13 shows some of the potential issues that
can be addressed by using social networking.129 In general, social networking
facilitates communications, decentralized decision making, and collaboration.
Social networking can be useful for connecting to customers and valuable for
busy employees to share knowledge and ideas with their peers and managers
with whom they may not have much time to interact face-to-face on a daily basis.
Employees, especially young workers from the Millennial or Gen-Y generations
have learned to use social networking tools such as Facebook throughout their
lives and see them as valuable tools for both their work and nonwork lives. The
“Competing through Technology” box shows how companies are using social
networking for HR practices including recruiting, training and development,
scheduling, and measuring employee attitudes.
Despite its potential advantages, many companies are uncertain as to whether
they should embrace social networking.130 They fear that social networking will
result in employees wasting time or offending or harassing their co-workers.
Other companies believe that the benefits of using social networking for HR
ISSUES
USE
Loss of expert knowledge due to
retirement
Employee engagement
Identify and promote employee
expertise
Promote innovation and creativity
Knowledge sharing, capturing, and storing
Reinforce learning
Employees need coaching and
mentoring
Need to identify and connect with
promising job candidates
Collect employees’ opinions
Create online expert communities
Encourage participation in online
discussions
Share best practices, applications, learning, points, links to articles and webinars
Interact with mentors and coaching peers
Distribute job postings, respond to candidates’ questions
SOURCES: Based on P. Brotherson, “Social Networks Enhance Employee Learning,” T 1 D, April 2011, pp. 18–19;
T. Bingham and M. Connor, The New Social Learning (Alexandria, VA: American Society for Training &
Development, 2010); M. Derven, “Social Networking: A Frame for Development,” T 1 D, July 2009, pp. 58–63;
M. Weinstein, “Are You Linked In?” Training, September/October, 2010, pp. 30–33.
COMPETING THROUGH TECHNOLOGY
Connectiveness Enhances HR Practices
Social networks such as Facebook and Twitter help people
satisfy their need to be connected to their friends. Recognizing the importance of
“connectiveness,” companies
of all sizes and in various industries are using social networks
to enhance many different HR
practices including recruiting,
training and development,
scheduling, and enhancing employees engagement.
Recruiters can use social networking to connect and communicate with job candidates,
create online communities for
job candidates to learn about
the company, and monitor news
such as store closings or layoffs
which can provide a potential group of new employees.
Macy’s has used Twitter to post
job openings and to reach out
to recruit merchandise buyers laid off by other retailers
who were closing their stores.
CareerBuilder.com is using an
app that shows its employees
which of their Facebook friends
would be matches for job
openings at the company and
encourages them to share that
information. Del Frisco’s Steakhouse in Manhattan can quickly
create a schedule for its servers
on a computer or i-Phone and
post it to a website which automatically sends the schedule
to all employees’ cell phones.
Servers can make schedule
changes but the system tracks
hours to ensure that they do
not exceed allowed overtime
work hours. Long Realty in Tuscon, Arizona, established Long
Connects, an internal social
networking site for real estate
agents to seek help and discuss
issues such as how to deal with
a specific bank to secure financing, trends in the current real
estate market, and the best way
to handle properties sold for
less than the amount owed on
the mortgage to avoid foreclosure (short sales).
Verizon uses social networking tools to train employees
to support new products and
devices. Device Blog, Device
Forum, and Learning Communities help insure that employees
are ready to support customers
when new products and devices
are introduced to the market,
engages Verizon’s multigenerational workforce, and facilitates
peer-to-peer learning. Device
Blog makes available information and updates on wireless
devices (such as DROID), FAQs
(frequently asked questions),
how-to-videos, and troubleshooting tips. Device Forums
enable retail employees to
learn from peers and product
manufacturers. Employees can
ask each other
questions, share
issues, post tips, make
suggestions, and access product experts. Learning Communities are accessed through
the Device Blog. They include
video blogs, message boards,
links to online training modules,
and product demonstrations.
In addition to these tools,
employees have access to My
Network for collaborating with
their peers, knowledge and
document sharing, and creating
working groups. Some instructors also use it for posting
supplemental content for learners use.
DISCUSSION QUESTION
What are some of the potential
disadvantages of using social
networks or microblogs such as
Twitter for HR practices?
SOURCES: Based on M. Rafter, “Goin’
Mobile,” Workforce Management, February
2011, pp. 26–27; L. Stevens, “Through the
Looking Glass,” Human Resource Executive, April 2011, pp. 26–29; M. Ciccarelli,
“It’s Personal,” Human Resource Executive,
September 16, 2010, pp. 1, 14–20;
B. Roberts, “Mobile Workforce Management,” HR Magazine, March 2011, pp. 67–69;
G. Kranz, “More to Learn,” Workforce Management, January 2011, pp. 27–30; S. Ladika,
“Socially Evolved,” Workforce Management,
September 2010, pp. 19–22; B. Roberts,
“Developing a Social Business Network,”
HR Magazine, October 2010, pp. 54–60;
M. Weinstein, “Verizon Connects to Success,”
Training, January/February 2011, pp. 40–42.
practices and allowing employees to access social networks at work outweigh
the risks. They trust employees to use social networking productively and are
proactive in developing policies about personal use and training employees
about privacy settings and social network etiquette. They realize that employees will likely check their Twitter, Facebook, or LinkedIn accounts but ignore it
51
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CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
unless productivity is decreasing. In some ways, social networking has become
the electronic substitute for daydreaming at one’s desk or walking to the break
room to socialize with co-workers!
Robotics, tracking systems, radio frequency identification, and nanotechnology are transforming work.131 Technology has also made it easier to monitor
environmental conditions and employees and operate equipment. A Japanese
commercial farm, Shinpuku Seika, relies on computer readings from monitors
placed out in the fields which report temperature, soil, and moisture levels to the
farmers.132 Computer analysis of these data alerts farmers when to start planting
or identifies specific crops that may grow best in each field. Farm workers can
also use their mobile phones to take pictures of potential diseased or infected
crops which are uploaded to the computer for diagnosis by crop experts. The
workers’ phones also include a global positioning system, allowing the company to determine if workers are taking the most efficient routes between fields
or slacking off on the job. To understand whether personal interactions between
employees made a difference, Bank of America asked call center employees to
wear badges that contained sensors to record their movements and tone of their
conversations.133 The data showed that the most productive employees belonged
to cohesive teams and they spoke frequently to their peers. To get employees to
interact more the bank scheduled employees for group breaks. As a result productivity increased more than 10%.
Use of HRIS, Cloud Computing, and HR Dashboards
Human Resource
Information System
(HRIS)
A system used to
acquire, store, manipulate, analyze, retrieve,
and distribute HR
information.
Cloud Computing
A computing system
that provides information technology
infrastructure over
a network in a selfservice, modifiable,
and on-demand model.
Companies continue to use human resource information systems to store large
quantities of employee data including personal information, training records,
skills, compensation rates, absence records, and benefits usages and costs. A
human resource information system (HRIS) is a computer system used to
acquire, store, retrieve, and distribute information related to a company’s human
resources.134 An HRIS can support strategic decision making, help the company
avoid lawsuits, provide data for evaluating policies and programs, and support day-to-day HR decisions. Florida Power & Light Company, based in Juno
Beach, Florida, uses HRIS applications to provide information to employees
and to support decision making by managers. More than 10,000 employees in
20 states can use the information system to learn about their benefits. Managers
use the system to track employees’ vacation and sick days and to make changes
in staffing and pay. Using the HRIS, managers can request the HRIS system to
automatically prepare a personnel report; they no longer have to contact the HR
department to request one.135
Today, most companies own their own software and hardware and keep
them onsite in their facilities. However, “cloud computing” allows companies
to lease software and hardware and employees don’t even know the location of
computers, databases, and applications they are using (they are in the “cloud”).
Cloud computing refers to a computing system that provides information
technology infrastructure over a network in a self-service, modifiable, and ondemand model.136 Clouds can be delivered on-demand via the Internet (public
cloud) or restricted to use by a single company (private cloud). Cloud computing gives companies and their employees access to applications and information
from smart phones and tablets rather than relying soley on personal computers.
It also allows groups to work together in new ways, can make employees more
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 53
productive by allowing them to more easily share documents and information,
and provides greater access to large company databases. This means that tools
for conducting workforce analytics using metrics on turnover, absenteeiem, and
performance and social media and collaboration tools such as Twitter, blogs,
Google documents, and YouTube videos will be more easily accessible and
available for use. Cloud computing also can make it easier for employees to
access training programs from a variety of vendors and educational institutions.
More sophisticated systems extend management applications to decision
making in areas such as compensation and performance management. Managers can schedule job interviews or performance appraisals, guided by the system to provide the necessary information and follow every step called for by
the procedure.137 One of the most important uses of Internet technology is the
development of HR dashboards. An HR dashboard is a series of indicators or
metrics that managers and employees have access to on the company intranet
or human resource information system. The HR dashboard provides access to
important HR metrics for conducting workforce analytics. HR dashboards are
important for determining the value of HR practices and how they contribute to
business goals. As a result, the use of dashboards is critical for evidence-based
HR discussed earlier in the chapter. For example, Cisco Systems views building
talent as a priority so it has added to its dashboard of people measures a metric
to track how many people move and the reasons why.138 This allows Cisco to
identify divisions that are developing new talent.
HR Dashboard
HR metrics such as productivity and absenteeism that are accessible
by employees and
managers through the
company intranet or
human resource information system.
High Performance Work Systems and Virtual Teams
New technology causes changes in skill requirements and work roles and
often results in redesigning work structures (e.g., using work teams).139 Highperformance work systems maximize the fit between the company’s social system (employees) and its technical system.140 For example, computer-integrated
manufacturing uses robots and computers to automate the manufacturing
process. The computer allows the production of different products simply by
reprogramming the computer. As a result, laborer, material handler, operator/
assembler, and maintenance jobs may be merged into one position. Computerintegrated manufacturing requires employees to monitor equipment and troubleshoot problems with sophisticated equipment, share information with other
employees, and understand the relationships between all components of the
manufacturing process.141 Consider the changes Canon Inc., known for office
imaging, computer peripherals, and cameras, has made to speed up the development and production process.142 Canon is using a procedure called concurrent engineering, where production engineers work together with designers.
This allows them to more easily exchange ideas to improve a product or make
it easier to manufacture. Canon also now has production employees work in
“cells,” where they perform multiple tasks and can more easily improve the production process. Previously, employees worked in an assembly line controlled
by a conveyor belt. The new cell system requires lower parts inventory and less
space, cutting factory operating and real estate costs. Also, employees are more
satisfied working in cells because they feel more responsibility for their work.
Besides changing the way that products are built or services are provided
within companies, technology has allowed companies to form partnerships with
one or more other companies. Virtual teams refer to teams that are separated by
High-Performance
Work Systems
Work systems that
maximize the fit
between the company’s social system and
technical system.
LO 1-6
Discuss human
resource management
practices that support
high-performance work
systems.
Virtual Teams
Teams that are
separated by time,
geographic distance,
culture and/or organizational boundaries
and rely exclusively on
technology for interaction between team
members.
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CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
time, geographic distance, culture, and/or organizational boundaries and that
rely almost exclusively on technology (e-mail, Internet, videoconferencing) to
interact and complete their projects. Virtual teams can be formed within one company whose facilities are scattered throughout the country or the world. A company may also use virtual teams in partnerships with suppliers or competitors to
pull together the necessary talent to complete a project or speed the delivery of
a product to the marketplace. PricewaterhouseCoopers’s learning and education
department has 190 employees who are located in 70 offices in different cities.143
These employees work together on virtual teams that range in size from 5 to 50
people. Shared databases are used for background information and developing
work; each office has videoconferencing and software is used to track calendars
and connect employees via their personal computers to their virtual teams.
Software developers are positioning employees around the world with clusters of three or four facilities, six to eight hours apart, to keep projects moving
24 hours a day.144 The intent is to increase productivity and reduce project completion time by allowing employees to focus continuously on projects through
using highly talented engineers who can work in their own time zone and location without having to move to a different country or work inconvenient hours.
Also, globally distributed projects can draw on employees from many different
cultures, backgrounds, and perspectives helping to produce services and products that can better meet the needs of global customers. The challenges are how
to organize work so that teams in different locations and different work shifts
can share tasks with minimum interaction.
Human resource management practices that support high-performance work
systems are shown in Table 1.14. 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 with increases in productivity and long-term financial
performance.145 Research also suggests that it is more effective to improve HRM
practices as a whole, rather than focus on one or two isolated practices (such as
the pay system or selection system).146 There may be a best HRM system, but
whatever the company does, the practices must be aligned with each other and
be consistent with the system if they are to positively affect company performance.147 We will discuss this alignment in more detail in Chapters 2 and 16.
Employees often have responsibility for hiring and firing team members and
can make decisions that influence profits. As a result, employees must be trained
in principles of employee selection, quality, and customer service. They need to
understand financial data so they can see the link between their performance
and company performance.
In high performance work systems, previously established boundaries between
managers and employees, employees and customers, employees and vendors,
and the various functions within the company are abandoned. Employees, managers, vendors, customers, and suppliers work together to improve service and
product quality and to create new products and services. Line employees are
trained in multiple jobs, communicate directly with suppliers and customers, and
interact frequently with engineers, quality experts, and employees from other
functions.
One of the jobs at General Electric’s Greenville Airfoils Facility in Piedmont,
South Carolina, involves using a computer-controlled machine to burn small
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 55
Table 1.14
Staffing
• Employees participate in selecting new employees, e.g., peer
interviews.
Work Design • Employees understand how their jobs contribute to the finished
product or service.
• Employees participate in planning changes in equipment,
layout, and work methods.
• Work may be organized in teams.
• Job rotation used to develop skills.
• Equipment and work processes are structured and technology is used to encourage flexibility and interaction between
employees.
• Work design allows employees to use a variety of skills.
• Decentralized decision making, reduced status distinctions,
information sharing.
• Increased safety.
Training
• Ongoing training emphasized and rewarded.
• Training in finance and quality control methods.
Compensation • Team-based performance pay.
• Part of compensation may be based on company or division
financial performance.
Performance
• Employees receive performance feedback and are actively
Management
involved in the performance improvement process.
SOURCES: Based on K. Birdi, C. Clegy, M. Patterson, A. Robinson, C. Stride, T. Wall, and S. Wood, “The Impact of
Human Resource and Operational Management Practices on Company Productivity: A Longitudinal Study,” Personnel Psychology 61(2008), pp. 467–501; A. Zacharatos, J. Barling, and R. Iverson, “High Performance Work Systems
and Occupational Safety,” Journal of Applied Psychology 90 (2005), pp. 77–93; S. Way, “High Performance Work
Systems and Intermediate Indicators of Performance within the U.S. Small Business Sector,” Journal of Management 28 (2002), pp. 765–85; M. A. Huselid, “The Impact of Human Resource Management Practices on Turnover,
Productivity, and Corporate Financial Performance,” Academy of Management Journal 38 (1995), pp. 635–72.
cooling holes in 3-inch long turbine blades for jet engines.148 Most of the holes in
each blade are thinner than a human hair! Employees are responsible for choosing who gets hired. They interview job candidates and observe them in “games”
that involve working in a team to build a helicopter from blocks. Employee
teams can adjust the line operation to remove bottlenecks and maximize productivity. For example, a team identified a way to increase the speed of washing
turbine blades. The plant leader allowed the team to buy equipment to wash the
blades based on their recommendations.
Consider how human resource management practices support the highperformance work system at the Global Engineering Manufacturing Alliance
(GEMA) plant in Dundee, Michigan.149 GEMA is a wholly owned subsidiary
of Chrysler LLC/Fiat. The plant is more automated and employs fewer workers than most engine plants, 275 compared with 600 to 2,000 employees at
other engine plants. The goal of the plant is to be the most productive engine
plant in the world. The UAW endorsed the high-performance workplace
because it recognized that the company needs to be competitive to avoid losing jobs. Chryler Group LLC will invest $179 million to launch production
of a fuel-efficient engine for the North American market that will be built at
GEMA. The implications of this work system for labor relations is discussed
in Chapter 14.
How HRM Practices
Support HighPerformance Work
Systems
56
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
The plant’s hourly employees rotate jobs and shifts, increasing the company’s
flexibility. The plant’s culture emphasizes problem solving and that anyone can
do anything, anytime, anywhere. Everyone has the same title: team member or
team leader. By rotating jobs the plant wants to keep workers motivated in their
work and avoid injuries. Team leaders and engineers don’t stay in their offices;
they are expected to work on the shop floor as part of six-person teams. Contractors are also seen as part of the team, working alongside assembly workers
and engineers and wearing the same uniforms. Most auto plants have a day
and night shift with senior workers usually choosing to work the day shift. At
GEMA, employees rotate shifts in crews of three, working 10 hours per day,
four days per week, alternating between days and nights. Every third week of
their rotation they get five days off in addition to any vacation time. Counseling
is available to help employees adjust to the rotating work schedule. The work
schedule allows the plant to be in operation 21 hours per day, 6 days per week,
294 days a year. But employees work only 196 days a year. The alternating shifts
also help employees to know and work with each other and salaried employees,
who work only during daytime.
To hire employees who could work in a team environment emphasizing
problem solving and flexibility, GEMA recruited using local newspapers within
70 miles of Dundee. GEMA worked with local civil rights organizations to
find diverse candidates. Nonexempt employees whose wages start at $21 and
increase to $30 within five years must have a two-year technical degree, a skilled
journeyman’s card, or five years’ experience in advanced machining.
Job candidates have to make it through a difficult screening process that
takes 12 hours. The process requires candidates to take tests, participate in team
activities in which they confront challenges facing the plant (e.g., process in the
plant is inefficient), and interviews with operations managers and team leaders.
When the plant is ahead of its production schedule employees receive training
in class and on the shop floor in topics such as how to assemble an engine to
math skills.
GEMA gives employees access to technology that helps them monitor productivity. Large electronic screens hanging from the plant ceiling provide
alerts of any machinery parts that are ending their life span and need to be
replaced before they malfunction. A performance management system available on personal computers, as well as a display board, alerts employees to
delays or breakdowns in productivity. This is different from most engine
plants where only managers have access to this information. The technology empowers all employees to fix problems, not just managers or engineers.
GEMA provides rewards and bonuses for employees who develop innovative
problem solutions.
Meeting Competitive Challenges
through HRM Practices
LO 1-7
Provide a brief description of human resource
management practices.
We have discussed the global, stakeholder, new economy, and high-performance
work system challenges U.S. companies are facing. We have emphasized that
management of human resources plays a critical role in determining companies’ success in meeting these challenges. HRM practices have not traditionally been seen as providing economic value to the company. Economic value is
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 57
usually associated with equipment, technology, and facilities. However, HRM
practices have been shown to be valuable. Compensation, staffing, training and
development, performance management, and other HRM practices are investments that directly affect employees’ motivation and ability to provide products
and services that are valued by customers. Research has shown that companies
that attempt to increase their competitiveness by investing in new technology
and becoming involved in the quality movement also invest in state-of-the-art
staffing, training, and compensation practices.150 Figure 1.8 shows examples of
human resource management practices that help companies deal with the three
challenges. For example, to meet the sustainability challenge, 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 three challenges, companies need to
capitalize on the diversity of values, abilities, and perspectives that employees
bring to the workplace.
Figure 1.8
Global
Challenge
Sustainability
Challenge
• HRM strategy is matched to
business strategy.
• Continuous learning
environment is created.
• Knowledge is shared.
• Discipline system is
progressive.
• Work is performed by
teams.
• Pay systems reward skills
and accomplishments.
• Customer satisfaction
and quality are evaluated
in the performance
management system.
• Skills and values of a
diverse workforce are
valued and used.
• Selection system is
job-related and legal.
• Flexibility in where and
when work is performed.
• Employee engagement is
monitored.
• Technology is used to
reduce the time for
administrative tasks and
to improve HR efficiency
and effectiveness.
Technology
Challenge
Examples of How
HRM Practices Can
Help Companies
Meet Competitive
Challenges
58
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
Figure 1.9
Major Dimensions
of HRM Practices
Contributing
to Company
Competitiveness
Dimensions of HRM Practices
Managing
the human
resource
environment
Acquiring
and preparing
human
resources
Assessment and Compensating
development
human
of human
resources
resources
Competitiveness
HRM practices that help companies deal with the competitive challenges can
be grouped into the four dimensions shown in Figure 1.9. These dimensions
include the human resource environment, acquiring and preparing human
resources, assessment and development of human resources, and compensating
human resources. In addition, some companies have special issues related to
labor–management relations, international human resource management, and
managing the human resource function.
Managing the Human Resource Environment
Managing internal and external environmental factors allows employees to
make the greatest possible contribution to company productivity and competitiveness. Creating a positive environment for human resources involves
• Linking HRM practices to the company’s business objectives—that is, strategic human resource management.
• Ensuring that HRM practices comply with federal, state, and local laws.
• Designing work that motivates and satisfies the employee as well as maximizes customer service, quality, and productivity.
Acquiring and Preparing Human Resources
Customer needs for new products or services influence the number and type
of employees businesses need to be successful. Terminations, promotions, and
retirements also influence human resource requirements. Managers need to
predict the number and type of employees who are needed to meet customer
demands for products and services. Managers must also identify current or
potential employees who can successfully deliver products and services. This
area of human resource management deals with
• Identifying human resource requirements—that is, human resource planning, recruiting employees, and selecting employees.
• Training employees to have the skills needed to perform their jobs.
Assessment and Development of Human Resources
Managers need to ensure that employees have the necessary skills to perform
current and future jobs. As we discussed earlier, because of new technology and
the quality movement, many companies are redesigning work so that it is performed by teams. As a result, managers and employees may need to develop
new skills to succeed in a team environment. Companies need to create a work
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 59
environment that supports employees’ work and nonwork activities. This area
of human resource management addresses
• Measuring employees’ performance.
• Preparing employees for future work roles and identifying employees’ work
interests, goals, values, and other career issues.
• Creating an employment relationship and work environment that benefits
both the company and the employee.
Compensating Human Resources
Besides interesting work, pay and benefits are the most important incentives
that companies can offer employees in exchange for contributing to productivity, quality, and customer service. Also, pay and benefits are used to reward
employees’ membership in the company and attract new employees. The positive influence of new work designs, new technology, and the quality movement
on productivity can be damaged if employees are not satisfied with the level of
pay and benefits or believe pay and benefits are unfairly distributed. This area
of human resource management includes
• Creating pay systems.
• Rewarding employee contributions.
• Providing employees with benefits.
Special Issues
In some companies, employees are represented by a labor union. Managing
human resources in a union environment requires knowledge of specific laws,
contract administration, and the collective bargaining process.
Many companies are globally expanding their business through joint ventures, mergers, acquisitions, and establishing new operations. Successful global
expansion depends on the extent to which HRM practices are aligned with cultural factors as well as management of employees sent to work in another country. Human resource management practices must contribute to organizational
effectiveness.
Human resource management practices of both managers and the human
resource function must be aligned and contribute to the company’s strategic
goals. The final chapter of the book explains how to effectively integrate human
resource management practices.
Organization of This Book
The topics in this book are organized according to the four areas of human
resource management and special issues. Table 1.15 lists the chapters covered
in the book.
The content of each chapter is based on academic research and examples of
effective company practices. Each chapter includes examples of how the human
resource management practice covered in the chapter helps a company gain a
competitive advantage by addressing sustainability, global, and technological
challenges. Also, each chapter includes an example of a company that demonstrates how HR practices add value (evidence-based HR).
60
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
Table 1.15
Topics Covered in
This Book
1 Human Resource Management: Gaining a Competitive Advantage
I The Human Resource Environment
2 Strategic Human Resource Management
3 The Legal Environment: Equal Employment Opportunity and Safety
4 The Analysis and Design of Work
II Acquisition and Preparation of Human Resources
5 Human Resource Planning and Recruitment
6 Selection and Placement
7 Training
III Assessment and Development of HRM
8 Performance Management
9 Employee Development
10 Employee Separation and Retention
IV Compensation of Human Resources
11 Pay Structure Decisions
12 Recognizing Employee Contributions with Pay
13 Employee Benefits
V Special Topics in Human Resource Management
14 Collective Bargaining and Labor Relations
15 Managing Human Resources Globally
16 Strategically Managing the HRM Function
A LOOK BACK
Mars is trying to preserve its company culture and improve product revenues
while keeping employees engaged.
QUESTIONS
1. What HR practices do you believe are critical for Mars Incorporated to maintain the culture and product quality and growth it’s known for?
2. Could Mars’ be successful without its current HR practices? Explain.
3. Do you think that Mars’ culture and HR practices can also help the bottom
line at companies in other industries such as health care, manufacturing, or
research and development? Explain why or why not.
4. Mars is a privately held company and a family-owned business. What advantages (or disadvantages) can this provide for developing effective HR practices compared to a public company “owned” by its shareholders?
SUMMARY
This chapter introduced the roles and activities of
a company’s human resource management function and emphasized that effective management
of human resources can contribute to a company’s
business strategy and competitive advantage. HR
can be viewed as having three product lines: administrative services, business partner services, and
strategic services. To successfully manage human
resources, individuals need personal credibility,
business knowledge, understanding of the business
strategy, technology knowledge, and the ability to
deliver HR services. Human resource management
practices should be evidence-based, that is, based on
data showing the relationship between the practice
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 61
and business outcomes related to key company
stakeholders (customers, shareholders, employees,
community). In addition to contributing to a company’s business strategy, human resource practices
are important for helping companies deal with
sustainability, globalization, and technology challenges. The sustainability challenges are related to
the economy, the characteristics and expectations
of the labor force, how and where work is done, the
value placed on intangible assets and human capital,
and meeting stakeholder needs (ethical practices,
high-quality products and services, return to shareholders, and social responsibility). Global challenges
include entering international markets, immigration, and offshoring. Technology challenges include
using new technologies to support flexible and virtual work arrangements, high-performance work
systems, and implementing social networking and
human resource information systems.
The chapter concludes by showing how the book
is organized. The book includes four topical areas: the
human resource environment (strategic HRM, legal,
analysis and design of work), acquisition and preparation of human resources (HR planning and recruitment,
selection, training), assessment and development of
human resources (performance management, development, training), compensation of human resources (pay
structures, recognizing employee contributions with
pay, benefits), and special topics (collective bargaining
and labor relations, managing human resources globally, and strategically managing the HR function). All
of the topical areas are important for companies to deal
with the competitive challenges and contribute to business strategy.
KEY TERMS
Competitiveness, 4
Human resource management
(HRM), 5
Shared service model, 8
Self-service, 8
Outsourcing, 8
Evidence-based HR, 11
HR or workforce analytics, 11
Sustainability, 16
Stakeholders, 16
Intangible assets, 22
Knowledge workers, 23
Empowering, 23
Learning organization, 23
Change, 24
Employee engagement, 25
Talent management, 26
Alternative work arrangements, 27
Balanced scorecard, 29
Total quality management
(TQM), 31
Malcolm Baldrige National
Quality Award, 33
ISO 9000:2000, 33
Six Sigma process, 35
Lean thinking, 35
Internal labor force, 37
External labor market, 37
Ethics, 43
Sarbanes-Oxley Act of 2002, 43
Offshoring, 48
Reshoring, 48
Social networking, 50
Human resource information
system (HRIS), 52
Cloud computing, 52
HR dashboard, 53
High-performance work
systems, 53
Virtual teams, 53
DISCUSSION QUESTIONS
1. Traditionally, human resource management practices were developed and administered by the company’s human resource department. Managers are
now playing a major role in developing and implementing HRM practices. Why do you think non-HR
managers are becoming more involved in developing and implementing HRM practices?
2. Staffing, training, compensation, and performance
management are important HRM functions. How
can each of these functions help companies succeed in meeting the global challenge, the challenge
of using new technology, and the sustainability
challenge?
3. What are intangible assets? How are they influenced by human resource management practices?
4. What is “evidence-based HR”? Why might an HR
department resist becoming evidence-based?
5. What types of workforce analytics would you collect and analyze to understand why an employer
was experiencing a high turnover rate?
6. Which HR practices can benefit by the use of social
collaboration tools like Twitter and Facebook? Identify the HR practices and explain the benefits gained.
7. Do you agree with the statement “Employee engagement is something companies should be concerned
about only if they are making money”? Explain.
62
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
8. This book covers four human resource management
practice areas: managing the human resource environment, acquiring and preparing human resources,
assessment and development of human resources,
and compensating human resources. Which area do
you believe contributes most to helping a company
gain a competitive advantage? Which area do you
believe contributes the least? Why?
9. What is the balanced scorecard? Identify the
four perspectives included in the balanced scorecard. How can HRM practices influence the four
perspectives?
10. Is HRM becoming more strategic? Explain your
answer.
11. What is sustainability? How can HR practices help
a company become more socially and environmentally conscious?
12. Explain the implications of each of the following
labor force trends for HRM: (1) aging workforce,
(2) diverse workforce, (3) skill deficiencies.
13. What role do HRM practices play in a business
decision to expand internationally?
14. What might a quality goal and high-performance
work systems have in common in terms of HRM
practices?
15. What disadvantages might result from outsourcing HRM practices? From employee self-service?
From increased line manager involvement in
designing and using HR practices?
16. What factors should a company consider before
reshoring? What are the advantages and disadvantages of reshoring?
SELF-ASSESSMENT EXERCISE
Do You Have What It Takes to Work in HR?
Instructions: Read each statement and circle yes or no.
Yes
No
Yes
No
Yes
No
Yes
No
Yes
No
Yes
No
1. I have leadership and management
skills I have developed through prior
job experiences, extracurricular activities, community service, or other noncourse activities.
2. I have excellent communications, dispute resolution, and interpersonal skills.
3. I can demonstrate an understanding of
the fundamentals of running a business
and making a profit.
4. I can use spreadsheets and the World
Wide Web, and I am familiar with information systems technology.
5. I can work effectively with people of
different cultural backgrounds.
6. I have expertise in more than one area
of human resource management.
Yes
Yes
No
No
Yes
No
Yes
Yes
No
No
Yes
No
7. I have a willingness to learn.
8. I listen to issues before reacting with
solutions.
9. I can collect and analyze data for business solutions.
10. I am a good team member.
11. I have knowledge of local and global
economic trends.
12. I demonstrate accountability for my
actions.
Scoring: The greater the number of yes answers, the
better prepared you are to work as an HR professional. For questions you answered no, you should
seek courses and experiences to change your answer
to yes—and better prepare yourself for a career in HR!
SOURCE: Based on B. E. Kaufman, “What Companies Want from HR
Graduates,” HR Magazine, September 1994; SHRM Elements for HR
Success Competency Model, 2012, from www.shrm.org, March 21, 2012.
EXERCISING STRATEGY
Zappos Faces Competitive Challenges
Zappos, based in Las Vegas, is an online retailer with
the initial goal of trying to be the best website for buying shoes by offering a wide variety of brands, styles,
colors, sizes, and widths. The zappos.com brand has
grown to offer shoes, handbags, eyewear, watches,
and accessories for online purchase. Zappos’ vision is
that in the future, online sales will account for 30% of
all retail sales in the United States, and Zappos will be
the company with the best service and selection. The
company’s goal is to provide the best service online,
not just in shoes but in any product category. Zappos
believes that the speed at which a customer receives
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 63
an online purchase plays a critical role in how that
customer thinks about shopping online again in the
future, so they are focusing on making sure the items
get delivered to our customers as quickly as possible.
In 2009, Zappos was acquired by the Amazon.com,
Inc., family of companies which also share a strong
passion for customer service. In 2010, Zappos experienced tremendous growth resulting in the need to
restructure the company. Zappos was restructured
into 10 separate companies under the Zappos family
umbrella including Zappos.com, Inc. (the management company) and companies devoted to retail, gift
cards, merchandising, and order fulfillment.
Zappos CEO Tony Heish has shaped the company’s
customer-service focused culture, brand, and business
strategy around 10 core values. They are:
Deliver WOW through service.
Embrace and drive change.
Create fun and a little weirdness.
Be adventurous, creative, and open-minded.
Pursue growth and learning.
Build open and honest relationships with communication.
Build a positive team and family spirit.
Do more with less.
Be passionate and determined.
Be humble.
Deliver WOW through Service means that call center employees need to provide excellent customer service. Call center employees encourage callers to order
more than one size or color because shipping and
return shipping is free. They are also encouraged to
use their imaginations to meet customer needs.
Zappos has received many awards for its workplace culture and practices including being recognized as the 31st Best Company to Work for in Fortune
magazine’s 2013 ranking of the 100 Best Companies to
Work For. HR’s job at Zappos is more than just a rule
enforcer. HR’s job is to protect the culture and to educate employees. HR focuses on interactions with managers and employees to understand what they need
from HR (HR is even invited to attend work teams’
happy hours!). Zappos’ employment practices help
perpetuate its company culture. Only about one out of
100 applicants passes a hiring process that is equally
weighted on job skills and on the potential to work in
Zappos’ culture. Some managers at Zappos believe
that if you want to get a job the most important value
to demonstrate is “be humble” including a focus on
“we” instead of “I.” Job candidates are interviewed
for cultural fit and a willingness to change and learn.
For example, they observe whether at lunch job candidates talk with others or just the person they think is
making the hiring decision. The HR team uses unusual
interview questions—such as, How weird are you?
and What’s your theme song?—to find employees
who are creative and have strong individuality. Zappos provides free lunch in the cafeteria (cold cuts) and
a full-time life coach (employees have to sit on a red
velvet throne to complain), managers are encouraged
to spend time with employees outside of the office,
and any employee can reward another employee a
$50 bonus for good performance. Most of the 1,243
employees at Zappos are hourly. Every new hire
undergoes four weeks of training, during which the
company culture must be committed to memory, and
spends two weeks dealing with customers by working
the telephones. New recruits are offered $2,000 to leave
the company during training to weed out individuals
who will not be happy working at the company. Zappos provides free breakfast, lunch, snacks, coffee, tea,
and vending machine snacks. Work is characterized
by constant change, a loud, open office environment,
and interacting in teams. Employees at Zappos move
around. For example, in the call center employees can
bid for different shifts every month.
To reinforce the importance of the 10 core values
Zappos’ performance management system asks managers to evaluate how well employees’ behaviors
demonstrate the core values such as being humble or
expressing their personalities. To evaluate task performance managers are asked to regularly provide
employees with status reports on such things as how
much time they spend on the telephone with customers. The status reports and evaluations of the core
values are informational or used to identify training
needs. Zappos also believes in helping others understand what inspired the company culture. The company created the Zappos.com library which provides
a collection of books about creating a passion for
customer service, products, and local communities.
These books can be found in the front lobby of Zappos
offices and are widely read and discussed by company
employees.
Corporate culture is more than a set of values, and
it is maintained by a complex web of human interactions. At Zappos, the liberal use of social media including blogs and Twitter facilitates the network that links
employees with one another and with the company’s
customers. Zappos takes the pulse of the organization
monthly, measuring the health of the culture with a
happiness survey. Employees respond to such unlikely
questions as whether they believe that the company
has a higher purpose than profits, whether their own
role has meaning, whether they feel in control of their
career path, whether they consider their co-workers to
be like family and friends, and whether they are happy
in their jobs. Results from the survey are broken down
by department, and opportunities for development
are identified and acted upon. For example, when it
64
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage
was clear from the survey that one department had
veered off course and felt isolated from the rest of the
organization, a program was instituted that enabled
individuals in the group to learn more about how
integral their work was. To keep the vibrant company
CEO Tony Hsieh is spending $350 million to develop
a neighborhood in downtown Las Vegas which will be
the home of Zappos.com’s new headquarters. Hseih
wants to provide employees with a great place to work
as well as to live and socialize.
management practices help Zappos meet these
challenges?
2. Do you think that employees of Zappos have high
levels of engagement? Why?
3. Which of Zappos’ 10 core values do you believe that
human resource practices can influence the most?
The least? Why? For each of the core values, identify the HR practices that are related to it. Explain
how each of the HR practice(s) you identified is
related to the core values.
QUESTIONS
1. Zappos seems to be well-positioned to have a competitive advantage over other online retailers. What
challenges discussed in Chapter 1 pose the biggest
threat to Zappos’ ability to maintain and enhance
its competitive position? How can human resource
SOURCES: Based on website for Zappos, www.zappos.com; J. O’Brien,
“Zappos Knows How to Kick It,” Fortune, February 2, 2009, pp. 55–66;
M. Moskowitz and R. Levering, “The 100 Best Companies to Work
For,” Fortune, February 4, 2013, pp. 85–96; D. Richard, “At Zappos,
Culture Pays,” Strategy1Business, August 2010, p. 60, www.strategybusiness.com, accessed March 25, 2013; K. Gurchiek, “Delivering HR
at Zappos,” HR Magazine, June 2011; and R. Pyrillis, “The Reviews Are
In,” “Workforce Management,” May 2011, pp. 20–25.
MANAGING PEOPLE
Yahoo says “Nope” to Working at Home
Yahoo’s CEO Marissa Mayer decided as one part of
her plan to revitalize the company that she wanted
to end the company’s work-from-home policy. In an
internal memo from Jackie Reses, Yahoo’s executive
vice president of people and development, working at
the office rather than at home was necessary because
of the need for employees to communicate and collaborate and to reduce the chance that speed and quality
would be diminished. Yahoo received much negative
press from the decision to no longer allow employees
to work at home including comments from Richard
Branson, head of Virgin Group and Working Mother
magazine. Some of the criticism focused on the message that not allowing home work sent to employees:
Managers can’t trust you to get the work done.
The reality is that working at home is becoming
more prevalent in the U.S. workplace. More employees are working from home at least one day each
week. One estimate is that 20 to 30 million Americans
work from home at least one day each week. Homebased workers are more likely to be employed in private companies than in public sector jobs. Employees
in management, business and finance, service, and
sales occupations are most able to work from home.
Employees in health care and installation, maintenance, and repair occupations are the least likely to
work from home.
Many employees want to work at home, so companies are using working at home as a benefit that
helps recruit and retain talented employees. Several
studies have demonstrated benefits from working at
home. Cisco Systems found that employees who could
work remotely from home experienced an increase
in their quality of life. This could result from reducing the hassles of commuting to work and allowing
employees to better balance work and life responsibilities such as childcare, running errands, or dealing
with a sick child, spouse, or family member. Another
study showed that when employees of a Chinese
travel agency were allowed to work from home they
were more productive, resulting in cost savings of
$2,000 per employee each year. Finally, a study found
that office employees who work from home may work
57 hours each week before they feel as if their worklife is out of balance compared to 38 hours for employees who work at their office.
Working at home also may have significant disadvantages. The disadvantages include employees taking advantage of the policy to extend their weekends
by not working in the office on Fridays or Mondays,
and loss of potential benefit from having face-to-face
interactions with colleagues that are useful for sharing
knowledge and generating creative solutions to product or service problems. Being in the office is especially
important today because many jobs require close collaboration with peers or working on team projects.
Also, unplanned personal interactions occurring at
the office can lead to new ideas or improved working relationships. The biggest problem for employees
working from home is overcoming other employees’
and managers’ perceptions that they are not as productive as they could be, they lack focus, and they lose
CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 65
“face-time,” which leads to fewer opportunities for
promotions.
QUESTIONS
1. Do you think that companies should have a policy
that allows all employees to work at home? Why
or why not? How would you determine which jobs
are best suited for working at home?
2. What role can technology play in allowing employees to work at home? Do you believe that interaction using technology can replace interpersonal
face-to-face interaction between employees or
between employees and their manager?
3. What role should HR play in helping a company’s
leaders decide if a work-at-home policy is appropriate? What kind of information should HR provide to help in the decision making?
SOURCES: Based on B. Goldsmith, “Yahoo’s Work-from-Home Ban
Stirs Backlash,” The Columbus Dispatch, February 27, 2013, p. A5;
P. Marinova, “Who Works from Home and When,” February 28, 2013,
www.cnn.com, accessed February 28, 2013; C. Suddath, “Work-fromHome Truths, Half-truths, and Myths,” Bloomberg BusinessWeek, March
4–10, 2013, p. 75; R. Silverman and Q. Fottrell, “The Home Office in the
Spotlight,” Wall Street Journal, February 27, 2013, p. B6; N. Shah, “More
Americans Working from Home Remotely,” Wall Street Journal, April 6,
2013, p. A3.
HR IN SMALL BUSINESS
Managing HR at a Growing Service Company
Susan K. Dubin describes herself as someone who
enjoys helping others and making her company a
positive place to work. Those attitudes have provided
a strong basis for her successful career in human
resource management. In two different companies,
Dubin took on responsibilities for payroll, training,
and employee relations. As she built her experience,
she established a strong working relationship with
Danone Simpson, an insurance agent.
Dubin was impressed with what she saw as
Simpson’s “commitment to client services.” So when
Simpson prepared to open her own insurance services
business, Dubin was interested in signing on. For several years now, Dubin has been HR director for Danone
Simpson Insurance Services, which operates from
offices in Woodland Hills, California. She also answers
questions from clients who call the agency’s HR hotline.
Dubin sees herself as contributing to the fastgrowing company’s success. For example, she looks
for the best deals in benefits programs in order to have
room in her budget for the little things that contribute to
an employee-friendly workplace: monthly luncheons,
raffle prizes, and break rooms. That’s a priority, Dubin
says, because employees who are “happy at work” are
“more productive, so everybody wins.” Simpson sees
that balance between nurturing and practicality in
Dubin. According to Simpson, Dubin is supportive but
also firm in enforcing standards: “She doesn’t put up
with any nonsense . . . but does it in a wonderful way.”
Perhaps the Careers page of Danone Simpson’s website puts it best. Besides promoting the agency as an “honest and hardworking team,” it says simply, “Please be
advised that our organization cares about its employees.”
QUESTIONS
1. Based on the description in this case, how well
would you say Susan Dubin appreciates the scope
of human resource management? What, if any,
additional skills of an HR professional would you
encourage her to develop?
2. Look up descriptions of HR jobs by searching
under “human resources” in the latest edition of
the Bureau of Labor Statistics’ Occupational Outlook Handbook (available online at www.bls.gov/
OCO/). What position in the handbook best
matches Dubin’s job, as described in this case?
3. How would you expect Dubin’s job in a small services company to be different from a similar position in a large manufacturing company?
SOURCES: Danone Simpson Insurance Services, corporate website,
accessed June 1, 2011; and Mark R. Madler, “Valley’s Top Human
Resources Professionals: Susan K. Dubin,” San Fernando Valley Business
Journal, April 13, 2009, Business & Company Resource Center, http://
galenet.galegroup.com.
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