Memo of no more than 1,050 words

1. What will 21st-century corporations look like?

2. What people-related business issues must managers be concerned about?

3. Which features will characterize the competitive business environment in the foreseeable future, and how might we respond to them?

4. What people-related problems are likely to arise as a result of changes in the forms of organizations? How can we avoid these problems?

5. What are the HR implications of our firm's business strategy?

Sources: J. A. Byrne. (2000, Aug. 28). Management by Web. BusinessWeek, pp. 84-96. G. Colvin. (2000, Mar. 6). Managing in the info era. Fortune, pp. F6-F9. J. Pfeffer & J. F. Veiga, Putting people first for organizational success. Academy of Management Executive, pp. 37-48. J. A. Byrne. (2000, Aug. 28). Visionary vs. visionary. BusinessWeek, pp. 210-214.

Sparked by new technologies, particularly the Internet, the corporation is undergoing a radical transformation that is nothing less than a new Industrial Revolution. This time around, the revolution is reaching every corner of the globe and, in the process, rewriting the rules laid down by Alfred P. Sloan, Jr. (the legendary chairman of General Motors), Henry Ford, and other Industrial Age giants. The 21st-century corporation that emerges will, in many ways, be the polar opposite of the organizations they helped shape.

Many factors are driving change, but none is more important than the rise of Internet technologies. Like the steam engine or the assembly line, the Net has already become an advance with revolutionary consequences, most of which we have only begun to feel. The Net gives everyone in the organization, from the lowliest clerk to the chairman of the board, the ability to access a mind-boggling array of information—instantaneously, from anywhere. Instead of seeping out over months or years, ideas can be zapped around the globe in the blink of an eye. That means that the 21st-century corporation must adapt itself to management via the Web. It must be predicated on constant change, not stability; organized around networks, not rigid hierarchies; built on shifting partnerships and alliances, not self-sufficiency; and constructed on technological advantages, not bricks and mortar.

The organization chart of the large-scale enterprise had long been defined as a pyramid of ever-shrinking layers leading to an omnipotent CEO at its apex. The 21st-century corporation, in contrast, is far more likely to look like a web: a flat, intricately woven form that links partners, employees, external contractors, suppliers, and customers in various collaborations. The players will grow more and more interdependent, and managing this intricate network will be as important as managing internal operations.

In contrast to factories of the past 100 years that produced cookie-cutter products, the company of the future will tailor its products to each individual by turning customers into partners and giving them the technology to design and demand exactly what they want. Mass customization will result in waves of individualized products and services, as well as huge savings for companies, which no longer will have to guess what and how much customers want.

It's Global. In the beginning, the global company was defined as one that simply sold its goods in overseas markets. Later, global companies assumed a manufacturing presence in numerous countries. The company of the future will call on talent and resources—especially intellectual capital—wherever they can be found around the globe, just as it will sell its goods and services around the globe. Indeed, the very notion of a headquarters country may no longer apply, as companies migrate to places of greatest advantage. The new global corporation might be based in the United States but do its software programming in Sri Lanka, its engineering in Germany, and its manufacturing in China. Every outpost will be connected seamlessly by the Net so that far-flung employees and freelancers can work together in real time.

It's About Speed. All this work will be done in an instant. “The Internet is a tool, and the biggest impact of that tool is speed,” says Andrew S. Grove, co-founder of Intel Corporation. That means the old, process-oriented company must revamp radically. With everything from product cycles to employee turnover on fast-forward, there is simply not enough time for deliberation or bureaucracy.

The 21st-century corporation will not have one ideal form. Some will be completely virtual, wholly dependent on a network of suppliers, manufacturers, and distributors for their survival. Others, less so. Some of the most successful companies will be very small and very specialized. Others will be gargantuan in size, scope, and complexity. Table 1-1 presents a summary of these changes.

If people are so critical to business success in the 21st-century organization, what will it take to attract and retain the best? According to John T. Chambers, CEO of Cisco Systems Inc.: “The reason people stay at a company is that it's a great place to work. It's like playing on a great sports team. Really good players want to be around other really good players. Secondly, people like to work for good leadership. So creating a culture of leaders that people like is key. And the third is, are you working for a higher purpose than an IPO or a paycheck? Our higher purpose is to change the way the world works, lives, and plays.”

So if firms are to produce profits through people, what should they do? In the case conclusion at the end of the chapter, we will examine seven practices of successful organizations.

Challenges

1. In Table 1-1, which dimensions of the 21st-century prototype model require effective skills in managing people?

2. How might the Internet change the ways that employees and managers interact?

3. If the 21st-century prototype model of organizations is to be successful, how must companies change their approaches to managing people?

This chapter begins by considering what human resources management is all about, how it relates to the work of the line manager, and how it relates to profits. Then we will consider some current competitive challenges in the business environment, emphasizing the importance of business and human resources (HR) strategy. Managing to achieve strategic objectives has direct implications for productivity and quality of work life. Let's begin by considering the nature of human resource management (HRM).

Managers are responsible for optimizing all of the resources available to them—material, capital, and human.1 When it comes to managing people, however, all managers must be concerned to some degree with the following five activities: staffing, retention, development, adjustment, and managing change.

Staffing comprises the activities of (1) identifying work requirements within an organization; (2) determining the numbers of people and the skills mix necessary to do the work; and (3) recruiting, selecting, and promoting qualified candidates.

Retention comprises the activities of (1) rewarding employees for performing their jobs effectively; (2) ensuring harmonious working relations between employees and managers; and (3) maintaining a safe, healthy work environment.

Development is a function whose objective is to preserve and enhance employees' competence in their jobs through improving their knowledge, skills, abilities, and other characteristics; HR specialists use the term competencies to refer to these items.

Adjustment comprises activities intended to maintain compliance with the organization's HR policies (e.g., through discipline) and business strategies (e.g., cost leadership). Managing change is an ongoing process whose objective is to enhance the ability of an organization to anticipate and respond to developments in its external and internal environments and to enable employees at all levels to cope with the changes.

As a result of a large number of unexpected early retirements, the Hand Corporation finds that it must recruit extensively to fill the vacated jobs. The firm is well aware of the rapid changes that will be occurring in its business over the next 5 to 10 years, so it must change its recruiting strategy in accordance with the expected changes in job requirements. It also must develop selection procedures that will identify the kinds of competencies required of future employees. Compensation policies and procedures may have to change because job requirements will change, and new incentive systems will probably have to be developed. Because the firm cannot identify all the competencies that will be required 5 to 10 years from now, it will have to offer new training and development programs along the way to satisfy those needs. Assessment procedures will necessarily change as well, because different competencies will be required to function effectively at work. As a result of carrying out all this activity, the firm may need to discharge, promote, or transfer some employees to accomplish its mission, and it will have to provide mechanisms to enable all remaining employees to cope effectively with the changed environment.

It is surprising how that single event, an unexpectedly large number of early retirees, can change the whole ballgame. So it is with any system or network of interrelated components. Changes in any single part of the system have a reverberating effect on all other parts of the system. Simply knowing that this will occur is healthy, because then we will not make the mistake of confining our problems to only one part. We will recognize and expect that whether we are dealing with problems of staffing, training, compensation, or labor relations, all parts are interrelated. In short, the systems approach provides a conceptual framework for integrating the various components within the system and for linking the HRM system with larger organizational needs.

To some, the activities of staffing, retention, development, and adjustment are the special responsibilities of the HR department. But these responsibilities also lie within the core of every manager's job throughout any organization—and because line managers have authority (the organizationally granted right to influence the actions and behavior of the workers they manage), they have considerable impact on the ways workers actually behave.

Thus, a broad objective of HRM is to optimize the usefulness (i.e., the productivity) of all workers in an organization. A special objective of the HR department is to help line managers manage those workers more effectively. As Dennis Donovan, executive vice president of HR for Home Depot noted, “CEOs and boards of directors are learning that human resources can be one of your biggest game-changers in terms of competitive advantage.”2

This is consistent with the findings of a recent survey of Australian CEOs, who listed the three most important factors critical to business success as (1) recruiting and retaining skilled employees, (2) increasing customer satisfaction, and (3) employing and developing leaders.3 To be sure, each of the responsibilities of HRM is shared by the HR department and the line managers, as shown in Table 1-2.

· Personnel selection

· Job design

· Information sharing

· Performance appraisal

· Promotion systems

· Attitude assessment

· Incentive systems

· Grievance procedures

· Labor-management participation

Based on an index of “best-practice” prevalence, firms using more progressive policies in these areas were generally found to have superior financial performance. The 25 percent of firms scoring highest on the index performed substantially higher on key performance measures, as shown here:

The top 25 percent of firms—those using the largest number of “best practices”—had an annual shareholder return of 9.4 percent, versus 6.5 percent for firms in the bottom 25 percent. Firms in the top 25 percent had an 11.3 percent gross rate of return on capital, more than twice as high as that of the remaining firms. After accounting for other factors likely to influence financial performance (such as industry characteristics), the human resource index remained significantly related to both performance measures.5

As this study shows, adoption of high-performance work practices can have an economically significant effect on the market value of a firm. How large an effect? Recent work indicates a range of $15,000 to $45,000 per employee6 and that such practices can affect the probability of survival of a new firm by as much as 22 percent.7 The extent to which they actually will pay off depends on the skill and care with which the many HR practices available are implemented to solve real business problems and to support a firm's operating and strategic initiatives.

Such high-performance work practices provide a number of important sources of enhanced organizational performance.8 People work harder because of the increased involvement and commitment that comes from having more control and say in their work. They work smarter because they are encouraged to build skills and competence. They work more responsibly because their employers place more responsibility in the hands of employees farther down in the organization. What's the bottom line in all of this? HR systems have important, practical impacts on the survival and financial performance of firms, and on the productivity and quality of work life of the people in them.

At its core, the globalization of business refers to the free movement of capital, goods, services, ideas, information, and people across national boundaries. Markets in every country have become fierce battlegrounds where both domestic and foreign competitors fight for market share. Foreign competitors can be formidable. For example, Coca-Cola earns more than 80 percent of its revenues from outside the United States! The 500 largest firms in the world gross almost $15 trillion in revenues, and $731 billion in profits. From 1995 to 2003, the total revenues of the top 500 companies increased by 45 percent, profits nearly tripled, and employment jumped by 11 million.9

The Backlash Against Globalization.

In no small part, the booming economies of recent years in developed countries have been fueled by globalization. Open borders have allowed new ideas and technology to flow freely around the globe, accelerating productivity growth and allowing companies to be more competitive than they have been in decades. Yet there is a growing fear among many people that globalization benefits big companies instead of average citizens—of America or any other country.10 In the public eye, multinational corporations are synonymous with globalization. In all of their far-flung operations, therefore, they bear responsibility to be good corporate citizens, to preserve the environment, to uphold labor standards, to provide decent working conditions and competitive wages, to treat their employees fairly, and to contribute to the communities in which they operate. Doing so will make a strong case for continued globalization.

Implications of Globalization for HRM.

As every advanced economy becomes global, a nation's most important competitive asset becomes the skills and cumulative learning of its workforce. Globalization, almost by definition, makes this true. Virtually all developed countries can design, produce, and distribute goods and services equally well and equally fast. Every factor of production other than workforce skills can be duplicated anywhere in the world. Capital moves freely across international boundaries, seeking the lowest costs. State-of-the-art factories can be erected anywhere. The latest technologies move from computers in one nation, up to satellites parked in space, and back down to computers in another nation—all at the speed of electronic impulses. It is all interchangeable—capital, technology, raw materials, information—all except for one thing, the most critical part, the one element that is unique about a nation or a company: its workforce. A workforce that is knowledgeable and skilled at doing complex things keeps a company competitive and attracts foreign investment.11

New technology has completely changed the ways we live and work

And tomorrow? Our networks of suppliers, producers, distributors, service companies, and customers will be so tightly linked that we literally will not be able to tell one locale from another. No political force can stop, or even slow down for long, the borderless economy.13 The lesson for managers is clear: Be ready or be lost.

It is no exaggeration to say that modern technology is changing the ways we live and work. The information revolution will transform everything it touches—and it will touch everything. Information and ideas are key to the new creative economy, because every country, every company, and every individual depends increasingly on knowledge. People are cranking out computer programs and inventions, while lightly staffed factories churn out the sofas, the breakfast cereals, the cell phones. The five fastest growing occupations in the United States are all computer related, according to projections by the Bureau of Labor Statistics.14

Manufacturing still represents 14 percent of the GDP and 11 percent of all employment in the United States, the world's leading producer of manufactured goods. Technology has made astounding leaps in productivity possible. In fact, gains in manufacturing productivity have outstripped those in the overall economy by 50 percent over the past 30 years. Indeed, the modern factory is often a wonder to behold: amazing machines, doing various interchangeable tasks in vast, spotless warehouses, just off the Interstate.15

Impact of New Technology on HRM.

Perhaps the most central use of technology in HRM is an organization's human resources information system (HRIS). Indeed, as technology integrates with traditionally labor-intensive HR activities, HR professionals are seeing improvements in response time and efficiency of the report information available. Dozens of vendors offer HRIS applications ranging from benefits enrollment to applicant tracking, time and attendance records, training and development, payroll, pension plans, and employee surveys.17 Such systems are moving beyond simply storing and retrieving information to include broader applications such as report generation, succession planning, strategic planning, career planning, and evaluating HR policies and practices. In that sense, today's HRIS are tools for management control and decision making.

Consider this forecast: “The Internet will change the relationship between consumers and producers in ways more profound than you can yet imagine. The Internet is not just another marketing channel; it's not just another advertising medium; it's not just a way to speed up transactions. The Internet is the foundation for a new industrial order. The Internet will empower consumers like nothing else ever has … The Web will fundamentally change customers' expectations about convenience, speed, comparability, price, and service.”18

Whether it's business-to-business (B2B) or business-to-consumer (B2C), electronic (e-) commerce is taking off, with annual sales now exceeding $46 billion. Despite the burst dot-com bubble, e-commerce companies that understand what consumers want and can deliver it are still growing at a rate that few other consumer businesses their size have ever attained.19 As an example, consider search engine Google. Google makes hundreds of millions of dollars selling advertising that is keyed to the words that people search for. Advertisers only pay if people click. Advertisers like that model because they know exactly who looked at their ad, and they only pay if the ad is seen. As a result, major advertisers such as Ford and McDonald's are increasing their spending on online advertising.20

(Source: How E-biz rose, fell, and will rise anew. BusinessWeek, May 13, 2002, p. 67.)

Retail e-commerce sites, so the thinking goes, will cut consumer prices by pitting a multitude of sellers against one another, allowing Web-surfing buyers to identify quickly the lowest possible price for any good. Web-based search engines will provide buyers with more information—and bargaining power—about products than ever before. Whether those predictions come to pass will depend on several factors—the most important of which is how much economic activity finally does move online. As you read this, however, and as you ponder the future of e-commerce, consider one inescapable fact: All of the people who make e-commerce possible are knowledge workers. The organizations they work for still have to address the human resource challenges of attracting, retaining, and motivating them to perform well.

(Source: Too many workers? Not for long. BusinessWeek, May 20, 2002, p. 127.)

(Source: BusinessWeek, Aug. 28, 2000, p. 79.)

Implications for HRM.

These trends have two key implications for managers: (1) The reduced supply of workers will make finding and keeping employees a top priority. (2) The task of managing a culturally diverse workforce, of harnessing the motivation and efforts of a wide variety of workers, will present a continuing challenge to management.

The organizations that thrive will be the ones that embrace the new demographic trends instead of fighting them, which will mean even more women and minorities in the workforce—and in the boardrooms as well. IBM's head of global diversity characterizes this as a “war for talent” as he ticks off various IBM projects to develop talent among women, African Americans, Asians, homosexuals, and other groups. Workforce diversity is not just a competitive advantage. Today it's a competitive necessity.

In today's world of fast-moving global markets and fierce competition, the windows of opportunity are often frustratingly brief.23 “Three-C” logic (i.e., command, control, compartmentalized information) dominated industrial society's approach to organizational design throughout the 19th and 20th centuries, but trends such as the following are accelerating the shift toward new forms of organization in the 21st:24

· Smaller companies that employ fewer people.

· The shift from vertically integrated hierarchies to networks of specialists.

· Pay tied less to a person's position or tenure in an organization and more to the market value of his or her skills.

· A change in the paradigm of doing business from making a product to providing a service, often by part-time or temporary employees.

· Outsourcing of activities that are not core competencies of a firm (e.g., payroll).

· The redefinition of work itself: constant learning, more higher-order thinking, less nine-to-five mentality.

Work in the 21st century requires constant learning and higher-order thinking, as more jobs shift from manufacturing to services.

In response to these changes, many firms are doing one or more of the following: developing new forms of organization, restructuring (including downsizing), adopting quality-management programs, reengineering work processes, and building flexibility into work schedules and rules. Let's briefly consider each of these.

A third example of a new organizational form is the modular corporation—that's right, modular. The basic idea is to focus on a few core competencies—those a company does best, such as designing and marketing computers or copiers—and to outsource everything else to a network of suppliers.27 If design and marketing are core competencies, then manufacturing or service units are modular components. They can be added or taken away with the flexibility of switching parts in a child's Lego set. Does the modular corporation work? As an example, consider Dell Computer.

COMPANY EXAMPLE: DELL COMPUTER

Dell prospers by remaining perfectly clear about what it is and what it does. “We are a really superb product integrator. We're a tremendously good sales- and-logistics company. We're not the developer of innovative technology.”28 Says CEO Michael Dell, “We can grow at a rapid rate by focusing on our core business.” Grow it has, from $3.4 billion in sales in fiscal 1995 to $41.4 billion in 2004.29

Dell sells IBM-compatible personal computers (PCs) in competition with HP-Compaq, Apple, and Sony. But while others rely primarily on computer stores or dealers, Dell sells directly to consumers, who read about the products on the company's Web page, in newspaper ads, or catalogues. Buyers either order online or call a toll-free number and place their orders with a staff of well-trained salespeople.

The Modular Corporation in Action

Dell doesn't build a zillion identical computers, flood them out to retailers, and hope you like what you see. Instead, it waits until it has your custom order (and your money), then orders components from suppliers and assembles the parts. At its OptiPlex factory in Austin, Texas, for example, 84 percent of orders are built, customized, and shipped within eight hours. Some components, like the monitor or speakers, may be sent directly from the supplier to your home (never passing through Dell) and arrive on your doorstep at the same time as everything else.30 By eliminating intermediaries—and the retailer's typical 13 percent markup—Dell can charge lower prices than its rivals.31

Restructuring can assume a variety of forms, of which employment downsizing is probably the most common. Companies can restructure by selling or buying plants or lines of business, or by laying off employees. Downsizing, the planned elimination of positions or jobs, has had, and will continue to have, profound effects on organizations, managers at all levels, employees, labor markets, customers, and shareholders. Based on the type of restructuring in question, one study examined its effects on profitability and stock returns for 500 representative companies listed on the New York Stock Exchange (Standard & Poor's 500) over an 18-year period (1982-2000). Companies are included in the S&P 500 because of their size and financial contribution to the market.

The study began by classifying the companies each year as stable employers or employment or asset downsizers or upsizers, and researchers observed the subsequent effects over the following three years.34 In terms of profitability (return on assets) all categories of downsizers generated lower returns on assets than either stable employers or upsizers in the year prior to the announcement of the layoffs, in the year in which the layoffs occurred, and in the two subsequent years. This conclusion held on an industry-adjusted basis as well.

In terms of stock performance, on an industry-adjusted basis, only the asset upsizers yielded returns that were significantly higher than those of all other groups, including stable employers. The cumulative total return by the end of Year 2 for a $1 investment was $1.69 for stable employers, $1.72 for both employment and asset downsizers, and $2.42 for asset upsizers.

Employment downsizers reduced their workforces by an average of 11 percent. Relative to their industries, they were able to attain a return on assets that was only 0.3 percent above their industry average by Year 2. The benefits of downsizing seem small when compared with the human cost. The message to employers is clear: Don't try to shrink your way to prosperity. Instead, the best way to prosper is by growing your business.

Total quality management (TQM) is a set of principles and practices whose core ideas include understanding customer needs, doing things right the first time, and striving for continuous improvement. The TQM revolution began in the 1980s, based on the principles of statistical quality control for manufacturing processes developed by W. Edwards Deming.35 Motorola, Xerox, and Ford pioneered its application in the United States.

Unfortunately, TQM programs, or other quality-assurance strategies such as six sigma (an effort to make error-free products 99.9997 percent of the time, or just 3.4 errors per million opportunities) have not been the final answer to customer satisfaction and productivity improvement. In many cases managers view quality as a quick fix and are disillusioned when results prove difficult to achieve. It generally takes three to five years before quality management programs become institutionalized,37 and some CEOs and managers are unwilling to make that kind of commitment. When such initiatives do work, it is often because managers have made major changes to their philosophies and HR programs. In fact, organizations known for the quality of their products and services strongly believe that employees are key to those results. On the other hand, defects don't matter much if a company is making a product no one wants to buy.38

More recently, organizations have moved beyond TQM programs to a more comprehensive approach to redesigning business processes called reengineering. Reengineering is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in cost, quality, and speed.39 A process is a collection of activities (such as procurement, order fulfillment, product development, or credit issuance), that takes one or more kinds of input and creates an output that is of value to a customer. Customers may be internal or external. Consider credit issuance as an example. Instead of the separate jobs of credit checker and pricer, the two may be combined into one “deal structurer.” Such integrated processes may cut response time and increase efficiency and productivity. Employees involved in the process are responsible for ensuring that customers' requirements are met on time and with no defects, and they are empowered to experiment in ways that will cut cycle time and reduce costs. Result: Less supervision is needed, while workers take on broader responsibilities and a wider purview of activities.

HR issues are central to the reengineering of business processes.40 Reengineering requires that managers create an environment and an organizational culture that embraces, rather than resists change. The effectiveness of such efforts depends on effective leadership and communication, both of which are people-related business processes. In fact, changes in job analyses, selection, training, performance management, career planning, compensation, and labor relations are all necessary in order to complement and support reengineering efforts.

Small-business owners in particular are finding that flexibility on hours is a cheap benefit that allows them to compete with large companies whose schedules may be more rigid. As a result, many are hiring members of a group once shunned by employers—mothers of young children. “We're learning that the trade-off if they have to leave work for something child related is loyalty in return for that flexibility,” says Susan Lyon, president of Lyon & Associates, a small advertising and marketing firm in San Diego.43

Fully 57 percent of U.S. employers offer flextime to their employees.44 Indeed, a recent poll found 56 percent of managers reporting that employees with flexible schedules are more productive per hour. That kind of positive buzz is what is driving work redesign processes to enhance flexibility at companies such as Ernst & Young, HP-Compaq, Bank of America, and General Mills.45

ETHICAL DILEMMA: Conflict between American and Foreign Cultural Values

Each chapter of this book contains a brief scenario that illustrates a decision-making situation that could result in a breach of acceptable behavior. Such situations pose ethical dilemmas. To be ethical is to conform to moral standards or to conform to the standards of conduct of a given profession or group (e.g., medicine, auditing). Ethical decisions about behavior take account not only of one's own interests but also, equally, the interests of those affected by a decision. What would you recommend in response to the following situation?46

You are the director of HR for a large, southwestern teaching hospital. This hospital has a cooperative program with a major teaching hospital in Saudi Arabia. Each year several doctors from your hospital spend the year in Saudi Arabia teaching and doing research. The stay in Saudi Arabia is generally considered both lucrative as well as professionally rewarding.

This morning you had a visit from two of the doctors in the hospital who had been rejected for assignment to Saudi Arabia. They were very upset, as they are both very qualified and ambitious. You had carefully explained to them that while the selection committee was impressed with their abilities, the members had decided that because they were Jewish, it would be best if they were disqualified from consideration. In spite of vigorous protests from the two doctors, you had held your ground and supported the committee's decision. However, as you sit at home reading that evening, the situation replays itself in your mind, and you think about the decision and feel a little uncertain.

Is the director of HR correct in supporting the committee's decision? What criteria should the committee, and the director of HR, use to make a decision such as this? What would you recommend?

COMPANY EXAMPLE: EMPLOYMENT SYSTEMS AND BUSINESS STRATEGIES AT FEDEX AND UPS47

Explanations for what makes firms competitive are turning more frequently to the notion of “core competencies” that are unique to firms.48 In this example, let us consider some unique competencies that differentiate services and, in turn, drive the competitiveness of the two firms in question.

Although both FedEx and UPS are in the shipping business, it is difficult to find two companies with people-management practices that are more different. FedEx has no union, and its workforce is managed using the latest HRM tools. For example, both individual and group performance are assessed, and both influence pay. The company has pay-for-suggestion systems, quality-of-work-life programs, and a variety of other arrangements that empower employees and increase their involvement. Employees at FedEx have played an important role in helping design the organization of work and the way technology has been used.

UPS, on the other hand, uses none of these HRM practices. Employees have no direct say over issues regarding how work is organized. Their jobs are designed by industrial engineers according to time-and-motion studies. The performance of each employee is measured and evaluated against company standards for each task, and employees receive daily feedback on their performance. The only effort at employee involvement is collective bargaining over contract terms through the Teamsters' Union, which represents drivers. Management, rather than the union, appears to be the force maintaining this system of work organization. It has shown little interest in moving toward work systems such as the kind used at FedEx.

The histories of the two companies help explain the difference in management practices. FedEx was founded by Fred Smith, a Yale graduate with a background in economics. At UPS, on the other hand, virtually every executive began by driving a truck. Says one logistics consultant, “The UPS guys get ahead by scrambling all the time. They get promoted and hustle like mad and yell at the drivers to make their section profitable and get their bonus. They don't care about image. They're tough. Their attitude is, ‘Whaddaya mean I can't drive through that brick wall?’”49

The material rewards for working at UPS are substantial and may more than offset the low levels of job enrichment and the tight supervision. The company pays the highest wages and benefits in the industry. It also offers employees gain-sharing and stock ownership plans. In contrast to FedEx, UPS fills virtually all promotions (98 percent) from within the company, offering entry-level drivers excellent long-term prospects for advancement.

Why does it make sense for UPS to rely on highly engineered systems that are generally thought to contribute to poor morale and motivation, but then to offset the negative effects with strong material rewards? FedEx, in contrast, offers an alternative model with high levels of morale and motivation and lower material rewards. Differences in technology do not explain it. FedEx is known for its pioneering investments in information systems (it was the first to install elaborate scanning and tracking equipment, which enabled it to tell customers exactly where their package was), but UPS has responded recently with its own wave of computerized operations. Yet the basic organization of work at UPS has not changed.

In fact, the employment systems in these two companies are driven by their business strategies. FedEx is the smaller of the two, operating until recently with only one hub in Memphis and focusing on the overnight package-delivery service as its platform product. UPS, in contrast, has a much larger scale of business. With 150,000 trucks and 610 planes, versus 94,800 trucks and 637 planes for FedEx (worldwide), UPS has a much larger overall share of the on-time delivery business (36 percent of the market, versus 16 percent for FedEx).51

The scale and scope of business at UPS demand an extremely high level of coordination across its network of delivery hubs, coordination that is achievable only through a highly regimented and standardized approach to job design. Changes in practices and procedures essentially have to be systemwide to be effective. Such coordination is compatible with the systemwide process of collective bargaining but not with significant levels of autonomy of the kind associated with shop-floor decision making by employees.

FedEx, on the other hand, historically had only one hub, which meant that there were fewer coordination problems. This allowed considerable scope for autonomy and participation in shaping work decisions at the group level.

What is the lesson in this example? When it comes to managing people, there may be no single set of “best practices” for all employers. Firms that are in competition with one another work hard to differentiate their products and services and to find niches in markets where they are protected from competition. Differentiating products and services is one of the essential functions of strategic management. Distinctive human resource practices encourage differentiation by shaping the core competencies that determine how firms compete.

Each chapter of this book focuses on a different aspect of HRM and considers its impact on three important outcomes: productivity, quality of work life, and profits. In the next two sections we will examine the concepts of productivity and quality of work life. In the next chapter we will focus on the contribution of effective HRM to profits.

(Source: J. Mehring, What's lifting productivity. BusinessWeek, May 24, 2004, p. 32.)

Improving productivity simply means getting more out of what is put in. It does not mean increasing production through the addition of resources, such as time, money, materials, or people. It is doing better with what you have. Improving productivity is not working harder; it is working smarter. Today's world demands that we do more with less—fewer people, less money, less time, less space, and fewer resources in general. These ideas are shown graphically in Figure 1-5 and illustrated in the following company example.

COMPANY EXAMPLE: ONE TRUCK A MINUTE AT FORD'S KANSAS CITY PLANT54

Ford's Kansas City automobile plant is one of the largest in the United States, turning out more than 490,000 F-150 pickup trucks, Ford Escapes, and Mazda Tributes each year. The plant is “flexible,” meaning that with just a little tweaking it can produce any kind of car that Ford makes. Mostly it produces F-150s, the best-selling vehicle of any kind in the United States for the past 22 years. The new model has so many options, including a paint called Screaming Yellow, that there are more than one million possible combinations.

In a flexible plant, each vehicle is assigned a metal pallet on which it will be built. The pallet has a reprogrammable ID card that contains data on the vehicle-to-be. Parts arrive four to six hours before they're installed, in the sequence in which they will be used. Assembly is synchronized by computers down to the last rear-view mirror. As an example, consider the 11 people who attach suspensions to vehicle frames. Every task they do is listed on a computer printout posted at each workstation. They have 57.5 seconds to get their jobs done.

Ford is making a companywide shift to flexible manufacturing. Doing so will enable it to save $2 billion over the next 10 years. When plant manager Dave Savchetz was asked what's changed over the years he replied: “We didn't have robots and computers 30 years ago.” As a manager, the basic concepts haven't changed, and the magnitude of the operation still overwhelms him (the plant covers 18 acres). But what impresses him most he says, is the way that auto-manufacturing facilities, such as the one in Kansas City, have made giant, often unnoticed leaps in productivity in order to stay competitive in the modern marketplace. How big a leap? The plant produces one truck a minute.

· Helping to make both unionized and nonunionized workers aware that their rewards depend ultimately on production.

· Recognizing that there is no “quick fix” approach. Worker training, work redesign, product reengineering—all must be linked to the priorities of the business plan and integrated into a comprehensive productivity-improvement strategy.

· Recognition of the crucial importance of continuous improvements in quality (an important aspect of productivity improvement) through prevention of errors. Doing so requires a reshaping of attitudes from the boardroom to the loading dock so that quality becomes more important than simply getting a product out the door.

Greater productivity benefits organizations directly (i.e., it improves their competitive position relative to that of rivals), and it benefits workers indirectly (e.g., in higher pay and improved purchasing power). But many workers want to see a tighter connection between working smarter and the tangible and psychological rewards they receive from doing their jobs well. They want to see significant improvements in their quality of work life.

There are two ways of looking at what quality of work life (QWL) means.56 One way equates QWL with a set of objective organizational conditions and practices (e.g., promotion-from-within policies, democratic supervision, employee involvement, safe working conditions). An example of this approach is shown in Figure 1-6. The other way equates QWL with employees' perceptions that they are safe, relatively well satisfied, they have reasonable work-life balance, and they are able to grow and develop as human beings. This way relates QWL to the degree to which the full range of human needs is met.

In many cases these two views merge: Workers who like their organizations and the ways their jobs are structured will feel that their work fulfills them. In such cases, either way of looking at one's quality of work life will lead to a common determination of whether a good QWL exists. However, because people differ and because the second view is quite subjective—it concedes, for example, that not everyone finds such things as democratic decision making and self-managed work teams to be important components of a good QWL—we will define quality of work life in terms of employees' perceptions of their physical and mental well-being at work.

In theory, QWL is simple—it involves giving workers the opportunity to make decisions about their jobs, the design of their workplaces, and what they need to make products or to deliver services most effectively. It requires managers to treat workers with dignity. Its focus is on employees and management operating the business together.

Over the past decade, organizations have become more complex, dynamic, and fast paced. As a result, senior managers recognize that attracting, retaining, and managing people effectively is more important than ever. In leading-edge companies, HR professionals are proficient in areas such as the following, although this is by no means an exhaustive list:58

· Basic business literacy—corporate finance, marketing, accounting, information technology, and general management.

· Functional areas within HR—legal requirements, recruitment, staffing, training and development, performance management, compensation and benefits, labor and employee relations, occupational safety and health.

· Listening skills—as well as the courage to raise difficult issues with senior executives based on what you have learned by listening.

· Skills as a strategic business partner—creating an overall talent or people mindset; creating an HR strategy that aligns people, processes, and systems; implementing change; developing human capital metrics that are aligned with the strategy of the company; the ability to assess talent during the duediligence phase of a proposed merger or acquisition; and ensuring that ethical standards are actually practiced.

IMPACT OF EFFECTIVE HRM ON PRODUCTIVITY, QUALITY OF WORK LIFE, AND THE BOTTOM LINE

Labor markets are the tightest they have been in decades. For most of the 1990s, downsizing set the tone for the modern employment contract. As companies frantically restructured to cope with slipping market share or heightened competition, they tore up old notions of paternalism. They told employees, “Don't expect to spend your life at one company anymore. You are responsible for your own career, so get all the skills you can and prepare to change jobs, employers, even industries. As for the implicit bond of loyalty that might have existed before, well, forget it.” “In these days of fierce global competition, loyalty is an unaffordable luxury.”59 Today, faced with the retirements of large numbers of baby boomers (those born between 1946 and 1964), and impending labor shortages, employers have changed their tune. Now it's, “Don't leave. We need you. Work for us—you can build a career here.” Employers are going to great lengths to persuade employees that they want them to stay for years. According to a recent survey, employees are less loyal to their companies, and they tend to put their own needs and interests above those of their employers. More often they are willing to trade off higher wages and benefits for flexibility and autonomy—job characteristics that allow them to balance their lives on and off the job. Almost 9 out of every 10 workers live with family members, and nearly half care for dependents, including children, elderly parents, or ailing spouses.60 Among employees who switched jobs in the last five years, pay and benefits rated in the bottom half of 20 possible reasons they did so. Factors rated highest were “nature of work,” “open communication,” and “effect on personal/ family life.” What are the implications of these results? When companies fail to factor in quality-of-work-life issues and quality-of-life issues when introducing any of the popular schemes for improving producti-vity, the only thing they may gain is a view of the backs of their best people leaving for friendlier employers.61

The trends we have reviewed in this chapter suggest that the old approaches to managing people may no longer be appropriate responses to economic or social reality. A willingness to experiment with new approaches to managing people is healthy. To the extent that the newer approaches do enhance productivity, QWL, and profits, everybody wins. Competitive issues cannot simply be willed away, and because of this we may see even more radical experiments in organizations. The traditional role of the manager may be blurred further as workers take a greater and greater part in planning and controlling work, not simply doing what managers tell them to do. For example, under its “Work-Out” program, General Electric holds corporate “town meetings” at which lower-level blue- and white-collar employees and even customers grill bosses and suggest ways to improve efficiency. The boss is supposed to approve or deny most suggestions immediately. The aim isn't to reduce the number of employees, but to get every employee involved in improving efficiency. “Work-Out” is key to the company's sustained productivity growth in the 21st century. Programs such as GE's suggest that human resource management, an essential part of the jobs of all managers, will play an even more crucial role in the future world of work.

Human Resource Management in Action: Conclusion

Management systems that produce profits through people seem to share seven dimensions in common. Let's briefly examine each one.

1. Employment security. Such security is fundamental to most other high-performance management practices. The reason is that innovations in work practices or other forms of worker—management cooperation or productivity improvement are not likely to be sustained over time when workers fear that by increasing productivity they will work themselves out of a job. Additionally, if the goal is to avoid layoffs, organizations will be motivated to hire sparingly in order to keep their labor forces smaller and more productive.

3. Self-managed teams and decentralization are basic elements of organization design. Teams substitute peer-based control for hierarchical control of work. They also make all of the people in a firm feel accountable and responsible for the operation and success of the enterprise, not just a few people in senior management. This increased sense of responsibility stimulates more initiative and effort on the part of everyone involved. By substituting peer for hierarchical control, teams permit removal of layers of hierarchy and the absorption of tasks previously performed by administrative specialists. The tremendously successful natural foods grocery store chain, Whole Foods Markets, is organized on the basis of teams. It attributes much of its success to that arrangement.

4. Comparatively high compensation contingent on organizational performance. It is simply not true that only certain industries can or should pay high wages. The Home Depot has been extremely successful and profitable. It operates in a highly competitive environment, and even though it emphasizes everyday low pricing as an important part of its business strategy, it pays its staff comparatively well for the retail industry. It hires more experienced people with building-industry experience, and it expects its sales associates to provide a higher level of customer service. Broad-based stock ownership also figures prominently in high-performance work systems. Firms such as Wal-Mart, AES Systems, and Microsoft encourage share ownership, but that is only one part of a broader philosophy and culture that incorporates other practices such as training, information sharing, and delegation of responsibility.

5. Extensive training. Training is an essential component of high-performance work systems because these systems rely on front-line employee skill and initiative to identify and resolve problems, to initiate changes in work methods, and to take responsibility for quality. Firms such as the Men's Wearhouse (an off-price specialty retailer of men's tailored business attire and accessories) and Motorola use training as a source of competitive advantage. Motorola mandates 40 hours of training per employee per year. It is simply part and parcel of the overall management process of these firms.

6. Reduced differences in status. The fundamental premise of high-performance management systems is that organizations perform at a higher level when they are able to tap the ideas, skill, and effort of all of their people. Reducing the status distinctions that separate individuals and groups, causing some to feel less valued, helps make all members of an organization feel important and committed. Sam Walton, founder of Wal-Mart, was one of the most underpaid CEOs in the United States. He wasn't poor, for he owned stock in his company. He also encouraged stock ownership for his employees. Having his fortune rise and fall along with those of other employees produces a sense of common fate and reduces status differences.

It may appear easy to create a high-performance organization, but if that were so, then all firms would be as successful as the ones mentioned here. Don't be fooled. Implementing these ideas in a systematic, consistent fashion is tough, and it remains rare enough to be an important source of competitive advantage for firms in a number of industries. The bottom line is that management is a human art and getting more so as information technology takes over routine tasks. Progressive managers understand that they will provide competitive advantage by tapping employees' most essential humanity: their ability to create, judge, imagine, and build relationships. As you can see from this case, managing 21st-century organizations will be fast-paced, exciting, and full of people-related business challenges.

People are a major component of any business, and the management of people (or human resource management, HRM) is a major part of every manager's job. It is also the specialized responsibility of the HR department. In fact, we use the term “strategic HRM” to refer to the wisest possible use of people with respect to the strategic focus of the organization. HRM involves five major areas: staffing, retention, development, adjustment, and managing change. Together they compose the HRM system, for they describe a network of interrelated components. The HRM function is responsible for maximizing productivity, quality of work life, and profits through better management of people.

The competitive business environment of the 21st century reflects factors such as an aging and changing workforce in a high-tech workplace that demands and rewards ever-increasing skill and increasing global competition in almost every sector of the economy. In response, new organization forms, such as the virtual corporation, the virtual workplace, and the modular corporation, are appearing. The new forms imply a redistribution of power, greater participation by workers, and more teamwork. Firms are also restructuring, reengineering, implementing quality-improvement programs, and building flexibility into work schedules in order to support their competitive strategies. The challenge of attracting, retaining, and motivating people has never been greater.

One of the most pressing demands we face today is for productivity improvement—getting more out of what is put in, doing better with what we have, and working smarter, not harder. Nevertheless, increased productivity does not preclude a high quality of work life (QWL). QWL refers to employees' perceptions of their physical and psychological well-being at work. It involves giving workers the opportunity to make decisions about their jobs, the design of their workplaces, and ensuring work-life balance. Its focus is on employees and management operating a business together. HR professionals can help by serving as strategic partners with operating managers, by demonstrating business and HR literacy, and by having the courage to raise difficult issues with senior managers.

· retention

· development

· adjustment

· managing change

· HRM system

· authority

· globalization

· human resource information system

· virtual organization

· virtual workplace

· restructuring

· downsizing

· total quality management

· six sigma

· reengineering

· productivity

· quality of work life

Saturn Corporation is a wholly owned subsidiary of General Motors (GM). GM's market share in the United States is down to 29.4 percent, and GM, the largest industrial corporation in the world, has been struggling of late. GM is Detroit's high-cost producer. Saturn is part of GM's strategy to get its North American automobile business back in gear.

The genesis of the Saturn experiment in teamwork occurred in February 1984 with the establishment of Group 99. This group consisted of 99 employees representing a broad cross section of UAW members, GM managers, and staff from more than 50 plants around the country.

The goal of Group 99 was to study other top-performing, globally successful corporations and create a new approach to building a small car in the United States. The hope was that this step would enable GM to compete effectively in the small-car market, something it had been unable to do in the past.

After visiting and studying about 60 benchmark companies, Group 99 concluded that employees did their best work and were most committed when they felt they were part of the decision-making process. Their recommendation was that Saturn, with its headquarters in Troy, Michigan, and its manufacturing operations in Spring Hill, Tennessee, would have to operate with a totally new and different philosophy. According to Epps, “The primary goal is to create a culture in which employees accept ownership for the direct labor functions they perform, but to also create a culture that reaches out and helps them understand the systems that support them.”

To enable Saturn to operate with a completely new philosophy, GM created Saturn as a separate subsidiary on January 7, 1985. This autonomy allowed a new structure to be put into place and is a crucial step in Saturn's success. The company operates according to five shared values: commitment to customer enthusiasm, commitment to excellence, teamwork, trust and respect for the individual, and continuous improvement.

General Motors sees Saturn as a possible model for future GM plants. Former chairman Roger Smith indicated that the techniques that GM would learn from the Saturn experiment would eventually be replicated throughout the company, “improving the efficiency and competitiveness of every plant we operate…. Saturn is the key to GM's long-term competitiveness, survival, and success as a domestic producer.”

Along with a different approach to its employees, Saturn has taken a much different approach toward its customers. It begins with the now-famous “no-dicker sticker”—a fixed price for each automobile sold. This eliminates the price haggling many customers resent. Saturn salespeople are called “sales consultants,” and they do not work on commission. These “consultants” receive considerable training, including teambuilding skills and orientation toward partnering with the factory and treating customers as intelligent human beings. This approach has enabled Saturn to build up some of the strongest brand loyalty and customer satisfaction ratings in the auto industry.

One key is that the UAW has also committed to the Saturn experiment and has signed a historic labor agreement in an attempt to minimize confrontation. “Traditionally, in my experience,” explains Rypkowski, “production employees felt that the corporation had very deep pockets and that their input wasn't welcome. It didn't matter whether they provided input. Therefore, who cared if the systems that supported them or the operations around them were inefficient because it didn't matter.”

The UAW has accepted some fundamental philosophical approaches to running the Saturn plant that are quite different. “We are trying to get more involvement in decision making and ownership for activities that have traditionally been performed by management or resource people,” explains Rypkowski.

In the new approach to management at Saturn, these tasks are performed by people who produce the product. For example, assembly-line workers are responsible for quality control, budgeting, materials handling, and to some degree, ordering their own materials. Team members even hire their own new team members.

“We've broadened the scope of their responsibilities so they have a bigger and better picture of what it takes to run the business,” says Rypkowski. “Even though their piece of running the business may be relatively small, they gain a better appreciation for what the organization has to do and what it costs in dollars.”

The ultimate goal at Saturn is to have self-directed work teams in which consensus is used to make decisions. Currently, there are about 150 work teams, consisting of approximately 15 people each.

Saturn's mission statement makes it clear that the intent is to allow employees to be involved in decision making in areas that affect them. Presently, decisions are reached by the “70 percent comfortable” rule of consensus: Each team member must feel at least 70 percent comfortable with a decision.

“All you have to do is tell somebody that once,” says Rypkowski. “They hear that, and they're going to hold you to it. Once you make that statement, you had better be prepared to follow through because people take it very seriously.”

At Saturn, there is no shortage of interest and involvement. In fact, it is not uncommon now for employees to ask how their input was taken into consideration any time a decision is made that affects them. But people's willingness to take responsibility and their ability to do so can be two different things. Employees may want to be involved, but are they able to perform in these tasks?

Questions

1. What aspects of quality-of-work-life (QWL) programs does the experiment at the Saturn plant illustrate?

2. How can Saturn ensure that employees have not only the willingness to take responsibility but also the ability to do so?

3. In this case, a completely new company was started with considerable autonomy from General Motors. Why do you think so many large organizations turn to “greenfield” operations such as this when undertaking major changes in corporate culture and operations? Do you foresee any problems down the road for GM in this regard?

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21Mullaney, T. J. (2004, May 10). E-biz strikes again! BusinessWeek, pp. 80-88.

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26Furst, S. A., Reeves, M., Rosen, B., & Blackburn, R. S. (2004). Managing the life cycle of virtual teams. Academy of Management Executive, 18 (2), 6-20; see also Cascio, W. F. (2000). Managing a virtual workplace. Academy of Management Executive, 13 (3), 81-90.

27Esen, E. (2004, July). Human resource outsourcing. Alexandria, VA: Society for Human Resource Management. See also Tully, S. (1993, Feb. 8). The modular corporation. Fortune, pp. 106-108, 112-114.

28Mort Topfer, former vice-chairman of Dell, as quoted in Morris, B. (2000, Oct. 16). Can Michael Dell escape the box? Fortune, pp. 92-110.

29Dell Computer Corporation, 2004 annual report. Austin, TX.

30O'Reilly, B. (2000, Feb. 7). They've got mail! Fortune, pp. 101-112.

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32Op. cit., Dell Computer Corporation, 2004 annual report.

33Op. cit., Dial Dell for servers.

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37Walton, op. cit.

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43Johnson, R. (2000, Sept. 19). Employers now vie to hire moms with young children. The Wall Street Journal, p. B2.

44SHRM 2004 benefits survey report. (2004, June). Alexandria, VA: Society for Human Resource Management.