For A-Plus Writer Only
patisa
Robert L. Mathis I John H. Jackson I Sean R. Valentine
Book reference
Mathis, R. L., Jackson, J. H., & Valentine, S. R. (2014). Human resource management (14th
ed.). Stamford, CT: Cengage Learning.
2
Human Resource Management in Organizations
Learning Objectives
After you have read this chapter, you should be able to:
1 Define human capital.
2 Identify where employees can be used as a core competency.
3 Show the seven categories of HR functions.
4 Provide an overview of four challenges facing HR today.
5 Explain how organizational ethical issues affect HR management.
6 Explain the key competencies needed by HR professionals and why certification is important.
.HEADLINE
Human Resource Management Done Well
D ow Corning is a giant company with
over 10,000 employees in 40 locations
worldwide. Many Dow Corning
offices are considered among the very best
places to work. The company needs engaged
employees working every day to turn its strat-
egy into reality. To help that happen, the com -
pany's Human Resources department has been made a member of the
company's Executive Council. The company believes it cannot reach its poten-
tial unless investment is made in its people. After all, employees are the source
of all ideas, actions, and performance. Hiring the right people and getting them
in the correct jobs, communicating with them, and developing them for greater
opportunities are keys to the company's success. However, if company-wide
efforts are to be successful in a competitive world, all the human resources
decisions must strike a balance among the needs of employees, the economics
of the business, and organizational performance.
To measure the extent to which the Human Resources department at Dow
Corning is doing its job, elements of human resource (HR) performance are
measured and benchmarked against how well competitors are doing in these
areas. One common metric regarding human capital is turnover (the rate at
which people leave the company). Historically in Dow Corning's U.S. opera-
tions, turnover has been about 2% annually, well below average. The average
tenure at Dow Corning is 11 years. Employees who start with the company out
of high school and are still there 20 or 30 years later are not uncommon.
The HR challenges facing Dow Corning, however, are not unlike those fac-
ing most businesses today.
• Finding the right people, especially in developing countries
• Communicating complex information like salary, benefits, and program
design around the worldwide operation
3
4 SECTION 1 The Environment of Human Resource Management
• Designing opportunities for career advancement within countries and
across the entire organization
• Finding meaningful rewards that also encourage the behaviors needed
Some companies hold that their most important assets walk out the door
each evening. How does Dow Corning make sure they come back the next
morning? The company asked employees why they stay and the employees
answered: The people they work with, the opportunities to move up, work-
place flexibility, and interesting work keep them there.1
Human beings are a necessary, varied, and sometimes problematic resource that different organizations use to a greater or lesser degree. For some organizations, tal- ented employees are the cornerstone of a competitive advantage. If the organization is to compete on the basis of new ideas, outstanding customer service, or quick, accurate decisions, having excellent employees is critical. Of course, not every organization must compete on the basis of having the best employees, but even for those that do not, employees are a major source of organizational performance, problems, growth, resistance and lawsuits.
Productive, creative, and reliable people working in a flexible organization at rewarding work should be the goal for a company in getting the most out of the money spent on its employees. Such organizations often earn the reputation as good employers and as a result have more and better potential employees available than competitors . But how does an employer accomplish such a goal?
When an organization employs people certain things must be done to recruit and retain the best people. Finding potentially good employees, training them, pay- ing them appropriately, giving them good work to do, and providing opportunities to succeed are but a few of the activities someone in the organization must address. Most often it is a Human Resources department that does so.
But even doing such traditional HR activities well is not enough to earn a rep- utation as a desirable place to work. A company that can do these things well and also look ahead to address the challenges coming, operate ethically, and maintain high productivity can see its human resource practices earn an advantage over competitors.
1-1 • WHAT IS HUMAN RESOURCE MANAGEMENT?
What is now called human resource management has evolved a great deal since its beginnings circa 1900. What began as a primarily clerical operation in larger com- panies concerned with payroll and employee records faced changes with the social legislation of the 1960s and 1970s. "Personnel departments," as they came to be called, became concerned with the legal ramifications of policies and procedures affecting employees. In the 1990s, globalization and competition began forcing
CHAPTER 1 Human Resource Management in Organizations 5
Human Resource (H R) management The design of formal systems in an organiza- tion to manage human talent for accomplishing organizational goals.
Human Resource departments to become more concerned with costs, planning, and the implications of various HR strategies for both organizations and their employ- ees. More recently human resource operations in some companies have been involved with mergers and acquisitions, outsourcing, and managing vendors of cer- tain traditional HR activities such as payroll and executive search. HR may also advise the CEO or chairman of the board in filling vacancies among executives and directors?
Human Resource management is designing formal systems in an organization to manage human talent for accomplishing organizational goals. Whether a big company with 10,000 employees or a small nonprofit organization with 10 employees, those employees must be paid, which means an appropriate and legal compensation system is needed. Employees also must be recruited, selected, trained, and managed. Each of these activities requires thought and understand- ing about what may work well and what may not. Research on these issues and the knowledge gained from successful approaches form the basis for effective HR management.
1-1 a Why Organizations Need HR Management Not every organization has an HR department. In a company with an owner and 10 employees, for example, the owner usually takes care of HR issues. However, despite the obvious differences between large and small organizations, the same HR issues must be dealt with in every organization.
In a sense every manager in an organization is an HR manager. Sales managers, head nurses, drafting supervisors, college deans, and accounting department super- visors all engage in HR management, and their effectiveness depends in part on the success of organizational HR systems. It is unrealistic: however: to expect a nursing supervisor to know about the nuances of equal employment regulations or how to design a compensation system. For that reason, larger organizations frequently have people who specialize in these activities which form the HR function or department.
Cooperation between operating managers and the HR department is necessary for HR efforts to succeed. In many cases, the HR department designs processes and systems that the operating managers must help implement. The exact division of labor between the two varies from organization to organization. Throughout this book there will be examples of how HR responsibilities in various areas typically are divided in organizations having HR departments. The suggestions will appear as figures (e.g., see Figure 1-1). That figure shows how the responsibilities for selec- tion interviewing might be divided between an HR department and the other man- agers in the organization.
1-1 b Human Capital Organizations must manage four types of assets to be successful:
• Physical assets: buildings, land, furniture, computers, vehicles, equipment, and so on.
• Financial assets: cash, financial resources, stocks, bonds or debt, and so on. • Intellectual property assets: specialized research capabilities, patents, informa-
tion systems, designs, operating processes, copyrights, and so on.
6 SECTION 1
Human capital The collective value of the capabilities, knowl- edge, skills, life experi- ences, and motivation of an organizational workforce.
The Environment of Human Resource Management
F I G U R E 1 - 1 Typical Division of HR Responsibilities: Selection Interviewing
HR Department
• Develops legal, effective interviewing techniques
• Trains managers in conducting sel ect ion interviews
• Conducts intervi ews and tests • Send s top applicants to
manage rs for fina l interview • Checks referen ces • Does fina l interviewing and hiring for
certain job clas sificat ions
Managers
• Advise HR of job openings • Dec ide whether to do own final
interv iewing • Rece ive interview training from HR unit • Do final inte rvi ewing and hir ing where
appropriate • Review reference information • Provide feedback to HR d epartment on
hiring/rejection decisions
• Human assets: individuals with their talents, capabilities, experience, profes- sional expertise, relationships, and so on.
" fj c
'C'
_§ w 0 ro 0 c w '-' @
All these assets are important to varying degrees in different organizations. But the human assets are the "glue" that holds all the other assets together and guides their use to achieve results. Certainly, the cashiers, supervisors, and other employees at Wendy's or Lowe's or the doctors, nurses, receptionists, technical professionals, and other employees at a hospital allow all the other assets of their organization to be used to provide customer or patient services. Effective use of the firm's human capital may explain a significant part of the difference in higher market value between companies.
Human capital is not just the people in organizations-it is also what those people contribute to organizational success. Broadly defined human capital is the collective value of the capabilities, knowledge, skills, life experiences, and motiva- tion of an organizational workforce.
Sometimes human capital is called intellectual capital to reflect the thinking, knowledge, creativity, and decision making that people in organizations contrib- ute . For example, firms with high intellectual capital may have technical and research employees who create new intellectual property such as biomedical devices, formulate pharmaceuticals that can be patented, or develop new software for specialized uses . All these organizational contributions illustrate the potential value of human capital. However, it should also be noted that unlike intellectual property that the organization does own (e.g., patents) it does not own its human capital.
A fundamental question is whether better human resource management strate- gies create higher market value for companies, or whether financially successful companies have more resources to allocate to human capital · initiatives. It can be argued that hiring the right people, supporting their creative thinking and produc- tivity, and combining it all with the right technology should build superior business performance and shareholder value. 3 However, the relationship between these two perspectives is more complex than that. In fact, it appears that the way the HR practices are implemented affects results .4 Generally, better HR practices should improve firm performance if implemented properly, and having superior human capital can indeed influence company performance. 5
CHAPTER 1 Human Resource Management in Organizations 7
1-1 c Managing Human Resources in Organizations Human resources/human capital (or more simply people) who work in organiza- tions may have valuable contributions they can make to the organization's mission. But these contributions will occur only if people have a reasonable opportunity to contribute. Employees must be placed into the right job, be trained, and given feed- back if they are to do well. As noted earlier, it is not just the HR ·department that does these things , but a team effort between operating managers and the HR department, if one exists . 6 Managing people ultimately has to do with the choices the HR department and managers make from among the wide range of possible choices on the formal policies, practices, and methods for managing employees. 7
Examples of such systems and policies are pay system design, performance measure- ment, vacation policy, and hiring processes.
Human Resources in Smaller Organizations In the United States and worldwide, small businesses employ more than half of all private-sector employees and generate many new jobs each year. In surveys over several years by the U.S. Small Business Asso- ciation (SBA), the issues identified as significant concerns in small organizations were consistent: not having enough qualified workers, the rapidly increasing costs of employee benefits, payroll taxes, and compliance with government regulations. Notice that all these concerns have an HR focus, especially when governmental compliance with wage/hour, safety, equal employment, and other regulations are considered.
When new emp{oyees are to 6e bired in a smaH organization, fine managers usually do the recruiting, selecting, and orientation. These HR acti.vi.ti.es, however, reduce the amount of time managers have available to focus on their regular jobs. As a result, when such activities become more frequent, hiring someone to do them allows managers to spend more time on things only they can do. At about 80-100 employees, small organizations typically find that they need to designate someone to specialize in HR issues. Other HR positions are added as specialists (e.g., in com- pensation, training, or recruiting) as the company grows larger. The need for HR grows as an organization grows until it evolves into a specialty with specialists assigned to specific duties. However, for HR to be most useful it must remain firmly attached to the operating management of the organization. Without that attachment HR functions cannot reach their potential.
How Human Resource Management Is Sometimes Seen in Organizations HR depart- ments have been viewed in different ways, both positive and negative. HR management is necessary, especially to deal with the huge number of government regulations enacted over the past decades. However, the need to protect corporate assets against the many legal issues often makes the HR function an enforcement role, which may be seen as negative, restrictive, and not focused on getting the business of the organization done.
The legal compliance role can create negative views of HR staff in others. The negative perception that some employees, managers, and executives have is that HR departments are too bureaucratic, detail-oriented, and costly and are comprised of naysayers . These critics do not see HR as making significant organizational contri- butions. Unfortunately, these views are accurate in some workplaces. Frequently, HR is seen as being more concerned about activities than results, and HR efforts are seldom seen as linking employee, managerial, and business performance. 8
Despite such concerns, the HR function can be a very important contributor to strategic success if done well. 9 HR must be part of any organization, so it makes sense to see that it is done well.
8 SECTION 1
Core competency A unique capability that creates high value at which an organization excels.
a core competency.
f< MEASURE
The Environment of Human Resource Management
1-1 d Human Resource as a Core Competency The development and implementation of specific strategies must be based on the areas of strength in an organization. Referred to as core competencies, those strengths are the foundation for creating a competitive advantage for an organiza- tion. A core competency is a unique capability that creates high value at which an organization excels. .
Certainly, many organizations have identified that their HR practices differenti- ate them from their competitors and that HR is a key determinant of competitive advantage. Recognizing this, organizations as diverse as FedEx, Nordstrom, and Dow Corning have focused on human resources as having special strategic value for the organization.
The same can be true with small companies as well. For example, small com- munity banks have added numerous small- and medium-sized commercial loan cus- tomers because those banks emphasize that their customers can deal with the same employees directly every time they need help, rather than having to call an auto- mated service center in another state, which is the case with some larger nationwide banks . The focus here is on using people (loan officers) as a core competency.
1-2 • WHERE EMPLOYEES CAN BE A CORE COMPETENCY
If employees are really to be a core competency for an organization, how might that occur? The possible areas for using employees as a core competency are many, but the focus here will be on three common areas, as shown in Figure 1-2-productivity, customer service/quality, and organizational culture.
1-2a Productivity Productivity can be a competitive advantage because when the costs to produce goods and services are lowered through high productivity, lower prices can be charged. The result is better sales. Better productivity does not necessarily mean more output. Perhaps fewer people (or less money or time) are used to produce
F I G U R E 1 - 2 Where Employees Can Be a Core Competency ............. ..... ··································· ...... ............ .. ........ ........ .. .
[ Pmd"<t;•;ty ]
'C:,-£t-~~-=''% . .lfl':;.., ... ,:(•'-""t~?j
r Organizational Culture
Human Resources as Core
Competencies ~ ~ :? .E _5
" ~ u @
CHAPTER 1 Human Resource Management in Organizations 9
Productivity Measure of the quantity and quality of work done, co nsidering th e cost of the resources used.
Unit labor cost Computed by dividing the average cost of workers by their average levels of output.
the same amount. In its most basic sense, productivity is a measure of the quantity and quality of work done, considering the cost of the resources used. A useful way to measure the productivity of a workforce is to determine the total cost of people required for each unit of output.1° For example, a retailer may measure productiv- ity as a ratio of employee payroll and benefits to sales, or a bank may compare the number and dollar amount of loans made to the number of loan officers employed. This example provides a metric of productivity per loan officer.
A useful way of measuring the productivity of human resources is to consider unit labor cost, which is computed by dividing the average cost of workers by their average levels of output. Using unit labor costs, one can see that relatively high wages will not affect competitiveness if high productivity levels are achieved. Low unit labor costs can be a basis for a strategy focusing on Human Resource compe- tency. Productivity and unit labor costs can be evaluated at the global, country, organizational, departmental, or individual level.
Improving Productivity Productivity at the organizational level ultimately affects profitability and competitiveness in a for-profit organization and total costs in a not-for-profit organization. Perhaps of all the resources used in organizations, the ones most closely scrutinized are human resources. Many HR management efforts are designed to enhance productivity, as Figure 1-3 indicates. Among the major ways to increase employee productivity are as follows:
• Organizational restructuring involves eliminating layers of management and changing reporting relationships as well as cutting staff through downsizing, layoffs, and early retirement buyout programs.
• Redesigning work often involves having fewer employees who perform multiple job tasks. It may also involve replacing workers with capital equipment or making them more efficient by use of technology or new processes. 11
• Aligning HR activities means making HR efforts consistent with organizational efforts to improve productivity. This alignment includes ensuring that staffing, training and development, performance management, compensation, and other HR activities are not working to offset productivity. 12
• Outsourcing analyses require HR to conduct cost-benefit analysis to examine the impact of outsourcing. Additional factors may include negotiating with out- sourcing vendors, ensuring that contractors domestically and internationally are operating legally and appropriately, and linking organizational employees to the outsourcing firm's employees. 13
1-2b Customer Service and Quality In addition to productivity, both customer service and quality significantly affect organizational effectiveness and can be an HR focus for a core competency. Hav- ing managers and employees focus on the customers' needs contributes signifi- cantly to ·achieving organizational goals and maintaining a competitive advantage. In most organizations, service quality is greatly influenced by the indi- vidual employees who interact with customers. 14 For instance, organizations with high employee turnover rates may see slow sales growth. It seems customers con- sider continuity of customer service representatives important in their buying decisions. 15
10 SECTION 1
1
The Environment of Human Resource Management
FIGURE 1 - 3 HR Approaches to Improving Productivity
Organization Restructuring
• Revising organizational structure • Reducing staff • Aiding in mergers and acquisitions
- """'!' ""!'
Aligning HR Activities • Attracting and retaining employees • Training, developing, and evaluating
employees
I
Goals
Redesigning Work
• Changing workloads and combining jobs
• Reshaping jobs because of technology changes
"'
• Increase organizational productivity
• Reduce unit labor costs
Outsourcing Analysis • Using domestic vendors/contractors
instead of employees
• Compensating employees and other H R activities
• Outsourcing operations internationally
- ~ · ~.,-~ ·.,.;:.; · !i'!hf~ - ·- ~ . 1"'"9 , ;·J!"'"~"!'tf'li!
Customer Service Unfortunately, overall customer satisfaction has declined in the United States and other countries. One example illustrates the importance of service excellence. Within the first six months after being hired, a new CEO at Home Depot directed that labor costs and staffing in the company stores be reduced. As a result, a significant number of long-standing customers complained about not being able to find employees to help them, having to wait a long time to check out, and encountering shortages of merchandise on shelves. At the same time, Lowe's, a major competitor, expanded its staff and advertised its customer service. The result was that Lowe's sales and profitability grew significantly, while Home Depot's "cost-cutting" approach created customer problems and significantly affected the performance of the firm . After several years, the Home Depot CEO resigned, and Home Depot took steps to repair its customer service image.
Quality Delivering high-quality services and/or products can significantly influence organizational effectiveness. Whether producing automobiles, as General Motors and Toyota do, or providing cellular phone service, as Verizon and AT & T do, a firm must consider how well its products and services meet customer needs. There- fore, many organizations have emphasized efforts to enhance quality. These programs seek to get tasks done correctly and efficiently so that high quality is delivered by employees. The problems with quality that some U.S . auto manufacturers have had, compared with other firms such as Toyota and Honda, illustrate the important effect of quality on sales, revenue, costs, and ultimately
"' 0 ~
g> ·~
~
"' ~ ~ u @
CHAPTER 1 Human Resource Management in Organizations 11
Organizational culture Consists of the shared values and beliefs that give members of an organization meaning and provide them with ru les for behavior.
categories of HR functions.
organizational effectiveness. Attempts to improve quality have worked better for some organizations than for others, but usually can be impacted by HR efforts.
1-2c Organizational Culture The ability of an organization to use its human capital as a core competency depends at least in part on the organizational culture that is operating. 16 Organiza- tional culture consists of the shared values and beliefs that give members of an organization meaning and provide them with rules for behavior. These values are inherent in the ways organizations and their members view themselves, define opportunities, and plan strategies. Much as personality shapes an individual, orga- nizational culture shapes its members' responses and defines what an organization can or is willing to do.
The culture of an organization is seen in the norms of expected behaviors, values, philosophies, rituals, and symbols used by its employees. Culture evolves over a period of time. Only if an organization has a history in which people have shared experiences for years does a culture stabilize. 17 A relatively new firm , such as a business existing for less than two years, probably has not yet developed a stable culture.
Culture is important because it tells people how to behave (or not to behave) . It is relatively constant and enduring over time. Newcomers learn the culture from senior employees; hence, the rules of behavior are perpetuated. These rules may or may not be beneficial, so culture can either facilitate or limit performance.
Managers must consider the culture of the organization before implementing HR practices. Otherwise, excellent ideas can be negated by a culture that is incom- patible. In one culture, external events might be seen as threatening, whereas in another culture the same changes are challenges requiring immediate responses. The latter type of culture can be a source of competitive advantage.
Organizational culture can be seen as the "climate" of the organization that employees, managers, customers, and others experience. This culture affects service and quality, organizational productivity, and financial results. From a critical per- spective, it is the culture of organization, as viewed by its employees, that affects the attraction and retention of competent workers. Alignment of the organizational culture with what management is trying to accomplish determines whether human capital can indeed be a core competency.
1-3 • HR MANAGEMENT FUNCTIONS
HR management is designing the formal systems that are used to manage people in a work organization. Usually, both HR managers and line managers provide input into the policies, regulations, and rules that give guidance on HR matters. For example: How many days of vacation does an employee receive after three years? There is no "right answer" except for a given organization that is trying to devise a vacation policy. But the vacation policy that is finally designed is one of the "for- mal systems" used to manage people in work organizations. Such systems need to be formal, that is agreed upon and written down for all to see. Try to picture the chaos that would result if every supervisor in a very large company could set his or her own vacation policy!
12 SECTION 1 The Environment of Human Resource Management
F I G U R E 1 - 4 HR Management Functions ......................................... .. . ........ .. ................. ... ······································· .................................................................................................................... ...............
G\oua\
Employee and Labor Relations
\
• Employee rights and privacy
• HR policies • Union/management
relations
Risk Management and Worker Protection • Health and wellness
Strategy and Planning • HR effectiven ess • HR m etrics • HR technology • HR planning • HR retention
I HR
FUNCTIONS
Equal Employment Opportunity • Compliance • Diversity • Affirmative action
• Safety • Security • Disaster and
recovery planning
// Staffing • job analysis • Recruiting • Selection
Rewards • Compensation • Incentives • Benefits
Social
Talent Management • Orientation • Training • HR d evelopm ent • Career planning • Performance
management
D Ext ern al environment
q
a N
~ ru 0 ro 0
'-' 19
Grouping the areas where HR typically has to have formal systems yields seven interlocking functions , as shown in Figure 1-4. These functions take place in a unique organizational format that is influenced by ex ternal forces: global, environ- mental, cultural/geographic, political, social, legal, economic, and technological in nature. The seven H R functions that must be done can be visualized as follows:
• Strategy and Planning • Equal Employment Opportunity • Staffing • Talent M anagement • Rewards
CHAPTER 1 Human Resource Management in Organizations 13
• Risk Management and Worker Protection • Employee and Labor Relations
Each of these functions consists of several areas covered in the forthcoming chap- ters of this book as follows:
• HR Strategy and Planning: As part of achieving organizational competitiveness, strategic planning for the organization and HR's role in those strategic plans are a good starting place. Dealing with workforce surpluses and shortages and pre- dicting human capital needs and availabilities are challenges here. How well HR does what it plans to do is measured by HR metrics and analytics and is covered in Chapter 2.
• Equal Employment Opportunity: Compliance with federal, state, and even local equal employment opportunity (EEO) laws and regulations affects all other HR activities. The nature of these laws is discussed in Chapter 3.
• Staffing: The aim of staffing is to provide a sufficient supply of qualified indivi- duals to fill jobs in an organization. The nature of the workforce, job design and job analysis lays the foundation for staffing by identifying what people do in their jobs and how they are affected by them. Relationships between individuals and the employing organization affect performance and retention of employees. Turnover helps determine how many new employees will be needed, an impor- tant bit of information when recruiting applicants for job openings. The selec- tion process is concerned with choosing qualified individuals to fill those jobs. These staffing activities are discussed in Chapters 4, 5, 6, and 7.
• Talent Management and Development: Beginning with the orientation of new employees, talent management and development includes different types of training. HR development and succession planning for employees and managers are necessary to prepare for future challenges. Career planning identifies paths and activities for individual employees as they move within the organization. Assessing how well employees are performing their jobs is the focus of perfor- mance management. Activities associated with talent management are examined in Chapters 8, 9, and 10.
• Rewards: Compensation in the form of pay, incentives, and benefits rewards people for performing organizational work. To be competitive, employers develop and refine their basic compensation systems and may use variable pay programs as incentive rewards. The rapid increase in the cost of benefits, espe- cially health care benefits, will continue to be a major issue for most employers. Compensation, variable pay, and benefits activities are discussed in Chapters 11, 12, and 13 .
• Risk Management and Worker Protection: Employers must address various workplace risks to ensure protection of workers, meet legal requirements, and respond to concerns for workplace health and safety. Also, workplace security has grown in importance along with disaster and recovery planning HR impli- cations of these activities are examined in Chapter 14.
• Employee and Labor Relations: The relationship between managers and their employees must be handled legally and effectively. Employer and employee rights must be addressed. It is important to develop, communicate, and update HR policies and procedures so that managers and employees alike know what is expected. In some organizations, union/management relations must be addressed as well. Activities associated with employee rights and labor/management relations are discussed in Chapters 15 and 16.
~ --:::;;;;;;;
14
b. L__,-
SEC TI ON 1 The Environment of Human Resource Management
. PERSPECTIVE What Do Human Resource Managers Do? The reality of what HR managers do on a weekly
basis can be seen by looking at the diary of one
manager. The activities help define HR manage-
ment in a very "rea l world" way. Here are some
activities an HR manage r in a 700-employee firm
dealt with during one week:
• Resolved an emp loyee complaint about "offensive" pictures being shown by a co-worker.
• Met with the CEO to plan compensation budgets for the following year.
• Met with an outside lawyer regarding a rac ial discrimination comp laint by a former employee who had been terminated because of performance problems.
• Negotiated w ith the provider of health care insurance benefits to bring a projected 22% increase in premiums down to a 14% increase.
• Reviewed an emp loyee performance apprai- sal with a supervisor and discussed how to communicate both positive feedback and problem areas.
• Advised an executive on the process for terminating a sales manager whose sales performance and management efforts were significantly below the sales goals set.
• Addressed a manager's report of an employ- ee's access ing pornographic websites on his company computer.
• Hosted an emp loyee recognition lunch eon. • Discussed an employee succession plan for
the Customer Operations Division, consisting of 400 employees.
• Discussed with the other members of the executive leadership team (the CEO, the CFO, and division heads) an employee staffing plan for the following year and ways to reduce employee turnover.
Many othe r topics were part of this HR manager's
job that week. However, that list illustrates one
fact: "there are a wide ran ge of issues that are part
of th e regular work in HR management."
These functions are translated into daily activities for the HR department if one exists and for operating managers if an HR department does not yet exist. The HR Perspective: What Do Human Resource Managers Do? shows typical activities dur- ing a week in the life of an HR manager in a medium-sized company to illustrate what HR managers do relative to some of the functions just introduced.
1-4 • ROLES FOR HUMAN RESOURCE DEPARTMENTS
If an organization has a formal HR group (perhaps a department) there are typi- cally three different roles that group might play in the organization. Which of the roles predominates or whether all three roles are performed depends on what man- agement wants HR to do and what competencies the HR staff has demonstrated. The potential mix of roles is shown in Figure 1-5.
• Administrative: Focusing on clerical administration and recordkeeping, includ- ing essential legal paperwork and policy implementation
=
~
CHAPTER 1 Human Resource Management in Organizations 15
F I G U R E 1 - 5 Mix of Roles for HR Departments .................................................. ········································································································ ····························· ...................................... .
PAST FUTURE
• I
• Operational and employee advocate: Managing most HR activities in keeping w ith the strategies and operations that have been identified by management and serving as employee "champion " for employee issues and concerns
• Strategic: Help ing to define the business strategy relative to human capital and its contribution to organizational res ults
While the administrative role traditionally has been the dominant role for HR, the emphasis on the operational and employee advocate role is growing in most organizations. The strategic role requires the ability and orientation to contribute to strategic decisions and a recognition by upper management of those skills. T his practice is less common but reportedly growing.
1-4a Administrative Role for Human Resource The administrative role of HR mana gement has been h eavily oriented to processing information and recordkeeping. This role has given HR management in some orga- nizations the rep utation of being staffed by people who primarily tell managers and employees what cannot be done usually because of some policy or problem from the past. If limited to the administrative role, HR staff are primar ily clerical and lower-level administrative aides to the organization. Two major shifts driving the transforma tion of the administrative role are greater use of technology and outsourcing.
Technology and Administrative Human Resource More HR functions are becoming performed electronically or are being done using Web-based technology. Technology has changed most HR activities, from employment applications and employee ben- efits enrollments to e-learning . There will always be a record-keeping responsibility. It can, however, be done electronically or outsourced.
Outsourcing Administrative Human Resource Some HR administrative functions can be outsourced to vendors. This outsourcing of HR administrative activities has grown dramatically in HR areas such as employee assistance (counseling),
16 SEC TION 1 The Environment of Human Resourc e Management
retirement planning, benefits administration, payroll services, and outplacement ser- vices. The primary reasons why HR functions are outsourced are to save money on HR staffing, and to take advantage of specialized vendor expertise and technology. These activities are being outsourced to firms both in the United States and worldwide.
1-4b Operational and Employee Advocate Role for Human Resource HR has been viewed as the "employee advocate" in some organizations. As the voice for employee concerns, HR professionals traditionally may serve as "com- pany morale officers," but they spend considerable time on HR "crisis manage- ment," dealing with employee problems that are work-related. Employee advocacy helps ensure fair and equitable treatment for employees regardless of personal back- ground or circumstances. Sometimes the HR advocate role may create conflict with operating managers. However, without the HR advocate role, employers could face even more lawsuits and regulatory complaints than they do now. 18
The operational role requires HR professionals to cooperate with various departmental and operating managers and supervisors to identify and implement needed programs and policies in the organization. Operational activities are tactical in nature. Compliance with equal employment opportunity and other laws is ensured, employment applications are processed, current openings are filled through interviews, supervisors are trained, safety problems are resolved, and wage and benefit questions are answered. These efforts require making certain that HR operations carry out the strategies of the organization.
1-4c Strategic Role for Human Resources The strategic role means that HR is proactive in addressing business realities, focus - ing on future business needs, and understanding how the need for human capital fits into those plans and needs. HR may not help formulate strategies for the orga- nization as a whole; rather it may merely carry them out.
HR management can become a strategic contributor to the "business" success of organizations, because even not-for-profit organizations, such as governmental and social service entities, must manage their Human Resources in a business-like manner. In fact, it has been suggested that the HR function could be managed as its own business within the organization with senior HR executives selected from outside HR experience . Doing this means that these individuals have a business focus, not just HR experience.
Part of the strategy for HR should be knowing what the true cost of human capital is for the employer. For example, in some situations it costs twice a key employees' annual salary to replace her if she leaves. Turnover is something HR can help control, and if it is successful in saving the company money with good retention and talent management strategies, those may be important contributions to the bottom line of organizational performance.
The role of HR as a strategic business partner is often described as "having a seat at the table," and contributing to the strategic direction and success of the organization. That means HR is involved in devising strategy in addition to implementing strategy. That contribution requires financial expertise and financial results, not just employee morale concerns or administrative efficiencies. 19
CHAPTER 1 Human Resource Management in Organizations 17
A significant concern is whether HR executives are equipped to help plan and meet financial requirements .
Some examples of areas where strategic contributions can be made by HR are:
• evaluating mergers and acquisitions for organizational "compatibility," struc- tunl changes, and staffing needs
• conducting workforce planning to anticipate the retirement of employees at all levels and identify workforce expansion in organizational strategic plans
• leading site selection efforts for new facilities or transferring operations to international outsourcing locations on the basis of workforce needs
• instituting HR management systems to reduce administrative time, equipment, and staff costs with technology
• working with executives to develop a revised sales compensation and incentives plan as new products or services are rolled out to customers
• identifying organizational training opportunities that will more than pay back the costs
1-5 • HUMAN RESOURCES MANAGEMENT CHALLENGES
As the field of HR management evolves, a challenging environment provides pres- sure for even more and faster change. Challenges are to be found in economic forces leading to cost pressures/job changes, globalization, changes in the work- force, and technology advancement.
Competition keeps pressure on business organizations to keep costs down so that prices will not become excessive and customers lost. Global competitors, tech- nology changes, and cost concerns are also reflected in changing jobs. As work must be done differently jobs must change as well and are sometimes lost. Jobs are seldom static but rather changing and evolving along with the organization.
1-5a Competition, Cost Pressures, and Restructuring An overriding theme facing managers and organizations is to operate in a "cost-less" mode, which means continually looking for ways to reduce costs of all types- financial, operations, equipment, and labor. Pressures from global competitors have forced many U.S. firms to close facilities, use international outsourcing, adapt their management practices, increase productivity, and decrease labor costs to become more competitive.
These shifts have caused some organizations to reduce the number of employ- ees, while at the same time scrambling to attract and retain employees with different capabilities than were previously needed. For examples, see HR Perspective: Com- petition, Bankruptcy, and Restructuring.
The human cost associated with downsizing has resulted in increased work- loads, some loss of employee loyalty, and turnover among the remaining employees. The shifts in the U.S. and global economy in the past years have changed the num- ber and types of jobs present in the United States. The last recession affected many industries including automotive and financial firms. In general, the United States has continued to have private and public sector jobs that fall within the service economy, and many of the additional jobs to be filled in the next several years will be in the service industry rather than in manufacturing firms.
18 SECTION 1 The Environment of Human Resource Management
. PERSPECTIVE Competition, Bankruptcy, and Restructuring When American Airlines finally declared bank-
ruptcy it was the last of the traditional airlines to
do so. Bankruptcy allowed American to cut costs .
The entire airline industry is under powerful com-
petitive financial pressure to keep fares low and
costs down as well. At the time of filing bank-
ruptcy, American's annual labor costs were at least
$800 million higher than its rivals. Those rivals
had used their previous bankruptcies to get their
labor (and other) costs down well below Ameri-
can's. However, bankruptcy did not allow Ameri-
can to eliminate all of the advantages held by its
biggest rivals-it may have waited too long to seek
protection. By holding off bankruptcy for so long,
American may have missed its best opportunity to
merge, although a merger did finally come about.
The steel industry is another example of eco-
nomic changes affecting employees. The U.S.
steel industry became viable only after several
painful bankruptcies that allowed companies to
reduce pension obligations, cut jobs, and restruc-
ture debt. A smaller more nimble industry has
been very competitive. However, globally weak
steel demand and a glut caused by Chinese steel
mills more than doubling production forced the
world's largest steel company ArcelorMittal to
cut its operations. Output had to be cut 20%
and the company's market share dropped by
almost 40% . It is idling plants in Spain, Poland,
Luxembourg, Germany, France, and Belgium to
make adjustments.
The Belgium plant alone laid off 581 employees.
Competition, costs, and the need to restructure
keeps pressures on business organizations for
change and that affects employees; HR deals
with that impact on employees .2 0
job Shifts The growth in some jobs and decline in others illustrate that shifts that are indeed occurring. Figure 1-6 lists occupations that are expected to experience the greatest growth in percentage and numbers for the period ending in 2020. Most of the fastest-growing occupations percentage-wise are related to health care. However, when the growth in the number of jobs is compared to the percentage growth, an interesting factor is evident. The highest growth of jobs by percentage is in occupations that generally require more education and training. But much of the largest growth in absolute numbers of jobs is in areas requiring less education and jobs that are lower-skilled.
Another example of the shifting economy is the types of jobs that have the greatest decline in numbers. They include postal employees, farmers/ranchers, fast- food cooks, and sewing machine operators. These declines reflect shifts in economic factors and how those jobs are being combined with others or eliminated because of technology or business changes. 21
Skills Shortages Various regions of the United States face significant workforce shortages because of an inadequate supply of workers with the skills needed to per- form emerging new jobs. It may not be that there are too few people-only that there are too few with many of the skills being demanded. For instance, the hardest jobs to fill today are engineers, nurses, technicians, certain teachers, and sales representatives.
CHAPTER 1 Human Resource Management in Organizations 19
FIGURE 1 - 6 Selected Fast-Growth Jobs for the Period Ending 2020
"';: --,~ •·1,:.-·' - ~·~ ,~ .... ~!"' ll,.. ,.-•• ~ "......-~ .. ';="".-.-· .·-r~· ~ "'~ ~~'". --;- ....
.-,-~ · • · .. Percentage Increase in Jobs ~ - . --:; ·, -:-.· :.~~,.' . / .. -· ._- .. · . . -~~ :
Increase in Job Numbers
Personal/home care aides 70% Registered nurses 712,000
Biomedical engineers 62% Retail salespersons 707,000
Veterinary technologists 56% Food preparations workers 398,000
Physical therapy assistants 46% Customer service reps 338,000
Market research analysts 41% Childcare workers 262,000
Brick masons 41% Elementary school teachers 249,000
Cost estimators 36% janitors 246,000
Construction laborers 212,000
Accountants 191,000
Source : U.S . Bureau of Labor Sta ti sti cs, www .b ls.gov .
Even though many Americans are graduating from high school and college, employers are concerned about the preparation and specific skills of new graduates. Test results show that students in the United States perform slightly above average in math and science, but well below students in some other directly competitive nations. Also, graduates with degrees in computer science, engineering, and the health sciences remain in short supply relative to the demand for them. Unless major improvements are made to U.S. educational systems, U.S . employers will be unable to find enough qualified workers for the growing number of skilled jobs. However, some groups in the population feel that it is the job of business to offer jobs to people without much regard for their skills. 22
1-5b Globalization Many U.S. firms, both large and small, generate a substantial portion of their sales and profits and sales from other countries. Firms such as Coca-Cola, Exxon/Mobil, Microsoft, and General Electric derive half or more of total sales and profits from outside the United States. However, the reverse is also true. For example, Toyota, based in Japan, has grown its market share and increased its number of jobs in the United States and North America. Also, Toyota, Honda, Nissan, and other Japanese automobile manufacturers, electronics firms, and suppliers have maintained opera- tions in the United States, whereas Chrysler and General Motors have had to reduce major operations.
Research suggests that about 400 mid-sized cities in emerging markets will gen- erate 40% of global growth in the next 15 years. Many of these cities are relatively unknown in the West. 23 The globalization of business has shifted from trade and
20 SECTION 1
Expatriate A citizen of one country who is wo rking in a second country and employed by an organi- zation headquartered in the first country.
Host-country national A citizen of one country who is working in that country and employed by an organization head - quartered in a second country.
Third -country national A citizen of one country who is working in a second country and emp loyed by an organi- zation headquartered in a third country.
The Environment of Human Resource Management
investment to the integration of global operations, management, and strategic alli- ances, which has significantly affected the management of human resources. Indivi- duals from other countries are now being recruited as employees. There are three types of global workers: expatriate, host-country national, and third-country national.
An expatriate is a citizen of one country who is working in a second country and employed by an organization headquartered in the first country. Experienced expatriates can provide a pool of talent that can be tapped as the organization expands its operations more broadly into even more countries.
A host-country national is a citizen of one country who is working in that country and employed by an organization headquartered in a second country. Host-country nationals often know the culture, politics, laws, and business customs better than an outsider would.
A third-country national is a citizen of one country who is working in a second country and employed by an organization headquartered in a third country. For example, a U.S. citizen working for a British oil company as a manager in Norway is a third-county national. Staffing with third-country nationals shows a truly global approach.
Attracting global talent, however, has a downside; it has created political issues. For instance, U.S. employers are having a difficult time hiring enough engineers and educated technology workers, because U.S . federal legislation has restricted the number of high-skilled workers to be admitted from other countries.
Wage Comparisons Across Countries Many economic factors are linked to differ- ent political, legal, cultural, and economic systems. For example, in many developed countries, especially in Europe, employment restrictions and wage levels are high. When labor costs in the United States are compared with those in Germany and/or the Philippines, the differences are significant, as Figure 1-7 shows. As a result of these differences, many U.S. and European firms are moving jobs to lower-wage countries.
F I G U R E 1 - 7 Hourly Wage Compensation for Production Workers ································· ........ ................ ........................... ..................... ,, ............................... ........ .. .
Norway
Germany
Australia
Canada
Un ited States
japan
Israe l
Republi c of Korea
Taiwan
Phi lippines
F':~-40""" ~~-~- ·:.;;~--.-.:~.~-L--~ ·c:;;.:~ · ..._ ,:;··~:.;;:.if:.f±L:i*\;~:,;..;..: ~- - 1- ?·--~·--_.~-~--_,._, .. ~:.··.'::-~-~- ~ ""'-.:.,..,~:::·~..-~ ' $43.76
~~- _,··-~ .. :. ~ .. ,.,...,~~ - -- ·- - ,.~ . ;:;:_:·· ~~ • $40.60
--- ~;r:-~::t:ll'l ----·· .;;;.;·~~·-;~-~~~.,;;,-.. :=;.;~:;:;:::' $35.67 ,....., ..... ";L.-:;;.."t[)'':-1 -"""--'" ~--_- .:::. -~ .~:)i~jo>>i<"";-'"7."~-~-~
.... $34.74
- $31.99 "i:::::.-~ :... -~"""--~,-.... ..:..-: ~ - $20.12 -:~--~.-~-.!'!""'"''""~ - :;,-;~ -."'
- , $16.62 -'"':.,.,-,., i- _, $8.36
=' $1.90
~ , $57.53
$0.00 $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 $40.00 $45.00 $50.00 $55.00 $60.00
Source : U.S. Burea u of Labor Statisti cs, www.bls.gov.
i;
--/
CHAPTER 1 Human Resource Management in Organizations 21
Critics of globalization cite the extremely low wage rates paid by some international firms and the substandard working conditions that exist in some underdeveloped countries such as those found in Apple computer factories in China. 24 Various advocacy groups have accused global firms of being "sweatshop employers." As a result, some global employers have made efforts to ensure that foreign factories adhere to higher HR standards, but others have not. Global employers counter that even though the wage rates in some countries are low, their employees often receive the highest wages, and experience the best working conditions that exist in those countries. Also, they argue that more people have jobs in the host countries, which allows them to improve their living standards .
Legal and Political Factors Firms in the United States, Europe, and elsewhere are accustomed to relatively stable political and legal systems. However, many nations function under turbulent and varied legal and political systems. International firms in many industries have dramatically increased security measures for both opera- tions and employees. Terrorist threats and incidents have significantly affected air- lines, travel companies, construction firms, and even retailers such as McDonald's. HR management gets involved in such concerns as part of its transnational opera- tions and risk-management efforts.
Compliance with laws and company actions on wages, benefits, union rela- tions, worker privacy, workplace safety, and other issues illustrates the importance of HR management when operating transnationally. As a result, HR professionals conduct comprehensive reviews of the political environment and employment laws before beginning operations in a country. The role and nature of labor unions should be a part of that review. HR practices are different in different countries. But there are changes occurring especially in Europe, converging on a common set of HR practices because of legal and political influences. 25
Common Challenges for Global Human Resources While HR practices differ in countries there is commonality in how successful companies handle global HR. Those successful approaches include increasing productivity, cutting costs, and investing in local talent while increasing retention rates. 26 Although individual com- panies do not all necessarily respond to all HR challenges exactly the same way, research suggests that all must face and overcome a common set of difficulties when an organization has a global presence.27 The areas of difficulties are as follows:
Strategy: Companies feel they do not communicate their strategy clearly to all markets and so find it difficult to be locally flexible as they expand.
People: Executives feel their companies are not good at transferring lessons from one country to another and are not sufficiently effective at recruiting, retaining, training, and developing people in all geographic locations.
Complexity: Complexity arises as standardization of processes clashes with local needs, and sharing the cost of distant centers increases the expense of local operations.
Risk: Emerging market opportunities expose companies to unfamiliar risks that may be difficult to analyze, which results in sometimes rejecting approaches they perhaps should have done.
Global operations require a somewhat different business model. 28 Certainly, global HR presents challenges that are different from those encountered by local HR operations. 29
22 SECTION 1 The Environment of Human Resource Management
1-Sc A Changing Workforce Chapter 4 will present a more comprehensive profile of the workforce, but the follow- ing will introduce some of the changes in the workforce that present challenges for human resources. The U.S. workforce is more diverse racially and ethnically, more women are in it than ever before, and the average age of its members is increasing. As a result of these demographic shifts, HR management in organizations has had to adapt to a more varied labor force both externally and internally. The changing workforce has raised employer concerns and requires more attention to resolve these concerns. 30
Racial/Ethnic Diversity Racial and ethnic minorities account for a growing percent- age of the overall labor force, with the percentage of Hispanics roughly equal to or greater than the percentage of African Americans. Immigrants will continue to expand that growth. An increasing number of individuals characterize themselves as multiracial, suggesting that the American "melting pot" is blurring racial and ethnic identities.
Racial/ethnic differences have also created greater cultural diversity because of the accompanying differences in traditions, languages, religious practices, and so on. For example, global events have increased employers' attention to individuals who are Muslim, and more awareness and accommodation for Islamic religious beliefs and practices have become a common concern.
Gender in the Workforce Women constitute about 50% of the U.S. workforce, but they may be a majority in certain occupations. For instance, the membership of HR professionals in the Society for Human Resource Management (SHRM) is more than 75% female. Additionally, numerous women workers are single, separated, divorced, or widowed, and are "primary" income earners . A growing number of U.S. households include "domestic partners," who are committed to each other though not married, and who may be of the same or the opposite sex.
For many workers in the United States, balancing the demands of family and work is a significant challenge. Although that balancing has always been a concern, the increased number of working women and dual-career couples has resulted in greater tension for many workers, both male and female. Employers have had to respond to work/family concerns to retain employees. Responses have included greater use of job sharing, the establishment of child-care services, increased flexi- bility in hours, and work- life programs.
Aging Workforce In many of the more economically developed countries, the pop- ulation is aging, resulting in a significantly older workforce. 3 1 In the United States, during the second decade of the twenty-first century, a significant number of expe- rienced employees will be retiring, changing to part-time work, or otherwise shifting their employment. Replacing the experience and talents of longer-service workers is a challenge facing employers in all industries. This loss of longer-service workers is frequently referred to as a "brain drain," because of the capabilities and experience of these workers. Employers are having to develop programs to retain them, have them mentor and transfer knowledge to younger employees, and find ways for them to continue contributing by limited means. 32
Growth in Contingent Workforce Contingent workers (temporary workers, inde- pendent contractors, leased employees, and part-timers) represent about one-fourth of the U.S. workforce. 33 Many employers operate with a core group of regular
CHAPTER 1 Human Resource Management in Organizations 23
employees who have critical skills, and then expand and shrink the workforce by using contingent workers.
The number of contingent workers has grown for many reasons. One reason is the economic factor. Temporary workers are used to replace full-time employees, and many contingent workers are paid less and/or receive fewer benefits than regu- lar employees. For instance, omitting contingent workers from health care benefits saves some firms 20% to 40% in labor costs. 34
Another reason for the increased use of contingent workers is that it may reduce legal liability for some employers. As more employment-related lawsuits are filed, employers have become more wary about adding regular full-time employees. By using contract workers, including those in other countries, employers may reduce many legal issues regarding selection, discrimination, benefits, discipline, and termination.
1-5d Human Resource and Technology In the 1980s most large companies used a mainframe computer to run a Human Resource Information System (HRIS). These systems processed payroll, tracked employees and their benefits, and produced reports for HR managers. All of this was run by Information Technology (IT) people. In 1989 a software package called PeopleSoft became wildly popular- it allowed HR to run its own reports and make changes without help from IT. Today SaaS (Software-as-a-Service) runs in a ven- dor's data center or in the cloud and the self-service it allows has probably done more to change the work of HR than anything else. 35
Technology's Advantages The rapid expansion of HR technology serves two major purposes in organizations. One relates to administrative and operational efficiency and the other to effectiveness. 36 The first purpose is to improve the efficiency with which data on employees and HR activities are compiled. The most basic example is the automation of payroll and benefits activities. Another common use of technology is tracking EEO/affirmative action activities. Beyond those basic applications, the use of web-based information systems has allowed the HR unit in organizations to become more administratively efficient and to communicate more quickly with employees.
Another purpose of HR technology is related to strategic HR planning. Having accessible data enables HR planning and managerial decision making to be based to a greater degree on information rather than relying on managerial perceptions and intuition, thus making organizational management more effective.
Technology with its varied uses is greatly impacting the way HR activities are performed. To illustrate, numerous firms provide a web-based employee self-service program to their worldwide staffs. Employees can go online to access and change their personal data, enroll in or change benefits programs, and prepare for perfor- mance rev1ews.
Using technology to support HR activities increases the efficiency of the admin- istrative HR functions and reduces costs. Managers benefit from the availability of relevant information about employees. Properly designed systems provide historical information on performance, pay, training, career progress, and disciplinary actions. On the basis of this information, managers can make better HR-related decisions. To maximize the value of technology, systems should be integrated into the overall IT plan and enterprise software of the organization. 37
Technology can be used to support every function within human resource management. 38 Recruiting and selection processes have changed perhaps the most
24 SECTION 1
ETHICS
ll!J!f&.plain how organizational ethical issues affect HR management.
The Environment of Human Resource Management
dramatically with web-based job boards, online applications, and even online inter- viewing. Training is now conducted with the aid of videos, podcasts, web-enabled training programs, and virtual classrooms. Employee self-service has simplified ben- efit enrollment and administration by allowing employees to find health care provi- ders and file claims online. Succession planning and career development are enhanced with real-time information on all employees and their potential career progression. One of the most important ways in which technology can contribute to organizational performance is through the collection and analysis of HR-related data. Identifying trends and modeling future conditions help managers to plan and optimize human resources.
Social Media The explosive growth of the Internet has resulted in many employees and managers using wikis, blogs, tweets, tex t messaging, and other techniques. In a wiki, which is a widely available website for individuals to make comments, employees can communicate both positive and negative messages on many topics. Employers have used wikis to increase the exchange of ideas and information among a wide range of individuals.
Blogs are web logs kept by individuals or groups to post and exchange infor- mation on a range of topics. People create and use more than one million blogs daily. The subjects of blogs vary. An example of company use would be CEOs or HR executives exchanging information with employees immediately on operational or other important occurrences.
Another technology tool is Twitter, which is a microblog that allows people to send and receive tweets, a quick message of less than 140 characters; through these messages individuals quickly send information to others. Some firms use tweets to send out policy changes, competitive services details, and many other organizational messages. However, individuals in an organization can also use tweets inappropri- ately and send critical, obscene, or even harassing details to other employees.
Firms must establish policies and regulations on how all of this technology can and should be used. 39 For example, IBM has established guidelines directing that the use of tweets must be responsible and protect privacy. Individuals are responsi- ble for correcting mistakes made by individual tweets.
The Risks of Social Media The risk of social media is becoming apparent to employers and some fear that its use will lead to disclosure of trade secrets such as customer lists and many other problems. Users of Facebook approach communication in a casual way with little regard for privacy.40 Items posted on a blog or Facebook can easily become public. Many other potential problems exist with social media at work. 41 Yet there are signs that it will become mainstream within most companies.42 Indeed, com- panies are using social media for everything from enhancing employee interaction4 3 to pinpointing leadership qualities in management candidates.44 By creating appropriate standards of use companies can see responsible utilization of technology.
1-6 • ORGANIZATIONAL ETHICS AND HUMAN RESOURCE MANAGEMENT
Closely linked with the strategic role of HR is the way managers and HR profes- sionals influence the ethics of people in organizations. How those ethics affect work and lives for individuals may aid in producing more positive work outcomes.
CHAPTER 1 Human Resource Management in Organizations 25
FIG U R E 1 - 8 HR and Organizational Ethics
Areas for Potential Ethical Problems in HR
• Compensation • Performance Management • Development • EEO • Staffing • Training
Consequences of Ethical Treatment
• job Satisfact ion • Commitment • Turnover • job Performance • Absenteeism • Ethical Dec isions
As Figure 1-8 indicates, violating HR protocals can lead to organizational and indi- vidual consequences. 45
Attention to ethics has grown in the past few years, as evidenced by the corporate scandals at numerous financial and investment firms in the United States and globally. These scandals illustrate that ethical lapses are not just symbolic; they affect employers and employees. The expansion of the Internet electronic job boards and postings has led to more publicity about ethical issues. An increase in ethics issues has been identified by the Ethics Resource Center. One survey of 3,000 U.S. workers found that within a year, 52% had seen one incident of misconduct and 36% had observed two or more ethical violations. The survey also reported that almost 70% of employers had done ethics training. 46
1-6a Ethical Behavior and Culture Writers on business ethics consistently stress that the primary determinant of ethical behavior is organizational culture, which, as mentioned earlier, is the shared values and beliefs in an organization. Every mature organization has a culture, and that culture influences how executives, managers, and employees make organizational decisions. For example, if meeting objectives and financial targets is stressed, then it should not be a surprise when executives and managers fudge numbers or falsify cost records. However, a positive ethical culture exists in many organizations. When the following four elements of ethics programs exist, ethical behavior is more likely to occur:
• A written code of ethics and standards of conduct • Training on ethical behavior for all executives, managers, and employees
26 SECTION 1 Th e Environment of Hum an Resource Management
- THICS Cisco Systems Train s on Ethics Until a few years ago, Cisco Systems conducted
ethics training and enfo rce ment like many other
firms by using organization-required training se s-
sio ns . Those sessions were onl y avail abl e when
someone was available to teach th em. However,
Cisco now uses a constantly ava ilabl e ethics pro-
gram through its internal co mmuni cations (intra-
net), Internet, and eve n television programs
similar to American Idol.
To condu ct its ethi cs awa reness training,
Cisco enab les its 60,000 employees worldwide
to view the Ethics Idol via television on its intra-
net. Cartoon indi v idu als present different ethical
situations and then have "judges" give decisions.
Employees vote on the best answer to each ethi -
ca l situation. After the employees vote, Cisco's
ethics office professionals then give the best
answe r based on Ci sco compa ny standa rds and
complian ce requirements.
Merging ethi cs issues, technology, and regul ar
interactive training has led to better understanding
of ethics among Cisco employees . Other firms
have similar programs, but Cisco's efforts are a
model of ethic al training and engagement.
Although many fi rms have ethics programs,
Cisco' s broad efforts illustrate how expanding
ethical training can be effective. Using c reative
and entertaining self-paced training to teach
ethics concepts has led to more ethical behavior,
and a better understanding of ethics in the
company.47
An eth ical business c ulture is based first on
organizational mission and values. Other
related facto rs can includ e shareholders, lon g-
te rm perspectives, proces s integrity, and leader-
shi p effectiveness. 4 8 The roles of boards, CEOs,
other executives, and HR leade rs are vital
in settin g th e cu lture for ethics globally as well
as loca lly. Training of employees is crucial,
and with the use of innovative trainin g, Cisco
Systems has emph as ized the importance of
ethics to th e company.
• Advice to employees on ethical situations they fa ce, often made by HR
ETHICS
• Systems for confidential reporting of ethical misconduct or questionable behavior
1-6b Ethics and Global Differences Differences in legal, political, and cultural values and practices in different countries often raise ethical issues for globa l employers that must comply with both their home-country laws and the laws of other countries. With the changes in the global economy in the past few years, the Organization for Economic Cooperation and Development (OECD), has empha sized the effects of ethics. The OECD has recom- mended that global multinational firms establish and implement stricter ethical standards to aid business development.49
The different legal, political, and cultural factors in other countries can lead to ethical and legal conflicts for global managers. Some global firms have established guidelines and policies, for example, to reduce the payments of bribes, but even those efforts do not provide detailed guidance on handling all the situations that can arise.
CHAP TE R 1 Human Resource Management in Organizations
1-6c Role of Human Resources in Organizational Ethics
27
Organizations that are viewed as ethical in the way they operate have better long- term success. People in organizations face ethical decisions on a daily basis, and HR management plays a key role as the "keeper and voice" of organizational ethics. Instead of relying just on HR policies or laws, people must be guided by their own values and personal behavior "codes," including these two questions:
• Does the behavior or result meet all applicable laws, regulations, and govern- ment codes?
• Does the behavior or result meet both organizational standards and professional standards of ethical behavior?
There are many different views about the importance of HR in ensuring that ethical practices, justice, and fairness are embedded in HR practices. Figure 1-9 identifies some of the most frequent areas of ethical misconduct involving HR activities.
Ethical issues pose fundamental questions about fairness, justice, truthfulness, and social responsibility. Just complying with a wider range of requirements, laws, and regulations cannot cover every ethical situation that executives, managers, HR professionals, and employees will face. Yet, having all the elements of an ethics pro- gram may not prevent individual managers or executives from engaging in or fail- ing to report unethical behavior. Even HR staff members may be reluctant to report ethics concerns, primarily because of fears that doing so may affect their current and future employment. 50
Critical for guiding ethical decisions and behavior is training. Firms such as Best Buy, Caterpillar, and others have training for all employees via the Internet or in person. The HR ethics box shows an example. How to address difficult and con- flicting situations is part of effective HR management training efforts. To help HR professionals deal with ethical issues, the Society for Human Resource Management has developed a code of ethics for its members and provides information on han- dling ethical issues and policies. 51
F I G U R E 1 - 9 Examples of HR-Related Ethical Misconduct
Compensation
• Misrepresenting hours and time worked
• Falsifying work ex pense reports
• Show in g personal bias in performance appraisals and pay increases
• Allowing deliberate in ap propriate ove rtim e classifications
• Accepting personal gains/g ifts from vendors
Employee Relations
• Employees lying to superviso rs and coworkers
• Executives/managers e-mail in g false public inform ation to customers and vendors
• Misusing/stea ling o rgani zat ion al assets and supplies
• Inten tionally violating safety/ health regulations
Staffing and Equal Employment
• Discriminatory favo ritism in hirin g and promotion
• Sexual harass m ent of other employees
• EEO discrimination in recru iting and interviewing
• Conducting inappropri ate background invest igations
28 SECTION 1
competencies needed by HR professionals and why certification is important.
HR generalist A person who has responsibility for performing a variety of HR activities.
HR specialist A person who has in- depth knowledge and expertise in a limited area of HR.
The Environment of Human Resource Management
HR Ethics and Sarbanes-Oxley The Sarbanes-Oxley (SOX) Act was passed in 2002 by Congress to make certain that publicly traded companies follow accounting con- trols that could reduce the likelihood of illegal and unethical behaviors . Many HR issues must be managed in line with SOX. The biggest concerns are linked to exec- utive compensation and benefits, but SOX sections 404, 406, 802, and 806 require companies to establish ethics codes, develop employee complaint systems, and have antiretaliation policies for employees who act as whistle blowers to identify wrong- ful actions. HR has been involved in routing people through the massive compli- ance verification effort that has occurred.
1-7 • HUMAN RESOURCES MANAGEMENT COMPETENCIES AND CAREERS
The intent of this book is not to train all who read it to be an HR manager. Most will take this knowledge and work at another job in the organization but understand the duties HR must accomplish and which they must often share. Given that, it is useful to understand the necessary competencies and certifications for HR managers.
1-7a Human Resource Competencies The transformation of HR toward being more strategic and professional has implications for the competencies needed. 5 2 HR professionals at all levels need the following:
• Strategic knowledge and impact • Legal, administrative, and operational capabilities • Technology knowledge and usage abilities
Senior HR leaders may need additional capabilities and competencies. Accord- ing to an overview from an SHRM study, senior HR leaders also need (a) more business, strategic, HR, and organizational knowledge; (b) ability to lead changes because of credibility; and (c) ethical behavior and results orientation/performance. 5 3
For individuals with HR as their career, these competencies help establish their value as professionals. 54
1-7b Human Resource Management as a Career Field A variety of jobs exists within the HR career field, ranging from executive to cleri- cal. As an organization grows large enough to need someone to focus primarily on HR activities, the role of the HR generalist emerges-that is, a person who has responsibility for performing a variety of HR activities. Further growth leads to the addition of HR specialists, or individuals who have in-depth knowledge and expertise in limited areas of HR.55 The most common areas of HR specialty, in order of frequency, are benefits, employment and recruitment, and compensation. Appendix G contains examples of HR-related job descriptions of both a generalist and a specialist.
HR jobs can be found in corporate headquarters as well as in field and sub- sidiary operations. 56 A compensation analyst or HR director might be found at a
CHA PTE R 1 Human Resource Management in Organizations 29
corporate headquarters. An employment manager for a manufacturing plant and a European HR manager for a global food company are examples of field and sub- sidiary HR professionals. These two types of jobs have different career appeals and challenges.
1-7 c Human Resource Professionalism and Certification Depending on the job, HR professionals may need considerable knowledge about employment regulations, finance, tax law, statistics, and information systems.57 In most cases, they also need extensive knowledge about specific HR activities. The broad range of issues faced by HR professionals has made involvement in profes- sional associations and organizations important. For HR generalists, the largest organization is the Society for Human Resource Management (SHRM). Public- sector HR professionals tend to be concentrated in the International Personnel Management Association (IPMA). Two other prominent specialized HR organiza- tions are the WorldatWork Association and the American Society for Training and Development (ASTD).
One characteristic of a professional field is having a means to certify that mem- bers have the knowledge and competence needed in the profession. The CPA for accountants and the CLU for life insurance underwriters are examples. Certification can be valuable to individuals and useful to employers as they select and promote cer- tified individuals. The most well-known certification programs for HR generalists are administered by the Human Resource Certification Institute (HRCI), which is affili- ated with SHRM. More than 100,000 professionals have an HRCI certification.
HRCI Certification The most widely known HR certifications are the Professional in Human Resources (PHR) and the Senior Professional in Human Resources (SPHR), both sponsored by HRCI. Annually, thousands of individuals take the cer- tification exams. HRCI also sponsors a Global Professional in Human Resources (GPHR) certification. Eligibility requirements for PHR, SPHR, and GPHR are shown in Figure 1-10.
Additionally, eligible individuals must pass the appropriate exam. Appendix A identifies test specifications and knowledge areas covered by the PHR and SPHR exams. Readers of this book can identify specific competencies for the HRCI outline to aid them in earning a PHR or SPHR. Certification from HRCI also exists for global HR professionals in the GPHR. Global certification recognizes the growth in HR responsibilities in organizations throughout the world and covers appropri- ate global HR subject areas noted through SHRM.
WorldatWork Certifications The WorldatWork Association has certifications emphasizing compensation and benefits. The four certifications are as follows:
• Certified Compensation Professional (CCP) • Certified Benefits Professional (CBP) • Certified Work-Life Professional (CWLP) • Certified Global Remuneration (CGR)
Other Human Resource Certifications Increasingly, employers hiring or promoting HR professionals are requesting certifications as a "plus." HR certifications give HR professionals more credibility with corporate peers and senior managers. Additional
30 SECTION 1 The Environment of Human Resource Management
F I G U R E 1 - 1 0 HR Certifications at a Glance
The certificat ion exams test on experience-based knowledge ; therefore , you must possess a minimum of two years of professional (exempt-level) HR experience.*
Professional Senior Global
I Professional I Professional in in Human in Human Human Resources Resources Resources (PHR®) I (SPHR®) I (GPHR®)
(; ~ --.. ,--= -- .., ( - --..
Exam I inimum of two M inimum o f two M h ld ·1 ust o a Eligibility y ea rs of years of PHR I . . current or
Requirements . profess1onal professional SPHR (exe mpt-l evel) l (exempt-l eve l) "f . . 1 HR ex pe ri e nce. l HR . rt cert1 1cat10n . ex pe n en ce .
_........_
r. '
At least 51 % of At least 51% of At least 51% of your daily work your d aily work your daily work
' activiti es are activ ities are activities are · within the HR within th e HR w ithin the HR
,'L fun ction. function. function .
Has two to four Has si x to e ight Has at least two
Profile of a years of Successful
years of years of professional profess ional progress ive
Candidate* (exe mpt-l evel) profession al (exempt-level )
ge ne ralist (exe mpt-lev el) experience in
f international exp e rience. experience. HR practices.
r Focuses on Has core
I program Design s and pl ans knowledge of the implem entation rather than organization ' s rath e r than impl e m ent. internationa l c reation . HR activities.
I Develops and
Foc uses within Mak es de ci sion s implements
th e HR function that have an international HR
rath e r than impact within strategies that
organization-wide and outsid e th e affect
I organization. international
HR assignments and operations .
-
I
" ~ g>
~ '" ~ ro ~ ~
'" u @
* In add ition to meeting the exam eligibil ity requirements, successful exa m ca ndidates usua ll y have the above work ex peri ence .
CHAPTER 1 Human Resource Management in Organizations 31
certification programs for HR specialists and generalists are sponsored by various organizations, and the number of certifications is being expanded. For specialists, some well-known programs include the following:
• Certified Recognition Professional (CRP) sponsored by the Recognition Profes- sionals International
• Certified Employee Benefits Specialists sponsored by the International Founda- tion of Employee Benefits Plans
• Certified Professional in Learning and Performance sponsored by the American Society for Training and Development
• Certified Safety Professional (CSP) and Occupational Health and Safety Tech- nologist (OHST) sponsored by the American Society of Safety Engineers
• Certified Graphics Communications Manager (CGCM) and Certified Mail Manager (CMM) sponsored by the International Personnel Management Association
Most individuals who want to succeed in the field update their knowledge con- tinually. One way of staying current in HR is to tap information in current HR literature and relevant associations, as listed in Appendix B of this book. Overall, certifying knowledge is a trend in many professions, and HR illustrates the impor- tance of certification by making many types available. Given that many people may enter HR jobs with limited formal HR training, certifications help both individuals and their employers to make HR management a better performing part of their organizations.
SUMMARY • HR management should ensure that human tal-
ent is used effectively and efficiently to accom- plish organizational goals.
• All organizations need HR management, but larger ones are more likely to have a specialized HR function.
• Organizations need HR because the HR func- tions must be done by someone in all organizations.
• Human capital is the collective value of the capabilities, knowledge, skills, life experiences, and motivation of an organizational workforce.
• HR management activities can be grouped as follows: strategic HR management; equal employment opportunity; staffing; talent man- agement; compensation and benefits; health, safety, and security; and employee and labor relations.
• HR departments can take administrative, operations, and/or strategic roles in the organization.
• As an organization core competency, Human Resources has a unique capability that can cre- ate high value and differentiates an organization from competitors in areas such as productivity, quality/service, and organizational climate.
• Numerous HR challenges exist currently, including organizational cost pressures, globalization, a changing workforce, and technology.
• Ethical behavior is crucial in HR management, and HR professionals regularly face many ethical issues and consequences both domesti- cally and globally.
• All levels of HR professionals need competencies in strategic knowledge and impacts; capabilities in legal, administrative, and operational areas; and technology abilities. Senior HR leaders need these areas plus others to be effective.
• Current knowledge about HR management is required for professionals in the HR career field, and professional certification has grown in importance for HR generalists and specialists.
32 SECTION 1 The Environment of Human Resource Management
.1• ... _- .. ~ ~ \ " "" ... \ ' ' {:..! . ~1- /~f·;·)./;::({_5.,... :~ . :~'tf:(
CRITICAL THINKING CHALLENGES 1. Discuss several areas in which HR can affect
organizational culture positively or negatively.
2. Give some examples of ethical issues that you have experienced in jobs, and explain how HR did or did not help resolve them.
3. Why is it important for HR management to transform from being primarily administrative and operational to becoming a more strategic contributor?
4 . Assume you are an HR director with a staff of seven people. A departmental objective is for all staff members to become professionally certified within a year. Using Internet resources of HR associations, such as www.shrm.org and www. WorldatWork.org, develop a table that identifies four to six certifications that could be obtained by your staff members, and show the important details for each certification.
5. Your company, a growing firm in the financial services industry, is extremely sensitive to the
issues surrounding business ethics. The company wants to be proactive in developing a business ethics training program for all employees both to ensure the company's reputation as an ethical company in the community and to help maintain the industry's high standards. As the HR Direc- tor and someone who values the importance of having all employees trained in the area of business ethics, you are in charge of developing the ethics training program. It needs to be a basic program that can be presented to all employees in the company. Resources for busi- ness ethics information can be found at www. business-ethics. org/primer l.h tml.
A. What legislative act prompted many U.S. companies to develop internal ethical policies and procedures?
B. What are key concepts related to business ethics that should be considered in the development of the ethics training program?
,., , 1• , ·~. \ ~ · "' .. ~ \-t" · · b1 :.. ·t:~:r . .tt-.1/!.i~ -~~'; ;.
CASE
Rio Tinto: Redesigning HR Rio Tinto is a mining and minerals company head- quartered in London. The multibillion-dollar com- pany employs over 98,000 people worldwide and operates in more than 60 different sites in over 50 countries.
When the 2008 global recession hit it was clear that a reduction in workforce would be necessary for the company to survive, and 14,000 employees and contractors were let go. HR had been involved in the initial business discussions and understood that the reduction in force (RIF) was necessary.
For the first time, Rio Tinto's HR used a co- ordinated approach globally. Previously, executives and HR directors in the individual business units would have all approached the downsizing differ- ently. But this time with a common approach, the downsizing took place in an efficient, ethical, and sensitive manner, using regional severance policies and a comprehensive database and measurement
tools to track the impact of the redirections. High- potential leaders and people with critical skills were identified and were moved around internally to retain them. Managers were trained to help the "survivors" stay focused. Previously the process would have taken two or three times as long it was estimated, and employee engagement and morale would have taken a much harder hit.
Rio Tinto had undertaken a strategic analysis and reformation of the HR functions before the RIF that made the favorable results possible . The analysis looked at HR functions for both effective- ness and efficiency. All HR functions needed to be delivered at a lower cost while maintaining quality. Previously most HR professionals would have spent their whole career in one plant. Today they move across product groups, locations, and assignments fostering a more consistent culture. A senior HR council to provide leadership and guidance was
CHAPTER 1 Human Resource Management in Organizations 33
started. This helped with a consistent HR philoso- phy that supported policies and standards for the whole company.
Efficiencies were achieved by using more digital processes and adding self-service tools for employ- ees. Bringing together disparate HR departments across multiple business units increased speed and lowered costs. Further, the company moved from a defined benefit pension plan to a defined contribu- tion plan to conserve cash through reduction in long-term pension liabilities.
Rio Tinto feels that using their human capital better, organizing teams, developing talent, and sup- porting innovation and creativity can help make the company's people a source of potential competitive advantage. The company's HR professionals gained
SUPPLEMENTAL CASES Phillips Furniture
This case describes a small company that has grown large enough to need a full-time HR person. You have been selected to be the HR manager, and you have to decide what HR activities are needed as well as and the role HR is to play. (For the case, go to www .cengage.cornlmanagement/mathis .)
Sysco
~-\s a large food services and distribution firm, Sysco had to revise its HR management. Review this case
NOTES
new skills relative to helping productivity in the workforce. The value of a 1% to 2% increase in productivity far outweighed the entire cost of the transformation of Rio Tinto's HR function. 5 8
QUESTIONS
1. How did Rio Tinto's revamping of HR help with minimizing the potential problems with the reduction in force? What role would an HRIS (also called a Human Resource information system) have to play in managing an RIP?
2. Without a consistent philosophy, policies, and approaches to reduction in force (or any other disruptions in the future) what would the likely reactions from employees be?
and identify how the Sysco changes modified HR' s importance. (For the case, go to www.cengage.com/ management/mathis.)
HR, Culture, and Success at Coogle, Scripps, and UPS
The case describes HR's role in the culture of three different companies. The contribution to organiza- tional success in each case can be identified and fur - ther researched. (For the case go to www.cengage. com/management/mathis.)
1. Based on "Dow Corning: The Cul- ture with th e Right Chemistry," W orkspan , June 20 10, 14-19.
Firm Performance," Journ al of Ma nagement D evelopment, No. 5, 2010, 471-494.
Performance," Jo urnal of Applied Psych ology, 96, 2011, 443-456. Patrick M. Wright and Gary C. McMahan, "Exploring Human Capital: Putting Human Back into Strategic Human Resource Manage- ment," Human R es ource Manage- m ent Journal, 21 , 2011 , 93-104.
1. Pe ter Cappelli, "The Restructuring of the Top HR Job, " Human R esource Executive Online, Ma y 21, 2012, 1-2.
3. " Maintaining Momentum, " Human Resource Executive , December 2011, 18-20. Karen L. Ferguson and Thomas G. Reid Jr., "Human Resource Management Systems and
4. David E. Guest, "Human Resource Management and Performances: Still Searching fo r Some Answers," Human R esource Management Journal, 21,2 011 ,3-13.
5. T. Ru sse ll Crook, et al., "Does Human Capital Ma tter? A Meta Analysis of the Relationship betwee n Human Capita l and Firm
6. Y. Gong, et al, "Human Resource Management and Firm Perfor- mance," Journal of Applied Psy- chology , 94, 2009, 263- 275 .
34 SECTION 1 The Environment of Human Resource Management
7. Bruce E. Kaufman and Benjamin I. Miller, "The Firm's Choice of HRM Practices: Economics Meets Strategic Human Resource Management," Industrial and Labor Relations Review, 64, 2011, 526-557.
8. Rebecca R. Kehoe and Patrick M. Wright, "The Impact of High Per- formance Human Resource Practices on Employees Attitudes and Beha- viors," Journal of Management, April 8, 2010, 87-93.
9. James P. Guthrie, era!., "Big Hat, No Cattle? The Relationship between Use of High-Performance Work Sys- tems and Managerial Perceptions of HR Departments," The International Journal of Human Resource Man- agement, 62, January 2009, 104-114.
10. Peter Bisson, era!., "The Productivity Imperative," McKinsey Quarterly, June 2010, 1-8; Eric Matson and Laurence Prusak, "Boosting the Pro- ductivity of Knowledge Workers," McKinsey Quarterly, September 2010, 1- 6; David Hunt, era!., "Why U.S. Productivity Can Grow without Killing Jobs," McKinsey Quarterly, February 2011, 1- 6.
11. Christopher Power, "Machines Don't Get Paid Overtime," Bloom- berg Business Week, August 8, 2010, 17.
12. Chung-Jen Chen and Jing-Wen Huang, "Stra teg ic Human Resource Practices and Innovation Perfor- mance, " Journal of Business Research, 62, January 2009, 104-114.
13. Peter Brown, "The Power of HR Outsourcing, " Strategic HR Review, 9, 2010, 27-32; Eric Krell, "Focus In to Farm Out, " HR Magazine, July 2011, 47-49.
14. Jennifer Schramm, "HR's Challeng- ing Next Decade," HR Magazine, November 2010, 96.
15. John DeVine, era!., "The Human Factor in Service Design," McKins ey Quarterly, Janu ary 2012, 1-6.
16. Robert E. Ployhart, eta!., "The Consequences of Human Resource Stocks and Flows: A Longitudinal Exam of Unit Service Orientation and Unit Effectiveness," Academy of Management Journal, 52, 2007, 996-1015. Katherine Tyler, "Diagnosing Cultural Health," HR Magazine, August 2011, 52- 53.
17. Carol Morrison, "The Four Ps of High Performance," Human Resource Executive Online, June 16, 2011, 1- 4. Peter Cappelli, "Creating a Performance Culture," Human Resource Executive Online, September 12, 2010.
18. Harry J. Van Buren III, eta!., "Stra- tegic Human Resource Management and the Decline of Employee Focus," Hu man Resource Management Review, 21, September 2011, 209-219.
19. Jennifer Schramm, "Under Pressure," HR Magazin e, April 2011, 104.
20. Based on Diane Brady, "American Airlines Last-Mover Disadvantage, " Bloomberg Business Week, December 11, 2011, 25- 33 . Stanley Reed, eta!., " On Top of the World-and Our $43 Billion," Bloomberg Business Week, November 14, 201 1, 27-32 .
21. G. S. Oettinger, "The Incidence and Wage Consequences of Home-Based Work in the United States," Journal of Human R esources, 46, 2011, 237-260.
22. John Bussey, "Are Companies Responsi ble for Creating Jobs? " The Wall Street Jou rna l, October 28 , 2011 , Bl - B2 .
23. Markin Dewhurst, et al., "The Global Company's Challenge," McKinsey Quarterly, June 2012, 1-5.
24. Rex Nutting, "Apple's Chinese Labor Problem," The Denver Post, February 19, 2012, 4K.
25. Wolfga ng Mayrhofer, eta!., "Hearing a Different Drummer? Convergence of Human Resource Management in Europe-A Longi- tudina l Analysis," Human Resource Man agement Review, 21, 2011, 50-67. J. S. Sahadev and M. Demirbag, "Exploring Variations in Employment Practices in the Emerging Economies of Europe," Human Resource Management Jour- nal, 21, 2011, 395-414; J. Poor, et a!. , "Comparative International Human Resource Management in the Light of the Craner Regiona l Research Survey," Employee Rela- tions, 33, 2011, 428-443.
26 . Tom Stamer, "Thinking Globally," Human Resource Executive Online, January 1, 2009, 1- 4.
27. M . Dewhurst, eta!., op cit, 2-5. 28. Peter Cappelli, et a!., "The India
Way: Lessons for the U.S.," The
Academy of Management Perspec- tives, 24, May 2010, 6- 24.
29. Karen V. Beaman, "Going Global," Human Resource Executive Online, July 1, 2009, 1-4.
30. Marlene Prost, "When the End Is in Sight," Human Resource Executive Online, J ul y 1, 2010, 1- 5.
31. Birgit Verworn, era!., "Changing Workforce Demographics: Strategies Derived from the Resource -Based View of HRM," International Jour- nal of Human Resources Develop- ment and Management, 9, 2009, 149-161.
32. John Dumay and Jim Rooney, "Dealing with an Aging Workforce," Journal of Human Resource Costing and Accounting, 15, 2011, 174-195.
33. Michael O 'Brien, "A Temp's Per- spective," Human Resource Execu- tive Online, February 1, 2009, 1.
34. Jennifer Taylor Arnold, " Managing a Nontraditional Workforce," HR Magazine, August 2010, 75-77.
35. Bi ll Kutik, "Lifetimes of Tech Change," Human Resource Executive Online, April 3, 2012 , 1-2.
36. E. Parry and S. Tyson, "Desired Goals and Actual Outcomes of e-HRM," Human Resource Management j ournal, 21, 2011, 335- 354. Tom Sonde, "Why Isn't Improving HRIS a Management Priority, " Workspan, June 2011, 51- 57.
37. Clinton Wingrove, "Why Automat- ing Bad HR Processes Isn't a Solu- tion, " Workspan, February 2012, 47-50.
38. Bill Roberts, "The Grand Conver- gence," HR Magazine, October 2011 , 39-46.
39. JeffreyS. Kle in, eta!. , "When Socia l Networking and the Workplace Collide," Human Resource Execu- tive Online, June 16, 2010, 1-4.
40. John F. Birmingham and Jennifer L. Neumann, "Social Media and the Workplace," Inside Supply Manage- ment, March 2011, 12- 14.
41. Jennife r Taylor Arnold, "Twittering and Facebooking Whi le They Work," HR Magazine, December 2009, 53- 55.
42. Jeanne C. Meister and Karie Will- yerd, "Five Myths and Rea lities about Using Social Media in Your Company," People and Strategy, 3, 2010,4- 5.
CHAPTER 1 Human Resource Management in Organizations 35
43. Bill Roberts, "Developing a Social 49. Frank Kilmo, "Stricter Ethical Stan- 54. Rita Zeidner, "Dave Ulrich: Getting Business Network," HR Magazine, dards Called Key to Global Recov- HR Right," HR Magazine, August October 2010, 54-60. ery," February 18, 2009, HR News, 2009, 21.
44. Susan R. Meisinger, "Pinpointing www.shrm.org. 55. Dave Zielinski, "Building a Better Leadership Qualities," Human 50. Susan R. Meisinger, "Examining HR Team," HR Magazine, August Resource Executive Online, Novem- Organizational Ethics," Human 2010, 65-67. ber 29, 2010, 1-2. R esource Executive Online, June 11, 56. Jared Shelly, "CFO's Extend Reach
45 . David M. Mayer, et a l, "Who Dis- 2012, 1-2. into HR," Human Resource Execu- plays Ethical Leadership and Why 51. To view the code of eth ics and its tive Online, August 19, 2011, 1-2. Does It Matter?", Th e Academic of development, go to www.shrm.org. 57. Kristen B. Frasch, "The Changing Managem ent Journal, 55, February 52. Marja-Liisa Payne, "A Comparative Face of HR," Human Resource 2012, 151-171. Study of HR Manager's Competen- Executive Online, June 2, 2010,
46 . Ethics Resource Center, www.ethics . cies in Strategic Roles," International 1-4. Peter Cappelli, "The Last 25 org. Management Review, 6, 2010, Years Point to the Future, " Human
47. Based on Michael O'Brien, "'Idol'- 5- 12. Resource Executive Online, March izing Ethics," Human Resource 53. Amanda Benedict, et al. , "Leading 26, 2012, 1-2. Executive Online, May 16, 2009. Now, Leading the Future: What 58. Adapted from Andrew Slentz,
48 . Alexandria Ardichvilli, et al., Senior HR Leaders Need to Know," " Going Global to Last," HR Maga- " Characteristics of Ethical Business SHRM Executive Summary, Febru- zine, August 2009, 36-38. Cultures, " ] ournal of Business ary 2009, 1-23. Ethics, 85 (2009), 445-451.
36
Human Resource Strategy and Planning Learning Objectives
After you have read this chapter, you should be able to:
1 Summarize the organizational strategic planning process.
2 Explain the key differences between good and bad strategy and suggest a way to force strategic asset reallocation.
3 Outline how HR's strategies are merged with organizational strategies and give two examples.
4 Discuss how to forecast for supply and demand of Human Resources.
5 List options for handling a shortage and surplus of employees.
6 Identify how organizations can measure and analyze the effectiveness of HR management practices.
.HEADLINE
Best Buy Cuts 2,400 jobs in Turnaround Strategy
B est Buy needed a strategy to combat the " showrooming" of its stores. Show-rooming occurs when customers go to a big box's well-stocked stores to see, compare,
and demonstrate its products, but then leave
and purchase the products at a discount or an
online store. The big retailer la id off 600
employees in its technical support division called the Geek Squad and 1,800
others as it sought to improve results. That is about 1.4% of its 167,000
employees.
The company also announced a restructuring that would close 50 of its
United States big box stores, cut 400 corporate jobs, and reduce costs by
$800 million to be more price competitive . The company plans to open 100
smaller and more profitable Best Buy mobile stores to go with its 1,400 existing
locations .
Shortly after the strategy was announced (in an unrelated situation), the
CEO of Best Buy abruptly left the company and it was later found that he had
had an inappropriate relationship with a female employee. However, the
interim CEO reiterated the company's commitment to the strategy of funda-
mentally changing its operations to improve results. A spokesman said that
the layoffs were a part of the company's ongoing turnaround strategy.1 Best
Buy is not the only retailer being affected by showrooming. But given the
greater expenses and prices involved in maintaining a well-stocked, fully
staffed, full-service store, what strategy can big retailers use to avoid the
problem?
37
38 SECTION 1
Strategy A plan an organization follows for how to compete successfully, survive, and grow.
Strategic Planning The process of defining organizational strategy and allocating resources toward its achievement.
Organizational mission The core reason for the existence of the organi- zation and what makes it unique.
The Environment of Human Resource Management
The strategy an organization follows is its plan for how to compete successfully, survive, and grow. Many organizations have a relatively formal process for devel- oping a written strategy encompassing a three- to five-year period with objectives and goals for each unit.
Organizations seek to achieve and maintain a competitive advantage in the marketplace by delivering high-quality products and services to their customers in a way that competitors cannot duplicate. Strategies to do so might include revising existing products, acquiring new businesses, or developing new products or services using existing capabilities. Other strategic approaches might be to maintain a secure position with a single stable product (like WD-40) or to emphasize a constant stream of new products (like Apple). These are all viable strategies for different businesses, but the strategies chosen will determine the number and capabilities of people needed in the organization. Further, the people already in the organization may limit the strategies that might be successful.
Different companies in the same industry may have different strategies to suc- ceed. Successful strategic management requires accurately analyzing the situation in which the company finds itself deciding what its goals will be, and coming up with actions to achieve those goals. At the end of the day, strategy is about the actions to be taken, 2 as with Best Buy's decision in the chapter opener.
2-1 • ORGANIZATIONAL STRATEGIC PLANNING
Strategic planning is the process of defining a strategy, or direction, and making decisions on how to allocate the resources of the organization {capital and people) to pursue this strategy. Successful organizations engage in this core business process on an ongoing basis. The strategic plan serves as the road map that provides the organization direction and aligns resources. The process involves several sequential steps that focus on the future of the firm. Figure 2-1 shows the strategic planning process.
2-1 a Strategy Formulation The strategic planning cycle typically covers a three- to five-year time frame, and management considers both internal and external forces when formulating the strategic plan. The guiding force behind the strategic planning process is the organizational mission, which is the core reason for the existence of the organization and what makes it unique. The mission statement is usually determined by the organizational founders or leaders and sets the general direction of the organization.
The planning process begins with an assessment of the current state of the busi- ness and the environmental forces that may be important during the planning cycle. Analysis of the strengths, weaknesses, opportunities, and threats (SWOT) is a typi- cal starting point because it allows managers to consider both internal and external conditions. The SWOT analysis helps managers to formulate a strategic plan that considers the organization's ability to deal with the situation at hand. The planning process requires continuous monitoring and responding to environmental changes and competitive conditions.
Managers then determine the objectives for the planning cycle and formulate organization-level strategies to accomplish those objectives. Each function {such as HR)
C HAPTER 2 Human Resource Strategy and Planning 39
1 Explain the key differences between good and bad strategy and suggest a way to force strategic asset reallocation.
F I G U R E 2 - 1 Strategic Planning Process for the Organization
Organizational Mission
·- •-,
~ ~-~,
SWOT Analysis
h"
~ .-
Establish Goals and Objectives
~ -- ' .::-
Formulate Organizational Strategy
~ Formulate Supporting Functional Strategies
~ Implement
~ Evaluate and
Reassess
within the organization then formulates strategies that will link to and support the organization-level strategies. The strategic plan is re-evaluated periodically because conditions may change and managers must react to the ever-changing business environment.
2-1 b Good versus Bad Strategy Many companies are generating strategies that by their own admission are sub- standard. In a survey, McKinsey consultants asked 2,000 executives to rate their company' s strategies on a set of 10 strategic measures and found that only 35% of the executives felt their company pa ssed more than three of the tests .3 They concluded that the top management teams need to focus as much time on strategy as they do on operating issues on an ongoing basis if they are to have useful strategy.
Suppose Company A allocates money consistently each year, making only small changes to the allocation of talent, capital, and research dollars. Company B, on the
40 SECTION 1 The Environment of Human Resource Management
. PERSPECTIVE Forcing Strategic Asset Reallocation A company may choose to classify different units
in the organization into different categories on
the basis of their market opportunity and per-
formance. A unit might be labeled "grow,"
"maintain," or "dispose ." Each category comes
with clearly differentiated resource investment
guide lines. This removes as much politics as pos-
sible and focuses on contribution to the strategic
goals of each unit.
When Lee Raymond was CEO of Exxon
Mobile, he required that 3% to 5% of the
company's assets be designated for disposal each
year. The divisions could keep these assets only if
they could show a compelling turnaround pro-
gram for that unit. The burden to prove the asset
should be kept was on the division. The net effect
was healthy turnover and an upgrading of units
despite the natural desire on the part of executives
to keep all the units, including underperforming
ones. 5 Such a process can force the reallocation
of assets inside the organization and a rethinking
of how best to achieve strategic goals.
other hand, evaluates each division 's market opportunities and performance and adjusts allocations on the basis of that analysis. Which company performed better? Company B does almost 40% better, although most companies function the way Company A does. Managers in Company A can shift resources to achieve their goals or run the risk that the market will do it for them. 4 The HR Perspective: Forcing Strategic Asset Reallocation shows one way to do this analysis and reallocation.
Bad strategy abounds perhaps because it ignores the difficult path to focusing and making choices among alternatives. Instead of making a choice, a strategy may try to accommodate many conflicting demands and interests. Good strategy must involve an accurate diagnosis of the challenge, an approach to overcome the obstacles, and a focus on coherent actions to make the approach work. It must have focus and the choice of a way to proceed. 6
However, such focus does not preclude generating ideas for a strategy by open- ing up the process to stakeholders who might have been previously frozen out of stra- tegic direction setting. For example, 3M, Rite-Solutions, Red Hat, and Wikimedia have all used or experimented with improving their strategy setting through crowd- sourcing, or opening up the strategy setting process to more people. 7
strategies are merged with organizational strategies and give two examples.
2-2 • HUMAN RESOURCES AND STRATEGY
Regardless of which specific strategies are adopted for guiding an organization, having the right people will be necessary to make the overall strategies work. If a strategy requires worker skills that are currently not available in the company, it will take time to find and hire people with those skills. Strategic HR management (HRM) provides input for organizational strategic planning and develops specific HR initiatives to help achieve the organizational goals. While it seems important to consider HR in the overall organizational strategy, estimates are that only 30%
CHAPTER 2 Human Resource Strategy and Planning 41
Strategic HR management Entails providing input into organizational strategic planning and appropriate use of HR management practices to gain competitive advantage.
of HR professionals are full strategic partners. Their primary role remains one of providing input to top management. 8
Although administrative and legally mandated tasks are important, HR's stra- tegic contribution can also add value to the organization by improving the perfor- mance of the business. Some businesses are highly dependent on human capital for a competitive advantage; others are less so. For example, the productivity of a steel mill depends more on the efficiency of furnaces and quality of raw materials than on human resources. However, every business strategy must be carried out by people, so human capital always has some impact on business success. An impor- tant concept covered later in this chapter is the measurement and determination of the value of human capital and HR in a given organization.
Strategic HR management refers to the use of HR management practices to gain or keep a competitive advantage. Talent acquisition, deployment, development, and reward are all strategic HRM approaches that can impact the organization's ability to achieve its strategic objectives. 9
An important element of strategic HRM is to develop processes in the organi- zation that help align individual employee performance with the organizational strategic objectives. 10 When employees understand the relevant priorities, they can better contribute by applying their skills to advance the strategic goals. Employees who understand the big picture can make decisions that will contribute to achieving the objectives of the firm.U HRM practices that facilitate this include talent development and reward systems that channel employee efforts toward the bottom line.
2-2a Requirements for Human Resource Contribution to Strategy Specific HR management strategies obviously depend on the strategies and plans of the company. 12 Figure 2-2 highlights some common areas where HR should develop and implement appropriate strategies. To contribute in the strategic plan- ning process, HR professionals provide their perspective and expertise to operating managers by doing the following:
• Understanding the business: Knowing the financials and key drivers of business success is important to understanding the need for certain strategies.
• Focusing on the key business goals: Programs that have the greatest relevance to business objectives should get priority.
• Knowing what to measure: Metrics are a vital part of assessing success, which means picking those measures that directly relate to the business goals.
• Preparing for the future: Strategic thinking requires preparing for the future, not focusing on the past- except as a predictor of the future.
For example, when Dunkin' Brands Inc. (the Dunkin' Donuts and Baskin- Robbins parent company) needed to focus on helping Baskin-Robbins franchise owners with recruiting and talent management, HR's strategy had to change to match the organizational strategy. The HR group devised a plan to do so and as a result its mission required a more active role in driving the business, supporting res- taurant employees, and d~livering a broader array of HR services. This required retraining the HR staff and initiating a wide range of measures to monitor progress. 13
The organization's strategy changed, and HR's strategy had to change too.
42 S EC TIO N 1
G L OBA L
Multinational corporation (MNC) A corporation that has faci lities and other assets in at least one cou ntry other than its home country.
- ..
The Environment of Human Resource Management
F I G U R E 2 - 2 Areas Where HR Can Develop Strategies
Organization/ Senior Management • Mission statemen t • Objectives/strategies
Human Resources • M iss ion statement • Objectives/strategies
Operational Level • Staffing • Total rewards • Employee/ labor
rel ation s • Trainin g and
development • Performance
management
Measurement • Effectiveness • Efficiency • Lega l comp li ance
Strategic Level • Staffing • Total rewa rds • Employee/labor
relations • Training and
development • Performance
management
2-2b Human Resources Strategies for Global Competitiveness
.,. ii§ :'!' .E
.5 m
~ c"l @
The glob alization of business means that more organizations now operate across borders with ties to foreign operations, international suppliers, vendors, employees, and other business partners. A global presence can range from importing and exporting to operating as a multinational corporation (MNC) . An MNC, sometimes called a "transnational corporation," is an organization that has facilities and other assets in at least one country other than its home country.
Even organizations that operate primarily in the domestic market face pressure from foreign competitors . The supply chain is increasingly internationally dispersed,
CHAPTER 2 Human Resource Strategy and Planning 43
Offshoring Th e relocation of a busi- ness process or opera- ti on by a company from one country to another.
and foreign business practices influence operations in the United States . Technology advances have eliminated many barriers to operating on a global scale.
For HR to complement the organization's strategy, it has to consider the route to merging HR's strategies with those of the company. To effectively compete on an international scale, the organization needs expertise to administer all HR activities in a wide range of nations. For example, the firm may decide to standardize talent development and succession planning but permit local managers to establish com- pensation and labor relations policies. An ideal international strategy strikes a bal- ance between home-country and host-country policies and utilizes the best practices available in each.
Consider two international HR areas that are frequently the basis for HR strat- egies to support the organizational strategy-offshoring and staffing global opera- tions. Both actions require merging organization's and HR's strategies .
Offshoring Strategies Competitive pressure to lower costs has resulted in many jobs being moved overseas in recent years. Offshoring is the relocation of a business process or operation by a company from one country to another. Firms offshore the production of goods as well as the delivery of services to lower-wage countries. Call centers in India are an example of business service offshoring to countries with well-educated, English-speaking workers . Product- and software-development pro- jects are increasingly being offshored because of the lack of science and engineering talent in the United States. Predictions are that offshoring will increase in the future, and few firms have plans to return offshored jobs to the home country. 14
These are important decisions that should involve HR. 15 The adoption of a strategy of offshoring should strongly consider two points-reliability and responsiveness 16 Both need HR expertise. Reliability has to do with the odds that the offshore vendor (let's say an Indian call center) can deliver and in a consistent manner. Is the turnover rate in the call center so high that the vendor probably cannot provide consistent service? Responsiveness has to do with the vendor's abil- ity to make changes if necessary . Changes occur regularly in business-so how would the vendor respond if demand for one product falls and the company no longer needs a call center for it? Contracts govern such things but are difficult to make clear on parties' obligations in such a scenario. Offshoring decisions require merging organizational level and HR department level strategies, as does global staffing.
Global Staffing Strategies Staffing for global operations includes a wide variety of alternatives. The optimal solution is to combine the expertise of local employees with the organization-specific knowledge of employees from the home country (headquarters). Some countries require that the organization employ a certain per- centage of workers from the host country. Figure 2-3 shows four strategic HR approaches to international staffing. Each organization will use a staffing model that best fits its culture and strategic goals.
An expatriate is a citizen of one country who is working in a second country and employed by an organization headquartered in the first country. Moving an employee to an overseas assignment for an extended period requires careful selection, training, and planning to make the experience a success. The return of an expatriate (called repatriation) must be well planned and executed for the organization to con- tinue the benefits of the overseas assignment when the employee returns.
Leadership development is especially important for MNCs. It is becoming more important for individuals in top management positions to have international
44 SECTION 1
Human Resource planning The process of analyzing and identifying the need for and availability of people so that the orga- nization can meet its strategic objectives .
The Environment of Human Resource Management
FIG U R E 2 - 3 Strategic HR Approaches to International Staffing
......
Geocentric Policy
• Managers from headquarters staff key positions
• Ensures control over subsidiary location operations
• Eases transfer of policies from headquarters to subsidiary
• Host-country nationals staff key positions
• Reduces cultural mishaps and misunderstanding
• Coordination with headquarters may be problematic
• Key positions are filled by individuals in the region of the
subsidiary (e.g., European Union countries)
• Capitalizes on cultural and language similarities
within the region
• An international cadre of skilled managers are assigned
to global subsidiaries regardless of nationality
+ Leve rages technical and managerial expertise
0
· ~ ."l m
~ '-' @
experience so that they understand the worldwide marketplace_ 17 Effective selection and development processes are needed to ensure that the right individuals are cho- sen for these roles. Leading across cultures requires specific skills, and organizations should provide formal training along with expatriate assignments to develop leaders who can achieve results in this demanding environment. 18 Again, merging of com- pany and HR strategy is required_
HR planning is frequently a direct consequence of implementing strategies to move the organization forward_ HR planning deals with deciding how many people will be needed to execute specific functions of an organization_
2-3 • HUMAN RESOURCE PLANNING
Human Resource planning is the process of analyzing and identifying the need for and availability of people so that the organization can meet its strategic objectives. The focus of HR planning is to ensure that the organization has the right number of people with the right capabilities, at the right times, and in the right places_ In HR planning, an organization must consider the availability and allocation of people to jobs over long periods of time, not just for the next month or even the next year. 19
HR plans can include several approaches. Actions may include shifting employ- ees to other jobs in the organization, laying off employees or otherwise cutting back the number of employees, retraining current employees, and/or increasing the num- ber of employees in certain areas_ Factors to consider include the current employees'
CHAPTER 2 Human Resource Strategy and Planning 45
knowledge, skills, and abilities (KSAs) and the expected vacancies resulting from retirements, promotions, transfers, and discharges. To do this, HR professionals work with executives and managers. 20
2-3a Human Resources Planning Process The steps in the HR planning process are shown in Figure 2-4. Notice that the pro- cess begins with considering the organizational plans and the environmental analy- sis that went into developing strategies. The figure includes an environmental analysis to identify the situation in which HR is operating. Strengths, weaknesses, opportunities, and threats are considered. Then the possible available workforce is evaluated by identifying both the external and internal workforce.
Once those assessments are complete, forecasts must be developed to determine both the demand for and supply of human resources. Management then formulates HR staffing plans and actions to address imbalances, both short-term and long- term. Specific strategies may be developed to fill vacancies or deal with surplus employees. For example, a strategy might be to fill 50% of expected vacancies by training employees in lower-level jobs and promoting them.
Finally, HR plans are developed to provide specific direction for the management of HR activities related to employee recruiting, selection, and retention. The most tell- ing evidence of successful HR planning is a consistent alignment of the availabilities and capabilities of human resources with the needs of the organization over time.21
F I G U R E 2 - 4 HR Planning Process ................................................................................................
Review Organizations Environmental Analysis/Strategic Plans
~ "'
~ '" '"' ~ '-~
Assess External and Internal Workforce
• Externa l conditions and influ ences
• Internal workforce capabilities and KSAs
'·· l ,C "'
Compile HR Planning Forecasts
• Demands for Human Resources
• Supp ly of Human Resources
-"
! Develop HR Staffing Plans and Actions
• Em ployee retention and turnover
• Recruiting sources and means
• Selection process and actions
'
46 SECTION 1
Environmental scanning The assessment of external and interna l environmental conditions that affect the orga ni zat ion.
The Environment of Human Resource Management
2-3b Environmental Analysis Before the managers in a company begin strategic planning, they study and assess the dynamics of the environment in which they operate to better understand how these conditions might affect their plans. The process of environmental scanning helps to pinpoint strengths, weaknesses, opportunities, and threats that the organi- zation will face during the planning horizon. Whether this is done or not at the organizational level, it should be conducted at the HR planning level. 22
The external environment includes many economic, political, and competitive forces that will shape the future. For HR the internal environment includes the quality and quantity of talent, the organizational culture, and the talent pipeline and leadership bench strength. Figure 2-5 shows the HR elements of a SWOT analysis that are part of the environmental analysis.
Opportunities and threats emerge from the external environment and can impact the outcomes for the firm . Many of these forces are not within the organiza- tion's control, but must be considered in the scanning process because they can affect the business. Dealing with uncertainty in the external environment is an important skill for planners. The external environmental scan includes an assess - ment of economic conditions, legislative/political influences, demographic changes, and geographic and competitive issues .
Population shifts and demographic changes can affect the organizational strat- egy. For example, by 2042 non-Hispanic whites will no longer comprise the major- ity of the U.S. population. 23 Such workforce demographics will affect the labor available to the organization.
Where an organization locates its operations plays a role in how well it will per- form. An understanding of geographic advantages and disadvantages can help man- agers develop appropriate plans. For example, see the HR Perspective: Where Is the Workforce? The strengths and weaknesses of the organization represent internal fac- tors that either create or destroy value. When assessing the interna l environment, managers evaluate the quantity and quality of Human Resources, HR practices, and the organizational culture.
The strength of the talent pipeline is a particularly important internal consideration as the organization plans its HR future. Fulfilling strategic objectives is impossible
F I G U R E 2 - 5 HR Factors in the SWOT Analysis
Strengths
• Inte ll ectual cap ita l • Loya l, comm itted emp loyees • Innovative, adaptive emp loyees • H igh-performance practices
-
Opportunities • Market pos it ion • U nexp lored markets • Global expans ion • Tec hnology advances
Weaknesses
• Lack of sk i li ed emp loyees • Lack of leadershi p p ipe lin e • Outdated ta lent management
practices
Threats • Lega l mandates and restri ctions • Competitor power • Econom ic uncerta inty • Talent shortage
=· •. , , .. , .•. - -.. ;.;~.4,.;.:!.3!F
g> .E .§ ~
~ <"l <9
C HAPTER 2 Human Resource Strategy and Planning
. PERSPECTIVE Where Is the Workforce? Mexico's Sigma Alimentos made a $63 million
investment in Oklahoma to make hot dogs and
hams but now cannot find the workforce it needs
even with high unemployment in the area. The
company received millions of dollars in tax incen-
tives to build a factory near downtown Seminole,
a sma ll town with many boarded-up a nd aban-
doned buildings. With 10% unemployment the
community was hungry for jobs, but that hasn 't
meant that people want to work at Sigma.
Turnover at the plant has topped 100% for its
first years. A team leade r on the ham line says he
has gone through 20 workers in a year and a half
on a shift that requires 5 employees. Employees
compla in abo ut the hours, emphasiz in g that th ey
wa nt 9-to-5 jobs in an industry that must work shifts
that start as ea rl y as 4 a.m. to get things done.
Pay is an issue too-nearly a dozen tribal
cas in os in the area offer $9.50 to $16 an hour
for lighter work. Other work is avai lab le with a
littl e driving to Oklahoma City to the west. Some
do not like working in refrigerated rooms and
dealing with the constant smell of anima l flesh.
Sigma has dealt with its staffing problems in sev-
eral ways . Th e company uses overtime and sends
recruiters far from town looking for help. Sigma has
even considered paying some relocation expenses
such as the first month's rent if someone is wi lling
to come to work in Seminole from farther away.
Economists say it is natural that some wo rk-
ers prefer se rvic e work with better working
conditions. A local economic development group
spokesman said he was surprised to see people
unwilling to take a $1 0/hour job at a meat-
packing plant. But he would not be surprised
to see high turnover, espec ia ll y if emp loyees
once worked at one of the sewing plants that
left the area. Job creation and securing a work-
force, even in an area with hi g h unemployment,
ca n be challeng ing. 24
47
Su ccession planning 'le process of identify- "9 a plan for the orderly -ep lacement of key ::mployees.
without sufficient skills and talent. Leadership development and succession planning programs ensure that high-quality talent will be available to carry out the strategy. Effective development programs can reduce the high failure rate of people in leadership positions. Selecting individuals with the right talents and teaching them leadership skills can improve the quality of leaders and promote strategic success. Succession planning is the process of identifying a plan for the orderly replacement of key employees. The discussion will now turn to how these and other concerns are incorporated into HR planning.
2-4 • PLANNING FOR EXTERNAL WORKFORCE AVAILABILITY
If a network technology firm plans to double its number of client accounts from 100 to 200 in a three-year period, that firm must also identify how many and what types of new employees will be needed to staff the expanded services, loca- tions, and facilities. Those new employees will probably have to come from outside the current pool of employees. Several specific factors that affect that external pool of potential employees are highlighted next.
48 SECTION 1 The Environment of Human Resource Management
2-4a Economic and Governmental Factors The general economic cycles of recession and boom affect HR planning. Factors such as interest rates, inflation, and economic decline or growth affect the availabil- ity of workers and should be considered when organizational and HR plans and objectives are formulated. There is a considerable difference between finding quali- fied applicants in a 4% unemployment market compared to a 9% unemployment market. As the unemployment rate rises, the number of qualified people looking for work increases, often making it easier to fill some jobs. But those hired may receive lower pay and benefits than in their previous jobs. 25
A broad array of government regulations affects the labor supply and therefore HR planning. As a result, HR planning must be done by individuals who under- stand the legal requirements of various government regulations. In the United States and other countries, tax legislation at local, state, and federal levels affects HR planning. Pension provisions and Social Security legislation may change retirement patterns and funding options. Elimination or expansion of tax benefits for job- training expenses might alter some job-training activities associated with workforce expansions. In summary, an organization must consider a wide variety of econom- ics factors and government policies, regulations, and laws during the HR planning process, focusing on specific ones that affect the company.
2-4b Geographic/Competitive Evaluations When making HR plans, employers must consider a number of geographic and competitive concerns. The net migration into a particular region is important. For example, in the past decade, the populations of some U.S. cities in the South, South- west, and West have grown rapidly and have provided sources of labor. However, areas in the Northeast and Midwest have experienced declining populations or net outmigration. This affects the number of people available to be hired.
Direct competitors are another important external force in HR planning. Fail- ure to consider the competitive labor market and to offer pay scales and benefits comparable with those of organizations in the same general industry and geo - graphic location may cost a company dearly in the long run. Finally, the impact of international competition must be considered part of environmental scanning. Global competition for labor intensifies as global competitors shift jobs and work- ers around the world, as illustrated by the outsourcing of jobs from the United States to countries with cheaper labor.
2-4c Changing Workforce Considerations Significant changes in the workforce, both in the United States and globally, must be considered when examining the outside workforce for HR planning. Shifts in the composition of the workforce, combined with the use of different work patterns, have created workplaces and organizations that are notably different from those of a decade ago. For example, many organizations face major concerns about hav- ing sufficient workers with the necessary capabilities. 26 When scanning the potential and future workforce, it is important to consider a number of variables, including:
• Aging of the workforce • Growing diversity of workers • Female workers and work- life balancing concerns • Availability of contingent workers • Outsourcing possibilities
C HAP TE R 2 Human Resource Strategy and Planning 49
When assessing these factors, it is important to analyze how they affect the cur- rent and future availability of workers with specific capabilities and experience. For instance, in a number of industries, the median age of highly specialized profes- sionals is over 50 years, and the supply of potential replacements with adequate education and experiences is not sufficient to replace such employees as they retire. Many firms have planned for workforce shortages because of the brain drain created by the retirement of existing older workers.
2-5 • PLANNING FOR INTERNAL WORKFORCE AVAILABILITY
Analyzing the jobs that will need to be done and the capabilities of people who are currently available in the organization to do them is the next part of HR planning. The needs of the organization must be compared against the existing labor supply, as well as the potential labor supply available outside the organization.
2-5a Current and Future Jobs Audit The starting point for evaluating internal workforce strengths and weaknesses is an audit of the jobs that need to be done in the organization. A comprehensive analysis of all current jobs provides a basis for forecasting what jobs will need to be done in the future. Much of the data required for the audit should be available from exist- ing staffing and organizational databases. The following are key questions that are addressed during the internal jobs assessment:
• What jobs exist now and how essential is each job? • How many individuals are performing each job? • What are the reporting relationships of jobs? • What are the vital KSAs (knowledge, skills, and abilities) needed in the jobs? • What jobs will be needed to implement future organizational strategies? • What are the characteristics of those anticipated jobs?
2-5b Employee and Organizational Capabilities Inventory As HR planners gain an understanding of the current and future jobs that will be necessary to carry out organizational plans, they can conduct a detailed audit of current employees and their capabilities. The basic data on employees should be available in the HR records in the organization.
An inventory of organizational skills and capabilities may consider a number of elements. Especially important are:
• Individual employee demographics (age, length of service in the organization, time in present job )
• Individual career progression (jobs held, time in each job, education and train- ing levels, promotions or other job changes, pay rates)
• Individual performance data (work accomplishment, growth in skills, working relationships)
All the details of an individual employee's skills that are stored in an HRIS go into a databank may affect that person's career. Therefore, the data and their use must meet the same stand ards of job-relatedness and nondiscrimination as those
50 SECTION 1
Forecasting Using information from the past and the present to identify expected future cond itions .
The Environment of Human Resource Management
met when the employee was initially hired. Security measures must ensure that sen- sitive information is available only to those who have a specific use for it.
Managers and HR staff members can gather data on individual employees and aggregate details into a profile of the current organizational workforce. This profile may reveal many of the current strengths and deficiencies of people in the organiza- tion. For instance, a skills mismatch may be identified in which some workers are either overqualified or underqualified for their jobs. The profile also may highlight potential future problems. For example, if some specialized expertise, such as advanced technical skills, is lacking in many workers, the organization may find it difficult to take advantage of changing technological opportunities. Or if a large group of experienced employees are all in the same age bracket, their eventual retirements about the same time might lead to future "gaps" in the organization.
2-6 • FORECASTING HR SUPPLY AND DEMAND
Forecasting uses information from the past and present to predict expected future conditions. When forecasting future HR conditions, the forecast comes from work- force availability and requirements. Projections for the future are, of course, subject to error. Fortunately, experienced people usually are able to forecast with enough accuracy to positively affect long-range organizational planning.
2-6a Forecasting Methods and Periods Forecasting methods may be either judgmental or mathematical, as Figure 2-6 shows. Methods for forecasting Human Resources range from a manager's best guess to a rigorous and complex computer simulation. Despite the availability of sophisticated judgmental and mathematical models and techniques, forecasting is still a combina- tion of quantitative methods and subjective judgment. The facts must be evaluated and weighed by knowledgeable individuals, who use the mathematical models as tools and make judgments to arrive at decisions.27
HR forecasting should be done over three planning periods: short range, intermediate range, and long range. The most commonly used planning period of six months to one year focuses on short-range forecasts for the immediate HR needs of an organization. Intermediate- and long-range forecasting are much more difficult processes. Intermediate -range plans usually project one to three years into the future, and long-range plans extend beyond three years.
2-6b Forecasting the Demand (Need) for Human Resources The demand for employees can be calculated for an entire organization and/or for individual units in the organization. For example, a forecast might indicate that a firm needs 125 new employees next year, or that it needs 25 new people in sales and customer service, 45 in production, 20 in accounting and information systems, 2 in HR, and 33 in the warehouse. The unit breakdown obviously allows HR plan- ners to better pinpoint the specific skills needed than does the aggregate method.
Demand for Human Resources can be forecast by considering specific openings that are likely to occur. The openings (or demands) are made when new jobs are being created or current jobs are being changed. Additionally, forecasts must consider when employees leave positions because of promotions, transfers , turnovers, and terminations.
CHAPTER 2 Human Resource Strategy and Planning 51
F I G U R E 2- 6 HR Forecasting Methods ................................................................................................................. ...................................................................
judgmental Methods
• Estimates can be either top-down or bottom-up, but essentially people who are in a position to know are asked, "How many people will you need next year?"
• The rule of thumb method relies on general guidelines applied to a specific situation within the organization. For example, a guideline of "one operations manager per five reporting supervisors" aids in forecasting the number of supervisors needed in a division. However, it is important to adapt the guideline to recognize widely varying departmental needs.
• The Delphi technique uses input from a group of experts whose opinions of forecasted situations are sought. These expert opinions are then combined and returned to the experts for a second anonymous opinion. The process continues through several rounds until the experts essentially agree on a judgment. For example, this approach is used to forecast effects of technology on HR management and staffing needs.
• Nominal groups, unlike the Delphi method, require experts to meet face to face. Their ideas maybe cited independentl y at first, discussed as a group, and then compiled as a report.
Mathematical Methods
• Statistical regression analysis makes a statistical comparison of past relationships among various factors. For example, a statistical relationship between gross sales and number of employees in a retail chain may be useful in forecasting the number of employees that will be needed if the retailer's sales increase 15% or decrease 10%.
• Simulation models are representations of real situations in abstract form . For example, an econometric model of the growth in software usage would lead to forecasts of the need for software developers. Numerous simulation methods and techniques are available.
• Productivity ratios calculate the average number of units produced per employee. These averages can be applied to sales forecasts to determine the number of employees needed. For example, a firm could forecast the number of needed sales representatives using these ratios .
• Staffing ratios can be used to estimate indirect labor. For example, if the company usually uses one clerical person for every 25 production employees, that ratio can be used to estimate the need for clerical employees.
An analysis is used to develop decision rules (or "fill rates") for each job or level. For example, a decision rule for a financial institution might state that 50% of branch supervisor openings will be filled through promotions from customer service tellers, 25% through promotions from personal bankers, and 25% from new hires. Forecasters must be aware of multiple effects throughout the organization, because as people are promoted from within, their previous positions become available. Continuing the example, forecasts for the need for customer service tellers and personal bankers would also have to be developed. The overall purpose of the forecast is to identify the needs for Human Resources by number and type for the forecasting period.
52 SECTION 1 The Environment of Human Resource Management
2-6c Forecasting the Supply (Availability) of Human Resources Once HR needs have been forecast, then availability of qualified individuals must be identified. Forecasting availability considers both external and internal supplies. Although the internal supply may be somewhat easier to calculate, it is important to calculate the external supply as accurately as possible.
External Supply The external supply of potential employees available to the organi- zation can be identified. Government estimates of labor force populations, trends in the industry, and many more complex and interrelated factors must be considered. Such information is often available from state or regional economic development offices. The following items may be included:
• Net migration into and out of the area • Individuals entering and leaving the workforce • Individuals graduating from schools and colleges • Changing workforce composition and patterns • Economic forecasts for the next few years • Technological developments and shifts • Actions of competing employers • Government regulations and pressures • Circumstances affecting persons entering and leaving the workforce
Internal Supply Figure 2-7 shows in general terms how the internal supply can be calculated for a specific employer. Estimating internal supply considers the number of external hires and the employees who move from their current jobs into others through promotions, lateral moves, and terminations. It also considers that the internal supply is influenced by training and development programs, transfer and
FIGURE 2- 7 Estimating Internal Labor Supply for a Given Unit
Current Staffing
Level
-- _,.,
Source of Inflows
• External hires • Internal transfers • Promotions • Reca ll s
Projected Outflows This Year
Projected + Inflows
This Year
Internal Supply for Next Year
Source of Outflows
• Promotions • Turnover • Terminations • Demotions • Retirements • Deaths • Layoffs
"'" = ~ c ., ~ m ~ ro ~ c m u @
C HAPTER 2 Human Resource Strategy and Planning 53
1 List options for rtandling a shortage and surplus of employees.
promotion policies, and retirement policies, among other factors. In forecasting the internal supply, data from replacement charts and succession planning efforts are used to project potential personnel changes, identify possible backup candidates, and keep track of attrition (resignations, retirements, etc.) for each department in an organization.
2-7 • WORKFORCE SUPPLY -:t DEMAND
Since the objective of strategic planning is to anticipate and react to future events and conditions, managers should evaluate and revise the strategic plan on a peri- odic basis. Some have called into question the value of strategic planning in light of economic volatility. However, organizations would fare much worse with no plan in place. Surprises are not good when hiring a workforce, and planning helps reduce surprises.
Attracting and retaining the right talent is an ongoing challenge as the needs of the business change over time. The United States has continued to move from a manufacturing economy to a service economy. This shifting economic base leads to structural mismatches between workers and jobs. Workers with the wrong skills are unable to fill the technical and health service jobs employers need. Ongoing retraining can help overcome some of these problems if strategic plan- ning has identified them. Organizations need to plan for both the quantity and quality of the workforce over the planning horizon. Having sufficient workers with the right qualifications is essential to achieve the strategic plan. If the firm employs too many people for its needs, a talent surplus exists, and if too few, a talent shortage. Because of the rapidly changing conditions, the organization may face a surplus in some parts of the business while facing a shortage in others. Figure 2-8 shows the tactics organizations might use to deal with workforce sup- ply imbalances.
2-7a Managing a Talent Surplus A talent surplus can be managed within a strategic HR plan in a number of ways . The reasons for the surplus will guide the ultimate steps taken by the organization. If the workforce has the right qualifications but sales revenue has fallen, the primary strategies would involve retaining the best workers while cutting costs. However, if the workforce is not appropriately trained for the jobs needed, the organization may lay off those employees who cannot perform the work. Managers may use various strategies in a progressive fashion to defer workforce reductions until absolutely necessary.
Reduction in Work Hours or Compensation In order to retain qualified employees, managers may institute reduced work hours on a temporary basis. Selected groups of employees may have their workweek reduced or all employees can be asked to take a day or week off without pay. For example, a small family-owned company, asked its 15 full-time workers to take a day off without pay each week to keep all of them on the payroll and avoid layoffs. When the economy improves, these skilled employees will be available to handle the increased workload.
Across-the-board pay cuts can reduce labor costs while retaining some skilled employees. It is important that pay cuts start at the very top of the organization so
54 SECTION 1 The Environment of Human Resource Management
FIGURE 2 - 8 Managing Talent Supply Imbalances
I
.................................................................................................
[.··.··. .,.-,' " ·.].·· ,. . '• ·'·.· ~ N
Reduce employee work hours or compensation
r Attrition
Hiring freezes
Voluntary separation programs
1 j \.
J
Increase emp loyee work hours through overtime
Outsource to a third party
Imp lement alternati ve work arrangements
Use contingent workers (tell!poraries, i nd~pendent contracto rs)
{ Workforce downsizing/reduction ) ( Reduce employee turnover in force (RIF)
•""""'""""!-,. .,,..-. ,_._ ... = ~ .. -
,)
J )
~ ~
'E g m ~ m ~
,§ <9
that employees do not bear all of the hardship. Uniform pay cuts can be felt as a shared sacrifice for the survival of the firm. Organizations may also reduce employee benefits, such as eliminating matching 401K contributions or raising employee health insurance premiums. HR should closely monitor the situation and reinstate pay and benefits levels when the economic outlook improves to maintain employee loyalty and a sense of fairness .
Attrition and Hiring Freezes Attrition occurs when individuals quit, die, or retire and are not replaced. By use of attrition with no additional hiring, no one is cut out of a job, but those who remain must handle the same workload with fewer peo- ple. Unless turnover is high, attrition will eliminate only a relatively small number of employees in the short run, but it can be a viable alternative over a longer period of time. Therefore, employers may combine attrition with a freeze on hiring. Employ- ees usually understand this approach better than they do other downsizing methods.
Voluntary Separation Programs Organizations can reduce the workforce while also mi~i~i~i~g l~gat' ri~ks i( empl~yees vol~nteer to leave. hrms otten entice emplbyees- to volunteer by offering them additional severance, training, and benefits payments. Early retirement buyouts are widely used to encourage more senior workers to leave organizations early. As an incentive, employers may offer expanded health coverage and additional buyout payments to employees so that they will not be penalized economically until their pensions and Social Security benefits take effect. These
CHAPTER 2 Human Resource Strategy and Planning 55
Severance benefits - emporary payments mad e to laid-off employ- ees to ease the financial nu rden of unemployment.
programs are viewed as a way to accomplish workforce reductions without resort- ing to layoffs.
Voluntary separation programs appeal to employers because they can reduce payroll costs significantly over time. Although the organization faces some up- front costs, it does not incur as many continuing payroll costs. Using such programs is also viewed as a more humane way to reduce staff than terminating long-service, loyal employees. In addition, as long as buyouts are truly voluntary, an organiza- tion offering them is less exposed to age discrimination suits. One drawback is that some employees the company would like to retain might take advantage of a buyout.
Workforce Downsizing It has been given many names, including downsizing, right- sizing, and reduction in force (RIF), but it almost always means cutting employees. Layoffs on a broad scale have occurred with frightening regularity in recent years. Trimming underperforming units or employees as part of a plan that is on the basis of sound organizational strategies may make sense. After a decade of many exam- ples and studies, it is clear that downsizing has worked for some firms .28 However, it does not increase revenues; it is a short-term cost-cutting measure that can result in a long-term lack of talent. When companies cannibalize the human resources needed to change, restructure, or innovate, disruption follows for some time.Z9
Also, downsizing can hurt productivity by leaving "surviving" employees overbur- dened and demoralized.
Best practices for companies to successfully carry out layoffs include the following:
• Identify the work that is core to sustaining a profitable business. • Identify the knowledge, skills, and competencies needed to execute the business
strategy. • Protect the bottom line and the corporate brand. • Constantly communicate with employees. • Pay attention to the survivors.
A common myth is that those who are still around after downsizing are so grateful to have a job that they pose no problems to the organization. However, some observers draw an analogy between those who survive downsizing and those who survive wartime battles. Bitterness, anger, disbelief, and shock all are common reactions. For those who survive workforce cuts, the culture and image of the firm as a "lifetime" employer often are gone forever.
Severance benefits and outplacement services may be offered by companies to cushion the shock of layoffs and protect the company from litigation. Severance benefits are temporary payments made to laid-off employees to ease the financial burden of unemployment. One common strategy is to offer laid-off employees sev- erance benefits that require employees to release the organization from legal claims. Severance benefits are typically based upon length of service with the company, often one or two weeks ' pay per year of service. Outplacement services are provided to give displaced employees support and assistance. Outplacement typically includes personal career counseling, resume-preparation services, interviewing workshops, and referral assistance. Such services are generally provided by outside firms that specialize in outplacement assistance and whose fees usually are paid by the employer. Assisting laid-off workers with gaining new employment can help to alle- viate the financial burden on employees and preserve the company image.
56 SECTION 1
Outsourcing Transferring the man- agement and perfor- mance of a business function to an external service provider.
The Environment of Human Resource Management
2-7b Legal Considerations for Workforce Reductions HR must be involved during workforce adjustments to ensure that the organization does not violate any of the nondiscrimination or other laws governing workforce reductions. Selection criteria for determining which employees will be laid off must comply with Title VII of the Civil Rights Act as well as the Age Discrimination in Employment Act and the Americans with Disabilities Act. A careful analysis and disparate impact review should be conducted before final decisions are made.
There is no legal requirement to provide severance benefits, and loss of medical benefits is a major problem for laid-off employees. However, under the federal Consolidated Omnibus Budget Reconciliation Act (COBRA), displaced workers can retain their group medical coverage for up to 18 months for themselves, and for up to 36 months for their dependents, if they pay the premiums themselves.
Employers must also comply with the Older Workers Benefit Protection Act (OWBPA) when implementing RIFs . The OWBPA requires employers to disclose the ages of both terminated and retained employees in layoff situations, and a waiver of rights to sue for age discrimination must meet certain requirements. The worker must be given something of value ("consideration") in exchange for the waiver of right to sue, typically severance benefits. When laying off a group of employees, workers over age 40 who are being laid off must be granted 45 days in which to consider accepting severance benefits and waiving their right to sue.
To provide employees with adequate notice of plant closings or mass layoffs, a federal law was passed-the Worker Adjustment and Retraining Notification (WARN) Act. This law requires private or commercial organizations that employ 100 or more full-time workers who have worked more than 6 months in the previous year to give a 60-day notice before implementing a layoff or facility closing that involves more than 50 people. However, workers who have been employed less than 6 months in the prior year, as well as part-time staff members working fewer than 20 hours per week, are not counted toward the total of 50 employees. Despite not being formally counted to determine implementation of the law, these individuals should still be given some form of notice. The WARN Act imposes heavy fines on employers who do not follow the required process and give proper notice.
2-7c Managing a Talent Shortage Managing a shortage of employees seems simple enough-simply hire more people. However, as mentioned earlier, there can be mismatches between the qualifications needed by employers and the skills possessed by available workers . The list of the 10 hardest jobs to fill in the United States includes engineers, nurses, certain tea- chers, IT staff, and skilled trades. For these jobs, there may not always be sufficient qualified workers to hire. Companies can use a number of alternative tactics to manage a talent shortage as Figure 2-9 shows.
The existing workers can work overtime. This strategy can work on a short- term basis but is not a solution for a longer-term talent shortage. Workers may appreciate the extra hours and pay for awhile, but eventually fatigue sets in and productivity and quality may drop and injuries and absenteeism may increase.
Outsourcing involves transferring the management and/or routine performance of a business function to an external service provider. Organizations in the United States outsource a wide variety of noncore functions in order to reduce costs or to obtain skills and expertise not available in the organization.
CHAPTER 2 Human Resource Strategy and Planning 57
,\ lternate work arrangements
ontraditiona l sch edules jjat provide flexibility to em pl oyees.
FIGURE 2- 9 Ways to Manage a Talent Shortage ...................................................... ......... .. .. ........................... . ......................................................................... ....... ................. .. ........ ........ .
The following are in a common order of usage:
First Use overtime
Second Outsource work
Third Try alte rnative work arrangements ~
Fourth Bring back recent retirees D N
~ c
Fifth Increase contingent workers ~ ~
~
Sixth Reduce turnover c ID '-' @
Alternate work arrangements are nontraditional schedules that provide flexibil - ity to employees and include job sharing and telecommuting. These are creative solutions to attract and retain skilled employees who want flexibility . Employees can be given more freedom in determining when and how they will perform their jobs. These arrangements are not costly to the organization but do require manage- ment support and planning to be effective. 30 Retirees may be rehired on a part-time or temporary basis to fill talent gaps. The advantage is that these individuals are already trained and can be productive immediately. Care must be taken not to interfere with pension payments or other benefits tied to retirement.
The use of contingent employees, who are noncore employees working at a company on a temporary or as-needed basis, can provide short-term help. Profes- sional employer organizations can lease employees to the firm, which is often a good solution for technical talent. Independent contractors can be hired on an as- needed basis to fill talent shortages. The use of independent contractors must be managed closely to ensure compliance with wage and hour, safety, and employee benefit statutes. When using contingent workers, special efforts are needed to assim- ilate them into the workforce and avoid an " us-and-them" mentality. Contingent workers fill an important need and managers can max imize their contributions through good employee relations practices.
Reducing turnover of qualified employees should be an ongoing effort to main- tain a talented workforce. Special attention may be required in times of talent shortages to hold on to skilled employees.
A special instance of HR planning is HR's role in planning for and accomplish- ing mergers and acquisitions M&A. HR' s input can be a key part of mergers and acquisitions. 31
2-8 • HUMAN RESOURCES PLANNING IN MERGERS AND ACQUISITIONS
The purpose of a merger or acquisition is to generate growth by combining two ex isting companies an d creating a more competitive company. Most executives in a recent surve y felt M &A is an important strategy for growth through acquir- ing talent, products , intellectual property, or capabilities. 32 HRM can contribute to the strategic success o f mergers and acquisitions. Research has clearly shown
58 SECTION 1
Due diligence A comprehensive assessment of all aspects of the business being acquired.
The Environment of Human Resource Management
F I G U R E 2 - 1 0 HR Activities During M&A ............. ................ . ...................... .
Before the Deal
• Conduct due dil igence
• Assess risks • Identify
possible conflicts
• Address key HR processes
• Retain key tal ent
• Recogn ize cultura l differences
Post Integration
• Optimize workforce
• Identify and establ ish new cu lture
0 c ·e ~ ~
J @
that the majority of M&A fail to deliver on the expected financial, marketing, or product gains, with only about one-third of companies reporting that they achieved their goals. 33 A significant number of failed ventures can trace their roots to HR issues that were not properly addressed such as loss of key staff, culture clashes, and poor communication. To maximize the chances of a success- ful integration, HR should be involved before, during, and after the deal is com- pleted. Figure 2-10 shows the HR activities and focus during each stage of the merger process.
2-8a Before the Deal To determine whether or not the two organizations should combine, a rigorous process of due diligence is conducted. 34 Due diligence is a comprehensive assess- ment of all aspects of the business being acquired . Financial, sales and marketing, operations, and Human Resource staffs can all be involved before the final decision is made to merge or acquire the company. Each function determines the assets and liabilities of the target company to ascertain whether there are serious risks to the buyer. HR professionals review issues related to legal compliance, compensation and benefits programs, quality of talent, and labor contract obligations. 35
Early identification of potential problems such as underfunded pension liabili- ties or incompatible labor agreements helps management plan for an orderly transi- tion. Due diligence is even more complex when the M&A involves companies in different countries. A thorough, objective analysis of the HR-related issues is critical to make good business decisions. For example, when a North American high-tech company acquired another company to obtain a new technology it found that the cost to maintain the acquired organization's culture was excessive. The attempt to integrate the company lasted five years and required a full -time senior executive to manage interactions and changes to the parent company's policies and systems. Fur- ther financial reporting, budgeting, and all cost synergies were affected-negatively. Many companies would have given up. But despite all the problems, the acquisition ultimately proved to be very worthwhile, and the business flourished. 36
2-8b During Integration After the deal is closed, the focus of HR activity switches to the orderly transi- tion of basic HR processes such as payroll and benefits migration. During the
C HAPTER 2 Human Resource Strategy and Planning 59
first 60 days after the acquisition, HR must deliver high-quality administrative and operational support to employees and managers. The immediate concerns are often about basic services needed to run the operations. Frequent communi- cation, employee hotlines, and guidance for managers all contribute to employee retention and loyalty during the chaotic , early days of the transition. During the transition, managers focus on identifying key talent and establishing initiatives to retain the se critical employees. Retention bonuses, special assignments, and enhanced severance can be used to keep key talent in place during the integra- tion stage. 37
Integrating HR information systems is important to provide managers with information about employee capabilities, performance, and potential. The acquir- ing organization cannot make optimum Human Resource assessments without access to employees' historical information. An inventory of knowledge, skills, and expertise along with performance information provide the data for making suitable assignments for employees from both organizations . Gathering all rele- vant HR information in a single database helps managers to analyze and compare employee skills and make informed decisions about which employees should be retained.
As the businesses are merged, culture-based conflicts can emerge. For example, when HP and Compaq merged, cultural differences were recognized and addressed. HP had a culture that fostered innovation by giving employees autonomy and opportunities for professiona l development. Compaq, on the other hand , was a fast-paced company that made decisions quickly. The merger was successful because of the blending of the best parts of the culture in each company. Changing the organiza tional culture depends upon changing behavior in the organization. Following are four important factors in changing culture:
• Define th e desired behaviors: Provide behavioral examples of how people are expected to act and tie these behaviors to the performance management system.
• Deploy role models: Select leaders who exemplify the desired behaviors and make them visible throughout the organization.
• Provide meaningful incentives: Reward the role models with recognition to reinforce their behavior and to signal the rest of the organization.
• Provide clear and consistent messages: Align what you say with what you do and reward.
2-8c Post Integration To realize the expected benefits of a merger, the months following the initial inte- gration are important. Culture changes started in the early days must be main- tained. Practical issues regarding talent management and development along with combining compensation systems will solidify the new, united organization. Failure to effectively blend the workforces and move beyond the "us-and-them" mentality can lead to inferior business results, a loss of shareholder value, and the failure of the merger. 38 Continued change efforts are needed to bring all employees to a one organization mentality. Breaking down the barriers between the previous practices at each company and implementing the best from both organizations will give employees a sense of value and importance. Ultimately, the outcomes of the deal depend on how HR issues are addressed.
60 SECTION 1
~ MEASURE
organizations can measure and analyze the effectiveness of HR management practices.
Effectiveness The ab i I ity to produce a spec ific desired effect or resu lt that can be measured.
Efficiency The degree to which operations are done in an economical manner.
HR metrics Specific measures of HR performance indicators.
The Environment of Human Resource Management
2-9 • MEASURING EFFECTIVENESS OF HUMAN RESOURCES AND HUMAN CAPITAL
Effectiveness for organizations is a measure of the ability of a program, project, or task to produce a specific desired effect or result that can be measured. Efficiency is the degree to which operations are carried out in an economical manner. Efficiency can also be thought of as a short-term measure that compares inputs and costs directly against outputs and benefits.
There are many ways of measuring the financial impact of the HR practices in an organization, and many challenges associated with doing so. Return on invest- ment (ROI) is a common measure used by financial professionals to assess the value of an investment. For example, if a firm invests $20,000 for a supervisory training program, what does it gain in lower worker compensation costs, lower legal costs, higher employee productivity, and lower employee turnover? The bene- fits of HR practices are not always immediately visible, which is what makes mea - suring HR's impact such a challenge. However, successful efforts can usually be made to assess HR practices.
A long-standing myth perpetuates the notion that one cannot really measure the value of HR practices. That myth has hurt HR's credibility because it suggests that either HR efforts do not add value or they are too far removed from business results to matter. That notion is, of course, untrue. HR, like all other functions, must be evaluated by considering the results of its actions and the value it adds to the organization. Unfortunately, the perceptions of managers and employees in many organizations are mixed because HR has not historically measured and documented its contributions or communicated those results. Further, accounting practices treat expenditures on human capital and talent development as expenses rather than capital investments. This practice encourages top management to view employees as consumers of capital rather than as a long-term investment.
A national working group looked at developing a standard to report human capital value on the Security Exchange Commission (SEC) form 10-K because cur- rently there is no agreed-upon method to account for the value that human capital brings to an organization. 39 However, the effort failed because critics believed that this could fuel acquisitions, talent raiding, or extra competitive pressure. 40
People-related costs are typically the largest controllable expense in organiza- tions. Effective management of these costs can make a positive difference in the sur- vival of the organization. Collecting and analyzing HR information can pinpoint waste and improper allocation of human resources. It is important that HR man- agers understand financial and operational measures that drive the business and relate decisions to key performance indicators (KPis). Metrics, benchmarking, bal- anced scorecards, and audits can help the organization track HR performance and measure the value of HR practices. 41
2-9a H R Metrics and Analytics HR metrics are specific measures of HR practices. They are performance indica- tors of some element of HR, for example, turnover rate. Metrics are typically used to assess the HR practices and results within the organization over time. A metric can be developed using costs, quantity, quality, timeliness, and other designated goals. Metrics can be developed to track both HR efficiency and
CHAPTER 2 Human Resource Strategy and Planning 61
FIGURE 2 - 1 1 Key H R Metrics
H R analytics
• HR-to-employee ratio • Total HR staff • HR expenses per FTE
,k'"'...:,S~"£ "'"':"'...,~~' -1:. """lt.."' < ,;.""'-. F ·7':. ,.,.._., , ~- .f'<"" ,- · , · ·- 'Co~pe~s~ti~~ · '~: J_: ·;· ·.n ; '
• Annual wage and salary increases • Payroll as a percentage of operating
expenses • Benefit costs as a percentage of payroll
Retention and Qualit~
• Average tenure of employees • Percentage of new hires retained for
90 days • Performance quality of employees in
first year
. - - · . Staffing .
• Number of positions filled • Tim e to fill • Cost per hire • Annual turnover rate
Training
• Hours of training per employee • Total costs for training • Percentage of employees participating
in tuition reimbursement program
Development
• Positions filled internally • Percentage of employees with career
plan
effectiveness . A pioneer in developing HR measurements, Jac Fitz-Enz, has identi- fied a wide range of HR metrics. A number of key HR metrics are shown in Figure 2-11. 42
HR and line managers collect and share the data needed to track performance. Data to track these measures come from several sources within the organization. Financial data are required to determine costs for various HR activities and perfor- mance and turnover data can be found in HR and operations records. The real value in using metrics is not in the collection and reporting of the results-it is the analysis and the interpretation of the data that can lead to improvements in human capital utilization.43 Information and historical data are reviewed and studied to determine the reasons for current performance levels and to learn how to improve these levels in the future .
- Jl evi dence-based :::Jp roach to making HR :ecisions on the basis of : anti tative tools and -odel s.
Metrics and software have been combined to make analysis easier, but it is still an evolving area. Analytics can simply be a way to report certain metrics or a sophisticated predictive modeling designed to answer "what if" questions about H R variables. 44 A definition of HR analytics that considers both extremes is as fol- lows: HR analytics is an evidence-based approach to making HR decisions on the basis of quantitative tools and models. 45
Unlike financial rep orting, there is not yet a standard for the implementation and reporting of HR measures . M anagers choose what and how to report to employees, investors, and other interes ted parties. For example, see HR Perspective: Using the
62 SECTION 1 The Environment of Human Resource Management
.. PERSPECTIVE Using the Right Analytics When asked which were the most important
metrics for valuing HR's contribution to the orga-
nization, HR managers rated retention and
employee satisfaction first followed by training
and development, recruiting costs, productivity
and overall revenue. Certainly, these items are
important but it is not until you get down the list that you get into factors that the CEO and
CFO care most about-costs, open positions, rev-
enue and productivity. Focusing on the wrong
issues in analytics can be as costly as doing no
analysis at all.
The capability for providing operating man-
agers with the information they want about
human capital in the organization is beginning to
emerge. HR can stop providing information that no
one cares about but HR. Instead, it can provide
actionable information, for example, "your turnover
rate is X%, here is what it is costing you, and here
are some things you can do about it."46
For instance, at Superior Energy Services in
New Orleans, the HR VP calculated revenue lost
for each job type when someone quit. Nearly half
the people who quit were skilled operators who
had a big impact on revenue. Using predictive
modeling to reduce turnover was implemented
in that group and turnover dropped significantly.
In another example, executives at PNC Financial
in Pittsburgh routinely picked outsiders over inside
job candidates. HR used analytics to look at sales
performance over several years for external hires
versus internal hires and found the internals were
significantly more productive in the first year. Later,
the outsiders closed the gap but never completely
overcame the slow start. Millions of dollars were at
stake and PNC changed their hiring practices.47
Over time, analytics can help answer some of
the questions for which the answers are not entirely
clear in every case, such as-does employee
engagement relate to financial outcomes? 48
Right Analytics. This lack of consistency in HR reporting makes it difficult to evalu- ate an organization and to compare HR practices across organizations. The following characteristics should be considered when developing HR metrics and analytics:
• Accurate data can be collected. • Measures are linked to strategic and operational objectives. • Calculations can be clearly understood. • Measures provide information valued by executives. • Results can be compared both externally and internally. • Measurement data drive HR management efforts.
2-9b Human Resources and Benchmarking Benchmarking Comparing the business results to industry standards.
Benchmarking is the process of comparing the business metrics and outcomes to an industry standard or best practice. In other words, the organization compares itself to "best-in-class" organizations that demonstrate excellence for a specific process. Benchmarking is focused on external practices that the organization can use to improve its own processes and practices. 4 9 When implementing benchmarking, managers should be careful to find organizations with similar contexts, cultures, operations, and size. 50 Practices that would work effectively in an organization of
CHAPTER 2 Human Resource Strategy and Planning 63
Balanced scorecard A framework used to report a diverse set of performance measures.
500 employees might not transfer very well to an organization with 5,000 employ- ees. The organization should study and choose benchmarks that will have the great- est impact on the organizational performance.
Many HR professionals report that their organizations collect benchmark data on a planned, periodic basis, while others collect it as needed. Major obstacles to using benchmarks are uncertainty about how to collect the information and what information to collect. Using benchmarking, HR effectiveness is best determined by measures on a year-to-year basis . In that way, the organization can track improvements and results by implementing specific HR practices. While bench- marking helps the firm compare its results to those of other organizations, it does not provide the cause or reason for the relative standing of the organization.51 So benchmarking is a starting point, not the end point, for improving HR practices.
2-9c Human Resources and the Balanced Scorecard One effective approach to measuring strategic performance of organizations, includ- ing their HR practices, is to use the balanced scorecard. The balanced scorecard is a framework organizations use to report on a diverse set of performance measures. Organizations that did not use a balanced scorecard recognized that focusing strictly on financial measures only limited their view. 52 The balanced scorecard balances financia l and nonfinancial measures so that managers focus on long-term drivers of performance and organizational sustainability. As shown in Figure 2-12, the balanced scorecard measures performance in four areas:
• Financial measures: Traditional financial measures such as profit and loss, operating margins, utilization of capital, return on investment, and return on assets are needed to ensure that the organization manages its bottom line effectively.
• Internal business processes: Product and service quality, efficiency and produc- tivity, conformance with standards, and cycle times can be measured to ensure that the operation runs smoothly and efficiently.
FIGURE 2- 1 2 Balanced Scorecard Framework
Internal Business Processes Customer Relations • Operational effectiveness • Customer satisfaction
• Conformance to standards • Customer loyalty
learning and Growth Activities Financial Measures • Emp loyee capabi lities • Profit and loss
• Institutiona l know ledge • Utilization of cap ital
~
a -
:1
64 SECTION 1
Return on investment (ROI) Calculation showing the value of an investment.
The Environment of Human Resource Management
• Customer relations: Customer satisfaction, loyalty, and retention are important to ensure that the organization is meeting customer expectations and can depend on repeat business from its customers.
• Learning and growth activities: Employee training and development, mentoring programs, succession planning, and knowledge creation and sharing provide the necessary talent and human capital pool to ensure the future of the organization.
Organizational results in each of these areas determine if the organization is progres- sing toward its strategic objectives. For example, some firms have noticed that when survey results show a decline in employee satisfaction, several months later there are declines in customer loyalty and repeat customer sales. Further, investing money in employee leadership development training can be linked to lower employee turnover and reduced time to hire managers from outside the organization.
A variety of organizations claim to use a balanced scorecard approach. Firms as diverse as Blue Cross, Verizon, and the Mayo Clinic have used this approach to align performance measures with their organizational strategy. Using the balanced scorecard requires spending considerable time and effort to identify the appropriate HR measures in each of the four areas mentioned earlier and how they tie to strate- gic organizational success. The balanced scorecard should align with company goals and focus on results. 53
2-9d Human Capital Effectiveness Measures HR measures outcomes that traditional accounting does not account for. Human capital often provides both the biggest value and the biggest cost to organizations; therefore many metrics reflect people-related costs. Measuring the benefits of human capital is more challenging but equally important. Assessing the value of human capital demonstrates the importance of effective HR practices that to main- tains a high-quality, workforce.54
As noted previously, human capital refers to the collective value of the compe- tencies, knowledge, and skills of the employees in the organization. This capital is the renewable source of creativity and innovativeness in the organization but is not reflected in its financial statements.
Revenue per employee is a basic measure of human capital effectiveness. The for- mula is Revenue/Head Count (full-time employee equivalents). It is a measure of employee productivity and shows the sales revenue generated by each full-time employee. This measure is commonly used in government reporting (see Bureau of Labor Statistics, BLS) as well as by organizations to track productivity over time. If revenues increase but employee head count remains constant, productivity would increase.
A widely used financial element that can be applied to measure the contribution and cost of HR activities is return on investment (ROI) , which is a calculation showing the value of investments in human capital. It can also be used to show how long it will take for the activities to show results. The following formula can be used to calculate the potential ROI for a new HR practice:
where:
c ROI= A+B
A = Operating costs for a new or enhanced system for the time period B = One-time cost of acquisition and implementation C = Value of gains from productivity improvements for the time period
.......
C HAPTER 2 Human Resource Strategy and Planning 65
Human capital value added (HCV A) Calcu lated by subtracting all operating expenses except for labor ex penses from revenue and dividing by the tota l fu ll -time head count.
Human capital return on investment (HCROI) Di rectly shows the oper- ating profit derived from ·nvestments in human capita l.
Human economic value added (HEVA) Wealth created per employee
H R audit A formal research effort o assess the current
state of HR pract ices.
ROI is stressed because it is used in most other functions in an organization and is the "language" used by financial staff and top management. 55 It allows managers to choose from among various investment opportunities to determine the best use of funds.
Human capital value added (HCV A) is an adjusted operating profitability figure calculated by subtracting all operating expenses except for labor expenses from rev- enue and dividing by the total full-time head count. It shows the operating profit per full -time employee. Because labor is required to generate revenues, employment costs are added back into operating expense. The formula for HCVA is:
Revenue- (Operating Expense- (Compensation+ Benefit Costs)) Full-Time Head Count
Human capital return on investment (HCROI) directly shows the amount of profit derived from investments in labor, the leverage on labor cost. The formula for HCROI uses the same adjusted operating profitability figure as for HCVA, but it is divided by the human capital cost:
Revenue - (Operating Expense- (Compensation+ Benefit Costs))
(Compensation + Benefit Costs)
Human economic value added (HEV A) shows the wealth created per employee. It shows how much more valuable the organization has become because of the investment in human capital. Wealth is the net operating profit of a firm after the cost of capital is deducted. Cost of capital is the minimum rate of return demanded by shareholders. When a company is making more than the cost of capital, it is cre- ating wealth for shareholders. An HEVA approach requires that all policies, proce- dures, measures, and methods use cost of capital as a benchmark against which their return is judged. HR decisions can be subjected to the same analysis. The for - mula for HEV A is:
Net Profit after T axes- Cost of Capital
Full-Time Head Count
M any financial measures can be tracked and reported to show the contribution human capital makes to organizational results. 56 Without such measures, it would be difficult to know what is going on in the organization, identify performance gaps, and provide feedback. M anagers should require the same level of rigor in measuring HR practices as they do for other functions in the organization.
Regardless of the time and effort placed on HR measurement and HR metrics , the most important consideration is that HR effectiveness and efficiency must be measured regularly for managers to know how HR practices affects organizational success. 5 7
2-9e Human Resources Audit One means for assessing HR performance is through an HR audit, which is similar to a financial audit. An HR audit is a formal research effort to assess the current state of HR practices in an organization. This audit is used to evaluate how well activities in each of the HR areas (staffing, compensation, health and safety, etc.) have been performing, so that management can identify areas for improvement.5 8
An HR audit often help s smaller organizations without a formal HR professional to identify issues as sociated with legal compliance, administrative processes and recordkeeping, employee retention, and other areas.
66 SECTION 1 The Environment of Human Resource Management
There are many levels of HR audit. Common levels are as follows:
• Compliance Audit: Checks record keeping on state and federal paperwork requirements
• Benefit Programs Audit: Reviews regulatory compliance, benefits administration and reporting
• I-9 Audit: Reviews compliance with immigration regulations and the I-9 form requirement
• Specific Program Audit: Reviews specific HR subareas such as compensation, EEO, or training
• Full HR Audit: Reviews all of the above plus any and all other HR functions 59
Audits frequently use a questionnaire and interviews to collect information, they may be performed by outside entities for more objective data. They can provide assessment about how well HR practices meet established standards and requirements.
, . -, · " ·-~ / , ~.,· ... -"" .. ) .. ~ ..J~• ·-:;f;i~~...:~t'!~-- -----~~: ~r:r
SUMMARY • The strategy an organization follows is its
proposition for identifying how to compete successfully and thereby survive and grow.
• HR should be involved in the development and implementation of strategic decisions through- out the organization.
• Strategic planning is a core business process that results in a road map of organizational direction.
• Strategic HRM management refers to the use of practices to gain or keep a competitive advantage by aligning individual employee performance with the organizational strategic objectives.
• Environmental scanning helps to pinpoint strengths, weaknesses, opportunities, and threats that the organization will face during the planning horizon.
• HR functions involve the merging of organiza- tional and HR strategies with offshoring and global staffing strategies.
• HR planning must arrive at the demand for people and the supply of people available.
• Managing a talent surplus may require reducing work hours, downsizing through use of attrition and hiring freezes, voluntary separation pro- grams, and workforce downsizing.
• Managing a talent shortage may be addressed through overtime, reducing turnover, using contingent workers, and outsourcing.
• HR plays a crucial role in mergers and acquisi- tions, particularly in dealing with integration and organizational culture issues.
• HR effectiveness must be measured using HR metrics that consider both strategic and opera- tional effectiveness.
• Benchmarking allows an organization to com- pare its practices against "best practices" in dif- ferent organizations, and HR audits can be used to get a comprehensive overview of HR activities.
• The balanced scorecard can be a useful frame- work to measure and combine organizational performance measures.
• An HR audit is valuable in providing an overall perspective or in several specific areas.
, . , -~. / ' -~. \ , ~~ .. ~ .;,:{' ~1-. -- -~-~J;~ ... ~;:. J.·. ~~~: ~., ..
CRITICAL THINKING CHALLENGES 1. Discuss how globalization has changed jobs
in an organization where you have worked. What are some HR responses to those changes?
2. What steps can HR professionals take to ensure that mergers and acquisitions are successful? How can HR help during the integration process?
CHA PTE R 2 Human Resource Strategy and Planning
3 . How can an organization maintain its image while dealing with a talent surplus? If layoffs are necessary, what would you recommend man- agers do to ensure that survivors remain com- mitted and productive?
4. As the HR manager for a multinational corpo- ration, you want to identify HR competencies that are critical for global companies. Visit the website for the World Federation of People Management Association (www.wfpma.com) to research the topic and to identify differences in the body of knowledge in different parts of the world .
5. As the HR Director of a U.S.-based company that is looking at global opportunities in China, you have been asked by the company
67
president to prepare an outline for an HR strategic plan as part of the company's expansion process. You need to develop an HR strategic plan that will integrate the goals, objectives, and strategies of the HR Depart- ment with those of the company. The plan also needs to support the objectives of other departments within the company. To get ideas on how to develop an HR strategic plan, go to www.workinfo.com.
A. What is the process to use for identifying the components of the HR strategic planning process?
B. What other company strategic objectives must the HR strategic plan integrate and support?
CASE
Analytics at PricewaterhouseCoopers PricewaterhouseCoopers is a Big Four Accounting firm that was facing high turnover in a key employee segment-senior associates. This is the sec- ond stage in a career ladder that starts at the entry level and ends when one becomes a partner in the firm. One possible solution was thought to be deferred compensation, or delaying the salary of orne employees so that those who stayed longer
w ould receive more than those who left earlier. The firm could also see that those who stayed longer before they left, were more successful in th eir careers (such as becoming CFO somewhere els e). Would deferred compensation keep people th ere longer? Would people be convinced to stay longer if they knew it was good for their ca reers?
A survey collected data from current and for- mer employees who had left. T his required finding former employees who had had a relationship w ith PwC and appealing to their ongoing goodwill tow ard the firm to get them to respond . The final sample focused on those former employees who h ad left the firm more recently (in the last 15 years rather than those who had left earlier th an 15 years or more). Their response rates were better because they remembered their experiences
at the firm better than the group that had left before them. T he study specifically looked at career outcomes of those who had left, comparison of work-life balance between current employees and those who had left, and drivers of retention for current employees.
The findings and the actions taken by the fir m to deal with what they found had clear and positive impact on the problem. The study showed that add- ing deferred compensation would have had a very small impact on people's willingness to stay. How- ever, work-life balance (avoiding pr oblems of work obligation negatively affecting things at home) and career development/career progression issues did have a large influence on the problem of people leaving. Work-life balance solutions are frequently manifested as more flexible work schedules, flexible time off, and even child care and elder care to help the employee manage both work and family obliga- tions better.
The actions the firm took reduced voluntary turnover to the goals it had set. One such action was to provide new tools for managers and Human Resources to deal with the workload bal- ance issues that existed. Another successful action was to strengthen the relationship between partners
68 SECTION 1 The Environment of Human Resource Management
QUESTIONS and the associates. Finally, the company focused on coaching and development including training for the partners in these areas. The analytics study showed that the initially offering defined compensation that was not going to solve the problem, but problems flying below management's radar were causing the high turnover. Manage- ment was therefore able to solve the true cause of turnover. 60
1. Why do more companies not use analytics to solve such problems? How would you argue to make the case for analytics in an old-line HR department?
2. What resources could an HR professional con- sult to begin building expertise in this area of analytics?
,, . . ,./i -' / .::.. 1 1~ . . '.J ' -.to:o, }. · : : ~ :_,;~1~ -~Jii~'fJI~~?: - "-'"'··~~~- ~
SUPPLEMENTAL CASES Where Do You Find the Bodies? when Xerox was undergoing a significant shift in
its strategic focus. (For the case, go to www.cengage. com/management/mathis.)
This case identifies problems associated with HR planning and recruiting in a tight labor market. (For the case, go to www.cengage.com/management/ mathis .) Pioneers in HR Analytics
Xerox
This case highlights the challenges of employee retention during stressful and unpredictable times
HR analytics at four different organizations helped solve several problems and shows how analytics can be used. (For the case, go to www.cengage.com/ management/mathis .)
'' ·_.. ,_:c -·/ "'-~"' ~ -:;~-~~ ~ ~- -- ~:~iJt't;.,; .. : ':~~-~~~i};)~ - · .. ,.-~~~-~(-
NOTES 1. Based on "Best Buy to Cut 2,400
Jobs in Turnaround Effort," Casp er Star-Tribune, July 8, 2012, C2.
2. Chris Bradley, "Managing the Stra- tegic Journey, " McKinsey Quarterly, July 2012, 1-12.
3. Chris Bradley, eta!., op cit, 1. 4. Stephen Hall, et a!., "How to Put
Your Money Where Your Strategy Is," McKinsey Quarterly, March 2012, 1-12.
5. Adapted from Stephan Hall, et al., op cit, 9.
6. Richard Rumelt, "The Perils of Bad Strategy," McKinsey Q uarterly, June 2011, 1-10.
7. Arne Gast and Michele Zanini, "The Social Side of Strategy," McKinsey Quarterly, May 2012, 1-10.
8. E. E. Lawler III and J . W. Boudreav, "What Makes HR a Strategic Part- ner?", CEO (Center for Effective
Organizations) Publication G09-01 (555), 1-23.
9. Katrina Pritchard, "Becoming an HR Strategic Partner: Tales of Transi- tion, " Human Resource Manage- ment journal, 20, 2010, 175-187.
10. Susan R. Mersinger, "Thinking Stra- tegically," Human Resource Execu- tive Online, May 16, 2011, 1-2.
11. Dave Ulrich, et a!., "The Role of Strategy Architect in the Strategic HR Organization," People and Strategy, 32, 2009, 24-31.
12. Mark L. Legnick-Hall, eta!., "Stra- tegic Human Resource Management: The Evolution of the Field," Human R esource Management Review, 19, 2009, 64-85.
13. Eric Krell, "Change Within," HR Magazine, August 2011, 43-50.
14. Stan Malos, "Regulatory Effects and Strategic Global Staffing Profile:
Beyond Cost Concerns in Evaluating Offshore Location Attractiveness," Employee R esponsibility and Rights Journal, 22, 2010, 112-131.
15. Aditya Pande, "How to Make Onshoring Work," Harvard Business Review, March 2011, reprint F 1103c, 30.
16. Peter Cappelli, "Should You Outsource?", Human R esource Executive Online, December 5, 2011, 1-4.
17. Allen Smith, "Offshores Headquar- ters," HR Magazine , November 2009, 49-52.
18. Jeffrey A. Joerres, "Beyond Exports: Better Managers for Emerging Mar- kets," McKinsey Quarterly, May 2011, 1-6.
19. Steven Balsam, eta!., "The Impact of Firm Strategy on Performance Measures Used in Executive
CHAPTER 2 Human Resource Strategy and Planning 69
Compensation," Journal of Business 33. David Wentworth, "M&A Bounces 35-41. Nora Gardner, eta!., "Ques- Research, 64, 2011, 187-193 . Back: What Have We Learned?", tion for Your HR Chief: Are We
_Q, Harry J. Van Buren III, et. a!., Institute for Corporate Productivity Using Our 'People Data' to Create "Strategic HRM and the Decline of (i4cp) Trend Watcher No. 476, Value?", McKinsey Quarterly, Employee Focus, " Human Resource October 2, 2009. March 2011, 1-5. Management Review, 21 , September 34 . Sharon Birkman Fink , "Address the 48. Kathryn Tyler, "Prepare for Impact," 2011, 209-219. Human Side of M&A's," Training, HR Magazine, March 2011,
_1. Paul F. Buller and G. M. McEvoy, 46, March/April 2009, 16. 53-55. "Strategy, HRM, and Performance: 35. La Verne Shook and Gene Roth, 49. Eric Krell, "Measuring the True Sharpening the Line of Sight, " "Downsizing, Mergers, and Acquisi- Value of Your Services," HR Maga- Human Resource Management tions: Perspectives of HRD Practi- zine, September 2010, 99-103. Review, 22, March 2012, 43-56. tioners," Journal of European 50. Jeremy Shapiro, "Benchmarking the
_2 . Don Ruse, et a!., "How Strategic Industrial Training, 35, 2011, Benchmarks," HR Magazine, April Workforce Planning Can Help You 135-153. 2010, 43-46. Thrive," Workspan, December 2009, 36. Ankur Agrawa l, et a!., "When Big 51. Pawan Singh, " The Basics of Bench- 26-32. Acquisitions Pa y Off, " McKinsey marking in the Great Recession,"
' _ ..) , U.S. Census Bureau Population Quarterly, May 2011 , 1-7. Worksp an, September 2010, Division, "U. S. Population Projec- 37. Nada Kobeissi, eta!., "Managerial 52-56. tions," www.census.gov. Labor Market Discipline and the 52. Meena Chavan, "The Balanced
_4. Based on Joel Millman, "Hot Dog Characteristics of Merger and Acquisi- Scorecard: A New Challenge," Jour- Maker, Lured for Its Jobs, Now tion Transactions," Journal of Business nal of Managem ent Development, Can't Fill Them," The Wall Street Research, 63, July 2010, 721-728. 28, 2009, 393-406. Journal, October 1, 2010, A7 and 38. C. Rees and T. Edwards, " Manage- 53 . Robert S. Kaplan, eta!., "Managing Carl Bialik, "Sizing Up Private Equi- ment Strategy and HR in Interna- Alliances with the Balanced ty's Job Creation Record," The Wall tiona! Mergers," Human Resource Scorecard," Harvard Business Street journal, January 21-22, Management journal, 19, 2009, Review, January-February 2010, 2012, A2 . 24-39. 115-126. Peter Cappelli, "Where Are the 39. Jared Shelly, "Reporting HR to 54. Stephen Gates and Pascal Langevin, Jo bs?", Human Resource Executive Investors, " Human Resource Execu- "Human Capiral Meas ures, Strategy, Online, January 11, 2011, 1-3. tive Online, March 4, 2011 , 1-2. an d Performance," Accounting,
26. Thomas D. Cairns, "The Supply Side 40 . Tom Stamer, "Setting Standards," Auditing, and Accountability, 23, of Labor: HR Must Be Ready to Steer Human Resource Executive Online, 2010, 111-132. Organizations to the Future, " May 31, 2012, 1-3. 55. Margery Weinstein, " How's Your Employment Relations Today, 37, 41. Beth Tootell, et a!., "Metric: HRM's Human Capital ROI?", Training, 47, Fall 2010, 1-8. Holy Grail? A New Zealand Case February 2010 , 2. David McGeough,
- Tom Stamer, "A Strategic Workforce Study," Human Resource Manage- "Measuring ROI," Training, Planning Officer?", Human Resource ment journal, 19, 2009, 375-391. 48 , March-April 2011, 27. Executive Online, June 5, 2012, 42. "Human Capital Benchmarking 56. Frank DiBernardino, "The Missing 1- 7. Study," Society for Human Resource Link: Measuring and Managing Robert]. Grossman, "Hidden Costs Management, www.shrm.org. Financial Performance of the of Layoffs," HR Magazine, February 43. Drew Robb, "Creating Metrics for Human Capita l Investment," 2012, 24-30. Senior Management, " HR Magazine, People and Strategy, 34, 2011,
29. John C. Dencker, "Who Do Firms December 2011, 109-111. 44-47. Lay Off and Why? ", Industrial 44. Allison Rossen, "Metrics Matters," 57. Alexis A. Fink, "New Trends in Relations: A Journal of Economy T & D, 64, March 2010, 65- 69. Human Capital Research and Ana- and Society, 51, 2012, 152- 169. 45. Laurie Bassi, "Raging Debates in HR lyrics," People and Strategy, 33,
·o. Ly dell C. Bridgeford, "Bankable Analytics," People and Strategy, 34, 2010, 14-21. Business Case," Employee Benefit 2011, 14-18. 58. Jody Mousseau and Susan Carter, News , ebn.benefitnews.com, Sept. 1, 46. Andrew R. Mcilvaine, "What Lies "How Effective Is Your HR Prac- 201 0, 1-7. Ahead, " Human Resource Executive rice?", Workspan, October 2010,
·r. Linda Tepedino and Muriel Watkins, Online, December 12, 2010, 1-5. 62-66. " Be a Master of Mergers and Lance Haun, "What HR Is Measur- 59. Eric Krell, "Auditing Your HR Ac quisitions," HR Magazine, June ing: Employee Satisfaction and ... Department, " HR Magazine, 20 10, 53-56 . Retention? ", HR Management, HR September 2011, 101-103. Ro bert Uhlaner and Andy West, News and Trends, October 27, 2011, 60. Adapted from Alec Levenson, "Using " Organizing for M&A: McKinsey 1-3 . Targeted Analytics to Improve Talent Glo bal Survey Results," McKins ey 47. Bill Roberts, "Analyze This! ", Decisions, " People and Strategy, 34, Qua rterly, December 2011, 1-9. HR Magazine, October 2009, 2011, 34-43.
146
Individual/ Organization Relations and Retention
Learning Objectives
After you have read this chapter, you should be able to:
1 Discuss four different views of motivation at work.
2 Explain the nature of the psychological contract.
3 Define the difference between job satisfaction and engagement.
4 Identify a system for controlling absenteeism.
5 Describe different kinds of turnover and how turnover can be measured.
6 Summarize various ways to manage retention.
·- --- ------ -
162 SECTION 2
turnover can be measured.
Turnover The process in which employees leave an organization and have to be replaced .
jobs and Labor
5-4 • EMPLOYEE TURNOVER
Turnover occurs when employees leave an organization and have to be replaced. Many organizations have found that turnover is a very costly problem. For instance, health care firms in one state experienced over 30% turnover annually. The turnover cost in the state for nursing jobs alone was more than $125 million per year, with individual nurse turnover costs being $32,000 per person who left. 3 3
The extent to which employers face high turnover rates and costs varies by organization and industry. For example, the Society for Human Resource Management (SHRM) calculates that the average for all industries is 15% annual turnover. But companies in service industries such as restaurants have an average 35% annual rate. Entertainment and recreation has 27 % turnover and retail 22%. Health care and social assistance are at 20% annual turnover.34
High turnover rates have a negative impact on several dimensions of organiza- tional performance especially safety, productivity, and financial performance. 35
Turnover typically goes up as unemployment rates drop and dissatisfied employees can find other jobs.36 Research shows that morale (or job satisfaction), the labor market (opportunity to leave), and intention to quit or stay have major impacts on turnover. 37 Further, a history of poor attempts at organizational change lead to higher turnover intentions. 38 However, human resources systems designed to reduce turnover can indeed succeed. 39 See the HR Perspective: Reducing Turnover at Boys & Girls Clubs of America for an example of managing turnover.
. PERSPECTIVE Reducing Turnover at Boys & Girls Clubs of America The Boys & Girls Clubs of America in Atlanta has
about 370 corporate employees . They have typi-
cally tracked voluntary turnover, and take out of
the calculations those people who retire and
those who leave headquarters to go to work for
a local boys and girls club. Most turnover occurs
among people who have been there one to three
years. Through exit interviews the organization
determined that the most frequent reasons people
left were a bad job fit, or that the job did not meet
original expectation.
As a result of its analysis, the HR department
implemented a "more high touch" recruiting sys-
tem to reduce the number of poor hires. This
included multiple interviews on-site. Further,
recruiters changed how they measure recruiting
success to include finding a good candidate,
rather than just any candidate. They used to
look at time-to-fill-vacancy, but now they focus
on quality of hire. Supervisors evaluate quality of
hire, and HR looks at performance reviews of
new hires as well.
Among 82 new hires, the organization kept
93% in the first two years of the new approach,
and overall turnover rate dropped from 11% to
9%. The Director of Organizational Development
says, "Th at number would scare us if it applied to
our high-performers" but the organization is in the
range of 90+ percent retention rates for high
performers. The organization tracks top performers
and those w ith high potential who leave the orga-
nization separatel y. Only about half of companies
of various si zes tra ck turnover among top perfor-
mers according to a recent study. 40
- -\ PTER 5 Individual/Organization Relations and Retention 163
5-4a Types of Employee Turnover Turnover is classified in many ways. One classification uses the following catego- ries, although the two types are not mutually exclusive:
• Involuntary Turnover Employees are terminated for poor performance, work rule violations or through layoffs
• Voluntary Turnover Employees leave by choice
Involuntary turnover is triggered at all levels by employers terminating workers because of organizational policies and work rule violations, excessive absentee- ism, performance standards that are not met by employees, and other issues. Voluntary turnover can be caused by many factors, some of which are not employer controlled. Common voluntary turnover causes include job dissatis- faction, pay and benefits levels, supervision, geography, and personal/family reasons. Career opportunities in other firms, when employees receive unsolic- ited contacts, may lead to turnover for individuals, especially those in highly specialized jobs such as IT. Voluntary turnover may increase with the size of the organization, most likely because larger firms are less effective in preventing turnover.
Another view of turnover classifies it on the basis of whether it is good or bad for the organization:
• Functional Turnover Lower-performing or disruptive employees leave
• Dysfunctional Turnover Key individuals and high performers leave
Not all turnover in organizations is negative. On the contrary, functional turn- over represents a positive change. Some workforce losses are desirable, espe- cially if those who leave are lower -performing, less reliable, and/or disruptive individuals. Of course, dysfunctional turnover also occurs. That happens when key individuals leave, often at crucial times. For example, a software project leader leaves in the middle of a system upgrade to take a promotion at another firm . His departure ca uses the timeline to slip because of the difficulty of repla- cing him. Further, other software specialists in the firm begin to seek out and accept jobs at competitive firms because he left. This is truly dysfunctional turnover.
Employees quit for many reasons, only some of which can be controlled by the organization. Another classification uses the following terms to differentiate types of turnover:
• Uncontrollable Turnover Employees leave for reasons outside the control of the employer
• Controllable Turnover Employees leave for reasons that could be influenced by the employer
Some examples of reasons for turnover the employer cannot control include: (1) the employee moves out of the geographic area, (2) the employee decides to stay home with young children or an elder relative, (3) the employee's spouse is transferred, or (4) the employee is a student worker who graduates from college. Even though some turnover is inevitable, employers recognize that reducing turnover saves money, and that they mu st address turnover that is controllable. Organizations are
164 SECTION 2
Churn Hiring new workers while laying off others.
P< MEASURE
jobs and Labor
better able to keep employees if they address the concerns of those individuals that might lead to controllable turnover.
Turnover and "Churn" Hiring new workers while laying off others is called chum. This practice raises a paradox in which employers sometimes complain about not being able to find workers with the right skills while they are laying off other employees.
As organizations face economic and financial problems that result in layoffs. the remaining employees are more likely to consider jobs at other firms. In this sit- uation, turnover is more likely to occur, and efforts are needed to keep existing employees. HR actions such as information sharing, opportunities for more train- ing/learning, and emphasis on job significance can be helpful in lowering turnover intentions of individuals.
5-4b Measuring Employee Turnover The U.S. Department of Labor estimates that the cost of replacing an employee ranges from one-half to five times the person's annual salary depending on the posi- tion.41 The turnover rate for an organization can be computed on a monthly or yearly basis. The following formula, in which separations means departures fro m the organization, is widely used:
Number of employee separations during the year 100
Total number of employees at midyear x
Common turnover rates range from almost 0% to more than 100% a year and vary among industries. As a part of HR management information, turnover data can be gathered and analyzed in many ways, including the following categories:
• Job and job level • Demographic characteristics • Department, unit, and location • Education and training • Reason for leaving • Knowledge, skills, and abilities • Length of service • Performance ratings/levels
Two examples illustrate why detailed analyses of turnover are important. A manufacturing organization had a companywide turnover rate that was not severe, but 80% of the turnover occurred within one department. Specific actions such as training supervisors, and revising pay levels were needed to resolve problems in that unit. In a different organization, a global shipping delivery firm identified reasons for turnover of sales and service employees and was able to focus on those reasons and reduce turnover in that group. The actions reduced turnover significantly, which contributed to an annual saving of several million dollars in direct and indirect costs. In both of these examples, the targeted turnover rates declined as a result of employer actions taken in response to the turnover analyses that were done .
5-5 • HR METRICS: DETERMINING TURNOVER COSTS
A major step in reducing the expense of turnover is to decide how the organization is going to record employee departures and what calculations are necessary to maintain and benchmark the turnover rates. Determining turnover costs can be
C HAPTER 5 Individual/Organization Relations and Retention 165
MEASURE
F I G U R E 5 - 8 Model for Costing Lost Productivity
job Title: _______ _
A. Typical annual pay for this job B. Percentage of pay for benefits multiplied by annual pay C. Total employee annual cost (A + B) D. Number of employees who voluntarily quit the job in the past
12 months E. Number of months it takes for one employee to become fully productive F. Per person turnover cost ([E + 12] x C x 50%)*
G. Annual turnover cost for this job (F x D)
*Assumes 50% productivity throughout the learning period (E).
relatively simple or very complex, depending on the nature of the efforts made and the data used.
Figure 5-8 shows a model for calculating the cost of productivity lost to turn- over. Of course, this is only one cost associated with turnover. But it is one that is more difficult to conceptualize. If a job pays (A) $20,000 and benefits cost (B) 40%, then the total annual cost for one employee (C) is $28,000. Assuming that 20 employees have quit in the previous year (D) and that it takes three months for one employee to be fully productive (E), the calculation results in a per person turnover cost (F) of $3,500. Overall, the annual lost productivity (G) would be $70,000 for the 20 individuals who have left. In spite of the conservative and sim- ple nature of this model, it easily makes the point that productivity lost to turn- over is costly. As another example, if 150 tellers in a large bank corporation leave in a year, calculations done according to this model produce turnover costs of more than $500,000 a year.
5-Sa Detailing Turnover Cost Other areas in -addition to lost productivity to be included in calculating detailed turnover costs include the following:
• Separation costs: HR staff and supervisory time, pay rates to prevent separations, exit interview time, unemployment expenses, legal fees for separations challenged, accrued vacation expenditures, continued health benefits, and others.
• Vacancy costs: Temporary help, contract and consulting firm usage, existing employee overtime, and other costs until the person is replaced.
• Replacement costs: Recruiting and advertising expenses, search fees, HR inter- viewer and staff time and salaries, employee referral fees, relocation and moving costs, supervisor and managerial time and salaries, employment testing costs, ref- erence checking fees, pre-employment medical expenses, relocation costs, and others.
• Training costs for the new person: Paid orientation time, training staff time and pay, costs of training materials, supervisor and manager time and salaries, coworker "coaching" time and pay, and others .
166 SECTION 2
f< MEASURE
jobs and Labor
• Hidden/indirect costs: Costs that are less obvious, such as reduced productivity (calculated above), decreased customer service, lower quality, additional unex- pected employee turnover, missed project deadlines, and others.
Turnover metrics illustrate that turnover is an expensive HR and managerial issue that must be constantly evaluated and addressed. Figure 5-9 summarizes the costs of turnover.
As noted, not all turnover is negative. Losing low performers should be consid- ered positive. There may be an "optimal" amount of useful turnover necessary to replace low performers and add part-time or contract workers with special capabil- ities to improve workforce performance.
5-5b Optimal Turnover Turnover costs and benefits can be calculated separately for various organizational seg- ments. HR frequently strives to minimize all turnover but in some cases more turnover may be better. For example, reducing turnover makes sense when it is very expensive, when those leaving are more valuable than their replacements, or when there may not be suitable replacements. However, more turnover in certain segments of the organization may make sense if it costs very little, those leaving are less valuable than their replace- ments, or there is certainty that good replacements are available.42 Sometimes turnover is good, other times it clearly is not. A more sophisticated view tries to optimize the impact of turnover for the organization.43 The solution is to calculate the financial impact of dif- ferent types of turnover and attach a dollar cost to it to determine the optimum level.44
FIGURE 5-9 Components of Turnover Cost
Separat ion Costs
+ """" .~Ji
[ Vacancy Costs 'P'.' + .•.
( Replacement Costs +
( Training Costs "'·' 7~~
+ -_,,.., ':.:_:, 0 ll "
Hidden and Indirect Costs (including lost productivity)
Total Turnover Cost
J
) )
) .,. fi ~
-~
.':l m ~
!? ~ <9
- Human Resource Management Chap 1 (p.2-35), Chap 2 (p.36-69), Chap 5 (p.162-166)
- Human Resource Management Chap 5 (p.164-166)