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Introduction to Human Resource Management

Learning Outcomes After reading this chapter, you should be able to do the following:

• Explain what human resource management (HRM) is and how it relates to the management process.

• Define each of the major HRM functions and processes of strategic HRM planning, job analysis and design, recruitment, selection, training and development, compensation and benefits, and performance appraisal.

• Describe the strategic importance of HRM activities performed in the organizational setting.

• Identify your own HRM responsibilities and challenges as an organizational participant and decision maker.

• Identify major recent trends in HRM.

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Section 1.1 What is HRM?

Introduction Consider the various organizations you have been involved in—as an employee, as a cus- tomer, as a volunteer, and as a member. From grocery stores and banks to sports teams and summer camps, all organizations share a common theme: they have goals, and they need to accomplish these goals through people. Of course, they also need financial resources, a viable business plan, the right technology, and a market. However, an organization’s success relies not only on the availability of these resources but also on the people who will organize, lead, control, and use the resources to achieve the organization’s goals. It is critical to an organiza- tion’s success that it manages its people effectively. That’s why Bill Gates and Herb Kelleher, former CEOs of Microsoft and Southwest Airlines, respectively, along with many other well- known leaders of highly successful organizations, often assert that people are their most important assets.

1.1 What is HRM? Human resource management (HRM) is the managing of human skills and talents to make sure they are used effectively and in alignment with an organization’s goals. Neither the size nor type of a company affects this definition. For example, big and small, profit and nonprofit organizations all perform HR functions that relate to the recruitment, selection, training, and management of their workforces. In addition, every organization is concerned with offering competitive salaries and benefits to attract, motivate, and retain talented employees. Even nonprofit organizations that rely on volunteers are often concerned with attracting, motivat- ing, and retaining the best volunteers through providing nonfinancial incentives and design- ing meaningful roles for them.

It is important to note that HRM activities exist throughout any organization, whether or not there is a recognized HRM department. For instance, you will find managers of various func- tions such as finance, production, and marketing doing such HR activities as hiring, training,

Opening Case Study Ten HR Practices Your Competitors Will Thank You For

ht tp://w w w.forbes.com/sites/lizr yan/2014/04/15/ten-hr-practices-your-competitors- will-thank-you-for/

Attracting and retaining talented employees is critical for organizational success and competi- tiveness. Although many employers assert that people are their most important assets, their policies and actions may reflect otherwise, driving their best employees away. This article con- trasts effective and ineffective talent attraction and retention practices, using a humorous, yet realistic approach. Although the list is by no means comprehensive, it reflects the importance of treating employees with dignity and respect, and the eminent competitive threat of failure to do so.

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http://www.forbes.com/sites/lizryan/2014/04/15/ten-hr-practices-your-competitors-will-thank-you-for/

Section 1.1 What is HRM?

and scheduling employees and apprais- ing their performance. And HRM activi- ties extend further. HRM also involves handling the legal issues related to hir- ing, training, compensating, rewarding, disciplining, promoting, demoting, or even firing people.

HRM can provide a competitive advan- tage to organizations through the effi- cient and effective use of the tools, data, and processes provided by HRM spe- cialists. Yet HRM should also focus on pursuing one strategic priority: helping the organization to be an exceptional employer that provides rewarding work to qualified and exceptional employees. HRM should not be seen as merely per- forming routine administrative activi- ties. While these activities are important for organizational and legal purposes, human resources should, first and foremost, be looked on as an asset that plays a strategic role in giving the organization a competitive advantage in the marketplace.

The University of Michigan and the Society for Human Resource Management (SHRM) iden- tify a critical set of competencies that enable HR professionals to carry out their duties successfully:

1. Strategic contribution means that HR has to be able to be a key contributor to organizational success.

2. HR professionals must attain business mastery—deeply understanding their orga- nization’s business and its technological, economic, and financial aspects.

3. HR professionals must also attain HR mastery—being able to execute their prac- tices effectively, and making sure that these practices meet employees’ needs and are also aligned with organizational goals.

4. HR professionals must embrace and leverage technology such as human resource information systems, social media, and networking platforms, to be able to trans- form HR’s performance of its roles and functions.

5. And it is very important for HR professionals to acquire a fifth competency: HR personal credibility, which occurs through building and developing both inter- nal and external relationships (Brockbank & Ulrich, 2003).

Firms usually deal with four types of capital assets: physical (e.g., buildings, lands, and equip- ment), financial (e.g., cash and financial securities), intangible (e.g., patents and information systems), and human assets (e.g., people’s talents, knowledge, skills, abilities, experience, personalities, attitudes, and motives). Each of these assets has a different role in an organi- zation. However, human assets are the only ones capable of managing all the other assets to accomplish organizational goals.

Imaginechina via AP Images

Bill Gates, co-founder of Microsoft, believes that the success of an organization depends not on the availability of resources but on its employees’ ability to organize, lead, and control the use of these resources to achieve organizational goals.

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Section 1.1 What is HRM?

For example, retail chains such as Target and Walmart possess substantial physical, financial, and intangible assets. However, these assets are meaningless until they are coordinated, integrated, and offered to the customer in terms of the right products at the right prices. At the top of the organization, organizational decision makers perform these strategic coordination and integration functions. Furthermore, even this strategic work of those at the top can be meaningless if it is not implemented effectively by frontline employ- ees, who are often the only employees a customer will ever meet or be directly affected by. For example, you may never meet or interact with the CEO of your gro- cery store, yet your experience (and willingness to return) is directly influenced by whether employees promptly stock the shelves with your favorite items; whether the janitor properly cleans the aisles and bathrooms; whether the customer service represen- tative knows the answers to your questions and offers them in a friendly manner; and whether the cashier rings up your selections accurately, efficiently, and courteously. Thus, all organizational human assets, not just those at the top, perform the roles neces- sary to transform other types of assets into effective means to achieve organizational goals and maintain a competitive advantage.

HRM experts Wayne Cascio and John Boudreau (2011) offer an interesting comparison to highlight this point. They distinguish between pivotal and important jobs in the context of Disney parks. Of course Disney characters such as Mickey Mouse are important. Guests expect to see their favorite characters during their visit to a Disney park. In that sense, these characters are celebrities. However, one of the most pivotal jobs at Disney parks is the job of the sweeper. Sweepers do not only keep the grounds clean. They interact with guests, shaping their experience in numerous ways. They may provide directions to a favorite ride, reunite family members, direct traffic to relieve congested areas, handle immediate safety or security issues, and report problems and necessary repairs. The sweeper’s job is more pivotal because the difference between an average sweeper and an excellent sweeper is substantial. An excellent sweeper can make a huge impact on the guests’ experience. This is not the case for the characters. The difference between an average Mickey Mouse and an excellent Mickey Mouse is likely to go unnoticed. Characters perform routine, structured roles that are easily trainable, and the room for error or substandard performance is hardly noticeable by the guests. That is why Cascio and Boudreau (2011) advise managers to invest substantial time and resources in identifying pivotal roles, and in hiring and training the employees who fill those roles.

The efficient use of the organization’s human assets affects its market value. For example, an enormous gap is revealed by comparing the market value of publicly traded companies to the value of their physical, financial, and even their intangible assets. This gap can only be

Tom Starkweather/Bloomberg via Getty Images

Retail chains such as Target have substantial physical and financial assets that are meaningless unless they are managed, coordinated, and offered to the customer by employees.

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Section 1.2 From Personnel Administration, to Strategic HRM, to Talent Management

accounted for through the value added by the companies’ human assets (Echols, 2007). Firms in the United States seem to be aware of this truth. U.S. firms spend almost double the amount European firms spend on salaries and benefits, and in the United States, there is slightly more than a 150% return on this investment in human assets (Burton & Pollack, 2006).

1.2 From Personnel Administration, to Strategic HRM, to Talent Management

As mentioned in the previous section, day-to-day personnel administration is one of the HR department’s roles or functions in an organization. However, for the past two decades, per- sonnel administration has received less study than the relationship between applied, effective HRM practices and organizational performance. HRM practices are effective when they impact such employee factors as skills, motivation, morale, absenteeism, retention, productivity, and performance quality. These factors can be measured and related to such organizational goals and success indicators as profitability, efficiency, and effectiveness. The link between HR and organizational performance is called strategic human resource management which can be defined as leveraging certain linkages for certain purposes—namely, leveraging the linkages between human resource practices and organizational objectives for the purpose of culti- vating a positive corporate culture. This leveraging can promote innovation and flexibility and boost a competitive edge. Based on that definition, it follows that HRM serves a critical, strategic function, and thus HR should be involved in the design and implementation of orga- nizational plans and strategies.

Beyond personnel administration and strategic human resource management, now manag- ers are expected to leverage talent. They need to make sure that they hire the right talent and place it in the right job where both the organization and the employees can thrive. In the next link, Jeff Immelt and Jack Welch of General Electric (GE) discuss their integrated approach to talent management, which includes selection, placement, development, perfor- mance appraisal, and succession. Importantly, HRM takes place in the realm of middle man- agement. Middle managers can shape, alter, stall, or even reverse the strategic initiatives of senior management (Harding, Lee, & Ford, 2014). Immelt and Welch seem to recognize the powerful impact of middle managers on the effectiveness of GE’s talent management. That is why they work closely with a large number of managers to ensure alignment across organi- zational levels.

Web Links Human Resource Management Career Overview http://www.youtube.com/watch?v=RXULwgg41gc&noredirect=1

1. What are some of the most important attributes one must possess in order to have suc- cess in a career in HRM?

2. According to the video clip, majoring in business, the behavioral sciences, or liberal arts will offer the best preparation for a career in human resources. Why do you think this is so?

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http://www.youtube.com/watch?v=RXULwgg41gc&noredirect=1

Section 1.2 From Personnel Administration, to Strategic HRM, to Talent Management

The Strategic Value of HRM for Employees and the Organization Every organization has its own strategic plan; it includes the organization’s long- and short-term goals, and it also includes the procedures for deciding how to allocate orga- nizational resources to achieve these goals. Strategic HRM is the link between strategic planning and HRM. It incorporates HRM strategies and policies to achieve organizational goals while meeting employees’ and stakeholders’ needs. In addition, these practices can increase the market value of an organization by as much as 50% when they are consis- tently followed (McFarlin, 2006). HR practices will be discussed in detail in the following chapters.

HRM’s Contribution to Motivation, Morale, Retention, Productivity, and Performance Quality Managing employee productivity is a critical factor in both for-profit and nonprofit organi- zations’ success. Higher productivity levels enable firms to offer high salaries and still be competitive. Effective HRM practices have been shown to reduce turnover, increase produc- tivity, and directly contribute to corporate financial performance (Combs, Liu, Hall, & Ketchen, 2006; Huselid, 1995). Thus, HRM is able to contribute to overall organizational competitive- ness through improving employee retention and productivity.

Effective HRM practices can also enhance employee motivation and morale, which can in turn positively affect organizational outcomes. For example, effective job analysis and design can balance the demands of a job with the resources provided to accomplish its tasks, and this balance has been shown to contribute to work engagement (Schaufeli & Bakker, 2004). The relationship between work engagement, job satisfaction, and business unit outcomes is supported by numerous studies (Harter, Schmidt, & Hayes, 2002). There are many other ways in which HRM can contribute to employee motivation and morale, such as providing a family-friendly environment, sponsoring social events and activities, and offering opportunities for learning and career development (Collins & Allen, 2006; Czinege, 2009).

HRM’s Contribution to Profitability, Efficiency, and Effectiveness Organizational effectiveness is the degree to which an organization is able to meet its goals and objectives. Organizational efficiency, on the other hand, is the degree to which an organi- zation is able to maximize the productivity of given resources, produce a given amount of out- put with minimal resources, or accomplish both aims. HRM can contribute to an organization’s

Web Links Talent Management at GE

http://www.youtube.com/watch?v=CCVy7OxThGo

1. How is talent managed at GE? 2. What are the pros and cons of GE’s talent management system?

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http://www.youtube.com/watch?v=CCVy7OxThGo

Section 1.2 From Personnel Administration, to Strategic HRM, to Talent Management

efficiency and effectiveness by leverag- ing human assets through their selec- tion, allocation, deployment, develop- ment, management, and retention; in turn, these contributions can improve an organization’s financial performance (Kroll, 2006). Moreover, employee moti- vation, morale, retention, productivity, and performance all have a great influ- ence on an organization’s efficiency and effectiveness. Because HRM practices have positive effects on such factors, applying these practices will also have a significant influence on an organiza- tion’s profitability.

HR strategic effectiveness can be mea- sured in many ways, such as return on investment (ROI), economic value added (EVA), and balanced scorecards. Some of these approaches will be introduced in subsequent chapters. At this point, however, you should know that for each of its activities, HR should be capable of presenting financial justification.

Strategic HRM Perspectives Strategic human resource management includes three schools of thought: best practice, best fit, and resource-based view (RBV) (Paauwe, 2009).

1. Best Practice As the name implies, best practice refers to the practice that results in the best possible orga- nizational performance. Numerous best practices in HR have been demonstrated to relate to organizational performance as it is measured by the market value per employee of publicly traded companies in the United States (Combs et al., 2006; Huselid, 1995). However, since there are numerous studies about best practices, it is hard to tell which practices are truly best (Becker & Gerhart, 1996). Based on Pfeffer’s (1994) and Latham’s (2011) evidence- based management approach to HRM, which calls for practices that are based on rigorous scientific research and can deliver real results, there are some effective practices for gaining competitive advantage through the workforce and generating additional profits by consider- ing people as a top priority. These practices include:

• Using the right tools to hire high-performing employees • Inspiring employees to execute strategy • Developing and training to create high-performing teams • Motivating employees to be high performers • Instilling resiliency in the face of setbacks • Appraising and coaching employees to be high performers

moodboard/moodboard/Thinkstock

HRM practices can contribute to the overall effectiveness of an organization by maximizing the morale, retention, productivity, and performance of its employees.

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Section 1.2 From Personnel Administration, to Strategic HRM, to Talent Management

2. Best Fit Best fit can also be referred to as the contingency approach to HRM. The claim behind the concept of best fit is that HRM practices are able to enhance performance if a close vertical fit exists between the HRM practices and the firm’s strategy. This vertical fit denotes that HR activities and policies are in alignment with the business strategy (Kochan & Barocci, 1985). For example, imagine that an organization seeks to develop innovative and complex products that would be best designed by cross-functional teams. An aligned HR practice would then be to design compensation and reward systems that recognize and promote creativity, teamwork, and collaboration, rather than individual productivity and competition among employees. Many theories have been developed concerning this type of vertical integration. For example, configuration models offer a two-step approach. The first step is the study and analysis of the organization’s strategy and the second step is the establishment of corresponding HR policies and activities that best fit the results of the analysis. The downside of this approach is that it assumes the organization’s strategy always exists, which is not always the case for firms that are in their developmental stages (Delery & Doty, 1996).

3. Resource-based View (RBV) A resource-based view follows an inside-out approach by giving special attention to the strategic internal resources available to a company. In addition, this view focuses on how the application of these valuable resources contributes to competitive advantage. Tangible and intangible resources by themselves do not confer any benefit to the firm unless they are effectively used, at which point they are able to provide the firm with competencies. In order for the internal resources of a company to be of great significance, they have to be valuable, rare, and not capable of being imitated or substituted. Accordingly, the effective use of such strategic and unique resources will enable the company to acquire a sustainable competitive advantage (Barney, 1991; Kraaijenbrink, Spender, & Groen, 2010; Prahalad & Hamel, 1990).

The HR Manager’s Bookshelf Becoming the Evidence-Based Manager, by Gary Latham

http://www.amazon.com/Becoming-Evidence-Based-Manager-Science-Management/ dp/0891063986

http://www.youtube.com/watch?v=JECb83XIX1M

HRM is a competitive and changing field. HR managers and employees need to invest time and energy, and to have the right resources in order to succeed and advance their careers. They need to be lifelong learners. To help you achieve this goal, this feature will direct you to valuable resources to add to your repertoire of knowledge if you wish to learn more about HR in general, and particularly about the topics covered by each chapter. For example, Gary Latham’s (2011) award-winning book recommended here is an excellent, easy-to-read resource on evidence-based HRM practices. It can save you time and energy, and save your organization enormous amounts of resources, often wasted on fads and unfounded initia- tives that do not work and can compromise employee morale. Also, if you are interested in furthering your career in HR, you can gain credits toward certification by reading this book and taking the associated test.

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http://www.amazon.com/Becoming-Evidence-Based-Manager-Science-Management/dp/0891063986

http://www.youtube.com/watch?v=JECb83XIX1M

Section 1.3 What Do HR Managers Do?

According to the RBV school of thought, the best approach to strategic HRM is therefore to create and maintain human assets that are also valuable, rare, inimitable, and non- substitutable. These human assets can then serve as a sustainable source of competitive advantage. For example, an organization that buys into RBV would develop proprietary selection tools and training programs for its employees, require their employees to maintain secrecy about pay and benefits, and take extra measures to avoid knowledge sharing in their industry so that their competitors cannot imitate their practices.

Of course, each of those three schools of thought has its merits that should be considered in conjunction with other approaches. For example, the contingency best fit approach is more compatible with industries where change is fast and unpredictable. These industries require continual reconsideration and reconfiguration of what constitutes the mix of best practices utilized by the organization. Moreover, RBV may have limited use in industries where entry and exit costs are low for competitors—for example, where technology is readily accessible, limited up-front capital investments are needed, or skilled labor is in abundant supply. Many home-based businesses such as child care, lawn care, bookkeeping, and housecleaning fall in that category.

1.3 What Do HR Managers Do? HR and line management have one common goal—to bring capable human assets into the organization who can perform the duties and responsibilities that will keep the organization functional and competitive in the market. HR management and line management must work together at all times to ensure that all their common deliverables are successfully met. How- ever, HR management has many unique functions and tasks. These are the main roles of the HR manager:

• Providing guidance and advice • Providing service • Creating and implementing policies • Advocating for employees

Provide Guidance and Advice HRM directly contributes to defining and shaping the ethical culture within an organization; hence, HRM governs the behavior of executives, managers, and employees. This role is of cru- cial significance since organizations achieve their long-term objectives and goals through set- ting clear ethical standards. Owing to their extensive knowledge of the internal employment affairs of the organization, HR managers provide crucial guidance and advising to executives, managers, and supervisors in critical areas such as policies, labor agreements, best practices, ethics, corporate control, and employment requirements. HR managers also consult with other managers and executives based on their extensive knowledge of external tendencies and such market movements as economic and employment details, as well as updates in legal and regulatory issues. For instance, HR managers often provide good support and advice per- taining to vague and obscure ethical areas where it is hard for employees and other managers to determine whether an issue can safely be deemed right or wrong.

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Section 1.3 What Do HR Managers Do?

Organizations with high levels of integrity are favorably recognized and respected in the market by their customers, employ- ees, and other organizations— recognition and re spect which, in turn, translate into higher profits. More attention has been drawn lately to the importance of creat- ing strong ethical cultures within an orga- nization and raising its levels of integrity, especially after numerous financial scan- dals in many organizations around the world (Cherenson, 2006).

HR managers have the vital role of polic- ing, monitoring, and establishing control within the organization to ensure that top executives and managers do not abuse their authority and that all employees adhere to company policies and norms. This function of HR managers is commonly known as corporate governance. The term describes the relationship between executives, managers, and shareholders in terms of shared corporate rights and responsibilities. Another very important task of every HR manager is to provide guid- ance and advice in matters of employee compensation and appraisals based on past evaluations and performance details.

Provide Service The service role of HR managers is to successfully plan and execute all the activities related to employee selection, scheduled testing, training and development, and listening and respond- ing to employees’ concerns and complaints. This fundamental area of HR management involves a myriad of skills and technical expertise. HR managers must establish and build influential HR systems and programs that effectively support and serve these purposes.

Other executives, managers, and supervisors must take the initiative of positively support- ing the HR manager in accomplishing this service role. They should believe in the critical function of HR in increasing the ultimate productivity and efficiency of the organization, and they should act on this belief by collaborating with HR and following the policies and procedures pertinent for HRM in their organizations. In addition, they should neither create hurdles that negatively impact the organization nor circumvent the HR department by doing things their way. To help an organization’s managers achieve these goals, the HR manager must have the skill to take a step back and observe problematic scenarios from the man- agers’ points of view. An even more challenging skill that HR managers develop over time and through experience is to find tactful ways to communicate their opinions and advice to managers.

Create and Implement Policies HR managers must foresee potential problems, identify recurring problems, and use past experience to create, update, modify, and enforce company policies and norms. All policy

Chagin/iStock/Thinkstock

HR managers provide crucial guidance and advice to executives and managers about policies concerning labor agreements, ethics, corporate control, and employee requirements.

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Section 1.4 What are the Responsibilities of the HR Department?

drafts and phases are proposed to executive managers for revisions and approvals before the drafts and phases can be issued or deemed active. To ensure absolute compliance and confor- mance, HR management must enforce established policies, norms, procedures, and practices, and then follow this enforcement with extensive monitoring and control of line managers and employees. HR managers also serve to elucidate enforced policies to managers and employees, ensuring adequate interpretation and application of all rules.

Advocate for Employees HR managers are the employees’ representatives within organizations in more or less the same manner that attorneys represent citizens in the courthouse. HR managers are there- fore often referred to as the “employee advocates.” They listen to, consider, and evaluate employees—assisting them with their needs, concerns, and issues. HR managers also bring employees’ cases to their direct managers or to other decision makers within the organiza- tion, pleading employees’ needs. In other words, HR managers are the voice of employees to executives and line managers. This advocating role serves to highlight and convey employee interests and, furthermore, align them with the interests of the organization as a whole. Effective employee relations are the backbone of a successful organization: they preserve its most valuable asset—the human asset—and hence promote the organization’s survival and competitiveness in the market (Mathis & Jackson, 2007).

1.4 What are the Responsibilities of the HR Department? As the name indicates, the human resource department is responsible for the manage- ment of the organization’s employee-related matters. The HR department attracts, hires, and retains the right employees, and it makes sure they perform according to expectations. The HR department also establishes organizational goals and plans as they relate to human assets.

The HR department’s major everyday tasks are:

• Planning and alignment • Staffing • Preparing compensation offers • Orchestrating cultural change

The following sections on these tasks feature detailed discussions of each of the HR depart- ment’s roles, pointing out the positives and negatives as well as strategies to help increase a given department’s effectiveness (Handy, 1999; Hyde, 2004).

Planning and Alignment One of the HR department’s most important roles is planning for the human side of the organization’s operations. The department has to accurately judge the number of employ- ees the organization needs to be capable of performing its activities and operations effi- ciently. Having more than the required number of staff members will harm the company by drawing scarce financial resources away from other important functions and uses. On

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Section 1.4 What are the Responsibilities of the HR Department?

the other hand, having an insufficient number of employees means that staff members will be stretched beyond their limits, lose motivation due to the extended hours of work, and eventually experience burnout, which can be detrimental for productivity and well-being (Schaufeli & Bakker, 2004).

With no clear direction, employees will not be able to perform effectively. Two of the roles of the HR department are therefore to participate in planning for future organiza- tional objectives and to act as a liaison to make sure that staff members understand these objectives. These roles enable employees to embrace a purpose-oriented approach while performing their duties. Employees and staff members who do not have a clear under- standing of the organizational objectives cannot contribute effectively to organizational success.

Moreover, since performance is a function of time, it is in the best interest of the HR depart- ment to actively work towards promoting and sustaining a better use of time among all other departments of the organization. In other words, time can be regarded as an asset that must be utilized efficiently to maximize the productivity of the organization and, ultimately, thereby achieve set targets and goals (Kerzner, 2003). The HR department can achieve these results by the active planning and proper scheduling of activities and by ensuring that infor- mation flows swiftly though proper channels, which provides better support and coordina- tion between departments in HR-related matters.

There are many ways the HR department can provide alignment. One way is through onboard- ing, training, and development. Just because an employee has a great resume or did well in an interview does not mean he or she will be able to perform organizational activities effectively. Onboarding helps new employees get acquainted with the firm’s functions. In an ever-changing environment, training and development are very important to an organization’s ability to adapt to change. Adapting to change is crucial in order to compete in the market. Training and development can also be used to improve employees’ attitudes, inspire employees, and energize them when they must perform under stress. It is the responsibility of the HR depart- ment to set the timing and place of training, decide who will deliver it, and decide who will participate in it.

Accountability is another very impor- tant factor that the HR department can use in its alignment activities. Accountability ensures that employ- ees efficiently fulfill their set goals and objectives in the allocated time frame, rather than routinely reporting to work and performing some daily activities with no real sense of con- nection to the work they do. Designing effective performance management systems can help in these alignment activities—maintaining clear com- munication and holding employees accountable for specific, measurable outcomes.

Sneksy/iStock/Thinkstock

Onboarding helps new employees get acquainted with the organization’s functions. Training and development are crucial to be able to adapt to the ever-changing work environment.

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Section 1.4 What are the Responsibilities of the HR Department?

Staffing One of the critical tasks of the HR department is staffing the organization. Staffing includes recruiting and selecting the right employees and then placing them in jobs that fit their personalities, capabilities, and future potential. The HR department has to be selective while recruiting, and it must make sure that only the most qualified, skilled employees are chosen—employees who are a good fit for the company’s positions and are able to contrib- ute to the company’s goals. The department must then evaluate prospective employees’ abilities and competencies against the company’s needs. When the HR department is able to execute this task properly, the organization will be better able to achieve its goals and objectives.

There is more than one way to facilitate the process of effective staffing. Conducting psycho- logical and physical assessments of abilities, skills, and personality traits is one option. These assessments help the company choose employees with the necessary qualifications. Another option is interviewing applicants. The purpose of the interview is to ask applicants questions that reveal their decision-making skills and their reactions to specific situations. These and numerous other techniques for the effective recruitment and selection of employees are dis- cussed in detail in Chapters 4 and 5.

Preparing Compensation Offers In order for employees to be motivated, their efforts need to be adequately rewarded. Offering attractive compensation packages is one way organizations increase employee motivation. When employees know that they will be rewarded for their actions, this knowledge pushes them to go beyond their comfort zones. Compensation packages can come in the form of pay, benefits, and such incentives as days off, bonuses, equities, awards, raises, flexible working hours, or promotions and opportunities for career development. Effective compensation packages can increase retention rates by boosting employee satisfaction. This boost can also have a positive impact on employee loyalty, and thus increase the firm’s stability and security (Handy, 1999).

Compensation packages may cause unexpected problems. For example, an organization might try to reward employees and managers by offering them financial incentives while it is suffering financial losses. Organizations have to pay out their contractual obligations to their employees. For example, Robert L. Nardelli, former chief executive of Home Depot, was asked to resign due to his failure to improve profitability and stock prices. Yet Home Depot still had to pay him $210 million in compensation that he was contractually and legally entitled to. This is one way that compensation packages sometimes hurt organiza- tions (Barbaro, 2007).

Orchestrating Cultural Change Organizational culture can be defined as “the specific collection of values and norms that are shared by people and groups in an organization and that control the way they inter- act with each other and with stakeholders outside the organization” (Hill & Jones, 2001). Organizational cultures shape people’s attitudes and behaviors. Moreover, organizational cul- tures are very difficult to change once they are created because they become perceived as the

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Section 1.5 The Legal Environment

correct, mutually agreeable, and safest way to do things. One of the most prominent duties and responsibilities of the HR department is to shape, outline, and define the culture of the organization though a four-phase process:

1. Observe the main characteristics and features of the current state of the company culture. The challenge for HR is to ensure that any proposed cultural change is relevant to all employees within the organization so that a change will be favorably received and practiced.

2. Communicate cultural changes to employees and stakeholders and justify their advan- tages to both the individual employees and the organization as a whole (Erica, 2006). To deter any conflicts arising from the successful execution or maturity of the change, HR must accompany this step with a great deal of clarification and support to all employees who experience cultural shocks.

3. Determine factors that would facilitate and promote a successful and complete tran- sition to the new culture. HR must also gather data and analyze its relevance, suf- ficiency, and implications. In this phase, data refining and data evaluation are con- stantly performed.

4. Execute the cultural change. In this stage, HR should promote and steer the entire organization toward the change by setting and highlighting its benefits and implementation deadline. This stage must be accompanied by periodic audits and checks to ensure that the execution is successful (Erica, 2006; Kerzner, 2003).

1.5 The Legal Environment The HRM legal environment includes numerous laws and regulations that protect against discrimination based on race, sex, color, religion, or national origin. Other laws relate to plant closures, mergers, and acquisitions. Laws and regulations have a great influence on personnel decisions. Throughout this textbook, you will learn about the many laws that govern HR pro- cesses such as job design (Chapter 3), recruitment (Chapter 4), selection (Chapter 5), perfor- mance appraisal (Chapter 6), training and development (Chapter 7), compensation (Chapter 8), and benefits (Chapter 9).

The number of HR-related federal lawsuits has been increasing in recent years and is expected to continue to increase. The number of Equal Employment Opportunity (EEO) laws and regu- lations is also expected to increase. Defending against legislative violations can require sub- stantial organizational time, energy, and money.

Unions and Labor Relations There are three primary reasons why employees join unions. The first reason can be employee dissatisfaction and discomfort with the currently existing work environment— including working conditions, compensation systems, and management and supervision methods. Another reason originates in an employee’s personal need to make a difference in

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Section 1.6 The HRM Process

the work environment or the industry as a whole. Finally, employees also join unions because they recognize unions’ prospective advantages. HR managers must work hard to listen to and inter- pret employee complaints; HR manag- ers must also create and develop strat- egies to rectify complaints in order to create cooperative, rather than antago- nistic, relations with unions.

Labor relations refers to the relation- ship between management and union- ized workers regarding employment conditions. The National Labor Rela- tions Act (NLRA) addresses issues such as employee representation rights, interfering with union affairs, and discrimination in employment. Again, HR managers must work toward employee satisfaction and claim resolution to preserve the integrity of the orga- nization (Kochan, 1980).

Health and Safety Regulations Industry-related accidents adversely impact the U.S. economy; with more and more job- related injuries, occupational illnesses, and fatalities reported every year, it is evident that organizations must impose and strictly practice a stringent code for health and safety. HR managers have the role of creating programs to proactively mitigate job-related accidents.

Some of the techniques that HR uses to avoid future health and safety issues include matching employee personalities with their job descriptions and environment during the hiring pro- cess, conducting on-the-job safety awareness and training programs (Budd, 1996), rewarding safe behavior with incentives (Mace, 1988), and distributing guidelines and handbooks that detail safety and regulatory policies.

1.6 The HRM Process The HRM process consists of eight practices or activities whose purposes are to attract, retain, and motivate qualified employees. Using such practices results in greater profitability, low rates of employee turnover, high-quality products, reduced production costs, and align- ment of HR with an organization’s strategic goals (Schuler & MacMillan, 1984). Below is a brief summary of each of these eight practices, which will be discussed in greater detail in Chapters 2 through 9. Figure 1.1 also summarizes the HRM process and serves as an outline for this book.

Fuse/Thinkstock

HR managers must work to maintain a healthy relationship between management and unionized workers.

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Strategic HR planning

Job analysis and job design

Attraction and recruitment of

talent

Selection and job fit

Performance appraisal/

management

Training and development

Compensation

Benefits and benefit

administration

Section 1.6 The HRM Process

1. Strategic HR Planning To maintain business competitiveness, managers forecast future labor supply and demand. An organization has to make sure that it has access to the knowledge, skills, and abilities it needs at the times these human capacities are needed. These needs can then be fulfilled through various means such as employment, contracting out, partnerships, and other means. One of the activities of strategic HR planning is that it takes into account the risk that having an insufficient or unqualified workforce poses to the organization’s competitive advantage.

Another strategic HR activity is retaining a well-qualified workforce. Strategic planning involves meeting resource demands, examining and evaluating resource deployment, esti- mating capacity, and also recognizing and handling human talent to satisfy capacity needs.

The main approaches to strategic HR planning are environmental scanning, labor market analysis and forecasting, internal analysis and forecasting, and gap analysis. Planning will be discussed in detail in Chapter 2.

Figure 1.1: The strategic HRM process

Strategic HR planning

Job analysis and job design

Attraction and recruitment of

talent

Selection and job fit

Performance appraisal/

management

Training and development

Compensation

Benefits and benefit

administration

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Section 1.6 The HRM Process

2. Job Analysis and Job Design The term job analysis refers to providing detailed job descriptions and specifications. It also includes the collection of job information and the systematic analysis of that information. The type of information gathered in job analysis includes job context, content, and requirements. Job analysis can be used for recruitment and selection procedures, performance evaluation, training, compensation, and many other purposes. Job analysis is critical for hiring the right workforce for specific jobs (Cascio & Aguinis, 2005).

The term job design refers to identifying the elements of a job and arranging its tasks and responsibilities for the purpose of creating a productive work unit. Moreover, job design involves studying what a job entails as well as how it affects employees. Job design can help alleviate many of the problems companies face, such as employee performance, job satisfac- tion, grievances, absenteeism, and physical and mental health (Lawler, 1973). Job design and job analysis will be addressed in detail in Chapter 3.

3. Attracting and Recruiting Talent The recruitment of talent entails three main processes: attracting, screening, and selecting qualified potential employees for further consideration. All three processes can be either done in-house or outsourced to recruitment agencies. The first step in the recruiting pro- cess is advertising job offers. Advertising is followed by screening, for which recruiters use resumes, application forms, initial interviews, tests, and other screening tools to identify qualified candidates. Then a candidate is selected for further consideration based on how well he or she did during the screening process. Attraction and recruitment of talent will be discussed in detail in Chapter 4.

4. Selection and Job Fit Selection is the method through which organizations choose their most valuable asset— people—to fill jobs within the organization with the right, qualified individuals. Selection is one of the most crucial processes for an organization: it is only through qualified employ- ees that corporate goals and objectives are fulfilled, success is attained, and the organization gains a competitive edge in the market.

Employees can be managed much more easily in the long term, and many problems can be avoided, if enough time, effort, and planning are initially invested in recruitment and selec- tion. Difficulties will be eventually faced with the selected employees if the selection process is not successfully executed based on adequate planning, job analysis, and job design. These difficulties may not be possible to rectify, even with extensive training. Clearly, the selection process affects the well-being of the organization and, ultimately, its future.

However, the process of employee selection is successful only if the employees’ knowledge, skills, and abilities (or KSA for short) are carefully matched with the characteristics of the jobs they are assigned to fill. Employees who are successful in their current positions are the best candidates to help identify the most significant KSA requirements for their jobs. A good fit between the nature of the job and the employee’s personality, interpersonal skills, and academic and technical knowledge is a critical element required to sustain the organization’s prosperity. Selection and job fit will be discussed in more detail in Chapter 5.

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Section 1.6 The HRM Process

5. Performance Appraisal/Management Performance appraisal is rating and evaluating the accomplishments of employees, relative to set goals and objectives, and rewarding the employees accordingly. Rating the individual employee is equivalent to evaluating the greater objectives of the organization as a whole. Accordingly, performance appraisal is of crucial importance to any organization since it impacts the strategic plan of the entire organization.

Performance appraisals can be conducted through a variety of approaches and methodolo- gies. These methods include:

• Employees evaluating themselves • Supervisors evaluating their employees • Employees evaluating their supervisors • Team members evaluating one another • External specialized organizations or consultants being contracted for the purpose

of rating employees

In most cases, performance appraisals are conducted using a combination of these approaches in order to formulate the most informative and accurate assessments.

The performance appraisal process takes place in a series of six consecutive phases or steps:

1. Identify, highlight, and clearly define the performance levels that employees are expected to attain based both on their jobs and responsibilities and on the organiza- tional strategic plan as a whole.

2. Communicate the defined performance metrics to employees while sustaining, encouraging, and promoting superior performance levels within the organization, in order achieve the set objectives in the allocated time frame.

3. Measure the actual performance of each employee, and then evaluate it based on the individually set targets and goals. This measurement and evaluation determine the extent to which each of the set objectives has been accomplished.

4. Ensure that employee performance is aligned with the set goals and organizational objectives by communicating employee performance back to the employee at regu- lar intervals.

5. Provide any assistance needed to get employees back on track and ensure that all organizational targets are met after employees have been informed where they stand relative to their set goals and objectives.

6. Reward employees based on the extent of their accomplishment of their set goals and objectives.

Performance appraisal/management will be discussed in detail in Chapter 6.

6. Training and Development Training and development in volve four different activities: onboarding, training, education, and development. The purpose of these activities is to enhance the performance of individual employees and to enhance group performance in an organizational setting. Training and devel- opment is given many names in various organizations and industries, including learning and

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Section 1.6 The HRM Process

development, human resource develop- ment, and employee development.

Onboarding is the first step of the train- ing and development process. In this process, new employees receive vari- ous forms of orientation to enhance their understanding of the culture and familiarize them with what the new job entails so that they can perform their duties effectively. Training emphasizes current job requirements, and it is eval- uated against these requirements. In contrast, education focuses not on cur- rent job requirements but on require- ments or responsibilities for positions that an employee may hold in the future. Education is evaluated against these future require- ments. Finally, development involves attention to current and future job requirements that are difficult to evaluate and assess (Garavan, Costine, & Heraty, 1995; Harrison, 2005). Train- ing and development will be discussed in detail in Chapter 7.

7. Compensation Employee compensation is critical for the satisfaction, motivation, and preservation of the workforce. Organizations spend a great deal of time, money, and effort every year on plan- ning, creating, implementing, and successfully executing employee compensation strategies. Accordingly, it is vitally important for HR managers and other organizational decision makers to carefully examine the organization’s targets and objectives.

A number of significant decisions have to be made to create compensation and reward sys- tems based on what the organization is attempting to accomplish. For instance, a compensa- tion plan has to satisfy and fully comply with all legal rules and regulations, which may vary between different work locations. A compensation plan must also be cost effective for the organization; otherwise it will become a burden. Most importantly, a compensation plan must yield a considerable performance advantage for the organization through attracting, motivat- ing, and retaining high performers, and it must align the performance of those employees with the goals and objectives of the organization. In other words, a compensation plan has to identify, distinguish, and reward employees whose efforts and talents have successfully accomplished the goals, objectives, and performance expectations of their roles in ways that directly contribute to organizational goals, objectives, and overall competitiveness. The com- pensation plan should motivate these employees to remain within the organization.

An organization can use many types of compensation systems to reward people for fulfilling their set targets. Compensation systems include base pay, variable pay, and incentive systems. Base pay, as the name implies, is the basic compensation that an employee receives from an organization in exchange for his or her basic services—usually in the form of a wage or salary or a combination of the two, depending on the nature of the job. Waged employees receive compensation based on the number of hours worked over a predetermined period of time. On the other hand, salaried employees receive a fixed compensation over certain periods of

Purestock/Thinkstock

Effective onboarding and training result in better employee performance and retention.

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Section 1.6 The HRM Process

time regardless of the number of hours invested in work. A combination of these two systems is the overtime system, which pays employees a fixed salary for the regular number of hours worked, as well as additional overtime pay for every extra hour worked.

Variable pay is compensation that varies directly with measurable aspects of employee per- formance. The most commonly used variable pay system in organizations is the sales com- mission, in which a salesperson’s compensation is entirely or mostly based on the number of units sold or the value of sales they generated within a previously specified period of time. Variable pay can also be used in conjunction with base pay.

An incentive compensation system is compensation connected to individual, team, and organizational performance. The most common variable pay systems are performance bonuses, stock options, and high-level executive compensation for top executive managers. Incentive systems are designed to reward employees beyond their normal expectations for their excellence in performing above and beyond the immediate goals and objectives of their roles. The concept behind incentive systems is the fact that some employees perform much better than others, and such employees must be recognized and rewarded for their perfor- mance with extra compensation. Many companies tie employee compensation to performance in order to motivate employees to exceed performance expectations, ultimately contributing to the organization’s success. Compensation will be discussed in detail in Chapter 8.

8. Benefits and Benefit Administration Benefits are an essential part of the total compensation package. They are considered a supplement to salaries and wages. Benefits cost companies a great deal, but they also give employers an advantage. Benefits programs have a positive effect on employee attraction, motivation, and work satisfaction. Furthermore, they help companies meet employee health and security requirements, retain a quality workforce, and sustain competitive advantage (Cascio & Boudreau, 2011).

In general, nearly a quarter of the benefits package offered to full-time employees is required by law. The rest is offered voluntarily by employers. The legally required benefits include employer contribution to Social Security taxes, unemployment insurance, workers’ compen- sation insurance, and state disability insurance. The contributions of both employers and employees to Social Security taxes are used in the payment of retirement, disability, and sur- vivors’ benefits.

It may come as a surprise that health, dental, vision, life, supplemental disability insurance, and paid time off for vacations and illness are all voluntary benefits that are not required by law, even to full-time employees. However, organizations often offer these benefits. Many organizations offer numerous additional benefits such as exercise facilities, child care, elder care, employee assistance programs, and tuition reimbursement. Some organizations even offer unique benefits such as car detailing, oil changes, laundry, dry cleaning, and a variety of concierge services. On average, benefits often cost an organization about 75% of an employee’s salary, making them the second-largest expense item for many organizations after payroll.

Companies should have a sound benefit program in order to gain a human-based competitive advantage. Two important factors must be considered for this to happen. First, the benefit pro- gram has to be established based on certain objectives. These objectives should be aligned with

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Section 1.6 The HRM Process

A Moment in the Life of an HR Manager Every Manager is an HR Manager

This feature offers applications of the concepts presented in this chapter. Real life scenarios that are relevant to the topics covered in this chapter are provided.

John is a production facility manager. He graduated several years ago with a degree in indus- trial engineering and landed a job as a production engineer at a midsize production facility. The job was great—great pay, great benefits, great coworkers—and life was good. Due to his knowledge, diligence, and hard work, he was offered a promotion. The opportunity was extremely exciting to him—more pay, better hours, and he got to manage the facility!

John’s first few weeks in management were calm and uneventful—more scheduling and logisti- cal responsibilities, which he had been trained for when he was the technical lead for several projects in the past. He also had less involvement in day-to-day production problems, which he did not really miss at all. Then came a call from the HR department at the head office.

The HR manager, Maria, wanted to know when John would be sending his “quarterly work- force status and projections report,” and whether he needed help in preparing it since it was his first such report. It turned out that every one of the organization’s 200 facility managers across the nation needed to turn in their reports, and the deadline was in two weeks!

John was baffled! He knew the facility inside out. He knew the answer to any technical ques- tion about any product, machine, or piece of equipment, and he could give you the answer on the spot. He had no problem presenting a quarterly production status and projections report off the top of his head. He knew the status and progress of every project and order the facil- ity handled, down to the minute, thanks to his dedication and to the facility’s state-of-the-art information system. But he didn’t know what he needed for a quarterly workforce status and projections report. Maybe looking at past reports could help, he thought—so he started dig- ging into the former manager’s files.

(continued)

the organizational policies and values. Second, the program should be affordable—a consider- ation that requires effective management. Benefits will be discussed in detail in Chapter 9.

Best Companies to Work For What Makes a Great Place to Work

http://fortune.com/best-companies/

http://us.greatrated.com/

This feature will focus on what makes a company a great place to work. In fact, every year, Fortune ranks great places to work based on HRM oriented criteria. Companies compete for the honor, and spend time, energy and resources to meet the “best companies to work for” criteria. In each chapter, we will focus on one or more companies that made it to the top 100 best companies to work for. Visit the first link above to familiarize yourself with these compa- nies. The second link provides more details on the unique characteristics of each company that make it a great place to work.

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http://fortune.com/best-companies/

http://us.greatrated.com/

Section 1.6 The HRM Process

A Moment in the Life of an HR Manager Every Manager is an HR Manager (continued)

John breathed a sigh of relief when he found every quarterly workforce status and projections report for the last five years in a designated folder on the facility’s database system. However, his relief was short lived. He started browsing through the table of contents:

• Performance appraisal results • Employee morale assessments and recommendations • Health and safety checklists • Notes from interviews with job candidates and recommendations for acceptance or

rejection • Labor market analyses • Workforce forecasts including turnover projections • Training and development needs assessments • Pay raise and promotion recommendations • Succession action plans

And there were even referrals to an employee assistance program for alcohol and drug abuse! “Drugs?! On my facility?” John said. “How can that be, and how should I know if one of my workers is on drugs?” he asked. “It could take months to find the data I need for this report, assuming that it exists anywhere in the company database.”

However, taking comfort in the fact that Maria had offered to help him on the report, he figured that she’d probably have answers to his many questions. After all, she was the HR manager. Surely, she’d know who was due for a raise or a promotion, what the job market trends were, what the rate of turnover should be, and who would be sent to the training next quarter. So John called Maria back. Here’s how the conversation went.

John: “Hi, Maria. This is John from the Lake Manawa facility. I think I’ll take you up on your offer to help me with my first quarterly workforce status and projections report.”

Maria: “Sure, John. No problem. What do you need?”

John: “I need the performance appraisal results from my facility. Where can I find those on the database?”

Maria: “We don’t have any from your facility, John. My records show that you never entered the scores for your employees. Did you conduct your performance appraisals? You were supposed to fill out the forms, meet with each of your employees to give them feedback on their performance, and set goals with them for the next quarter.”

John: “But I know those guys really well, Maria. I’ve worked with them for years. I interact with them on a daily basis. They know what they’re doing. We’re extremely busy here; we don’t need to waste time on unnecessary meetings.”

Maria: “John, formal performance appraisal is extremely important. You can’t assume that your employees always know what you want them to do. How will they know the facility’s goals and priorities if you don’t communicate those to them? How will they know how their roles fit within the overall structure, and how they can con- tribute to the success of the organization? You can’t keep them motivated if you’re just making them do the day-to-day work while keeping them in the dark about the

(continued)

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Section 1.6 The HRM Process

A Moment in the Life of an HR Manager Every Manager is an HR Manager (continued)

big picture. Besides, you do have a couple of low performers in your facility that the previous manager has placed on probation, and your facility is in a minority-dense community. We can’t let anyone go unless we have the performance appraisals to back it up, or we may get sued for discrimination.”

John: “OK. I guess I’ll have to read the electronic bulletin board announcements more care- fully. I always glossed over the admin section. I’ll get on this, get those forms filled out, and have those appraisal meetings. I still have some questions about several other issues, though.”

Maria: “Sure, John. Fire away.”

John: “I was able to locate the results of the employee morale survey on the database, but it was all anonymous. Can you please give me the names of all the employees whose morale scores were lower than 60%?”

Maria: “No way! That’s a confidential survey.”

John: “But how am I supposed to improve morale if I don’t know who has problems to start with?”

Maria: “You need to look for trends in the data you have, and run some analyses using the HRM software.”

John: “But doesn’t the company have some plans to improve morale?”

Maria: “Nothing across the board. That’s delegated to the facility managers because every facility is different. You need to design your own plans and propose a budget for them—which, by the way, are due by the end of the month.”

John: “Oh, great. One more thing to do.”

Maria: “Don’t worry, John. You’ll get a lot of input in your performance appraisal sessions with your workers on how to improve morale. Just listen carefully. This is where all the great ideas are generated anyway.”

John: “Yeah, right. I’ll see what I can do. What about the labor market analysis, workforce forecasts, and turnover projections? Do you have the data for that somewhere?”

Maria: “No, John. This is about your local labor market. I can give you some great websites that will help you with your environmental scanning, though.”

John: “Environmental what? Have the neighbors complained about the exhaust pipes again? We tested them many times, and they’re perfectly safe and up to standard. Besides, we don’t even own a scanner in this facility. Do I need to put in a purchase order for one?”

Maria: “There’s nothing to physically scan, John, and this has nothing to do with the physi- cal environment. This is about analyzing the trends that can affect the supply and demand of labor in your job market—technological trends, social trends, economic trends, legal trends—things like that.”

(continued)

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Section 1.6 The HRM Process

A Moment in the Life of an HR Manager Every Manager is an HR Manager (continued)

John: “I see. But how do I make projections based on that kind of data? There are a lot of changes and uncertainties all the time. For example, there’s no way anyone can accurately project something like turnover. People leave organizations for all kinds of reasons. How am I supposed to guess who’ll leave and when they’ll leave?

Maria: “Welcome to the world of HR, John. I deal with those issues every day.”

John: “But you’re the HR manager, Maria. You chose this career. I’m not in HR: I’m a produc- tion facility manager. This is completely out of my league.”

Maria: “Every manager is an HR manager, John. The HR department is here to support you and ensure that the company’s human assets are selected, deployed, and managed efficiently, effectively, and fairly. But you are ultimately their direct manager. You’re the one dealing with them every day. And you’re in the best position to monitor and develop their performance and their motivation.”

John: “OK, Maria. Thanks for your help. I’ll get started on this and may call you back with more questions over the next few days.”

Maria: “No problem, John. And while we’re at it, I’m sending you the resumes of the short- listed applicants for the production foreman position. Please let me know who you want to interview and what times you’re available. Also make sure you use the updated rating form and interview questions.”

John: “I had no idea we have an opening. Nobody left from my facility!”

Maria: “We don’t only hire to replace those who leave, John, and if we wait until someone leaves, it’s going to be too late. The company’s goal this year is 8% growth, and last quarter’s projections from your facility showed that you expect a 3% increase in sales. Someone has to make all that stuff, you know.”

John: “So how many people do I need to hire?”

Maria: “Two foremen, each with his or her full team. Your facility has enough slack capacity to accommodate that production increase, I’m assuming.”

John: “Finally a question I can answer. Yes, Maria, we have the capacity. I’ll get back to you on which resumes I like most.”

Maria: “Oh, no, John. This isn’t about who you like and who you don’t. You can’t do this sub- jectively. You can get us in legal trouble if you choose applicants based on your feelings about them. There are clear guidelines and an objective process in place to help you select candidates based on essential job functions. You even have to use the approved list of questions in the interview, or some of your questions may be discriminatory. I’d better sign you up for the HR law training. It’s required before you can interview any applicants.”

John: “HR law training? Don’t we have lawyers at the head office for that?”

Maria: “Of course we do, but in the eyes of the law, you’re a representative of the company, John. If you say or do something that’s discriminatory or harassing to others, even if it’s unintentional, it can easily expose the organization to litigation and compromise our reputation. Remember, John: every manager is an HR manager.”

(continued)

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Section 1.7 Opportunities, Challenges, and Recent Trends in HRM

1.7 Opportunities, Challenges, and Recent Trends in HRM The current business environment presents organizations with numerous challenges. For example, we are operating in a global economy where numerous cultures, languages, cur- rencies, legal systems, and political conditions are merged. Adding to the complexity and uncertainty is the dizzying rate of change across those various dimensions and the need for organizations to adapt quickly and effectively to numerous concurrent changes in order to survive. These changes may be technological, competitive, economic, or legal. Moreover, ethi- cal managers in socially responsible organizations are faced with additional dilemmas as they attempt to adapt to change and still remain competitive in a cutthroat economy—all while maintaining their values and standards. This section presents an overview of some of these challenges and offers ways in which strategic human resource management can help leverage human assets to turn these challenges into opportunities to build sustainable competitive advantages.

Globalization and Outsourcing Globalization is a process driven by international trade and investments in foreign markets. It makes it possible for organizations to offer customers products and services from all over the world at any time. Both large and small firms are affected by globalization. The General Agreement on Tariffs and Trade (GATT) was the first joint agreement for regulating interna- tional trade among nations. We now have other agreements and organizations, such as the North American Free Trade Agreement (NAFTA), Asia-Pacific Economic Cooperation (APEC), and the World Trade Organization (WTO).

Globalization has made business processes more efficient and effective and paved the way for outsourcing, an increasing trend that HR professionals are now dealing with. Outsourcing is contracting work that used to be done in an organization to a third party. One of its advan- tages is that it helps organizations cut labor costs while hiring more skilled expertise to do the same jobs that were done in house, which helps organizations focus on their core activities and use their resources more efficiently.

HR professionals are responsible for making decisions about outsourcing work. However, cost effectiveness should not be the sole purpose for outsourcing. Other considerations are

A Moment in the Life of an HR Manager Every Manager is an HR Manager (continued)

Discussion Questions

1. To what extent do you agree that every manager is an HR manager? 2. Which people-related responsibilities should be performed by the HR department? Why? 3. Which people-related responsibilities should be performed by line managers? Why? 4. Where can John obtain the data he needs to complete the quarterly workforce status

and projections report? Optional: collaborate with classmates to create a comprehen- sive list of resources for the data John needs, along with the rationale for each resource.

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Section 1.7 Opportunities, Challenges, and Recent Trends in HRM

avoiding drains on organizational resources; hiring substandard skills; and compromising intellectual property, corporate social responsibility, or customer service.

Globalization brought many challenges for HRM. For example, HR managers have to deal with such issues as differences in cultures, employment, and business laws and practices. Measuring international workers’ knowledge, measuring their skills, and training them are also considered tough tasks. Furthermore, it is a challenge to relocate managers for the pur- pose of international employment relations. Global HRM includes providing training pro- grams and tools to enlighten managers about cultural differences in business and teach them how to close these cross-cultural gaps.

The Economy Globalization has paved the way for foreign investments. For example, Asia has become a major foreign direct investment (FDI) destination. Investing in Asian regions is consid- ered challenging due to problems with law enforcement and implementation. Moreover, the differences in social and political practices between Asia and the West will necessi- tate a change in management techniques to help prevent negative local reactions to foreign investments.

East Asian countries like China and those on the Pacific Rim have their share in affecting the global economy. The service sector in Asia is growing, especially in China. However, the agri- cultural sector is decreasing. China is also experiencing a significant growth in its productiv- ity as well as its economy (Rowley & Warner, 2007). China is now the second largest economy after the United States. Japan is third.

According to the Bureau of Labor Statistics, in the United States, service industries now represent approximately 80% of all jobs. This trend is expected to continue in the future. Furthermore, there will also be an increase in the number of healthcare jobs as the baby boom generation ages, and due to the recent Affordable Healthcare Act.

Sociocultural Factors: Demographics, Diversity, and Changing Employee Expectations The United States is experiencing a remarkable change in the nature of its workforce. The multiracial and multi- cultural composition of its population has forced HRM to adjust to a more diverse labor force. The increasing per- centage of women and racial and ethnic minorities in the workforce, and the aging workforce in several developed countries, have contributed to the trans- formation of the labor market.

Thomas Northcut/DigitalVision/Thinkstock

Economists predict an increase in the number of healthcare jobs, due to the recent Affordable Healthcare Act, and the aging of the baby boomers.

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Section 1.7 Opportunities, Challenges, and Recent Trends in HRM

Since the United States is a melting pot of cultures, it is experiencing an increase in the num- ber of immigrants. The percentage of racial and ethnic minorities is also increasing. These changes have led to an increase in cultural diversity, which has also created a need for employ- ers to make an effort to grow more familiar with other cultures’ beliefs and practices.

In addition, there is a concern that the United States is not well prepared to equip young employees for future jobs. Due to the aging workforce, employers are now facing the chal- lenge of replacing these experienced and talented employees. With all these concerns in mind, U.S. employers have to be certain that they pursue inclusive and nondiscriminatory policies and activities.

Eye on the Goal The Human Equation

There is an increasing emphasis in business practice on human contributions to an organiza- tion’s success. It is not only a valuable and worthwhile pursuit in its own right, but also as a strategic opportunity for significant returns on investment in terms of organizational profit- ability, efficiency, and effectiveness. Emphasizing the human side yields enhanced employee motivation, morale, retention, productivity, and performance quality. In other words, there is an increasing recognition of human resources as assets and as a form of capital, rather than just an expense. However, quantifying the return on investment in human capital is a chal- lenge that HR professionals struggle with as they find themselves increasingly expected to link human aspects to financial outcomes, especially with today’s tight economy and limited budgets. Strategic investments in human assets can yield quantifiable returns on such prac- tices as effective selection, training, and performance management. When HR professionals understand the methods for quantifying such returns, they are in a better position to effec- tively influence financial and human resource allocations in their organizations.

Unfortunately, many HR managers view their profession as more of an art than a science. They go about their jobs making subjective decisions based on hunches, personal opinions, or politics—ignoring the vast scientific body of knowledge that can lead them to effective HRM. Business consultants have also adopted unscientific approaches that may be very appealing to their clients (and a great source of revenue for their consultancies), which has led to the widespread adoption of many unfounded management fads. In their seminal book Hard Facts, Dangerous Half-Truths and Total Nonsense (2006), Professors Jeffrey Pfeffer and Robert Sutton of Stanford uncover many of the lies that managers believe and act on, to the detriment of their organizations. Pfeffer and Sutton call for “evidence-based management.”

Furthermore, many managers strongly believe that people are impossible to measure, quan- tify, predict, and explain. The problem with this notion is that no matter how important you believe people are, they will be viewed as an expense to be avoided or minimized if you cannot quantify the return on investment in them. Resources and attention are then allocated to more tangible assets, with quantifiable return on investment, and investment in people disappears. Moreover, when people are viewed merely as an expense, they are the first to go. This situation is especially true in tough economic conditions, as is evidenced by the recent massive layoffs and high unemployment rates.

(continued)

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Eye on the Goal

The Human Equation (continued) Fortunately, science has proven this type of thinking wrong, time and time again. Pfeffer and Sutton (2000) refer to this faulty thinking as “the knowing-doing gap.” Pfeffer’s earlier book, The Human Equation (1998), built an extremely convincing case for the quantifiable return on investment in human assets. He showed that about half of organizations believe that peo- ple are their most important asset. Within this half, about one-half act on their belief. They implement some measures, systems, or policies that show they truly value their people. Then about half of that quarter of organizations stick to their beliefs and actions—even under busi- ness pressures to abandon their beliefs in order to cut costs or reallocate their investments elsewhere. Interestingly, over the years, this one-eighth of organizations has shown superior results on every imaginable measure of profitability, efficiency, and effectiveness when com- pared to the other seven-eighths. The lesson is simple: people do matter, and their value is quantifiable. You just have to find the right measures.

Web Links The Society for Human Resource Management (SHRM)

http://www.shrm.com

SHRM is one of the most recognized HR professional organizations and thought leaders on HR practice, education, and research worldwide. It currently has over 250,000 members in 140 countries. Its primary goal is to provide a community and foster partnerships among human resource professionals, media, governments, nongovernmental organizations, businesses, and academic institutions so that they share expertise and create innovative solutions for manag- ing people. Through their website, you can learn more about SHRM, review its publications, become more familiar with the field of HRM in general, and keep up with the changes and developments on various HR-related fronts.

The Human Capital Institute http://www.hci.org

The Human Capital Institute (HCI) is a think tank for advancing the science of strategic talent management. Through its website, you can access world-class research, global thought leader- ship, unique educational opportunities, and a social network of over 190,000 HR professionals.

Summary & Resources

Key Points

• People are an organization’s most important asset. • Human resource management (HRM) plays a strategic role in organizational success.

It contributes to employee motivation, morale, retention, productivity, and per- formance quality. It also contributes to organizational profitability, efficiency, and effectiveness.

Summary and Resources

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http://www.shrm.com

www.hci.org

• The HRM process consists of eight practices or activities whose purposes are to attract, retain, and motivate qualified employees. These activities are strategic HR planning, job analysis and design, recruitment, selection, performance appraisal, training and development, compensation, and benefit administration.

• HRM is not only the responsibility of those who work at the HR department of an organization—every manager has HRM responsibilities.

• Organizational decision makers should closely monitor the opportunities, chal- lenges, and recent trends in HRM. These factors have a direct bearing on managing human assets and consequently on organizational success and effectiveness.

business mastery Competency involving a deep understanding of an organization’s business and its technological, economic, and financial aspects.

corporate governance The relation- ship between managers and shareholders that results in shared corporate rights and responsibilities.

evidence-based management Prac- tices that are based on rigorous scientific research and can deliver real results.

globalization The process driven by inter- national trade and investments in foreign markets that makes it possible for organi- zations to offer customers products and services from all over the world at any time.

HR mastery Competency involving the abil- ity to execute practices effectively, to make sure that these practices meet employees’ needs, and are also aligned with organiza- tional goals.

HRM process Eight practices or activities whose purposes are to attract, retain, and motivate qualified employees. These activi- ties are strategic HR planning, job analysis and design, recruitment, selection, perfor- mance appraisal, training and development, compensation, and benefits administration.

HR personal credibility Competency which occurs through building and develop- ing both internal and external relationships.

human resource management The man- agement of human skills and talents to make sure they are effectively used and in align- ment with an organization’s goals.

labor relations The relationship between management and unionized workers regard- ing employment conditions.

National Labor Relations Act (NLRA) A set of laws governing such issues as union- ization, employee representation rights, interfering with union affairs, and employ- ment discrimination.

organizational culture The set of values and norms that are shared by people and groups in an organization. Organizational culture controls the way they interact with one another and with stakeholders outside the organization.

organizational effectiveness The degree to which an organization is able to meet its goals and objectives.

organizational efficiency The degree to which an organization is able to maximize the productivity of given resources, produce a given output with minimal resources, or accomplish both aims.

resource-based view (RBV) The strategic stance that an organization’s tangible and intangible resources can take to lead to a sustainable competitive advantage if the resources are valuable, rare, inimitable, and non-substitutable.

Key Terms

Summary and Resources

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Critical Thinking Questions

1. Why do you think it took organizations so long to recognize the value of HR? Was it an issue of science vs. art? The legitimacy of the field of HR? The perception that HR people are “touchy-feely,” instead of “numbers people”?

2. Out of Pfeffer’s and Latham’s evidence-based practices, do you believe one or two to be the most important? If so, which one(s)? If not, why?

3. Some consider HR to be “easier” than finance or operations. Do you believe this to be the case based on HR’s responsibilities?

4. Is HR just for “people who like people”? Why might a “people person” have a hard time in HR?

5. The text describes three broad macro-environmental factors influencing HR. Do you see other broad factors influencing HR now or in the future and what should HR people do in response to these factors to prepare their organizations?

strategic contribution The idea that HR has to be able to be a key contributor to organizational success.

strategic human resource management Leveraging the linkages between human resource practices and organizational goals and objectives, toward the purpose of cultivating a positive corporate culture. This process can promote innovation and flexibility, and subsequently lead to a more competitive edge.

technology Tools HR professionals must embrace and leverage such as human resource information systems, social media, and net- working platforms, to be able to transform HR’s performance of its roles and functions.

Summary and Resources

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