Introduction to Human Resource Management

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Learning Objectives

After reading this chapter, you should be able to

• 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

Introduction to Human Resource

Management

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CHAPTER 1

Section 1.1 What Is HRM?

1.1 What Is HRM?

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onsider the various organizations you have been involved in—as an employee, as a customer, 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 organiza-tion’s goals. It is critical to an organization’s success that it manage its people effectively. That’s why Bill Gates of Microsoft and Herb Kelleher of Southwest Airlines, along with many other well-known leaders of highly successful organizations, often assert that peo-ple are their most important assets.

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. Nei-ther 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 non-profit organizations that rely on volunteers are often con-cerned with attracting, moti-vating, and retaining the best volunteers through providing nonfinancial incentives and designing meaningful roles for them.

It is important to note that HRM activities exist through-out any organization, whether or not there is a recognized HRM department. For instance, you will find managers of vari-ous functions such as finance, production, and marketing doing such HR activities as hir-ing, traindoing such HR activities as hir-ing, and scheduling employees and appraising their performance. And HRM activi-ties extend further. HRM also involves handling the legal issues related to hiring, training, compensating, rewarding, disciplining, promoting, demoting, or even firing people. HRM can provide a competitive advantage to organizations through the efficient and effec-tive use of the tools, data, and processes provided by HRM specialists. Yet HRM should also focus on pursuing one strategic priority: helping the organization be an exceptional employer that provides rewarding work to qualified and exceptional employees. HRM

Larry Busacca/Wire Image/Getty Images

Bill Gates, CEO of Microsoft, believes 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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CHAPTER 1 Section 1.1 What Is HRM? should not be seen as merely performing routine administrative activities. 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 organi-zation a competitive advantage in the marketplace. The University of Michigan and the Society for Human Resource Management (SHRM) identify 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 organization’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 HR technology 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 internal and external relationships (Brockbank & Ulrich, 2003).

Firms usually deal with four types of capi-tal assets: physical (e.g., buildings, lands, and equipment), financial (e.g., cash and financial securities), intangible (e.g., patents and informa-tion 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 organiza-tion. However, human assets are the only ones capable of managing all the other assets to accomplish organizational goals.

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, inte-grated, 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 strate-gic work of those at the top can be meaningless if it’s not implemented effectively by frontline employees, who are often the only employees a customer will ever meet or be directly affected

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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CHAPTER 1

Section 1.2 From Personnel Administration to Strategic HRM

by. For example, you may never meet or interact with the CEO of your grocery 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 representative 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 those organizational human assets, not just those at the top, perform the roles necessary to transform other types of assets into effective means to achieve organizational goals and maintain a com-petitive advantage. 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 compa-nies to the value of their physical, financial, and even their intangible assets. This gap can only be 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 (Bur-ton & Pollack, 2006).

1.2 From Personnel Administration to Strategic HRM

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s mentioned earlier, day-to-day personnel administration is one of the HR depart-ment’s roles or functions in an organization. However, for the past two decades, personnel 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, absentee-ism, 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; it 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 cultivating a positive corporate culture. This lever-aging 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 organizational plans and strategies.

WEB LINKS

Human Resource Management Career Overview: http://www.youtube.com/watc h?v=RXULwgg41gc&noredirect=1 1. What are some of the most important attributes one must possess in order to have success in a career in HRM? 2. According to the video clip, majoring in business, the behavioral sci-ences, 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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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 orga-nizations’ success. Higher productivity levels enable firms to offer high salaries and still be competitive. Effective HRM practices have been shown to reduce turnover, increase productivity, and directly contribute to corporate financial performance (Huselid, 1995). Thus, HRM is able to contribute to overall organizational competitiveness 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 busi-ness unit outcomes is supported by numerous studies (Harter, Schmidt, & Hayes, 2002). There are numerous 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 organization is able to maximize the productivity of given resources, produce a given amount of output with minimal resources, or accomplish both tasks. HRM can contrib-ute to an organization’s efficiency and effectiveness by leveraging human assets through their selection, allocation, deployment, development, management, and retention; in turn, these contributions can improve an organization’s financial performance (Kroll, 2006). Moreover, employee motivation, morale, retention, productivity, and performance all have a great influence 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 organization’s profitability.

HR strategic effectiveness can be measured in many ways, such as return on investment (ROI), economic value added (EVA), and balanced scorecards. Some of these approaches

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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 organizational 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 (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) work, seven practices are claimed to be the most effective for gaining competitive advantage through the workforce and generat-ing additional profits by considering people as a top priority: • offering employment security • selective hiring • extensive training • sharing information • self-managed teams • company performance-based pay • overcoming status differences

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 an 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 cre-ativity, teamwork, and collaboration, rather than individual productivity and competition among employees. Many theories have been developed concerning the type of this 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 establish-ment 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

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CHAPTER 1

Section 1.3 What Do HR Managers Do?

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 (Prahalad & Hamel, 1990).

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 nonsubstitutable. These human assets can then serve as a sustainable source of competitive advantage. For exam-ple, 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 childcare, lawn care, bookkeep-ing, and housecleaning fall in that category.

1.3 What Do HR Managers Do?

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R and line management have one common goal, which is 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 man-agement and line management must work together at all times to ensure that all their common deliverables are successfully met. However, 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 Comstock/Thinkstock

The seven best practices for better organizational performance focus on making people a top priority.

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Provide guidance and advice

HRM directly contributes to defining and shaping the ethical culture within an organi-zation; hence, HRM governs the behavior of executives, managers, and employees. This role is of crucial significance since organizations achieve their long-term objectives and goals through setting 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, past practices, ethics, corporate control, and employment require-ments. 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 pertaining 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.

Organizations with high levels of integrity are favorably recognized and respected in the market by their customers, employees, and other organizations—recognition and respect which, in turn, translate into higher profits. More attention has been drawn lately to the importance of creating

strong ethical cultures within an organization and raising its levels of integrity, especially after numerous financial scan-dals surfaced in the past few years in many organizations around the world (Cherenson, 2006).

HR managers have the vital role of policing, 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 managers and shareholders in terms of shared corporate rights and responsibili-ties. Another very important task of every HR manager is to provide guidance and advice in matters of employee compensation and appraisals based on past evaluations and per-formance details. Thinkstock/iStockphoto

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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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 supporting the HR manager in accomplishing this service role. They should believe in the critical func-tion 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 managers’ 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 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 conformance, 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 organization, 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 organi-zation: they preserve its most valuable asset—the human asset—and hence promote the organization’s survival and competitiveness in the market (Mathis & Jackson, 2007).

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Section 1.4 What Are the Responsibilities of the HR Department?

1.4 What Are the Responsibilities of the HR Department?

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s the name indicates, the human resource department is responsible for the man-agement 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 employees the organization needs to be capable of performing its activities and opera-tions efficiently. 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 the other hand, having insufficient employees means that they 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 department 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 orga-nization 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 information flows swiftly though proper channels, which provides better support and coordination between departments in HR-related matters.

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There are many ways the HR department can provide align-ment. One way is through onboarding, training, and de-velopment. 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. On-boarding helps new employees get acquainted with the firm’s functions. In an ever-changing environment, training and de-velopment are very important to an organization’s ability to adapt to change. Adapting to change is crucial in order to compete in the market. Train-ing 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 department to set the timing and place of training, decide who will deliver it, and decide who will participate in it. Accountability is another very important factor that the HR department can use in its alignment activities. Accountability ensures that employees 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 connection to the work they do. Designing effective performance management systems can help in these alignment activi-ties—maintaining clear communication and holding employees accountable for specific, measurable outcomes.

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 per-sonalities, 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 cho-sen—employees who are a good fit for the company’s positions and are able to contribute 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 psy-chological 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 appli-cants questions that reveal their decision-making skills and their reactions to specific

ThinkStock/Stockbyte

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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situations. These and numerous other techniques for the effective recruitment and selec-tion of employees are discussed 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 knowl-edge 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 satis-faction. 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 obliga-tions 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 orga-nizations (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 cultures are very difficult to change once they are created because they become perceived as the 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 cul-ture 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 sup-port to all employees who experience cultural shocks.

3. Determine factors that would facilitate and promote a successful and complete transition

to the new culture. HR must also gather data and analyze its relevance, sufficiency, and implications. In this phase, data refining and data evaluation are constantly performed.

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Section 1.5 The Legal Environment

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; Ker-zner, 2003).

1.5 The Legal Environment

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he 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 processes such as job design (chapter 3), recruitment (chap-ter 4), selection (chapter 5), performance 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 regulations is also expected to increase. Defending against legislative violations can require substantial 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 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 interpret employee complaints; HR managers must also create and develop strategies to rectify complaints in order to create cooperative, rather than antagonistic, relations with unions.

Labor relations are the relationship between management and unionized workers regard-ing employment conditions. The National Labor Relations 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 organization (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.

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Section 1.6 The HRM Process

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 process, 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

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he 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 alignment 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 the book.

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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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 HR strategic 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 con- siders meeting resource demands, examining and evaluating resource deployment, estimat-ing capacity, and also recognizing and handling human talent to satisfy capacity needs. The main approaches to strate-gic HR planning are environ-mental scanning, labor market analysis and forecasting, inter-nal analysis and forecasting, and gap analysis. Planning will be discussed in detail in chapter 2.

2. Job analysis and

job design

The term job analysis refers to providing detailed job descrip-tions and specifications. It also includes the collection of job information and the systematic analysis of that information. The type of information gath-ered in job analysis includes jobs’ 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 satisfaction, 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

iStockphoto/Thinkstock

Strategic planning involves meeting resource demands, evaluating resource capacity, and recognizing and developing talent to satisfy company needs.

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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 iden-tify 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. Selec-tion is one of the most crucial processes for an organization: it is only through qualified employees 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 selection. Difficulties will be eventually faced with the selected employees if the selec-tion 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’ knowl-edge, 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 critical toward sustaining the organiza-tion’s prosperity. _{Selection and job fit will be discussed in more detail in chapter 5.}

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 indi-vidual 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 method-ologies. 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 pur-pose of rating employees

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In most cases, performance appraisals are con-ducted 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 organizational strategic plan as a whole. 2. Communicate the defined performance metrics to employees while sustaining, encouraging, and promoting superior performance levels within the organiza-tion, 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 deter-mine the extent to which each of the set objectives has been accomplished. 4. Ensure that employee performance is aligned with the set goals and organiza-tional objectives by communicating employee performance back to the employee at regular 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 involves four different activities: onboarding, training, educa-tion, 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 development is given many names in various organizations and industries, including learning and development, human resource development, and employee development. Onboarding is the first step of the training and development process. In this process, new employees receive various 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 evaluated against these requirements. In contrast, education focuses not on current job requirements but on requirements or responsibilities for positions that an employee may hold in the Thinkstock/iStockphoto

Performance evaluation of employees is

vital because it impacts an organization’s strategic plan.

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future. Education is evaluated against these future requirements. Finally, development involves attention to current and future job requirements that are difficult to evaluate and assess (Garavan, Costine, & Heraty, 1995; Harrison, 2005). Training 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 planning, 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 systems based on what the organization is attempting to accomplish. For instance, a compen-sation 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 attract-ing, motivating, 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 suc-cessfully accomplished the goals, objectives, and performance expectations of their roles in ways that directly contribute to organizational goals, objectives, and overall competitiveness. The compensation plan should motivate these employees to remain within the organization. An organization can use many types of compen-sation 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 predeter-mined period of time. On the other hand, salaried employees receive a fixed compensation over cer-tain periods of 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

Photodisc/Thinkstock

Waged employees receive compensation

based on the number of hours worked, while salaried employees receive a fixed compensation regardless of the number of hours worked.

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performance. The most commonly used variable-pay system in organizations is the sales commission, in which a sales person’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 objec-tives 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 performance with extra compensation. Many companies tie employee compensa-tion to performance in order to motivate employees to exceed performance expectations, ultimately contributing to the organization’s success.

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 advantages (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, work-ers’ compensation insurance, and state disability insurance. The contributions of both employers and employees to Social Security taxes is used in the payment of retirement, disability, and survivors’ benefits. It may come as a surprise that health, dental, vision, life, supplemental disability insur-ance, 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 facili-ties, childcare, 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 orga-nization 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 com-petitive advantage. Two important factors must be considered for this to happen: first, the benefit program has to be established on certain objectives. These objectives should be aligned with the organizational policies and values. Second, the program should be affordable—a consideration that requires effective management. Benefits will be dis-cussed in detail in chapter 9.

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A MOMENT IN THE LIFE OF AN HR MANAGER

”Every manager is an HR manager”

John is a production facility manager. He graduated sev-eral years ago with a degree in industrial engineering and landed a job as a produc-tion 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 logistical responsibilities, which he had been trained for when he was the technical lead for sev-eral 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 workforce 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 question 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 facility handled, down to the minute, thanks to his dedication and to the facility’s state-of-the-art information sys-tem. 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 digging into the former man-ager’s files.

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

Jette Productions/Blend Images/Superstock

Formal performance appraisal is important for communicating an organization’s goals and priorities to employees.

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• 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 sup-posed 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 contribute to the success of the organiza-tion? 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 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 perfor-mance 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 carefully. 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%?”

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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 fore-casts, 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 physical envi-ronment. 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.”

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 sup-posed 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 production 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 perfor-mance 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 shortlisted applicants for the production foreman position. Please let me know who you want to inter-view and what times you’re available. Also make sure you use the updated rating form and interview questions.”

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Section 1.7 Opportunities, Challenges, and Recent Trends in HRM

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 projec-tions 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 subjec-tively. 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 candi-dates 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 uninten-tional, it can easily expose the organization to litigation and compromise our reputation. Remember, John: every manager is an HR manager.”

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 comprehensive list of resources for the data John needs, along with the rationale for each resource.

1.7 Opportunities, Challenges, and Recent Trends in HRM

T

he current business environment presents organizations with numerous challenges. For example, we are operating in a global economy where numerous cultures, lan-guages, currencies, legal systems, and political conditions are merged. Adding to the complexity and uncertainty is the dizzying rate of change across those various dimen- sions and the need for organizations to adapt quickly and effectively to numerous concur- rent changes in order to survive. These changes may be technological, competitive, eco-nomic, or legal. Moreover, ethical 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 sec-tion presents an overview of some of these challenges and offers ways in which strategic

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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 mar-kets. 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 reg- ulating international trade among nations. We now have other agreements and organiza-tions, 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. Outsourc-ing is contracting work that used to be done in an organization to a third party. One of its advantages 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, being cost effective should not be the sole purpose for outsourcing. Other considerations are avoiding drains on organizational resources; hiring substandard skills; and compro-mising 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 purpose of international employment relations. Global HRM includes providing train-ing programs 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 necessitate a change in management techniques to help prevent negative local reactions to foreign investments. East Asian countries like China and the Pacific Rim have their share in affecting the global economy. The service sector in Asia is growing, especially in China. However, the agricul- tural sector is decreasing. China is also experiencing a significant growth in its productiv-ity as well as its economy (Rowley & Warner, 2007).

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EYE ON THE GOAL

”The Human Equation”

There is an increasing emphasis in business practice on human contributions to an organization’s success. It is not only a valuable and worthwhile pursuit in its own right, but also as a strategic oppor-tunity for significant returns on investment in terms of organizational profitability, efficiency, and effectiveness. Emphasizing the human side yields enhanced employee motivation, morale, retention,

In the United States, jobs are shifting toward ser-vice and telecommunications; service industries now represent approximately 80% of all jobs in the United States This shift is expected to con-tinue until 2014. Furthermore, there will also be an increase in the number of healthcare jobs as the baby boom generation ages.

Sociocultural factors: Demographics,

diversity, and changing employee

expectations

The United States is experiencing a remark-able change in the nature of its workforce. The multiracial and multicultural composition of its population has forced HRM to adjust to a more diverse labor force. The increasing percentage of women and racial and ethnic minorities in the workforce, and the aging workforce in several developed countries, contributed to the trans-formation of the labor market.

Since the United States is a melting pot of cultures, it is experiencing an increase in the number of immigrants. The percentage of racial and ethnic minorities is also increasing. These changes have led to an increase in cul-tural diversity, which has also created a need for employers 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 non-discrimina-tory policies and activities. Stockbyte/Thinkstock

The rising number of women in the

workforce has contributed to companies addressing work-family issues through benefits such as flexible work hours, childcare services, and paid family leave.