· 2015-08-26 · DIVERSITY STRATEGIES? STAFFING recruitment goals and timetables ... Portman...

15.660

Strategic Human Resource

Management

MIT Sloan School of Management

www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

1www.onlineeducation.bharatsevaksamaj.net www.bssskillmission.in

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Gender Differences

The Evidence

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PERCENT FEMALE IN OCCUPATIONS

Marketing

Financial Managers

Lawyers

Engineers

Nurses

Elementary Teachers

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PERCENTAGE WOMEN

(500 TOP FIRMS BY SALES)

? CORPORATE OFFICERS = 12%

? CORPORATE OFFICERS WITH LINE RESPONSIBILITY = 7%

• HR 15%

• FINANCE/ACCOUNTING 2%

• LEGAL/REGULATORY 11%

• SALES 2%

• MARKETING 7%

SOURCE: BETRAND AND HALLACK, ILRR, 10/01

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HOURS OF WORK

MEN WOMEN

<35 10.5% 28.9%

>40 40.4% 19.3%

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PAY, TOP FIVE OFFICERS(S & P 500, MIDCAP 400, SMALLCAP 600)

? MEN $1,333,000

? WOMEN $894,000

(ALL SOURCES)

SIZE OF FIRM = 33% OF GAP

SIZE + PERSON’S AGE = 53% OF GAP

SOURCE: BETRAND AND HALLOCK, ILRR, 10/01

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THE PRICE TO BE PAID

AMONG CORPORATE OFFICERS, 1986

MEN WOMEN

AGE 51 44

EVER MARRIED 99% 80%

DIVORCED 4% 20%

HAVE KIDS 95% 50%

SOURCE: FUCHS

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Two Paths

? Legal

? Organizational

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Title VII of the Civil Rights Act

of 1964

? Unlawful to discriminate on the basis of race, sex, religion, or national origin.

? Applies to all firms and organizations with at least 15 workers who have been employed for a period of 20 weeks in a calendar year.

? Administered and enforced by the Equal Employment Opportunity Commission (EEOC).

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Discrimination

Disparate

Treatment

Disparate

Impact

Reasonable

Accommodation

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From Affirmative Action to

Affirming Diversity

AA/EEO Diversity

• Special Program • Cultural Shift

• Benefits Disadvantaged • Benefits the Organization

• Focus on Hiring, Retention, • Focus on Performance

Promotion

• Legally Mandated • Strategically Important

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Diversity ParadigmsDavid A. Thomas and Robin J. Ely “Making Differences Matter: A New Paradigm for Managing

Diversity.” Harvard Business Review, September-October 1996, Pages 79-90.

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Examples

? The legal profession

? Boston Symphony Orchestra

? Deloitte & Touche

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PART TIME LAWYERS

Women are 28% of lawyers at 100 largest firms in Massachusetts, but 40% of lawyers who leave annually are women

90% of firms offer part-time work

Part-time women leave firms at a rate 70% higher than full-time men

Boston Globe, 12/4/2000

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THERE ARE MORE SUBTLE PROBLEMS

“Once a women decides to work less than 60 hours a week she gets fewer challenging cases…people will see you in the elevator and say ‘Oh, you’ve been with the kids,’ but in fact you’ve been in court.”

Boston Globe, 12/4/2000

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Blind Auditions at the Boston

Symphony Orchestra

? BEFORE: 10% of new hires were women? AFTER: 35% of new hires were women

NO LEAVE OF ABSENCE or TURNOVER DIFFERENCE BETWEEN MEN AND

SOURCE: GOLDIN AND ROUSE, AER, 9/2000

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Deloitte & Touche

? 5% of partners are women

? Female turnover much higher than male turnover.

? 4/50 Partner candidates were women

2000? 14% of partners are

? Female and male turnover are equivalent.

? Overall turnover falls from 25% to 18% saving $250,000,000 in hiring and training costs

SOURCE: HBS Case and HBR article

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Deloitte & Touche Process

COMMIT INVESTIGATE &

? DEFINE THE EDUCATE PROBLEM ? TASK FORCE

? ESTABLISH TASK GATHERED DATA ON

FORCE TURNOVER, PROMOTION RATES,

? PERSONALLY CHECK QUALITY OF ATTENDANCE ASSIGNMENTS

? PERSONALLY CALL ? WORKSHOPS

OFFICES FOR DATA 100% ATTENDANCE OF 5000 PROFESSIONALS

TEACH CULTURE

CHALLENGE ASSUMPTIONS

SURFACE PRACTICES

CHANGE POLICIES

? “FLEXIBLE ACCOUNTABILITY”

MANAGERS HELD RESPONSIBLE FOR PROGRESS

(DIFFERENT THAN AFFIRMATIVE ACTION?)

? FORMAL CAREER PLANNING PROCESS

? NETWORKING EVENTS

? WORK/FAMILY POLICIES AND CULTURE

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Does MIT Discriminate?

? Women in Science

? Gender issues in the entire university

MIT’S STAGES

HUH?INDIVIDUAL FIXESSYSTEMIC FIXES

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MIT PROCESS

? SENIOR LEADERSHIP

? REPORT/PUBLICITY

? HIRING PRACTICES MONITORED

? FINANCIAL HIRING INCENTIVES

? WORK FAMILY POLICIES AND CLOCK

STOPPING

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DIVERSITY STRATEGIES

? STAFFING

recruitment

goals and timetables

succession planning

? TRAINING/CULTURAL CHANGE, SENIOR LEADERSHIP

? COMPLAINT MECHANISMS, EEO STAFF

? POLICIES, E.G. FLEX TIME, WORK/FAMILY

? AFFINITY GROUPS

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ORGANIZATIONAL CHANGE

? SENIOR LEADERSHIP

? MEASURE AND REWARD MANAGERS

? STAFFING PROCEDURES

RECRUITMENT/GOALS

POSTING, BIDDING

MENTORING

? WORK-FAMILY

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DOES A FIRM HAVE ANY

RESPONSIBILTY FOR

WORK-FAMILY ISSUES

AN EMPLOYEES

PERSONAL LIFE?

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MOVTIVATION FOR WORK-FAMILY

? IT’S THE RIGHT THING TO DO

? SOLVE ISSUES SUCH AS ABSENTEEISM

? BUILD LOYALITY AND COMMITMENT

? ATTRACT A PARTICULAR WORKFORCE PROFILE

? GARNER GOOD PUBLICITY

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MOTIVATION FOR WORK-FAMILY PROGRAMS

SOLVE ABSENTEEISM ETC. 41%

HELP RECRUIT KEY EMPLOYEES 41%

CHEAPER THAN WAGE INCREASE 19%

DEMONSTRATE THAN WE CARE 73%

Source: Osterman 1992

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WORK-FAMILY PROGRAMS

? DAY CARE ON SITE

? DAY CARE SUBSIDIES

? PAID PARENTAL LEAVE

? FLEXIBLE HOURS

? UNPAID PARENTAL LEAVE

? REFERRAL SERVICES

? SEMINARS

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SOME WORK-FAMILY COMPLICATIONS

? BACKLASH: WHAT TO DO FOR EMPLOYEES WITH NO WORK-FAMILY ISSUES (I WANT TWO WEEKS OFF TO GO MOUNTAIN CLIMBING)

? WHETHER WORKERS FEEL COMFORTABLE UTILIZING THE BENEFITS (ORGANIZATIONAL CULTURE)

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IS IT FAIR?

? IS IT WIN/WIN OR ARE THERE LOSERS?

? SHOULD POLICIES BE SHAPED TO INDIVIDUAL CIRCUMSTANCE OR SHOULD THE SAME RULES APPLY TO EVERYONE?

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MEANING OF MERIT

? SAME SKILLS, BACKGROUND, EXPERIENCE =SAME OUTCOME?

? WHAT COUNTS AND WHAT WEIGHTS ARE PLACED ON DIFFERENT ATTRIBUTES?

? WHERE DO SKILL, BACKGROUND, AND EXPERIENCE DIFFERENCES COME FROM?

? PROCESSES INTERNAL TO FIRM?

? “PRE-EMPLOYMENT”

? FAMILY CIRCUMSTANCES?

? DOES THE FIRM HAVE ANY RESPONSIBILITY?

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Eliciting Effort•Pay•Benefits•Promotion•Monitoring

-By Peers-By Management

•Culturewww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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15.660 Strategic Human Resource Management

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Our Goal for SHRM:

To understand the strategic issues in using Human Resources for sustainable competitive advantage and how to implement the changes necessary to achieve this. This requires that we be able to:

Think systematically and strategically about managing human assetsUnderstand what really needs to be done to implement these policies.

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HR Creating Value

Employees

Customers

Investors

•Morale•Commitment•Productivity•Competence

•Satisfaction•Loyalty•Commitment

How does HR affect profitability, cost, growth, cash flow, and margin?

Human Resource

ManagementPractices

Adapted from: David Ulrich, Human Resource Champions, p.247www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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“The War for Talent”

“In the new economy, competition is global, capital is abundant, ideas are developed quickly and cheaply, and people are willing to change jobs often. In that kind of environment… all that matters is talent… superior talent will be tomorrow’s prime source of competitive advantage.”

Chambers, E. et al. (1998)“The War for Talent.”McKinsey Quarterly, 2-15

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Case Studies

Southwest AirlinesPortman HotelMorgan StanleySlade CompanyNUMMISaturnServiceMaster John Snow Institute

Eastern AirlinesSafelight AutoglassVisionary Design SystemsSAS InstituteHarrah’s EntertainmentSpringfield ReManufacturingNordstrom

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Two Mysteries

How have these companies achieved extraordinary performance with people who are no different from those employed by the competition?If what they are doing is so understandable, why haven’t their competitors simply replicated them and achieved similar competitive advantages?

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Several Integrative Themes

The role of HR in the execution of strategy

The importance of alignment and consistency of HR with business strategy

The range of HR levers available to managers

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Organizational AlignmentExecutive Leadership• Model• Behavior• Symbolic action

Key Success Factors• What specific tasks haveto get done to implementthe strategy?

Strategy/Vision• What business are we in?• How will we compete?• What’s our vision ?

Human Resources• Do people have the

necessary competencies?• Are they motivated?

Culture• What are the norms,values, attitudes, andbehaviors needed?

Formal Organization• Structure? Controls?• Rewards? Careers?

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Strategic HR ConsistencyBusiness UnitStrategy/ Vision / Objectives • Products/Services• Customers/Markets• Technology• Timing Key Success Factors

1. 2. 3. 4. 5.

Degree of Alignment (- / 0 / + ) + 0 0 0 -+ + + 0 ++ + + 0 + + + - 0 -+ 0 - 0 -+ 0 - 0 00 0 0 0 0 + + - 0 0+ + - 0 +

Human Resource Levers• Vision\Purpose• Recruitment/Selection• Training/Development• Reward and Recognition• Careers/Promotions• Job Design/Teamwork• Measurement• Information Sharing• Culture

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Looking Back on the course….

Exposure to some intriguing HR practices

- Vision, values, and key success factors- Open Book Management (critical #s)- Team-based systems (social control)- Selection for “fit” as well as skills- Investing in people (intellectual capital)- Long-term employment vs. free agency- Psychological vs. financial ownership- Performance management

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HR’s RoleThe job of Human Resources is NOTprimarily to:

Keep the company out of courtEnforce rules and maintain consistency.Manage administrative processes.Tell people “No”.

HR’s job is to:Help build and reinforce the company’s values and culturePlay a leadership role in building capabilities that ensure the successful execution of business strategy.www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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“The most effective way to forge a wining team is to call on the player’s needs to connect with something larger than themselves.”

Phil JacksonFormer coach of the Chicago Bull, now coach of the L.A. Lakers

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References and Resources

James N. Baron and David M. Kreps. 2000. Strategic Human Resources: Frameworks for General Managers. New York: John Wiley & Sons.Roger Brown. 1986. Social Psychology, The Second Edition. New York, Free Press.Charles O'Reilly and Jeffrey Pfeffer. 2000. Hidden Value: How Great Companies Achieve Extraordinary Results With Ordinary People. Boston, MA: Harvard Business School Press.Jeffrey Pfeffer. 1988. The Human Equation: Building Profits by Putting People First. Boston, MA: Harvard Business School Press.David Nadler and Michael Tushman. 1998. Competing by Design: The Power of Organizational Architectures. New York: Oxford University Press.Michael Tushman and Charles O’Reilly. 1997. Winning through Innovation: A Practical Guide to Leading Organizational Change and Renewal. Boston, MA: Harvard Business School Press

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What value does HR add?What value does HR add?

“Nothing is more dangerous than a groupof people trained in the art of monitoringcompliance with rules, fluent in a languagethat does not include a word for ‘customer,’and who have time on their hands and arelooking for something to do.”

Thomas Stewart“Taking on the last bureaucracy”Fortune, June 15, 1996

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Lessons...

• Staff managers must think like operatingmanagers; i.e., they must understand thebusiness strategically and operationally.• To do this, they must be prepared todemonstrate their ability to add-value--this requires measurement and analysis(e.g., balanced score card, financial analysis).

• HR is a line management function; theonly activities that should be centralizedare those the line is willing to pay for.

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Surveys have also shown that the typical HR function spends their time on the following activities:

• 68% on administration and riskmanagement

• 10% assisting line management

• 22% developing employeeswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Typical Time Devoted to Various HR Activities

(65-75%)Transactional

Recruitment & SelectionTraining

Performance ManagementCompensation

Employee Relations

Knowledge managementStrategic Redirection & Renewal

Cultural ChangeManagement Development (5-15%)

Transformational

(15-30%)Traditional

Benefits AdministrationRecord Keeping

Employee Services

Source: P. Wright, S.Snell, and B. Gerhart, Strategic Human Resource Management: Building Human Capital and Organizational Capability. Technical Report. Cornell University, 1998.www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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HR Roles in Building Competitive AdvantageHR Roles in Building Competitive Advantage

Strategic FocusStrategic Focus

• Focus:Strategy Alignment

• Role:BusinessPartner

• Focus:ManagingChange

• Role:ChangeAgent

• Focus:Design of HRSystems

• Role:HR Expert

• Focus:Administer HRPrograms

• Role:EmployeeChampion

Operational FocusOperational Focus

PeoplePeopleProcessesProcesses

Source: Ulrichwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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What HR functions are strategic and shouldbe retained? What should be outsourced?What HR functions are strategic and shouldbe retained? What should be outsourced?

Retain Outsource

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Conclusion

Next Class:The Slade Plating Department

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Today’s Objectives

Extend our discussion of strategic human resource management to the non-profit sector.Get a broad overview of the distinctive challenges of managing in this sectorConsider the strategic and organizational challenges facing Joel Lamstein and JSI.

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What is a “Nonprofit”?

Contrary to popular perception, nonprofit organizations are permitted to generate a profit (a surplus of revenues over expenses.) They may not distribute this surplus to parties who have a controlling interest in the organization (i.e. officers, directors, or employees).Economic surplus must be used to further the approved nonprofit mission of the organization.

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A Brief List of Some Prominent Nonprofits:

American Cancer SocietyBlue Cross and Blue ShieldChildren’s Televisions Workshop Consumer Union Educational Testing ServiceHabitat for HumanityHarvard Business SchoolHarvard Community Health Care Plan

Nature Conservancy National Geographic SocietyNational Organization for WomenNational Rifle AssociationOutward BoundPlanned ParenthoodSave the ChildrenWang Performing Arts Center

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Tax Treatment and Government Regulation

Charitable OrganizationsIRS section 501(c)(3)

Purpose must be:“Religious Educational, Charitable, Scientific, Literary, Testing for Public Safety, to Foster National or International Amateur Sports Competition, or Prevention of Cruelty to Children or Animals.”

Some further distinctions:• Public foundations• Operating private foundations• Non-operating private foundations

Non-Charitable OrganizationsIRS section 501(c)(4)-(23)

Commonly referred to as “mutual benefit associations.”

• Exempt from income tax, but donations to them are generally not tax deductible.

• Generally not eligible for foundation grants

• Tend to be privately controlled

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Management Challenges of Nonprofits

Defining and Measuring SuccessAttracting and Motivating PeopleRaising FundsManagerial Control and AutonomyMission and Strategic Flexibility

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Alignment at JSI

Strategy Key Success Factors HR Practices

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Barriers to Imitation

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Concerns & Limitations?

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Professor M. Diane BurtonMIT Sloan School of Management

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How much say should workers be given concerning their work lives?

Should they be consulted about work practices?Should they be allowed to determine work practices?What about compensation practices?Should they be given a veto over large-scale layoffs or decisions to send work outside of the firm or overseas?Should they have a voice in major strategic decisions made by management?

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What is a Union?

An organization recognized by the National Labor Relations Board (NLRB), that has legal authority to negotiate with the employer on behalf of employees -- to improve wages, hours, and the condition of employment – and to administer the ensuing agreement.

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Why should we care?

3733U.K.

7339Argentina909France9029Germany

2424Japan1214United States

ContractCoverage

(% of total employment)

UnionMembership

(% of total employment)

Country

Source: International Labour Office, World Labour Report (Geneva, Switzerland)www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Reasons to care

Unionization rates in manufacturing industries are substantially higherFirms face the “threat” of unionizationUnionization rates shift over timeU.S. is an outlierCollective bargaining agreements extend to non-union members

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What do unions do?

Increase wages and benefitsDecrease turnoverPreserve existing employee rightsImplement formalized work rulesInstitute grievance procedures Enhance productivity and efficiencyLower profitability

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What do unions do?

On average, unions create a bigger pie to be split between workers and owners.

But, on average, the slice of the pie taken by unionized workers is so much bigger than the slice taken by non-unionized workers, that the owners in a union setting are left with a smaller absolute slice.

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What would a manager want a union?

Jim Casey, founder of United Parcel Service, invited the Teamsters to organize his firm.

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Potential Benefits of Unionization

Enhanced communication and coordinationDepersonalized interactions between constituenciesIncreased trustworthiness on both sides based on reputation concernsPotential for cooperative relationships with most senior and stable employees

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“Cooperative agreements are particularly fragile. A lot of times when they break down it’s not because of new economic circumstances. An individual can make a difference – a new plant manager, a new local president.”

Douglas FraserPast PresidentUnited Auto Workers

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American Labor Relations

New Deal (1930s-1970s)Workplace: narrow job definitions, grievance proceduresCollective Bargaining: “bread and butter issues” Strategy: Left entirely to management--outside the influence of workers and unions

Transformation (1980s)Workplace: participation, teams, quality, flexibilityCollective Bargaining: work rule flexibility, job security; new pay systemsStrategy: Info sharing, consultation, joint governance, employee ownership

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Exemplars

SaturnNUMMISouthwest Airlines

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Eastern Airlines

Founded in 1938Long history of antagonistic labor relationsUses debt to fund expansion1978 – Deregulation – “The War Years”Early 80s -- labor and management cooperationAcquired by Texas Air in 1986 for $660 millionMechanics strike, March 1989Liquidated in 1990

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Freeman and RogersWhat Workers Want

Nationally representative survey of employees

Conducted in 1994N=230818+, PRIVATE SECTOR, FIRMS OVER 25 EMPLOYEES, ALL BUT TOP MANAGEMENTREPRESENTS 75% OF PRIVATE SECTOR WORKERS

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EMPLOYEE/MANAGEMENT RELATIONS

101520253035404550

EXCELLENT GOOD FAIR POOR

Source: Freeman and Rogers

percent

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FEEL LOYALITY TO FIRM

LOT SOME LITTLE NONE

percent

Source: Freeman and Rogerswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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SATISFIED WITH AMOUNT OF INFLUENCE

VERY SOMEWHAT NOT TOO NOT AT ALL

percent

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WANT MORE INFLUENCE

MORE AS NOW LESSSource: Freeman and Rogers

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DK 8 7

MORE POWER, MANAGEMENT OPPOSES 22 23

SOURCE: FREEMAN AND ROGERS

PREFERED TYPE OF EMPLOYEE ORGANIZATION

ALL UNION MEMBERS

NO POWER, MANAGEMENT COOPERATES 63% 65%

NONE 7 5

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REPORT CARD FOR MANAGERS

101520253035404550

A B C D F

knowledge of businessleadershipconcern for employeesfair paypower sharing

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VOTE FOR UNION

UNION MEMBERS

YES 90%NO 8DK 2

NON-UNION

YES 32%NO 55DK 13

TOTAL UNION VOTE 44%

SOURCE: Freeman and Rogerswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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MANAGERIAL ATTITUDES IN NON-UNION FI RMS

WOULD OPPOSE UNIONS 53%

WOULDN’T CARE 27

WOULD SUPPORT UNIONIZATION 15

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MANAGERIAL ATTITUDES IN UNIONIZED FIRMS

UNIONS IMPROVE EMPLOYEES’ LIVES 64%

UNIONS HURT PREFORMANCE A LOT 8%UNIONS HURT PERFORMANCE A LITTLE 25UNIONS HELP PERFORMANCE A LITTLE 8UNIONS HELP PERFORMANCE A LOT 19NO EFFECT 40

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Our Goal for SHRM:

To understand the strategic issues in using Human Resources for sustainable competitive advantage and how to implement the changes necessary to achieve this. This requires that we be able to:

• Think systematically and strategically about managing human assets

• Understand what really needs to be done to implement these policies.

WWW.BSSVE.IN

HR Creating Value

Employees

Customers

Investors

•Morale•Commitment•Productivity•Competence

•Satisfaction•Loyalty•Commitment

How does HR affect profitability, cost, growth, cash flow, and margin?

Human Resource

ManagementPractices

Adapted from: David Ulrich, Human Resource Champions, p.247www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

WWW.BSSVE.IN

“The War for Talent”

“In the new economy, competition is global, capital is abundant, ideas are developed quickly and cheaply, and people are willing to change jobs often. In that kind of environment… all that matters is talent… superior talent will be tomorrow’s prime source of competitive advantage.”

Chambers, E. et al. (1998)“The War for Talent.”McKinsey Quarterly, 2-15

WWW.BSSVE.IN

Extraordinary People, Ordinary Performance?

PerformanceExtraordinary Ordinary

??Extraordinary

Quality of People

Ordinary

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Case Studies

Southwest AirlinesPortman HotelMorgan StanleySlade CompanyNUMMISaturnServiceMaster John Snow Institute

Eastern AirlinesSafelight AutoglassVisionary Design SystemsSAS InstituteHarrah’s EntertainmentSpringfield ReManufacturingNordstrom

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Ordinary People, Extraordinary Performance?

PerformanceExtraordinary Ordinary

Extraordinary

Quality of People

Ordinary

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Two Mysteries

How have these companies achieved extraordinary performance with people who are no different from those employed by the competition?If what they are doing is so understandable, why haven’t their competitors simply replicated them and achieved similar competitive advantages?

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HR is about the Execution of Strategy

“The competitive difference isnot in deciding what to do,but in how to do it. Executionbecomes paramount.”

Larry BossidyCEO Allied-Signal

“I could leave our strategic plan on a plane and it wouldn’t make any difference. No one could execute it. Our success has nothing to do with planning. It has to do with execution.”

Dick KovacevichCEO Norwest

“I spend a lot of time talking about values rather than trying to figure out business strategies... Execution is what spells the difference between success and failure.”

Lew PlattCEO HP

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Competitive Advantage through People

A worldwide study of the automobile industry showed that people-centered practices were associated with almost twice the productivity and quality as conventional mass production.

Similar studies in steel, apparel, semiconductors, and oil refining industries reveal similar positive effects for people-centered practices.

A study of IPOs among 136 firms showed that people-centered practices were associated with a 42% higher survival rate.

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Top Performing Stocks: 1972-1992

Company Percent Increase

Southwest Airlines 21,775%

Wal-Mart 19,807%

Tyson Foods 18,118%

Circuit City 16,410%

Plenum Publishing 15,689%Money, October, 1992

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“I’ve tried to create a culture of caring for people in the totality of their lives, not just at work. There’s no magic formula. It’s like building a giant mosaic--it takes thousands of little pieces…The intangibles are more important than the tangibles. Someone can go out and buy airplanes from Boeing and ticket counters, but they can’t buy our culture, our esprit de corps.”

Herb KelleherCEO SouthwestWSJ 8/31/99www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Organizational AlignmentExecutive Leadership• Model• Behavior• Symbolic action

Key Success Factors• What specific tasks haveto get done to implementthe strategy?

Strategy/Vision• What business are we in?• How will we compete?• What’s our vision ?

Human Resources• Do people have the

necessary competencies?• Are they motivated?

Culture• What are the norms,values, attitudes, andbehaviors needed?

Formal Organization• Structure? Controls?• Rewards? Careers?

WWW.BSSVE.IN

Strategic HR ConsistencyBusiness UnitStrategy/ Vision / Objectives • Products/Services• Customers/Markets• Technology• Timing Key Success Factors

1. 2. 3. 4. 5.

Degree of Alignment (- / 0 / + ) + 0 0 0 -+ + + 0 ++ + + 0 + + + - 0 -+ 0 - 0 -+ 0 - 0 00 0 0 0 0 + + - 0 0+ + - 0 +

Human Resource Levers• Vision\Purpose• Recruitment/Selection• Training/Development• Reward and Recognition• Careers/Promotions• Job Design/Teamwork• Measurement• Information Sharing• Culture

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The range of HR levers available to managers

WWW.BSSVE.IN

Looking Back on the course….

Exposure to some intriguing HR practices

- Vision, values, and key success factors- Open Book Management (critical #s)- Team-based systems (social control)- Selection for “fit” as well as skills- Investing in people (intellectual capital)- Long-term employment vs. free agency- Psychological vs. financial ownership- Performance management

WWW.BSSVE.IN

HR and Competitive Advantage

• The bad news: It’s not easy to do. The good news: It’s hard to imitate.

• The HR levers for competitive advantageare identifiable. The only issue is whetherwe consciously manage them.

To do this effectively requires us to thinkabout motivation in a non-intuitive way.

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Conventional Model of Motivation

As individuals we have

ValuesInterestsNeeds

Personality

ExpectationsGoals

AttitudesFeelings

Consistentchoices and

behavior

Personality Attitudes Behavior

This approach:• Fits our intuition• Makes us feel good• Doesn’t work very well

These shape our

Which lead to

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Brigham Young University Study

Visible 90%

Not Visible 16%

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Stanford University Prison Experiment

“I was surprised at myself... I made themcall each other names and clean the toilet out with their bare hands. I practically con-sidered the prisoners cattle...”

“I was tired of seeing the prisoners in theirrags and smelling them. I watched themtear at each other on orders given by us.”

Stanford students actingas guards in Zimbardo’s experiment

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Milgram Obedience Study

Question:What proportion of a groupof normal adults wouldvoluntarily deliver what theybelieved to be a fatal electricshock to another human being?

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The Fundamental Attribution Error

When we watch people behave, we tend to “see”their behavior as being “caused” by somethingabout their personality or dispositions.

When we explain our own behavior, we are far more conscious of the pressure of the situation (e.g.,deadlines, rewards, the opinions of others.)

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An Alternative Model of MotivationWe work in settings with

Which get us focused on

Which shape our

StrategiesStructures

Reward systemsLeaders

Specific tasksSubunit objectivesSalient information

Coworkers

ExpectationsChoices

InterpretationsBehavior

This approach is• less intuitive• more useful to managers• more powerful

Attitudes Behavior Context

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What really “explains” behavior?

Attitudesand

Behavior

What we observe

What we don’t “see”because of our focuson the individual

Rewards

Background

OrganizationalCulture

SituationalPressures

Personality

Valuesand Beliefs

What our intuition says that drives behavior

Demographics

These can be managedonly through selection

These can be managedby designing the contextwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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The Social Construction of Reality

“Three people were at work on a constructionsite. All were doing the same job, but wheneach was asked what his job was, the answers varied. ‘Breaking rocks,’ the first replied. ‘Earning my living,’ said the second.

‘Helping to build a cathedral,’ said the third,”

Peter SchutzFormer CEOPorsche

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HR Levers to Manage Context

Context

Vision, Values

Recruitment and Selection

Participation &Involvement

Teams/Job Design

Training andDevelopment

SymbolicManagement

PsychologicalOwnership

Long-TermPerspective

Compensation

Rewards andRecognition

InformationSharing

Measurement

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Conventional View of Strategy

What business are we in?How will we compete?Strategy

Key Success Factors

Marketing, manufacturing,finance, HR, etc.Functional Strategies

What critical tasks must get done to execute the strategy?

Design practices and systems(recruitment and selection,performance management,

Training and development, etc.)

Organizational Alignment

Monitor alignment andcomplianceSenior Management Role

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A Values-Based View of Strategy• What are our basic principles?

• What do we believe in?Fundamental values or beliefs

• What policies and practicesare consistent with these values?

Design management practicesthat reflect and embody these values

• What can we do for the customerbetter than our competitors?

Use these to build core capabilities

• Given our capabilities, how can we deliver value to customers in

a way our competitors cannoteasily imitate?

Invent a strategy consistent withthe values using capabilities to

compete in new and unusual ways

• Manage the values and culture of the firm.Senior Management’s Rolewww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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All Organizations Have “Values”

“Business people don’t like to talk about values. But without these, all business is about is making money. To me, achieving business goals is great. But no business goal is worth sacrificing your values…You can build an organization based on mutual loyalty, even in today’s economy. But you can’t do it if you treat people as disposable.”

Pat KellyCEO, PSS World

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What are the values of this organization?

Career resilienceEmployment at will“Buy” rather than “Make”Lean staffingPeriodic downsizingOutsourcingIndividual incentivesPay-for-performanceWage dispersionShareholder value first and last

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Values-based Organizations

“These organizations place less emphasis on following a clear strategy than on building a rich, engaging corporate purpose…focus less on formal structural design and more on effective management processes…and are less concerned with controlling employees’ behavior than with developing their capabilities. Such a transformation can start only with top management.”

Chris Bartlett and Sumantra Ghoshalwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Value-based Practices

Values and culture come first.Hiring for fit.Investment and opportunities for all people in the company.Widespread information sharing of operational and financial data.Reliance on teams and involvement.Emphasis on equity and non-monetary rewards.Leaders, not managers.

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Two Bases of “Ownership”

Financial OwnershipYes No

Southwest ServiceMasterSAS InstituteNUMMI

Traditional Companies

Many High Tech Firms

PsychologicalOwnership

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HR’s RoleThe job of Human Resources is NOTprimarily to:

• Keep the company out of court• Enforce rules and maintain consistency.• Manage administrative processes.• Tell people “No”.

HR’s job is to:• Help build and reinforce the company’s values and

culture• Play a leadership role in building capabilities that

ensure the successful execution of business strategy.

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“The most effective way to forge a wining team is to call on the player’s needs to connect with something larger than themselves.”

Phil JacksonFormer coach of the Chicago Bull, now coach of the L.A. Lakers

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References and Resources

James N. Baron and David M. Kreps. 2000. Strategic Human Resources: Frameworks for General Managers. New York: John Wiley & Sons.Roger Brown. 1986. Social Psychology, The Second Edition. New York, Free Press.Charles O'Reilly and Jeffrey Pfeffer. 2000. Hidden Value: How Great Companies Achieve Extraordinary Results With Ordinary People. Boston, MA: Harvard Business School Press.Jeffrey Pfeffer. 1988. The Human Equation: Building Profits by Putting People First. Boston, MA: Harvard Business School Press.David Nadler and Michael Tushman. 1998. Competing by Design: The Power of Organizational Architectures. New York: Oxford University Press.Michael Tushman and Charles O’Reilly. 1997. Winning through Innovation: A Practical Guide to Leading Organizational Change and Renewal. Boston, MA: Harvard Business School Press.

Note: This presentation draws heavily from lectures given by Professor Charles O’Reilly in an MBA course, “Strategic Human Resource Management” given at the Harvard Business School in 1999-2000. Professor O’Reilly is a faculty member at the Stanford Graduate School of Business.

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Fred ReichheldDirector, BainThe Loyalty EffectHBS Press, 1996

The Loyalty Effect...

• A consulting study of a trucking company showed that reducing driver turnover 50% could increaseprofits by 50%

• A study of brokerage companies showed that increasing broker retention by 10% increased broker value by 155%.

• A study of retail stores showed that stores in the topthird of employee retention were also in the top thirdin productivity with 22% higher sales per employee.

• Fast food stores with low turnover had profit margins50 % higher than stores with high turnover.www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Why Long-Term Employees Create Value

1. Training: Wages paid during the training period yield little or no return. For long-term employees,training becomes a net benefit.

2. Efficiency: Long-term employees are more efficient,require less supervision, and may be more motivated.

3. Customers: Loyal employees are better at identifying,serving, and retaining the best customers. They areoften a major source customer referrals.

4. Employee Referral: Long-term employees often generatethe best flow of high-caliber job applicants.

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Objectives

• Apply and integrate the course materialin an analysis and discussion of theMorgan Stanley case today.

• Consider what and how John Mackshould proceed in implementing hisnew strategy and vision for Morgan…with special attention to the alignmentand consistency of HR levers.

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Questions

Why does Mack want a “one-firm firm”?What would a “one-firm firm” look like?What is different?

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Morgan Stanley Mission Statement

Our goal is to be the world’s best investment bank and the firm of choice for our clients, our people, and our shareholders.

We will succeed by meeting the global needs of our clients -- both providers and users of capital -- at a level of performance which is exceptional. This commitment to add maximum value will be characterized by extraordinary effort and innovation, and by conducting ourselves with absolute integrity.

Morgan Stanley’s people are the source of our competitive advantage. We will distinguish ourselves by creating an environment that fosters teamwork and innovation, by developing and utilizing our employees’ abilities to the fullest, and by treating each other with respect and dignity.

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Goals for the new performance system

Enhance the professional development of all employees.Achieve greater objectivity and fairness, and base performance evaluation on explicit performance criteria that broadly define desired behavior.Increase real-time feedback.Recognize superior, long-term professional performance.Provide the primary basis for annual compensation and promotion decisions.Provide more substantive annual performance appraisals.Encourage teamwork.Increase cross-departmental and cross-divisional feedback.Increase the consistency and confidentiality of the process.

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Mini-lecture

Performance Appraisal Systems

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Deming on Performance Ratings

Performance evaluations leave “people bitter, despondent, dejected, some even depressed, all unfit for work for weeks after rating, unable to comprehend why they are inferior. It is unfair, as it ascribes to the people in a group differences that may be caused totally by the system that they work in... People ask how I grade my students. I give them all an ‘A.’ How do I know who will be great? How do I know what they will do in future years?”

Do you agree with him?Do you agree with him?www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Purposes of Performance Appraisal

Communicate strategy, values, expectations.Build the cultureEvaluation

Current job (e.g., salary and bonus)Future jobs (e.g., promotion)

Development and FeedbackLegal defense

Hiring and promotion decisionsValidation

Equity and fairnesswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Problems in Performance Rating

HaloStereotypesOverweight negative informationLack of sufficient observationMemory: primacy / recencyLeniencyCentral tendencyJustification for salaryAbility to write

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PerformanceManagementSystem

Trait Ratings

Global rating

Forced Ranking

BARS / BES

360 Degree

Pros Cons

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Evaluating Rating Formats

Rating FormatsTrait Forced BARS MBO 360Rating Ranking Degree

1. Acceptability, poor poor good good veryfeedback good

2. Appropriate fair good good good goodfor Rewards

3. Accuracy, poor fair good good very Validity good

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360 degree feedback

PeersPeers

FocalPersonFocal

Person

InternalCustomersInternal

CustomersExternal

Customers

BossBoss Self-Appraisal

Self-Appraisal

SubordinatesSubordinateswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Companies Using 360º Systems

AlcoaAmerican AirlinesAT&TAmerican ExpressBoeingGeneral ElectricGlaxoGeneral MillsHewlett-PackardIntelMonsanto

MerckHerman MillerJ.P. MorganMorgan StanleyMotorolaProcter & GambleLevi Strauss3MUPSFedExCompaq

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Benefits of 360 degree appraisal

Validity and accuracyBetter acceptance by people ratedPromotes equityLegal protectionDiversityUseful when spans of control are largeBetter for knowledge workersMore appropriate for team-based systemAppropriate for empowered cultures

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Common Pitfalls

Lack of safeguardsOver-reliance on technologyAdministrative overheadIncongruence with the cultureIncongruence with other systemsCronyism in selection of ratersLack of trainingLack of supervision and follow upResults in too much dataNot linked to key success factors

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Some Issues to Resolve

What’s the purpose (feedback, rewards)?How are the raters selected?Who sees the results?How is rater anonymity protected?What dimensions are evaluated?

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Guidelines for Effective Performance Appraisal

Make sure the performance rating process is strategically useful; i.e., based on the key success factors needed for execution. Involve those being rated in the development of the rating scheme.Insure that the process is related to job performance and meets legal requirements.Train the raters on evaluation and feedback.

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Legally Defensible Performance Appraisal

Standards should be based on job analysis.Standards communicated to employees.Evaluations based on specific dimensions.Dimensions defined in behavioral terms and supported by objective, observable evidence.Raters should be trained and valid.When possible, more than one rater is used.Appraisal fits the cycle of work.Documentation of extreme ratings is done.Formal appeal process is available.

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Conclusion

Next Class:Rob Parson at Morgan Stanley

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References & ResourcesThe Investment Banking Industry• Eccles, Robert G. and Dwight B. Crane. Doing Deals: Investment Banks at Work. Harvard Business

Scool Press, 1988.• Lewis, Michael. Liar’s Poker. NY: Penguin Books, 1989.• Partnoy, Frank. F.I.A.S.C.O.:Blood in the Water on Wall Street. 1997. N.Y.: W.W. Norton &

Company

Performance Appraisal• Kevin R. Murphy and Jeanette N. Cleveland, Understanding Performance Appraisal: Social,

Organizational, and Goal-Based Perspectives (Thousand Oaks, CA: Sage Publications), 1995. • Lepsinger, R. and A. D. Lucia (1997). The Art and Science of 360-degree Feedback. San Francisco,

Pfeiffer.

Also, most human resource management text books devote a chapter to performance appraisal. • Baron, J. N. and D. M. Kreps (1998). Strategic Human Resources: Frameworks for General

Managers. New York, John Wiley & Sons. • George T. Milkovich and John W. Boudreau, Human Resource Management, 8th Edition (Chicago:

Irwin), 1997.• Susan E. Jackson and Randall S. Schuler, Managing Human Resources: A Partnership Perspective, 7th

Edition (Cincinnati: Southwestern College Publishing), 2000.

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The Retail Industry

About 16% of the U.S. work force works in retail.During the period 1948-1992, real wages in retailing declined from from 91% to 62% of the national average.As an industry, retailing is plagued by high turnover, few benefits, and the extensive use of part-time employees.

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“All retailers in America have awakened to the Nordstrom threat and are struggling to catch up. Nordstrom is the future of retailing… [It] is the most Darwinian of retail companies today.”

New York Times, August 27, 1989

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Retail Comparison

Sales per gross square foot of store area

Gross profit per gross square foot of store area

Expenses as a percentage of sales

Macy’s $203.80 $61.10 26.3%

Dillard 138.00 44.50 24.7

Federated 165.00 47.00 24.7

May 171.00 48.90 20.4

Nordstrom 388.40 117.60 25.1

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The retail worker in the United States is somebody who often came from a dysfunctional home… somebody who didn’t do well in school, who basically told the teachers in one way or another to go to hell.”

Charlie BresslerEVP, The Men’s Wearhouse

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Measurement System

Nordstrom carefully evaluates salespeople on their sales-per-hour (SPH) ratio.

Each employee has a target SPH ration – a quota – based on hourly wage and store department.Actual SPH for the past two weeks – sales, minus merchandise returned by customers, divided by hours worked – appears on each pay stub.If actual SPH is higher than target SPH, employee is paid 6.75 % to 10% on net sales.If SPH is below target, employee is paid the base hourly wage.Failure to meet SPH often results in decreased hours, or in some cases, termination.Meeting or surpassing the target SPH means more working hours –including better hours when the shopping is heavier – and a better chance of promotion to a department manager job.

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Diagnostic Control Systems

Measure a critical performance variable for the firm.Allow managers to set ex ante targets or standardsAllow the organization to measure outputs

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Impact of SPH

“There is pressure on managers to get people with the biggest SPH in the the most hours. You’re not told that if you don’t go off the clock, you’ll get your hours cut. It becomes an inferred thing. The more you sell per hour, the more hours you get.”

Nordstrom employee speaking only after being guaranteed anonymity. HBS Case #191-002www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Nordstrom: American Dream, or American Nightmare?

Great Service through FearLocal 1001 publicity campaignWashington State union complaintNLRB chargesShareholder class action suitEmployee class action suitWSJ front page story60 Minutes TV story

Entrepreneurship in ActionHighest retail sales productivityEarnings > $80,000Compound growth in sales, earningsHighly educated & motivated workforce

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Two ways of managing

TraditionalNarrow job definitionsHire/FireAdversarial atmosphereManagers think, employees executeNo employee role in governance

High PerformanceFlexible jobsTeamsJoint Problem SolvingEmployee participation in decision-makingHigh levels of training

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Case Discussion

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• NUMMI produces an average of 87 cars/worker vs. approximately 50 for Saturn and Buick City,General Motors’ most productive plants.

• Since 1983, General Motors has spent over $80billion on automation to improve the quality andproductivity of their manufacturing plants.

• In 1998, a 58-day strike at G.M. idled 200,000workers and cost the company an estimated$2.5 billion.

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NUMMI Compared with Other Auto Plants (1986)

Source: John Krafcik, “Triumph of the Lean Production System”, Sloan Management Review, 1988, Volume 3, pp. 144-52.

7.3116.534.2GM, Massachusetts

100.0137.433.7GM, Michigan

79.663.015.6Toyota, Japan

62.869.019.0NUMMI, California

89.270.024.5Nissan, Tennessee

77.072.019.2Honda, Ohio

Automation Level(0=none)

Quality(Defects/100 Units

Productivity(Hours/Unit)

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Toyota’s Commitment to Learning

“All the organizations we studied that aremanaged according to the Toyota ProductionSystem share an overarching belief thatpeople are the most significant corporateassets and that investments in theirknowledge and skills are necessary tobuild competitiveness.”

Steven Spear & Kent BowenHarvard Business ReviewSeptember-October, 1999

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Training in World Auto Plants

Ownership/ Location

Training Hours: First 6 Months for

New Workers

Training Hours per Year: Workers with >1 Year

Experience

Japanese/Japan 364 76 Japanese/North America

225 52

U. S./North America

U. S./Europe 43 34 European/Europe 178 52 Newly Industrialized Countries

260 46

Australia 40 15 SOURCE: MacDuffie and Kochan, Industrial Relations, 1995, p. 156 www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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From the NUMMI Team Handbook

Our HR philosophy guides us in the development of our full human potential to enable us to build the highest quality automobiles at the lowest possible cost by:

• Recognizing our worth and dignity• Developing our individual performance• Developing our team performance• Improving our work environment

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NUMMI’s Core Values

• Customer Satisfaction (quality and cost)• Dignity• Trust• Teamwork• Consistency• Frugality• Continuous Improvement• Simplicity• Harmony

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Mini-Lecture

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Effective Use of Team-Based Systems

What is a team-based system?Costs and benefits of using teams?What is the leader’s role in a team-based organization?What skills are needed for teams to function effectively?How can you introduce a team-based system?Overall lessons learned?

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What is a Team?

A team is a small number of peoplewith complementary skills who arecommitted to a common purpose,performance goals, and approachfor which they hold themselvesmutually accountable.

John Katzenbach and Douglas Smith, McKinsey & CompanyThe Wisdom of TeamsHarvard Business School Press, 1993

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Working Groups Versus TeamsWORKING GROUP

Strong, clearly-focused leaderIndividual accountability

Group’s purpose is same as the organization’sIndividual work productsRuns efficient meetings

Measures performance in terms of larger firmDiscusses, decides, and delegates

TEAMShared leadership rolesIndividual and mutual accountabilitySpecific purpose for which the team is responsibleCollective work productsOpen-ended meetings for problem-solving

Performance measured on team productsDiscuss, decide, and work together

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Common Team Responsibilities

Quality improvement 100%Cross-training 85%Scheduling (Production) 80%Safety 70%Process improvement 70%Measurement/goal-setting 75%Budget/expense control 50%Selection 55%Coordination with others 50%Customers and suppliers 60%Performance appraisal 50%

Manz and Sims (1993)

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Costs/Benefits of Using Teams

BenefitsBring together complementary skills and experiencesProvides for flexibilitySocial benefits: fun, commitmentLess resistant to change

CostsCoordination costsPersonal discomfort and conflictDiffusion of responsibility (free-riders and social loafing)Risk seeking

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What is the role of the leader in a team-based system?

• Ask questions• Get the group to solve problems• Promote real participation• Help resolve conflict• Train others• Positive reinforcement• Encourage high performance goals• Encourage self-evaluation• Tell the truth, even when it’s disagreeable• Liaison with higher management

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What Effective Team Leaders Do

Keep purpose, goals, and approach relevant and meaningfulBuild commitment and confidenceManage the level and mix of skillsManage relationships with outsidersCreate opportunities for othersDo real work

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Team Development

Start - upStart - up

= SupervisorS

Mature

Experienced

TransitionalC. Manz & H. SimsBusiness Without BossesJohn Wiley, 1993

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What types of skills and training are required for a team-based system?

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Training for Team Effectiveness

Meeting skills, time managementConflict managementProblem-solving, TQMGroup dynamics, team buildingChange managementCoaching and feedbackBusiness knowledge (e.g., customer service) Technical skills

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Evidence on Team Effectiveness

Cost savings (labor, materials) Productivity QualityCustomer serviceSpeed and cycle timeInnovationSafetyDecreased absenteeism and turnoverDecreased worker’s compensation claims

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Pros and Cons of a Team-Based Approach?Pros and Cons of a Team-Based Approach?

Pros Cons

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Lessons Learned:Implementing Team-based Systems

HighPerformance

RealTeam

Working Group

Psuedo-Team

PotentialTeam

Impact

Team Performancewww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Some Lessons Learned the Hard Way

Organizations often expect too much, too soon.Things often get worse before they get better.Managers and supervisors are threatened.A new perspective on leadership is required. Need to begin with a clear philosophy and purpose.Technical people often see themselves as losers.Implementation needs careful planning.Employees need technical and behavioral skills.Greenfield sites are easier than retrofits.Continuous training is essential.Stability is crucial; turnover is deadly.May need new systems - especially MIS.Facilitation can help at the beginning.www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Takeaways

Teams need to be driven by a clear vision and purpose--why are we using them?Training and group process skills are important for groups to succeed.Team-based organizations need team-based systems, culture, and leadership--not just structure.

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Another Example

Saturn

Source: Rubenstein and Kochanwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Situating Saturn

Grew out of GM-UAW 1980s workplace experiments with QWL, teams, NUMMIGM couldn’t build small cars profitablyHigh level of trust built up between UAW leader Don Ephlin & GM’s Al WarrenBoth willing to champion a new approach

Most far-reaching & controversial labor relations & org. design experiment in the U.S of the past quarter century

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Saturn’s Evolution

1990-1996: Great customer reaction & high satisfactionProfits and Productivity--varied with volume“A new kind of union” adding value

1996-99:Delays & conflicts over new productsWilmington plant opensDifficult negotiations of decision-making & performance pay.

2000: New Company & Union LeadershipCurrent challenge:

How to be more integrated in GM and yet retain sufficient independence to sustain the partnership and its competitive advantage.

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Lecture

High Performance Work Systems

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Adopting High Performance Work Systems

CHARACTERISTICS OF INNOVATORSYOUNGERCOMPETE INTERNATIONALLYPART OF LARGER ORGANIZATIONHIGH SKILLS TECHNOLOGYEMPLOYEE ORIENTED VALUES“HIGH ROAD”

SUPPORTING HUMAN RESOURCE PRACTICESPAY FOR SKILLGAIN SHARINGPROFIT SHARINGHUMAN RESOURCE DEPARTMENT IMPORTANTTRAINING

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HIGH PERFORMANCE WORK SYSTEMS 1997

QualityCircles

Rotation Teams Two ofThree

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PERSISTENCE OF WORK SYSTEMS

1997 1992

YES NO

YES 77.7% 22.3%NO 49.5% 50.5%

Source: Osterman, Industrial and Labor Relations Review, January 2000

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GAINS FROM TRADITIONAL ORGANIZATION

Economies of scale from long standardized runsControl/PredictabilityMinimum trainingLess organizational disruption

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POTENTIAL SOURCE OF GAINS

Tap into workforce ideas and creativityBuild commitment and effortMore nimble/flexibleEliminate layers (e.g. quality supervisors)Speed up and peer pressure

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BARRIERS

Constituencies resistTeams are hard to createSkepticism of capital marketsSmall and medium firms lack time and resources

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QUESTIONS TO ASK IN MAKING CHOICE

How standardized or predictable is the environment?How flexible is the production technology?What does it take to recruit and retain employees? Do employees have requisite skills or can they be trained?How willing are you to create organizational disruption?

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Key Measurement Issues

Definitions of TermsMail/Phone/In-person SurveysSampling Frame of EmployersSampling Frame of OccupationsPenetration RateReport Fraction of Employers or Fraction of EmployeesResponse Rate and Bias

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Issues in Assessing Performance

Unit of AnalysisGroup, Process, Establishment, Firm, Industry, Economy

Performance MetricTime Period of MeasurementAdditional ControlsContingency PerspectiveSelections Bias and Fixed EffectsDirection of Causality

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AUTO STUDY METHODOLOGY

62 ASSEMBLY PLANTS, 1990WORK SYSTEMS: TEAMS, EI GROUPS, JOB ROTATION, SUGGESTIONS RECEIVED AND IMPLEMENTEDHRM POLICIES: HIRING CRITERIA(EXTENT OF OPENNESS TO NEW SKILLS), CONTINGENT COMPENSATION, TRAINING, STATUS BARRIERS

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AUTO STUDY METHODOLOGY

OTHER CONTROLS: PRODUCT COMPLEXITY, AUTOMATION, USE OF BUFFERS, “JAPAN EFFECT”

OUTCOMES: HOURS PER VEHICLE, DEFECTS PER 100 VEHICLES

Source: MacDuffie

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GAINS FROM NUMMI

FREMONT NUMMI TAKAOKA

1978 1986 1986

PRODUCTIVITY 43.1 20.8 18.0

CONSUMER REPORTS RELIABILITY INDEX 2.6-3.0 3.6-3.8 3.8-4.0

Source: Krafcikwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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CORRELATIONS OF PRODUCTIVITY AND QUALITY:AUTOS

PRODUCTIVITY QUALITY

WORK SYSTEMS .50 .50

HRM POLICIES .43 .67

Source: MacDuffiewww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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PRODUCTIVITY AND QUALITY: AUTOS

REGRESSIONS SUPPORT CORRELATIONS

INTERACTION (BUNDLES) OF HRM/WORK ORGANIZATION ARE MOST POWERFUL PREDICTORS

Source: MacDuffie

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WORK ORGANIZATION AND PRODUCTIVITY IN STEEL : I

OUTCOME: PERCENT UP-TIMESAMPLE: MONTHLY OBSERVATIONS ON 36 FINISHING LINES IN 17 PLANTS WITH STANDARD PRODUCTHR VARIABLES: TEAMS, HIRING, ROTATION, TRAINING, EMPLOYMENT SECURITY, SECURITYCONTROLS: VINTAGE, CAPITAL TYPE

Source: Ichniowski, Shaw and Prennushiwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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WORK ORGANIZATION AND PRODUCTIVITY IN STEEL:II

METHOD: CLUSTERED HR PRACTICES INTO FOUR GROUPS, FROM MOST TO LEAST TRADITIONALESTIMATED CROSS SECTION AND FIXED EFFECT REGRESSIONS

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WORK ORGANIZATION AND PRODUCTIVITY IN STEEL:III

MOST TRADITIONAL: UPTIME= 88%

MOST TRANSFORMED: UPTIME=98%

A MOVE FROM LEVEL 2 TO LEVEL 4 MAINTAINED FOR TEN YEARS=$10 MILLION

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WORK ORGANIZATION OF CUSTOMER SERVICE REPRESENTATIVES IN

TELECOMMUNICATIONS

SAMPLE OF TEAMS AND TRADITIONAL CSRS IN ONE FIRM

HELD CONSTANT PERSONAL CHARACTERISTICS

Source: Battwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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RESULTS FOR CSR’S

TRADITIONAL TEAMS

AVERAGE MONTHLY

SALES $5010 5783

% OBJECTIVES MET 104% 108%

Source:Batt

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Conclusion

Next Class:The HR Function

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Why a course in Human Resources?

Managing people is a central challenge in every organization.All managers need to understand the strategic, general management perspective on HR.HR integrates other core courses

Organizational ProcessesStrategy Economics

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Mechanics of the Course

Grading: 40% Class Participation

20% Case Write-ups

40% Final Quiz

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A Brief Review of Strategy

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Sources of Sustainable Competitive Advantage

Valuable to the firm in that it exploits weaknesses or neutralizes threatsMust be rare among competitorsMust be difficult for competitors to imitateMust not be easily substitutable

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The New Competitive Environment

Shortened product life-cyclesErosion of patent protectionDecreased regulation and protected marketsIncreased access to capital marketsIncreasing importance of innovation, both process and product

HR is a key lever in addressingthese challenges!

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HR & Competitive Advantage

The International Motor Vehicle Study, a worldwide research study of the automobile industry conducted at MIT showed that people-centered practices were associated with almost twice the productivity and quality as conventional mass production.Similar studies in steel, apparel, and semiconductors, sponsored by the Alfred P. Sloan Foundation, reveal similar positive effects for people-centered practices.

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Prominent HR Issues in the 21st Century United States

Widespread corporate restructuringIncreases in contingent workNew work organizationsGrowing diversity

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Behaviors Driven by HR

Recruitment and TurnoverCommitment to Organization

LoyaltyEffort

InnovationAttitude towards customersAbility to do the job (skills)

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INTELLECTUAL BASIS FOR HR

ECONOMICS: compensation/incentivesSOCIOLOGY: group normsPSYCHOLOGY: motivationPOLITICAL SCIENCE: the environment

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A MODEL OF HUMAN RESOURCES

PaySelection

SocializationEquity

Opportunity

motivation

TrainingSelection capacity

control

effort

Workorganization

productivity

MonitoringPay

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HR CHOICES: FUNCTIONAL

Individual work v. team workPay for job v. pay for individual v. pay for group v. pay for needMake or buy skillsPromote form within v. recruit at all levelsJob security v. no commitments

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HR CHOICES: PHILOSOPHY

Motivate by money v. peers v. the workEgalitarianism v. meritocracyAssume shirking v. assume inherent desire to do good workCentralized v. decentralized control

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WHY DIFFERENT CHOICES ARE MADE

EXTERNAL FACTORS

External Labor Market

Government Policy

Business and Union Organization

INTERNAL FACTORS

Technology/Work Organization

Business Strategy/Markets

Values

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SOME TECHNICAL CONSIDERATIONS

Degree of proximityDegree of skill specificityDegree of coupling across worker tasksEase of monitoringAmbiguity of worker tasksImportance of creativity/discretion

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MOTIVATIONS

LOAFING/FREE RIDINGOUTPUT RESTRICTIONCRAFT PRIDEORGANIZATIONAL COMMITMENTGIFT EXCHANGEMONEY=EFFORT

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Southwest Airlines

Case Discussion

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Southwest Airlines

“I’ve tried to create a culture of caring for people in the totality of their lives, not just at work. There’s no magic formula. It’s like building a giant mosaic--it takes thousands of little pieces…The intangibles are more important than the tangibles. Someone can go out and buy airplanes from Boeing and ticket counters, but they can’t buy our culture, our esprit de corps.”

Herb KelleherCEO SouthwestWall Street Journal 8/31/99www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Southwest Airlines

Only major airline to have earned a profit every year for nearly three decades.Southwest has won the Triple Crown (best on time performance, fewest complaints, fewest lost bags) for 5 years in a row. No other airline has won this award.Southwest’s operating costs are 20% below the industry average. Company is 84% unionized.Now serves over 52 cities with 26,000 employees.In 1998 they had over 140,000 job applicants.

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Three Questions:

1. What does it take to make money in Southwest’s business? What are Southwest’s sources of competitive advantage? Are they sustainable?

2. How serious is the threat of competition? Can other airlines copy the Southwest model? How?

3. What are your concerns? What does Southwest need to do to continue their success?

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Southwest Airlines

Talking about Southwest’s recruiting.Kelleher says, “We draft great attitudes.If you don’t have a good attitude, we don’t want you, no matter how skilled you are.”

What are your reactions to this approach?What are your reactions to this approach?

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Mission Statement

“The mission of Southwest Airlines isdedicated to the highest quality ofcustomer service delivered with asense of warmth, friendliness,individual pride, and company spirit.”

Does this matter at Southwest? Why?Does this matter at Southwest? Why?

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To Our Employees: To Our Employees:

“We are committed to provide ouremployees a stable work environment with equal opportunity for learning andpersonal growth. Creativity and innovationare encouraged for improving the effec-tiveness of Southwest Airlines. Above all,employees will be provided the sameconcern, respect, and caring attitudewithin the organization that they are ex-pected to share externally with everySouthwest Customer.”

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“Every company I have ever gonein, they say people are number one,but they’re just not. They don’t liveup to that, and we do.”

Gary KellyChief Financial OfficerSouthwest Airline

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Airline Performance, January 1999

On-time Percent

76.7% - 172.0% - 271.4% - 368.3% - 467.1% - 566.5% - 666.5% - 762.7% - 860.0% - 958.2% - 10

Lost bagsper 1000

5.70 - 38.49 - 67.63 - 55.21 - 17.20 - 48.87 - 711.3 - 910.3 - 812.0 -105.37 - 2

Complaintsper 100,000

0.40 - 11.46 - 31.52 - 43.21 - 82.12 - 61.34 - 21.92 - 53.89 - 103.88 - 93.06 - 7

SouthwestContinentalDeltaAmerican WestAmericanAlaskaUnitedNorthwest TWAUSAir

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Southwest Takeaways

A simple, consistent strategyAligned and consistent HR practices

Long-term perspective on employmentStabilityJob designTraining and developmentCareers Selection for “attitude” and “fit”

Strong culture -- family, performanceLeadership reinforcement

Information sharingPsychological Ownership

CompensationPerformance-basedOwnershipCompressed wages

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Wrap-up

Brief Overview of this Course

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Organization of the Course

Section 1: The importance of HR alignmentas a basis of competitive advantage.

Section 2: HR levers for general managers in linking HR to strategy

Section 3: Summary and integration

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Course Objectives

Think analytically about management systems.Recognize the strategic and competitive advantage associated with effective human resource management practices.Understand key HR levers available to managers.

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Cases this term

• Airlines• Southwest, Eastern Airlines

• Services • Portman Hotel, Morgan Stanley, Safelight, ServiceMaster, John Snow Institute, Harrah’s

• Retailing• Nordstrom

• Technology• Visionary Design Systems, SAS Institute

•Manufacturing• NUMMI, Slade, Springfield ReManufacturing

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Conclusion

Next Class:Portman Hotel

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Objectives

Review lessons from Southwest Airlines case

To link explicitly a firm’s strategy and key success factors to its HR policies and practices

To evaluate the economic costs and benefits of Portman’s strategy

To consider how HR alignment and consistency relate to the execution of strategy

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Portman Hotel 1. What evidence is there that Portman is having

problems?

2. What are the causes of these problems?

3. To what extent are Portman’s human resourcepolicies consistent with its strategy? Witheach other?

4. What should Portman do? How much shouldPortman be willing to spend to solve theirproblems?

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Portman’s Vision

“We know that if we want customers treated better we should treat each other better. Wewant to make the Portman the most fulfilling, fun work experience that anyone on the staff has ever had. We want to be the best employerin San Francisco, to show our trust and pridein each person on our staff, and to work in waysthat help each person to grow, both personallyand professionally.”

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Are Portman’s HR Policies Consistentwith their Strategy? Internally Consistent?

• Base pay• Incentive pay• Benefits• Job security• Ownership• Information sharing• Measurement of practices• Long-term perspective

• Vision/philosophy • Recruiting• Participation• Staffing• Cross utilization• Job design• Teams• Training

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Portman Hotel

How much should Portmanbe willing to spend to fix theproblems you’ve identified?

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Portman HotelPortman Hotel

Assistant Manager(Vacant)

Director ofMarketing

Pat MeneManaging Director

Director ofHuman Resources

Joe Villa

Spencer ScottGuest Room Services

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Job Design Considerations

Core JobDimensionsCore Job

DimensionsPsychological

StatesPsychological

StatesWork

OutcomesWork

Outcomes

IntrinsicMotivation

Skill VarietyTask IdentityTask Significance

Autonomy

Feedback

Meaningfulness

Quality

ResponsibilitySatisfaction

Knowledgeof Results Absenteeism

Turnover

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To Enrich Jobs, Consider the Following...

Task Identity

Skill Variety

Task Significance

Autonomy

Feedback

Form Natural Work Units

Combine Tasks

Establish Client Relationships

Increase Task Responsibility

Open Feedback Channelswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Job Design Considerations

Technological efficiency. Are the tasks performed efficiently in terms of level of output per unit of labor input(adjusting for the cost of labor inputs)?

Flexibility. How flexible is the organization in adjusting to both temporary and more permanent changes in its external environment?

Explicit extrinsic incentives. To what extent can (must?) workers be given explicit, extrinsic incentives that will lead them to act in the fashion desired by the organization?

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Job Design Considerations Cont’d

Intrinsic motivation and commitment. To what extent are workers intrinsically motivated to perform well? To what extent does the job design encourage or foster commitmentto the organization?

Social aspects. Does the job design foster positive peer pressure and discourage negative peer pressure? Are social comparisons fostered or defused? Do workers benefit from positive social interactions on the job?

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Narrow Jobs

Technological efficiency (pin factory)

Learning easier

Incentives easier

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Broad Jobs

Uses peoples minds

Creates organizational flexibility

Increases organizational commitment (more social interaction)

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Conclusion

Next Class:NUMMI

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Guidelines for Effective Performance Appraisal

Make sure the performance rating process is strategically useful; i.e., based on the key success factors needed for execution. Involve those being rated in the development of the rating scheme.Insure that the process is related to job performance and meets legal requirements.Train the raters on evaluation and feedback.

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Legally Defensible Performance Appraisal

Standards should be based on job analysis.Standards communicated to employees.Evaluations based on specific dimensions.Dimensions defined in behavioral terms and supported by objective, observable evidence.Raters should be trained and valid.When possible, more than one rater is used.Appraisal fits the cycle of work.Documentation of extreme ratings is done.Formal appeal process is available.

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Choices Embedded in Appraisal Systems

Who is evaluated?What is evaluated?Who performs the evaluation? Who has input?Who sees the evaluation? For what purpose?When is it conducted? Is the evaluation OBJECTIVE or SUBJECTIVE?Is performance RELATIVE or ABSOLUTE?

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Fundamental Questions about Performance Appraisal

Is it linked to the larger incentive and reward system?Does it make sense given the firm’s strategy?Does it fit with the industry, workforce?Is it consistent with the organizational culture?

Should individuals be evaluated at all?www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Two Dimensions of Evaluation

Discharge

PromoteHigh

Results

Low HighFit

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Managing Performance

Evaluating performance

Diagnosing performance

Providing feedback on performance

Linking performance with rewards & punishments

Coaching, counseling & developingwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Performance Assessment & Diagnosis

Can you make cause-effect linkages between actions & outcomes?

How often & to what extent have you intervened? To what extent are you part of the problem?

Can you identify root causes?

What can be corrected?

What can be capitalized on?www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Building Effective Working Relationships

Success

FailureOur relationship is fine,

but X doesn’t have a clear understanding of

how s/he is doing

We don’t get along anymore, but X knows

where s/he standsClear

Understanding of Performance

Ambiguous

Weak StrongQuality of

Relationship

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Coaching

Oriented toward problem-solving & actionBalance advocacy & inquiryBe as descriptive & specific as possibleTake advantage of critical incidentsAgree to next stepsIdentify specific developmental agendasIdentify available resourcesAdapt your coaching style to the individual

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Helpful Feedback

Based on constructive evaluation and diagnosis of performanceTimelyDescriptive & specificDefines consequences/impact of behaviorOriented toward problem-solving & action

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Safelight Autoglass

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Safelite Autoglass

What are the pros and cons of switching from wage rates to piece rates?Why is Safelite a good candidate for this switch?Should there be a guaranteed wage? If so, how should it be set?What are the likely consequences of this switch for:

TurnoverRecruitmentProductivityProduct Quality

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Lazear Study

40% increase in productivity

20% from higher productivity from same workers

20% from attracting better workers

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Technician Turnover at Safelite

0%10%20%30%40%50%60%70%80%90%

1993 1994 1995 1996 1997

Turnover

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Compensation System Objectives

Motivate or provide incentives for performanceAttract talentRetain the best peopleSignal what the organization valuesCreate a sense of equity, fairness, and justice

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The Functions of Pay

Externalallocate across firms and occupations

Internalattract and maintain labor forcesallocate across occupationsmotivate and align behaviorprovide statusprovide sense of equity

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Key Market Ideas

Reservation wageCompensating differentialsMeaning of equilibriumElasticity of demand curve

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Why Market Model is Incomplete

Adjustment is long and slowimperfect informationbarriers to mobilitysocial / institutional rigidity

Role of Powermonopoly rentsunionslicensing

Discriminationwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Elements of Pay System

Level relative to marketBasis for payComposition of pay package

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Level of Pay

Expected value over lifetimeInfluences ability to recruit and turnoverFirms position selves differently relative to market

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THE IMPACT OF PAY DISPERSION, BASEBALL

1644 players, 1985-93measures: batting performance, fielding

performance, pitching performance, team performance

explanatory variables: team pay dispersion, player rank in team pay hierarchy

Controls: past performance, age, years in league, measure of team talent

Source: Bloom, AMJ, 1999www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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BASEBALL (con’t)

1. Greater team dispersion reduces individual performance on average

those at top of hierarchy performbetter if team pay dispersed, thoseat bottom perform worse

2. Overall team performance reduced by greater pay dispersion

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BASIS FOR PAY

Internal ConsistencyJob Analysis/Point SystemEquity Issues

External Competitiveness Surveys

Employee CharacteristicsSeniority/Need/Performance

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Composition of Pay Package

Benefits relative to wagesimpact upon composition of labor forceimpact upon turnoverimpact upon commitment

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BENEFITS

Percent of Compensation, 1997, Private Sector Establishments

1-99 employees 24.9%100-499 27.6%500+ 30.8%

Source: Bureau of Labor Statisticswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Pay for Performance

To what unit is it applied?where the link between action and performance is closest

individual (but leads to non-cooperation)group (but problems of free-riding)organization (free-riding plus impact of my actions are hard to see)

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Pay for Performance

Long-run or short-run measures

short-run creates perverse incentivesrun from your mistakesactions such as skimping R&D

long-run may be too far out to motivate

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Pay for Performance

How to control for external forces?tournament modelforced distribution

Butimpact on cooperationimpact on fairness morale

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Pay for Performance

How much dispersion do you permit?As risk rises need to compensate by increasing levelNeed to be prepared to share information on which performance is judgedProper mixes of different schemes

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PAY SCHEMES

BONUSES/PROFIT SHARING

PAY FOR SKILL

GAIN-SHARING

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BONUS/PROFIT SHARING

GOALS: IMPROVE INCENTIVESAVOID INCREASING BASE (control benefits)

ISSUES: ARE INCENTIVES STRONG?FREE-RIDINGFAIRNESS/USE OF

DISCRETION

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PAY FOR SKILL

GOALS: PROVIDE INCENTIVES FORSKILL ACQUISITION

ISSUES: TOPPING OUTPAY NOT RELATED TO ORGANIZATIONAL PERFORMANCE

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GAINSHARING

EXAMPLES: SCANLON, RUCKER, IMPROSHARE

PROCEDURE: ESTABLISH A BASELINEFOR A WORKGROUP;REWARD IF EXCEED,REDUCE PAY IF FALLBELOW

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GAINSHARING (con’t)

ISSUES: METRIC USED (e.g. a mixtureof productivity, quality, profits)

ROLE OF TECHNICAL CHANGE, LUCK

DEGREE OF INFORMATION SHARING

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Case Discussion

SAS Institute

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The SAS Institute

Founded in 1976, SAS Institute is now the 9th largest independent software company in the world, with revenues of $1.1 billion and 8,500 employees.It has achieved this with:

• No long-term planning• No formal product strategy• No stock options• No performance appraisal• Free on-site health care• An artist-in-residence

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The SAS Institute

“In an era of relentless pressure, this place is an oasis of calm. In an age of frenetic competition, this place is methodical and clearheaded. In a world of free agency, signing bonuses, and stock options, this is a place where loyalty matters more than money.”

Charles FishmanFast Company,

January, 1999www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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SAS versus Other Software Houses

Based on your experience, what’s different about how SAS manages people and projects, compared to other software firms?

What differences in assumptions does this reflect?

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The SAS Institute

“If you’re hiring creative people,you give them their head, you tellthem that it’s all right to take chancesand you mean it, [and] they will do theirbest.”

David RussoVP of HR, SAS

Why doesn’t this lead to chaos?

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Another impediment?

You may not share Goodnight’s values and assumptions.

If you don’t believe this can work, you can’t fake it.

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Decisions about Compensation Systems

How much emphasis to place on pay?Level of base pay?What’s included in the pay package (benefits, promotion, ownership)?Degree of pay dispersion?

Across levelsAcross departmentsAcross individuals within departments and levels

Basis for pay (Individual, group, organization)?Basis for measurement (tenure, skills, outcomes, etc.)? www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Some Myths About Incentives

• “People work primarily for financial rewards.” • “Other people are more motivated by incentives

than I am.”• “Individual monetary incentives are critical to

motivate hard work and attract the right folks.”• “The financial and legal aspects of ‘ownership’

are what align interests and motivate.” • “Labor rates ≡ labor costs”

It’s not what you pay but what you get that mattersSource: Pfeffer, Six Dangerous Myths About Pay

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Implications

Be careful and thoughtful about the attributions you make regarding other people’s motivationsAssuming that “agents” are driven by pay and need to be “controlled” can become a self-fulfilling prophecyIt’s very hard to “fake it,” so be clear about your own motivational assumptions before you begin designing control systems.

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ServiceMaster Industries

How have ServiceMaster’s values and goals contributed to their success?Why haven’t other firms successfully copied this approach? How important is training and development in the ServiceMaster system? How does training and development affect their continued growth?Why has ServiceMaster been willing to spend the resources it has on training and development for a set of low-skilled, high-turnover positions?

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Serve over 10 million customers in 41 countries with revenues of $6.4 billion50,000 employees who manage a workforce of over 240,000 contract employees.Named most admired outsourcing company in America by Fortune in 1999 and 2000.Over 50% of employees are women and minorities.29th consecutive year of growth in revenues and profit with a compounded growth rate of over 24% over the last 20 years.From 1987-1998 average of 68.5% return on shareholders’ equity.

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ServiceMaster Industries (1-800 WE SERVE)

• Residential and Commercial Cleaning Services

• Terminix (Pest control - 1986)

• Merry Maids (Residential maid service - 1988)

• American Home Shield (Home warranty service - 1989)

• TruGreen (Lawn and tree service - 1990)

• Since 1991:• ChemLawn Diversified Health Services• Rescue Rooter AmeriSpec• Furniture Medic American Residential Services

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ServiceMaster Revenues ($M)

1979 1983 1986 1988 1990 1992 1994 1996 1998

Note: excludes income from franchisees and international partnerswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Peter Drucker addressing ServiceMaster’sBoard of Directors about their strategicintent:

“Gentlemen, you do not under-stand your business. Your businessis to train the least skilled peopleand make them functional.”

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ServiceMaster Industries“When people come in for an interviewand see quotations from the Bible andour objectives on the wall, and when theytalk to us and see how we try to implementour corporate objectives in a day-to-daymanner, they either warm up to the waywe do things or they are immediatelyturned off.”

Lifetime Employee

What do you think of this approach?What do you think of this approach?www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Basic Goals 1. To honor God in all we do.

2. To help people develop.

3. To pursue excellence.

4. To grow profitably.

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ServiceMaster Values and Creed

“Providing opportunity for people tobecome all they were created to be.”

ServiceMasterAnnual Report

“We want to help people be somethingbefore we ask them to do something.”

“We don’t fire people for lack of skill. We fire people for attitude problems.”

Kenneth WessnerFormer Chairman

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“Frankly, when you view the person as only a production unit, or something than can be defined solely in economic terms, motivational or even incentive schemes have a tendency to be mechanistic and manipulative. In so doing, there is a drive to define a system that will idiot-proof the process, and one can in turn make people feel like idiots.”

C. William PollardChairman, ServiceMaster

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ServiceMaster Industries“Frankly, when you view the person as onlya production unit, or something that can bedefined solely in economic terms, motivationalor even incentive schemes have a tendencyto be mechanistic and manipulative. In sodoing, there is a drive to define a system thatwill idiot-proof the process, and one can inturn make people feel like idiots.”

C. William PollardChairman, ServiceMaster

What is your reaction to this?What is your reaction to this?www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Survey of Employees (1990)Since ServiceMaster has taken over this facility,how would you compare the following:

Satisfaction Training Cleanliness

Higher 52% 59% 48%

No Change 33% 41% 33%

Lower 15% 0% 19%

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ServiceMaster IndustriesThe Wall Washing System

Device Training

Example:

Benefits:

Results:

Wall Washing Wand

Reduce time required.Allows washing from

erect position

Improved efficiency.Less strain leads tohigher satisfaction andlower turnover

Why? Patients respondfaster in clean room.

Worker understands whythe wall needs to be cleanand cares about the result.

Quality improves. Workeris involved in big pictureand is more committed.

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ServiceMaster: HR Practices

Can this approach work elsewhere?

• Other countries? What types?• Other industries? What characteristics?

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Why Would a Firm Pay to Train?

Because its managers are stupid?

According to neoclassical economics, the worker must pay for general on-the-job, either literally or through foregone earnings. Firm and employees must split the costs (and benefits) of firm-specific human capital in order to continue their mutually beneficial relationship and prevent “hold up” problems.

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Are there other reasons to pay for training?

No choice (labor scarcity or deficient educational system)Specific human capital presumes general skillsTo give itself an incentive to use workers productively and efficientlyGift exchange and symbolism

Employees reciprocate gift with loyalty and effortFocuses employee attention on strategic and developmental objectives“Training” presupposes “Caring”

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Why Pay to Train?

“Optimal” investment in training can be a competitive game

If your competitors are underinvesting in general training, you will be more reluctant to provide extensive training for fear of their “cream skimming” your workforce, unless you can otherwise bind the employees to the organization.

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Preserving Training Investments

BondingTraining institutesOther HR practices

• Screening (based on “trainability” and “stability”)• Career pathing• Broad job design; empowerment• Pay for knowledge and/or seniority• Benefits

To safeguard investment (e.g., health care)To promote loyalty (e.g., dependent care)

• Dress it up as “gift”• Train people in groups

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Jobs are Increasing in their Complexity

How would you characterize the change in skill requirements in your establishment?

NO CHANGE 38%LESS COMPLEX 3%MORE COMPLEX 40%SAME/DIFFERENT SKILL 18%

source: Osterman, 1992www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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CHARACTERISTICS OF NATIONAL TRAINING SYSTEMS

Amount of TrainingOpportunity for Mind ChangingMobility Level in the Labor MarketEquality With Respect to Sex/Race/Immigrant

StatusLocation of Training: School or Firm

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CHARACTERISTICS OF U.S. SYSTEM

ENTRYDIVERSE AND DIFFUSE, NUMEROUS PATHSWEAK HIGH SCHOOL TRAININGCOMMUNITIY COLLEGES STRONG

FURTHERFIRM BASEDPRIVATE TRAINING INFRASTRUCTURESTATE PROGRAMS WORK WITH FIRMS

REMEDIALSMALL AND INCOME STRATIFIED

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U.S. TRAINING PATTERNS, 1995

AVERAGE HOURS OF TRAINING PER EMPLOYEE IN SIX MONTH PERIOD

FORMAL 10.7INFORMAL 31.1

AVERGE PER EMPLOYEE TRAINING COSTSWAGES OF IN-HOUSE TRAINERS $139PAYMENTS TO OUTSIDE TRAINERS 98TUITION REIMBURSEMENT 51

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TYPES OF TRAINING

Remedial

Upgrade“Hard”“Soft”

Displacement/Transition

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TRAINING DECISIONS FOR FIRMS

Level of Training/Resources

Occupational Distribution

Type of Training

Make/Buy

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THE MAKE/BUY DECISION

How Specific/General Is the Skill?How Important Is Socialization/Culture?How Important Is It That Supply Be Certain?What Is The Quality of External Providers?

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Takeaways

Don’t underestimate non-monetary rewards. These can be especially powerful when they are congruent with employee values.Being clear about the organization’s values can help attract (and reject) people who “fit.”Training and development efforts need to be aligned and support job-relevant as well as value-relevant attitudes and behaviors.Training is an important means of signaling what’s important and valued in the organization.

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Eliciting Effort

PayBenefitsPromotionMonitoring

By PeersBy Management

Culture

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Mini-Lecture

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Effective Use of Team-Based Systems

What is a team-based system?Costs and benefits of using teams?What is the leader’s role in a team-based organization?What skills are needed for teams to function effectively?How can you introduce a team-based system?Overall lessons learned?

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What is a Team?

A team is a small number of peoplewith complementary skills who arecommitted to a common purpose,performance goals, and approachfor which they hold themselvesmutually accountable.

John Katzenbach and Douglas Smith, McKinsey & CompanyThe Wisdom of TeamsHarvard Business School Press, 1993

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Working Groups Versus Teams

WORKING GROUPStrong, clearly-focused leaderIndividual accountability

Group’s purpose is same as the organization’sIndividual work productsRuns efficient meetingsMeasures performance in terms of larger firmDiscusses, decides, and delegates

TEAMShared leadership rolesIndividual and mutual accountabilitySpecific purpose for which the team is responsibleCollective work productsOpen-ended meetings for problem-solving

Performance measured on team productsDiscuss, decide, and work together

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Common Team Responsibilities

Quality improvement 100%Cross-training 85%Scheduling (Production) 80%Safety 70%Process improvement 70%Measurement/goal-setting 75%Budget/expense control 50%Selection 55%Coordination with others 50%Customers and suppliers 60%Performance appraisal 50%

Manz and Sims (1993)

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Costs/Benefits of Using Teams

BenefitsBring together complementary skills and experiencesProvides for flexibilitySocial benefits: fun, commitmentLess resistant to change

CostsCoordination costsPersonal discomfort and conflictDiffusion of responsibility (free-riders and social loafing)Risk seeking

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What is the role of the leader in a team-based system?

• Ask questions• Get the group to solve problems• Promote real participation• Help resolve conflict• Train others• Positive reinforcement• Encourage high performance goals• Encourage self-evaluation• Tell the truth, even when it’s disagreeable• Liaison with higher management

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What Effective Team Leaders Do

Keep purpose, goals, and approach relevant and meaningfulBuild commitment and confidenceManage the level and mix of skillsManage relationships with outsidersCreate opportunities for othersDo real work

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Team Development

Start - upStart - up

= SupervisorS

Mature

Experienced

TransitionalC. Manz & H. SimsBusiness Without BossesJohn Wiley, 1993

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What types of skills and training are required for a team-based system?

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Training for Team Effectiveness

Meeting skills, time managementConflict managementProblem-solving, TQMGroup dynamics, team buildingChange managementCoaching and feedbackBusiness knowledge (e.g., customer service) Technical skills

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Evidence on Team Effectiveness

Cost savings (labor, materials) Productivity QualityCustomer serviceSpeed and cycle timeInnovationSafetyDecreased absenteeism and turnoverDecreased worker’s compensation claims

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Pros and Cons of a Team-Based Approach?Pros and Cons of a Team-Based Approach?

Pros Cons

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Lessons Learned:Implementing Team-based Systems

HighPerformance

RealTeam

Working Group

Psuedo-Team

PotentialTeam

Impact

Team Performancewww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Some Lessons Learned the Hard Way

Organizations often expect too much, too soon.Things often get worse before they get better.Managers and supervisors are threatened.A new perspective on leadership is required. Need to begin with a clear philosophy and purpose.Technical people often see themselves as losers.Implementation needs careful planning.Employees need technical and behavioral skills.Greenfield sites are easier than retrofits.Continuous training is essential.Stability is crucial; turnover is deadly.May need new systems - especially MIS.Facilitation can help at the beginning.www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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Takeaways

Teams need to be driven by a clear vision and purpose--why are we using them?Training and group process skills are important for groups to succeed.Team-based organizations need team-based systems, culture, and leadership--not just structure.

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Conclusion

Next Class:Eastern Airlines

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Springfield ReManufacturingCorporation & Open Book Management

Sloan School of Management

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Questions

1. Why did the plant fail under InternationalHarvester but succeed as SRC ?

2. How and why might the extensive sharing of information with employees promote a source of competitive advantage?

3. What are the strengths and weaknesses of Open Book Management?

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Evaluate Stack’s Proposal as a Banker…

Create a culture of “open-book management,” making every aspect of the business visible to every employee: Indeed to anyone who cared to know.

Invest a substantial amount of time and effort in training every employee in financial management so that they can follow, in detail, the weekly operating and financial reports of the company.

Offer employees a significant share in the equity gains they helped achieve through a participatory stock ownership program.

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Jack Stack“Why We Play the Game”

1. We want to live up to our end of the employment bargain. “Everything we do is based on a common understanding that job security is paramount. There is no security in ignorance”

2. We want to do away with jobs. “I don’t want people to have jobs. I want them to have a purpose in what the hell they’re doing.”

3. We want to get rid of the employee mentality. “The payoff to us for playing the Game is that we become a more educated,a more flexible organization.”

Jack Stack , 1992www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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“The only way to be secure is to makemoney and generate cash. Everythingelse is a means to that end. As longas you do those two things, yourcompany is going to be okay, evenif you make mistakes along the way,as you inevitably will.”

Jack Stack (1994)The Great Game of BusinessNY: Currency Doubleday

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Open Book Management Principles

1. People should see themselves as partnersin the business

2. People should be empowered

“The things that change with OBM are ways of thinking and acting. The basic structures may or may not change. ...OBM doesn’t make everyone equal. It just assumes everybody on the payroll has a stake in the business.

John CaseOpen-Book ManagementHarper-Business (1995) www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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“The trouble with empowermentas it’s usually conceived is this:It’s like empowering a guy todrive a truck without telling him where he’s going. If you empowerdummies, you get bad decisionsfaster.”

Rich TeerlinkCEO, Harley-Davidson

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To Implement Open Book Management:

1) Be clear about your strategy and key success factors (“Critical Numbers”).

2) Get the information out there.3) Teach business literacy (how to

interpret and use the numbers).4) Develop a system of responsibility

and accountability (“empowerment”).5) Give everyone a stake in the

company’s success.

1) Be clear about your strategy and key success factors (“Critical Numbers”).

2) Get the information out there.3) Teach business literacy (how to

interpret and use the numbers).4) Develop a system of responsibility

and accountability (“empowerment”).5) Give everyone a stake in the

company’s success.John CaseOpen-Book ManagementNY: Harper Business (1995)www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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OBM: Key Ingredients

• The relentless sharing of operational andfinancial data with employees

• Training to understand these numbers

• Rewards (Stock ownership, bonus, profit sharingrecognition, small gifts, parties, etc.)

• Regular group and company meetings

• Shared performance metrics

• Long-term employment www.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in

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· 2015-08-26 · DIVERSITY STRATEGIES? STAFFING recruitment goals and timetables ... Portman...

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