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15.660
Strategic Human Resource
Management
MIT Sloan School of Management
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Gender Differences
The Evidence
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PERCENT FEMALE IN OCCUPATIONS
Marketing
Financial Managers
Lawyers
Engineers
Nurses
Elementary Teachers
1970s
7%
19
5
1
97
83
1990s
37%
50
26
8
93
84
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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
? MIT
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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
WOMEN
SOURCE: GOLDIN AND ROUSE, AER, 9/2000
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Deloitte & Touche
1991
? 5% of partners are women
? Female turnover much higher than male turnover.
? 4/50 Partner candidates were women
2000? 14% of partners are
women
? 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
OR
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
MIT Sloan School of 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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15.660 Strategic Human Resource Management
MIT Sloan School of Management
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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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15.660 Strategic Human Resource Management
MIT Sloan School of Management
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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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15.660 Strategic Human Resource Management
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.
Why?
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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
05
101520253035404550
EXCELLENT GOOD FAIR POOR
Source: Freeman and Rogers
percent
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FEEL LOYALITY TO FIRM
0
10
20
30
40
50
60
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
0
10
20
30
40
50
60
VERY SOMEWHAT NOT TOO NOT AT ALL
percent
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WANT MORE INFLUENCE
0
10
20
30
40
50
60
70
%
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
05
101520253035404550
A B C D F
knowledge of businessleadershipconcern for employeesfair paypower sharing
Source: Freeman and Rogerswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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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
SOURCE: Freeman and Rogerswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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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
SOURCE: Freeman and Rogerswww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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15.660 Strategic Human Resource Management
Professor M. Diane BurtonMIT Sloan School of 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 assets
• Understand 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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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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Several Integrative Themes
The role of HR in the execution of strategy
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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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Several Integrative Themes
The role of HR in the execution of strategy
The importance of alignment and consistency of HR with business strategy
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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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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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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 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
Roles
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
Yes
PsychologicalOwnership
No
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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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15.660 Strategic Human Resource Management
MIT Sloan School of Management
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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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15.660 Strategic Human Resource Management
MIT Sloan School of Management
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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?”
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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
MBO
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
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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15.660 Strategic Human Resource Management
MIT Sloan School of Management
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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.”
“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.”
“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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15.660 Strategic Human Resource Management
MIT Sloan School of Management
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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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NUMMI
Case Discussion
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NUMMI
• 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)
Plant
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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
42 31
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
Teams
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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.
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
S
S
S
S
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
Team
RealTeam
Working Group
Psuedo-Team
PotentialTeam
Impact
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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
0
10
20
30
40
50
60
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
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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
Source: Ichniowski, Shaw and Prennushiwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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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
Source: Ichniowski, Shaw and Prennushiwww.bsscommunitycollege.in www.bssnewgeneration.in www.bsslifeskillscollege.in
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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
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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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15.660 Strategic Human Resource Management
MIT Sloan School of Management
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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!
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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15.660 Strategic Human Resource Management
MIT Sloan School of Management
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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?
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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15.660 Strategic Human Resource Management
MIT Sloan School of Management
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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?
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Two Dimensions of Evaluation
?
?
Discharge
PromoteHigh
Results
Low
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?
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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
MIT Sloan School of Management
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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
Year
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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15.660 Strategic Human Resource Management
Professor M. Diane BurtonMIT Sloan School of Management
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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%
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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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15.660 Strategic Human Resource Management
MIT Sloan School of Management
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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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ServiceMaster Industries
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)
0
1000
2000
3000
4000
5000
6000
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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ServiceMaster Industries
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.”
“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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ServiceMaster Industries
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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ServiceMaster Industries
“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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ServiceMaster Industries
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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15.660 Strategic Human Resource Management
MIT Sloan School of Management
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Eliciting Effort
PayBenefitsPromotionMonitoring
By PeersBy Management
Culture
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Mini-Lecture
Teams
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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.
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
S
S
S
S
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
Team
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.
“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
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