Human Resources Chapter01

Cascio: Managing Human Resources: Productivity, Quality of Work Life, Profits, Seventh Edition

I. Environment 1. Human Resources in a Globally Competitive Business Environment

© The McGraw−Hill Companies, 2005

To manage people effectively in today’s world of work one must understandand appreciate the significant competitive, legal, and social issues. The pur-pose of Chapters 1 through 4 is to provide insight into these issues. They pro-vide both direction for and perspective on the management of human resourcesin the new millennium.

1 HUMAN RESOURCES IN A GLOBALLY COMPETITIVE BUSINESS ENVIRONMENT

2 THE FINANCIAL IMPACT OF HUMAN RESOURCE MANAGEMENT ACTIVITIES

3 THE LEGAL CONTEXT OF EMPLOYMENT DECISIONS

4 DIVERSITY AT WORK

1P A R T

ENVIRONMENT




1C H A P T E R

HUMAN RESOURCES IN A

GLOBALLY COMPETITIVE

BUSINESS ENVIRONMENT

Questions This Chapter Will Help Managers Answer

1. What will 21st-century corporations look like?

2. What people-related business issues must managers be concerned about?

3. Which features will characterize the competitive business environment in

the foreseeable future, and how might we respond to them?

4. What people-related problems are likely to arise as a result of changes in

the forms of organizations? How can we avoid these problems?

5. What are the HR implications of our firm’s business strategy?




3

Human ResourceManagement

in Action

THE 21ST-CENTURY CORPORATION*

Sparked by new technologies, particularly the Internet, the corporation isundergoing a radical transformation that is nothing less than a new IndustrialRevolution. This time around, the revolution is reaching every corner of theglobe and, in the process, rewriting the rules laid down by Alfred P. Sloan, Jr.(the legendary chairman of General Motors), Henry Ford, and other IndustrialAge giants. The 21st-century corporation that emerges will, in many ways, bethe polar opposite of the organizations they helped shape.

Many factors are driving change, but none is more important than the riseof Internet technologies. Like the steam engine or the assembly line, the Net hasalready become an advance with revolutionary consequences, most of whichwe have only begun to feel. The Net gives everyone in the organization, fromthe lowliest clerk to the chairman of the board, the ability to access a mind-boggling array of information—instantaneously, from anywhere. Instead ofseeping out over months or years, ideas can be zapped around the globe in theblink of an eye. That means that the 21st-century corporation must adapt itselfto management via the Web. It must be predicated on constant change, not sta-bility; organized around networks, not rigid hierarchies; built on shifting part-nerships and alliances, not self-sufficiency; and constructed on technologicaladvantages, not bricks and mortar.

The organization chart of the large-scale enterprise had long been definedas a pyramid of ever-shrinking layers leading to an omnipotent CEO at its apex.The 21st-century corporation, in contrast, is far more likely to look like a web:a flat, intricately woven form that links partners, employees, external contrac-tors, suppliers, and customers in various collaborations. The players will growmore and more interdependent, and managing this intricate network will be asimportant as managing internal operations.

In contrast to factories of the past 100 years that produced cookie-cutterproducts, the company of the future will tailor its products to each individ-ual by turning customers into partners and giving them the technology todesign and demand exactly what they want. Mass customization will result in waves of individualized products and services, as well as huge savings for companies, which no longer will have to guess what and how muchcustomers want.

Intellectual capital will be critical to business success. The advantage ofbringing breakthrough products to market first will be shorter than ever becausetechnology will let competitors match or exceed them almost instantly. To keepahead of the steep, new-product curve, it will be crucial for businesses to attractand retain the best thinkers. Companies will need to build a deep reservoir oftalent—including both employees and free agents—to succeed in this new era.But attracting and retaining top talent will require more than just hugepaychecks. Organizations will need to create the kinds of cultures and rewardsystems that keep the best minds engaged. The old command-and-control

*Sources: J. A. Byrne. (2000, Aug. 28). Management by Web. BusinessWeek, pp. 84–96. G. Colvin.(2000, Mar. 6). Managing in the info era. Fortune, pp. F6–F9. J. Pfeffer & J. F. Veiga, Putting peoplefirst for organizational success. Academy of Management Executive, pp. 37–48. J. A. Byrne. (2000,Aug. 28). Visionary vs. visionary. BusinessWeek, pp. 210–214.




4 Part 1 Environment

hierarchies are fast crumbling in favor of organizations that empower vastnumbers of people and reward the best of them as if they were owners of theenterprise.

It’s Global. In the beginning, the global company was defined as one that sim-ply sold its goods in overseas markets. Later, global companies assumed a man-ufacturing presence in numerous countries. The company of the future will callon talent and resources—especially intellectual capital—wherever they can befound around the globe, just as it will sell its goods and services around theglobe. Indeed, the very notion of a headquarters country may no longer apply,as companies migrate to places of greatest advantage. The new global corpora-tion might be based in the United States but do its software programming in Sri Lanka, its engineering in Germany, and its manufacturing in China. Everyoutpost will be connected seamlessly by the Net so that far-flung employeesand freelancers can work together in real time.

It’s About Speed. All this work will be done in an instant. “The Internet is atool, and the biggest impact of that tool is speed,” says Andrew S. Grove, co-founder of Intel Corporation. That means the old, process-oriented companymust revamp radically. With everything from product cycles to employeeturnover on fast-forward, there is simply not enough time for deliberation orbureaucracy.

The 21st-century corporation will not have one ideal form. Some will becompletely virtual, wholly dependent on a network of suppliers, manufactur-ers, and distributors for their survival. Others, less so. Some of the most suc-cessful companies will be very small and very specialized. Others will begargantuan in size, scope, and complexity. Table 1–1 presents a summary ofthese changes.

If people are so critical to business success in the 21st-century organiza-tion, what will it take to attract and retain the best? According to John T.Chambers, CEO of Cisco Systems Inc.: “The reason people stay at a companyis that it’s a great place to work. It’s like playing on a great sports team. Reallygood players want to be around other really good players. Secondly, peoplelike to work for good leadership. So creating a culture of leaders that peoplelike is key. And the third is, are you working for a higher purpose than an IPOor a paycheck? Our higher purpose is to change the way the world works,lives, and plays.”

So if firms are to produce profits through people, what should they do? Inthe case conclusion at the end of the chapter, we will examine seven practicesof successful organizations.

Challenges

1. In Table 1–1, which dimensions of the 21st-century prototype model re-quire effective skills in managing people?

2. How might the Internet change the ways that employees and managersinteract?

3. If the 21st-century prototype model of organizations is to be successful,how must companies change their approaches to managing people?




Chapter 1 Human Resources in a Globally Competitive Business Environment 5

THE ENTERPRISE IS THE PEOPLE

Organizations are managed and staffed by people. Without people, organizationscannot exist. Indeed, the challenge, the opportunity, and also the frustration ofcreating and managing organizations frequently stem from the people-relatedproblems that arise within them. People-related problems, in turn, frequentlystem from the mistaken belief that people are all alike, that they can be treatedidentically. Nothing could be further from the truth. Like snowflakes, no twopeople are exactly alike, and everyone differs physically and psychologicallyfrom everyone else. Sitting in a sports arena, for example, will be tall people,small people, fat people, thin people, people of color, white people, elderly peo-ple, young people, and so on. Even within any single physical category therewill be enormous variability in psychological characteristics. Some will be out-going, others reserved; some will be intelligent, others not so intelligent; somewill prefer indoor activities, others outdoor activities. The point is that these dif-ferences demand attention so that each person can maximize his or her poten-tial, so that organizations can maximize their effectiveness, and so that societyas a whole can make the wisest use of its human resources.

Table 1–1WHAT A DIFFERENCE A CENTURY CAN MAKE: CONTRASTING VIEWSOF THE CORPORATION

Characteristic 20th century 21st century

Organization The pyramid The web or networkFocus Internal ExternalStyle Structured FlexibleSource of strength Stability ChangeStructure Self-sufficiency InterdependenciesResources Atoms—physical assets Bits—informationOperations Vertical integration Virtual integrationProducts Mass production Mass customizationReach Domestic GlobalFinancials Quarterly Real timeInventories Months HoursStrategy Top down Bottom upLeadership Dogmatic InspirationalWorkers Employees Employees + free agentsJob Expectations Security Personal growthMotivation To compete To buildImprovements Incremental RevolutionaryQuality Affordable best No compromise





This book is about managing people, the most vital of all resources, in worksettings. Rather than focus exclusively on issues of concern to the humanresource specialist, however, we will examine human resource management(HRM) issues in terms of their impact on management in general. A changingworld order has forced us to take a hard look at the ways we manage people.Research has shown time and again that HRM practices can make an important,practical difference in terms of three key organizational outcomes: productivity,quality of work life, and profit. This is healthy. Each chapter in this book con-siders the impact of a different aspect of human resource management on thesethree broad themes. To study these impacts, we will look at the latest theory andresearch in each topical area, plus examples of actual company practices.

This chapter begins by considering what human resources management isall about, how it relates to the work of the line manager, and how it relates toprofits. Then we will consider some current competitive challenges in the busi-ness environment, emphasizing the importance of business and human re-sources (HR) strategy. Managing to achieve strategic objectives has directimplications for productivity and quality of work life. Let’s begin by consider-ing the nature of human resource management (HRM).

MANAGING PEOPLE: A CRITICAL ROLE FOR EVERY MANAGER

Managers are responsible for optimizing all of the resources available to them—material, capital, and human.1 When it comes to managing people, however, allmanagers must be concerned to some degree with the following five activities:staffing, retention, development, adjustment, and managing change.

Staffing comprises the activities of (1) identifying work requirements withinan organization; (2) determining the numbers of people and the skills mix nec-essary to do the work; and (3) recruiting, selecting, and promoting qualifiedcandidates.

Retention comprises the activities of (1) rewarding employees for performingtheir jobs effectively; (2) ensuring harmonious working relations between em-ployees and managers; and (3) maintaining a safe, healthy work environment.

Development is a function whose objective is to preserve and enhance em-ployees’ competence in their jobs through improving their knowledge, skills,abilities, and other characteristics; HR specialists use the term competencies torefer to these items.

Adjustment comprises activities intended to maintain compliance with theorganization’s HR policies (e.g., through discipline) and business strategies(e.g., cost leadership).

Managing change is an ongoing process whose objective is to enhance theability of an organization to anticipate and respond to developments in its ex-ternal and internal environments and to enable employees at all levels to copewith the changes.

Needless to say, these activities can be carried out at the individual, work-team, or larger organizational unit (e.g., department) level. Sometimes they are ini-tiated by the organization (e.g., recruitment efforts or management developmentprograms), and sometimes they are initiated by the individual or work team (e.g.,voluntary retirement, safety improvements). Whatever the case, the responsibilitiesfor carrying out these activities are highly interrelated. Together, these activities





constitute the HRM system. To understand how each of the major activities withinHRM relates to every other one, consider the following scenario.

As a result of a large number of unexpected early retirements, the HandCorporation finds that it must recruit extensively to fill the vacated jobs. Thefirm is well aware of the rapid changes that will be occurring in its business overthe next 5 to 10 years, so it must change its recruiting strategy in accordancewith the expected changes in job requirements. It also must develop selectionprocedures that will identify the kinds of competencies required of futureemployees. Compensation policies and procedures may have to change becausejob requirements will change, and new incentive systems will probably have tobe developed. Because the firm cannot identify all the competencies that will berequired 5 to 10 years from now, it will have to offer new training and develop-ment programs along the way to satisfy those needs. Assessment procedureswill necessarily change as well, because different competencies will be requiredto function effectively at work. As a result of carrying out all this activity, thefirm may need to discharge, promote, or transfer some employees to accomplishits mission, and it will have to provide mechanisms to enable all remainingemployees to cope effectively with the changed environment.

It is surprising how that single event, an unexpectedly large number ofearly retirees, can change the whole ballgame. So it is with any system or net-work of interrelated components. Changes in any single part of the system havea reverberating effect on all other parts of the system. Simply knowing that thiswill occur is healthy, because then we will not make the mistake of confiningour problems to only one part. We will recognize and expect that whether weare dealing with problems of staffing, training, compensation, or labor rela-tions, all parts are interrelated. In short, the systems approach provides a con-ceptual framework for integrating the various components within the systemand for linking the HRM system with larger organizational needs.

To some, the activities of staffing, retention, development, and adjustmentare the special responsibilities of the HR department. But these responsibilitiesalso lie within the core of every manager’s job throughout any organization—and because line managers have authority (the organizationally granted right toinfluence the actions and behavior of the workers they manage), they have con-siderable impact on the ways workers actually behave.

Thus, a broad objective of HRM is to optimize the usefulness (i.e., the pro-ductivity) of all workers in an organization. A special objective of the HR de-partment is to help line managers manage those workers more effectively. AsDennis Donovan, executive vice president of HR for Home Depot noted, “CEOsand boards of directors are learning that human resources can be one of yourbiggest game-changers in terms of competitive advantage.”2

This is consistent with the findings of a recent survey of Australian CEOs,who listed the three most important factors critical to business success as (1) re-cruiting and retaining skilled employees, (2) increasing customer satisfaction,and (3) employing and developing leaders.3 To be sure, each of the responsibil-ities of HRM is shared by the HR department and the line managers, as shownin Table 1–2.

In the context of Table 1–2, note how line and HR managers share people-related business activities. Generally speaking, HR provides the technicalexpertise in each area, while line managers (or, in some cases, self-directed workteams) use this expertise to manage people effectively. In a small business, how-ever, line managers are responsible for both the technical and managerial





aspects of HRM. For example, in the area of retention, line managers are re-sponsible for treating employees fairly, resolving conflicts, promoting teamwork,and providing pay increases based on merit. To do these things effectively, theHR department has the responsibility to devise a compensation and benefits sys-tem that employees will perceive as attractive and fair. It also must establishmerit-increase guidelines that will apply across departments, and provide train-ing and consultation to line managers on all employee relations issues—such asconflict resolution and team building.

Why Does Effective HRM Matter?

There exists a substantial and growing body of research evidence showing astrong connection between how firms manage their people and the economicresults they achieve. This evidence is drawn from large samples of companiesfrom multiple industries; studies of the five-year survival rates of initial publicofferings; and research from the automobile, apparel, semiconductor, steel, oil

Table 1–2HRM ACTIVITIES AND THE RESPONSIBILITIES OF LINE MANAGERS AND THE HRDEPARTMENT

Activity Line management responsibility HR department responsibility

Staffing Providing data for job analyses and Job analysis, workforce planning, minimum qualifications; integrating recruitment; compliance with civil strategic plans with HR plans at the unit rights laws and regulations; application level (e.g., department, division); blanks, written tests, performance tests, interviewing candidates, integrating interviews, background investigations, information collected by the HR reference checks, physical examinationsdepartment, making final decisions on entry-level hires and promotions

Retention Fair treatment of employees, open Compensation and benefits, employee communication, face-to-face resolution relations, health and safety, employee of conflict, promotion of teamwork, servicesrespect for the dignity of each individual, pay increases based on merit

Development On-the-job training, job enrichment, Development of legally sound performancecoaching, applied motivational strategies, management systems, morale surveys, performance feedback to subordinates technical training; management and

organizational development; career planning, counseling; HR research

Adjustment Discipline, discharge, layoffs, transfers Investigation of employee complaints, outplacement services, retirement counseling

Managing Provide a vision of where the company or Provide expertise to facilitate the overall change unit is going and the resources to make process of managing change

the vision a reality





refining, and service industries.4 For example, a comprehensive study of workpractices and financial performance was based on a survey of over 700 publiclyheld firms in all major industries. The study examined the use of “best prac-tices” in the following areas:

� Personnel selection� Job design� Information sharing� Performance appraisal� Promotion systems� Attitude assessment� Incentive systems� Grievance procedures� Labor-management participation

Based on an index of “best-practice” prevalence, firms using more progres-sive policies in these areas were generally found to have superior financial per-formance. The 25 percent of firms scoring highest on the index performedsubstantially higher on key performance measures, as shown here:

Performance measure Bottom 25% 2nd 25% 3rd 25% Top 25%

Annual return to shareholders 6.5 6.8 8.2 9.4

Gross return on capital 3.7 1.5 4.1 11.3

The top 25 percent of firms—those using the largest number of “best practices”—had an annual shareholder return of 9.4 percent, versus 6.5 percent for firms inthe bottom 25 percent. Firms in the top 25 percent had an 11.3 percent grossrate of return on capital, more than twice as high as that of the remaining firms.After accounting for other factors likely to influence financial performance(such as industry characteristics), the human resource index remained signifi-cantly related to both performance measures.5

As this study shows, adoption of high-performance work practices can havean economically significant effect on the market value of a firm. How large an ef-fect? Recent work indicates a range of $15,000 to $45,000 per employee6 and thatsuch practices can affect the probability of survival of a new firm by as much as 22 percent.7 The extent to which they actually will pay off depends on the skilland care with which the many HR practices available are implemented to solvereal business problems and to support a firm’s operating and strategic initiatives.

Such high-performance work practices provide a number of importantsources of enhanced organizational performance.8 People work harder becauseof the increased involvement and commitment that comes from having morecontrol and say in their work. They work smarter because they are encouragedto build skills and competence. They work more responsibly because their em-ployers place more responsibility in the hands of employees farther down inthe organization. What’s the bottom line in all of this? HR systems have impor-tant, practical impacts on the survival and financial performance of firms, andon the productivity and quality of work life of the people in them.

Now that we know what HRM is, and why it matters, the next step is tounderstand some significant features of the competitive business environment





in which HRM activities take place. Four such features are globalization, tech-nology, e-commerce, and demographic changes.

FEATURES OF THE COMPETITIVE BUSINESSENVIRONMENT

Globalization

At its core, the globalization of business refers to the free movement of capital,goods, services, ideas, information, and people across national boundaries.Markets in every country have become fierce battlegrounds where both domes-tic and foreign competitors fight for market share. Foreign competitors can beformidable. For example, Coca-Cola earns more than 80 percent of its revenuesfrom outside the United States! The 500 largest firms in the world gross almost$15 trillion in revenues, and $731 billion in profits. From 1995 to 2003, thetotal revenues of the top 500 companies increased by 45 percent, profits nearlytripled, and employment jumped by 11 million.9

The Backlash Against Globalization. In no small part, the booming economies ofrecent years in developed countries have been fueled by globalization. Open bor-ders have allowed new ideas and technology to flow freely around the globe,accelerating productivity growth and allowing companies to be more competitivethan they have been in decades. Yet there is a growing fear among many peoplethat globalization benefits big companies instead of average citizens—of Americaor any other country.10 In the public eye, multinational corporations are synony-mous with globalization. In all of their far-flung operations, therefore, they bearresponsibility to be good corporate citizens, to preserve the environment, touphold labor standards, to provide decent working conditions and competitivewages, to treat their employees fairly, and to contribute to the communities inwhich they operate. Doing so will make a strong case for continued globalization.

Implications of Globalization for HRM. As every advanced economy becomesglobal, a nation’s most important competitive asset becomes the skills and cumu-lative learning of its workforce. Globalization, almost by definition, makes thistrue. Virtually all developed countries can design, produce, and distribute goodsand services equally well and equally fast. Every factor of production other thanworkforce skills can be duplicated anywhere in the world. Capital moves freelyacross international boundaries, seeking the lowest costs. State-of-the-art factoriescan be erected anywhere. The latest technologies move from computers in one nation, up to satellites parked in space, and back down to computers in anothernation—all at the speed of electronic impulses. It is all interchangeable—capital,technology, raw materials, information—all except for one thing, the most criticalpart, the one element that is unique about a nation or a company: its workforce. A workforce that is knowledgeable and skilled at doing complex things keeps acompany competitive and attracts foreign investment.11

In fact, the relationship forms a virtuous circle: Well-trained workers attractglobal corporations, which invest and give the workers good jobs; the good jobs,in turn, generate additional training and experience. We must face the fact that,regardless of the shifting political winds in Tokyo, Berlin, Washington, Beijing,or Budapest, the shrunken globe is here to stay. Productivity growth, coupled





with world-class educational systems, portable pensions and health insurance,and tax credits or loans for education and training are keys to improving livingstandards for all.12

And tomorrow? Our networks of suppliers, producers, distributors, servicecompanies, and customers will be so tightly linked that we literally will not beable to tell one locale from another. No political force can stop, or even slowdown for long, the borderless economy.13 The lesson for managers is clear: Beready or be lost.

Technology

It is no exaggeration to say that modern technology is changing the ways we liveand work. The information revolution will transform everything it touches—andit will touch everything. Information and ideas are key to the new creative econ-omy, because every country, every company, and every individual depends in-creasingly on knowledge. People are cranking out computer programs andinventions, while lightly staffed factories churn out the sofas, the breakfast cere-als, the cell phones. The five fastest growing occupations in the United States areall computer related, according to projections by the Bureau of Labor Statistics.14

Manufacturing still represents 14 percent of the GDP and 11 percent of allemployment in the United States, the world’s leading producer of manufac-tured goods. Technology has made astounding leaps in productivity possible.In fact, gains in manufacturing productivity have outstripped those in theoverall economy by 50 percent over the past 30 years. Indeed, the modern fac-tory is often a wonder to behold: amazing machines, doing various inter-changeable tasks in vast, spotless warehouses, just off the Interstate.15

In the creative economy, however, the most important intellectual propertyisn’t software or music. It’s the intellectual capital that resides in people. Whenassets were physical things like coal mines, shareholders truly owned them. But

New technology hascompletely changed theways we live and work





when the most vital assets are people, there can be no true ownership. The bestthat corporations can do is to create an environment that makes the best peoplewant to stay.16 Therein lies the challenge of managing human resources.

Impact of New Technology on HRM. Perhaps the most central use of technologyin HRM is an organization’s human resources information system (HRIS). In-deed, as technology integrates with traditionally labor-intensive HR activities,HR professionals are seeing improvements in response time and efficiency of thereport information available. Dozens of vendors offer HRIS applications rangingfrom benefits enrollment to applicant tracking, time and attendance records,training and development, payroll, pension plans, and employee surveys.17 Suchsystems are moving beyond simply storing and retrieving information to includebroader applications such as report generation, succession planning, strategicplanning, career planning, and evaluating HR policies and practices. In thatsense, today’s HRIS are tools for management control and decision making.

E-Commerce

Consider this forecast: “The Internet will change the relationship between con-sumers and producers in ways more profound than you can yet imagine. TheInternet is not just another marketing channel; it’s not just another advertisingmedium; it’s not just a way to speed up transactions. The Internet is the foun-dation for a new industrial order. The Internet will empower consumers likenothing else ever has . . . The Web will fundamentally change customers’ ex-pectations about convenience, speed, comparability, price, and service.”18

Whether it’s business-to-business (B2B) or business-to-consumer (B2C), elec-tronic (e-) commerce is taking off, with annual sales now exceeding $46 billion.Despite the burst dot-com bubble, e-commerce companies that understand whatconsumers want and can deliver it are still growing at a rate that few other con-sumer businesses their size have ever attained.19 As an example, consider searchengine Google. Google makes hundreds of millions of dollars selling advertisingthat is keyed to the words that people search for. Advertisers only pay if peopleclick. Advertisers like that model because they know exactly who looked at theirad, and they only pay if the ad is seen. As a result, major advertisers such as Fordand McDonald’s are increasing their spending on online advertising.20

Figure 1–1 illustrates the extent of the online revolution. The number of Internet users has rocketed from about a million in 1995 to an estimated 1.1 billion by 2006. Given that many users, the Internet will be a major factor in

1.2

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0.6

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01995 1998 2001 2004 2006

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Figure 1–1

The online revolution.Number of Internet users worldwide.(Source: How E-bizrose, fell, and will riseanew. BusinessWeek,May 13, 2002, p. 67.)





pricing. In industries such as books, music, and travel it already is. Jewelry,online bill payments, telecom, hotels, real estate, and software will be next.21

Retail e-commerce sites, so the thinking goes, will cut consumer prices bypitting a multitude of sellers against one another, allowing Web-surfing buyersto identify quickly the lowest possible price for any good. Web-based search en-gines will provide buyers with more information—and bargaining power—about products than ever before. Whether those predictions come to pass willdepend on several factors—the most important of which is how much eco-nomic activity finally does move online. As you read this, however, and as youponder the future of e-commerce, consider one inescapable fact: All of the peo-ple who make e-commerce possible are knowledge workers. The organizationsthey work for still have to address the human resource challenges of attracting,retaining, and motivating them to perform well.

Demographic Changes and Increasing Cultural Diversity

Employers are facing a chronic shortage of skilled help. The number as well asthe mix of people available to work are changing rapidly, as Figures 1–2 and 1–3illustrate. As Figure 1–2 shows, there will be a precipitous drop in the growth of

Figure 1–2

The shrinkingworkforce.Prime-ageemployees will bescarce, especiallycollege-educatedones.(Source: Too manyworkers? Not for long.BusinessWeek, May 20,2002, p. 127.)

Native-BornWhites

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1980–2000

2000–2020

19

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abor

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ith a

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*Assumes college graduation rate remains at 2000 level of 29% of all 30-year-olds

(in millions)





the labor force among prime-age employees between 2000 and 2020, especiallycollege-educated ones. Over the next 50 years, non-Hispanic whites will be aslim majority of the U. S. population. Hispanics will make up nearly a quarter ofthe population, with Asians, African Americans, and, to a much lesser extent,Native Americans, comprising the rest (see Figure 1–3). Currently, female par-ticipation has jumped to 60 percent from 50 percent two decades ago, and thelong-term trend toward earlier retirement has recently been reversed. Only 10 percent want to stop working altogether when they retire from their jobs.22

Implications for HRM. These trends have two key implications for managers:(1) The reduced supply of workers will make finding and keeping employees atop priority. (2) The task of managing a culturally diverse workforce, of har-nessing the motivation and efforts of a wide variety of workers, will present acontinuing challenge to management.

The organizations that thrive will be the ones that embrace the new demo-graphic trends instead of fighting them, which will mean even more women andminorities in the workforce—and in the boardrooms as well. IBM’s head of globaldiversity characterizes this as a “war for talent” as he ticks off various IBM proj-ects to develop talent among women, African Americans, Asians, homosexuals,and other groups. Workforce diversity is not just a competitive advantage. Today it’s a competitive necessity.

RESPONSES OF FIRMS TO THE NEW COMPETITIVEREALITIES

In today’s world of fast-moving global markets and fierce competition, the win-dows of opportunity are often frustratingly brief.23 “Three-C” logic (i.e., com-mand, control, compartmentalized information) dominated industrial society’sapproach to organizational design throughout the 19th and 20th centuries, buttrends such as the following are accelerating the shift toward new forms of organization in the 21st:24

� Smaller companies that employ fewer people.� The shift from vertically integrated hierarchies to networks of specialists.� The decline of routine work (sewing machine operators, telephone opera-

tors, word processors), coupled with the expansion of complex jobs that

Non-Hispanic Whites Non-Hispanic BlacksAsians and Pacific Islanders Native Americans

��

�� DATA: CENSUS BUREAU

Hispanics (any race)

3.3% 0.7%

10.2%12.0%

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0.9%

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13.6%

52.8%

Figure 1–3

America’s changingcomplexion.(Source: BusinessWeek,Aug. 28, 2000, p. 79.)





require flexibility, creativity, and the ability to work well with people (man-agers, software applications engineers, artists and designers).

� Pay tied less to a person’s position or tenure in an organization and more tothe market value of his or her skills.

� A change in the paradigm of doing business from making a product toproviding a service, often by part-time or temporary employees.

� Outsourcing of activities that are not core competencies of a firm (e.g.,payroll).

� The redefinition of work itself: constant learning, more higher-order think-ing, less nine-to-five mentality.

In response to these changes, many firms are doing one or more of the follow-ing: developing new forms of organization, restructuring (including downsiz-ing), adopting quality-management programs, reengineering work processes,and building flexibility into work schedules and rules. Let’s briefly considereach of these.

New Forms of Organization

One example of a new organizational form that is evolving from these changes isthe virtual organization, where teams of specialists come together to work on aproject—as in the movie industry—and disband when the project is finished. Virtual organizations are already quite popular in consulting, in legal defense, andin sponsored research. They are multisite, multiorganizational, and dynamic.25

More common in the information age, however, is the virtual workplace in which employees operate remotely from each other and from managers.26 They workanytime, anywhere—in real space or in cyberspace. The widespread availabilityof e-mail, teleconferencing, faxes, and intranets (within-company information

Work in the 21st centuryrequires constant learningand higher-order thinking,as more jobs shift frommanufacturing to services.




COMPANY EXAMPLE

The Modular Corporation inAction


networks) facilitates such arrangements. Compelling business reasons, such as re-duced real estate expenses, increased productivity, higher profits, improved cus-tomer service, access to global markets, and environmental benefits, drive theirimplementation. Jobs in sales, marketing, project engineering, and consultingseem to be best suited for virtual workplaces because individuals in these jobs already work with their clients by phone or at the clients’ premises. Such jobs areservice and knowledge oriented, dynamic, and evolve according to customerrequirements.

A third example of a new organizational form is the modular corporation—that’s right, modular. The basic idea is to focus on a few core competencies—those a company does best, such as designing and marketing computers orcopiers—and to outsource everything else to a network of suppliers.27 If designand marketing are core competencies, then manufacturing or service units aremodular components. They can be added or taken away with the flexibility ofswitching parts in a child’s Lego set. Does the modular corporation work? As anexample, consider Dell Computer.

DELL COMPUTERDell prospers by remaining perfectly clear about what it is and what it does.“We are a really superb product integrator. We’re a tremendously good sales-and-logistics company. We’re not the developer of innovative technology.”28

Says CEO Michael Dell, “We can grow at a rapid rate by focusing on our corebusiness.” Grow it has, from $3.4 billion in sales in fiscal 1995 to $41.4 billionin 2004.29

Dell sells IBM-compatible personal computers (PCs) in competition withHP-Compaq, Apple, and Sony. But while others rely primarily on computerstores or dealers, Dell sells directly to consumers, who read about the productson the company’s Web page, in newspaper ads, or catalogues. Buyers either or-der online or call a toll-free number and place their orders with a staff of well-trained salespeople.

Dell doesn’t build a zillion identical computers, flood them out to retailers,and hope you like what you see. Instead, it waits until it has your custom order(and your money), then orders components from suppliers and assembles theparts. At its OptiPlex factory in Austin, Texas, for example, 84 percent of ordersare built, customized, and shipped within eight hours. Some components, likethe monitor or speakers, may be sent directly from the supplier to your home(never passing through Dell) and arrive on your doorstep at the same time aseverything else.30 By eliminating intermediaries—and the retailer’s typical 13 percent markup—Dell can charge lower prices than its rivals.31

Dell is not an exclusively American, or Asian, or European concept. It is acustomer concept. Its Web site, www.Dell.com, is one of the world’s highest vol-ume, most dynamic, Internet communication sites, with more than 1.4 billionpage requests per quarter.32

Modular companies are flourishing in two industries that sell trendy prod-ucts in a fast-changing marketplace: apparel (Nike and Reebok are modular pioneers) and electronics. Such companies work best when they accomplish





two objectives: (1) collaborating smoothly with suppliers and (2) choosing theright specialty. Companies need to find loyal, reliable vendors they can trustwith trade secrets, and they need the vision to identify what customers willwant, not just what the company is technically good at. For example, Dell dealswith hundreds of suppliers, but about 90 percent of its parts and componentscome from two dozen companies. It works closely with them to make sure theparts are designed for snap-in assembly and for just-in-time delivery.33

Restructuring, Including Downsizing

Restructuring can assume a variety of forms, of which employment downsizingis probably the most common. Companies can restructure by selling or buyingplants or lines of business, or by laying off employees. Downsizing, the plannedelimination of positions or jobs, has had, and will continue to have, profoundeffects on organizations, managers at all levels, employees, labor markets, cus-tomers, and shareholders. Based on the type of restructuring in question, onestudy examined its effects on profitability and stock returns for 500 representa-tive companies listed on the New York Stock Exchange (Standard & Poor’s 500)over an 18-year period (1982–2000). Companies are included in the S&P 500because of their size and financial contribution to the market.

The study began by classifying the companies each year as stable employ-ers or employment or asset downsizers or upsizers, and researchers observedthe subsequent effects over the following three years.34 In terms of profitability(return on assets) all categories of downsizers generated lower returns on assetsthan either stable employers or upsizers in the year prior to the announcementof the layoffs, in the year in which the layoffs occurred, and in the two subse-quent years. This conclusion held on an industry-adjusted basis as well.

In terms of stock performance, on an industry-adjusted basis, only the assetupsizers yielded returns that were significantly higher than those of all othergroups, including stable employers. The cumulative total return by the end ofYear 2 for a $1 investment was $1.69 for stable employers, $1.72 for both em-ployment and asset downsizers, and $2.42 for asset upsizers.

Employment downsizers reduced their workforces by an average of 11 percent. Relative to their industries, they were able to attain a return on assetsthat was only 0.3 percent above their industry average by Year 2. The benefitsof downsizing seem small when compared with the human cost. The messageto employers is clear: Don’t try to shrink your way to prosperity. Instead, thebest way to prosper is by growing your business.

Quality-Management Programs

Total quality management (TQM) is a set of principles and practices whosecore ideas include understanding customer needs, doing things right the firsttime, and striving for continuous improvement. The TQM revolution began inthe 1980s, based on the principles of statistical quality control for manufactur-ing processes developed by W. Edwards Deming.35 Motorola, Xerox, and Fordpioneered its application in the United States.

The group problem-solving focus of TQM encourages employee empower-ment by using the job-related expertise and ingenuity of the workforce. Cross-functional teams develop solutions to complex problems, often shortening the





time taken to design, develop, or produce products and services. Because a teammay not include a representative of management, the dividing line between laborand management often becomes blurred in practice, as workers themselves beginto solve organizational problems. Thus, adoption of TQM generally requires cul-tural change within the organization as management reexamines its past methodsand practices in light of the demands of the new philosophy.36

Unfortunately, TQM programs, or other quality-assurance strategies such assix sigma (an effort to make error-free products 99.9997 percent of the time, or just3.4 errors per million opportunities) have not been the final answer to customersatisfaction and productivity improvement. In many cases managers view qualityas a quick fix and are disillusioned when results prove difficult to achieve. It gen-erally takes three to five years before quality management programs become insti-tutionalized,37 and some CEOs and managers are unwilling to make that kind ofcommitment. When such initiatives do work, it is often because managers havemade major changes to their philosophies and HR programs. In fact, organizationsknown for the quality of their products and services strongly believe that employ-ees are key to those results. On the other hand, defects don’t matter much if a com-pany is making a product no one wants to buy.38

Reengineering

More recently, organizations have moved beyond TQM programs to a morecomprehensive approach to redesigning business processes called reengineer-ing. Reengineering is the fundamental rethinking and radical redesign of busi-ness processes to achieve dramatic improvements in cost, quality, and speed.39

A process is a collection of activities (such as procurement, order fulfillment,product development, or credit issuance), that takes one or more kinds of inputand creates an output that is of value to a customer. Customers may be internalor external. Consider credit issuance as an example. Instead of the separate jobsof credit checker and pricer, the two may be combined into one “deal struc-turer.” Such integrated processes may cut response time and increase efficiencyand productivity. Employees involved in the process are responsible for ensur-ing that customers’ requirements are met on time and with no defects, and theyare empowered to experiment in ways that will cut cycle time and reduce costs.Result: Less supervision is needed, while workers take on broader responsibil-ities and a wider purview of activities.

HR issues are central to the reengineering of business processes.40 Reengi-neering requires that managers create an environment and an organizational cul-ture that embraces, rather than resists change. The effectiveness of such effortsdepends on effective leadership and communication, both of which are people-related business processes. In fact, changes in job analyses, selection, training,performance management, career planning, compensation, and labor relationsare all necessary in order to complement and support reengineering efforts.

Flexibility

While France, Germany, and Japan cut back the annual number of hoursworked per person from 1970 to 2002 by 23.5, 17.1, and 16.6 percent, respec-tively, Americans have headed in the opposite direction, adding 20 percentmore hours to their annual total.41 For many of them, however, 9 A.M. to 5 P.M.





ETHICAL DILEMMAConflict between American and Foreign Cultural Values

Each chapter of this book contains a brief sce-nario that illustrates a decision-making situa-tion that could result in a breach of acceptablebehavior. Such situations pose ethical dilem-mas. To be ethical is to conform to moralstandards or to conform to the standardsof conduct of a given profession orgroup (e.g., medicine, auditing). Ethi-cal decisions about behavior take ac-count not only of one’s own interestsbut also, equally, the interests of thoseaffected by a decision. What would yourecommend in response to the followingsituation?46

You are the director of HR for a large, south-western teaching hospital. This hospital has acooperative program with a major teaching hos-pital in Saudi Arabia. Each year several doctorsfrom your hospital spend the year in SaudiArabia teaching and doing research. The stay inSaudi Arabia is generally considered both lucra-tive as well as professionally rewarding.

This morning you had a visit from two ofthe doctors in the hospital who had been re-jected for assignment to Saudi Arabia. Theywere very upset, as they are both very qualified

and ambitious. You had carefully ex-plained to them that while the selection

committee was impressed with theirabilities, the members had decidedthat because they were Jewish, itwould be best if they were disquali-

fied from consideration. In spite of vig-orous protests from the two doctors, you

had held your ground and supported thecommittee’s decision. However, as you sit athome reading that evening, the situation re-plays itself in your mind, and you think aboutthe decision and feel a little uncertain.

Is the director of HR correct in supportingthe committee’s decision? What criteria shouldthe committee, and the director of HR, use tomake a decision such as this? What would yourecommend?

isn’t working anymore. Time is employees’ most precious commodity. Theywant the flexibility to control their own time—where, when, and how theywork. They want balance in their lives between work and leisure. Flexibility inschedules is the key, as organizations strive to retain talented workers.42

Small-business owners in particular are finding that flexibility on hours isa cheap benefit that allows them to compete with large companies whoseschedules may be more rigid. As a result, many are hiring members of a grouponce shunned by employers—mothers of young children. “We’re learning thatthe trade-off if they have to leave work for something child related is loyalty inreturn for that flexibility,” says Susan Lyon, president of Lyon & Associates, asmall advertising and marketing firm in San Diego.43

Fully 57 percent of U.S. employers offer flextime to their employees.44

Indeed, a recent poll found 56 percent of managers reporting that employeeswith flexible schedules are more productive per hour. That kind of positivebuzz is what is driving work redesign processes to enhance flexibility atcompanies such as Ernst & Young, HP-Compaq, Bank of America, and GeneralMills.45




People make organizations go. How the people are selected, trained, andmanaged determines to a large extent how successful an organization will be.As you can certainly appreciate by now, the task of managing people in today’sworld of work is particularly challenging in light of the competitive realities wehave discussed. To survive, let alone compete, firms need a strategy to compete,and HR strategy must be consistent with it. Federal Express and United ParcelService illustrate this interplay nicely.

EMPLOYMENT SYSTEMS AND BUSINESS STRATEGIES AT FEDEX AND UPS47

Explanations for what makes firms competitive are turning more frequently tothe notion of “core competencies” that are unique to firms.48 In this example,let us consider some unique competencies that differentiate services and, inturn, drive the competitiveness of the two firms in question.

Although both FedEx and UPS are in the shipping business, it is difficultto find two companies with people-management practices that are more dif-ferent. FedEx has no union, and its workforce is managed using the latest HRMtools. For example, both individual and group performance are assessed, andboth influence pay. The company has pay-for-suggestion systems, quality-of-work-life programs, and a variety of other arrangements that empower em-ployees and increase their involvement. Employees at FedEx have played animportant role in helping design the organization of work and the way tech-nology has been used.

UPS, on the other hand, uses none of these HRM practices. Employees haveno direct say over issues regarding how work is organized. Their jobs are de-signed by industrial engineers according to time-and-motion studies. The per-formance of each employee is measured and evaluated against companystandards for each task, and employees receive daily feedback on their perfor-mance. The only effort at employee involvement is collective bargaining overcontract terms through the Teamsters’ Union, which represents drivers. Man-agement, rather than the union, appears to be the force maintaining this systemof work organization. It has shown little interest in moving toward work sys-tems such as the kind used at FedEx.

The histories of the two companies help explain the difference in manage-ment practices. FedEx was founded by Fred Smith, a Yale graduate with a back-ground in economics. At UPS, on the other hand, virtually every executivebegan by driving a truck. Says one logistics consultant, “The UPS guys getahead by scrambling all the time. They get promoted and hustle like mad andyell at the drivers to make their section profitable and get their bonus. Theydon’t care about image.They’re tough. Their attitude is, ‘Whaddaya mean I can’tdrive through that brick wall?’”49

The material rewards for working at UPS are substantial and may morethan offset the low levels of job enrichment and the tight supervision. The com-pany pays the highest wages and benefits in the industry. It also offers employ-ees gain-sharing and stock ownership plans. In contrast to FedEx, UPS fillsvirtually all promotions (98 percent) from within the company, offering entry-level drivers excellent long-term prospects for advancement.

COMPANY EXAMPLE






As a result of these material rewards, UPS employees are highly motivatedand loyal to the company, despite a 16-day strike in 1997. With 326,000 employ-ees, versus 141,000 at FedEx, UPS drivers, the most important work group in thedelivery business, make 12.4 million daily deliveries, versus 4.5 million at FedEx.Although FedEx hauls far fewer packages than UPS, 71 percent of them go byplane, not truck. That means that FedEx’s yield, or revenue per package, is muchhigher.50

Why does it make sense for UPS to rely on highly engineered systems thatare generally thought to contribute to poor morale and motivation, but then tooffset the negative effects with strong material rewards? FedEx, in contrast, of-fers an alternative model with high levels of morale and motivation and lowermaterial rewards. Differences in technology do not explain it. FedEx is knownfor its pioneering investments in information systems (it was the first to installelaborate scanning and tracking equipment, which enabled it to tell customersexactly where their package was), but UPS has responded recently with its ownwave of computerized operations. Yet the basic organization of work at UPS hasnot changed.

In fact, the employment systems in these two companies are driven by theirbusiness strategies. FedEx is the smaller of the two, operating until recentlywith only one hub in Memphis and focusing on the overnight package-delivery service as its platform product. UPS, in contrast, has a much largerscale of business. With 150,000 trucks and 610 planes, versus 94,800 trucksand 637 planes for FedEx (worldwide), UPS has a much larger overall shareof the on-time delivery business (36 percent of the market, versus 16 percentfor FedEx).51

The scale and scope of business at UPS demand an extremely high level ofcoordination across its network of delivery hubs, coordination that is achiev-able only through a highly regimented and standardized approach to job design.Changes in practices and procedures essentially have to be systemwide to beeffective. Such coordination is compatible with the systemwide process of col-lective bargaining but not with significant levels of autonomy of the kind asso-ciated with shop-floor decision making by employees.

FedEx, on the other hand, historically had only one hub, which meant thatthere were fewer coordination problems. This allowed considerable scope forautonomy and participation in shaping work decisions at the group level.

What is the lesson in this example? When it comes to managing people,there may be no single set of “best practices” for all employers. Firms thatare in competition with one another work hard to differentiate their productsand services and to find niches in markets where they are protected fromcompetition. Differentiating products and services is one of the essentialfunctions of strategic management. Distinctive human resource practices en-courage differentiation by shaping the core competencies that determinehow firms compete.

Each chapter of this book focuses on a different aspect of HRM and consid-ers its impact on three important outcomes: productivity, quality of work life,and profits. In the next two sections we will examine the concepts of produc-tivity and quality of work life. In the next chapter we will focus on the contri-bution of effective HRM to profits.




COMPANY EXAMPLE


PRODUCTIVITY: WHAT IS IT AND WHYIS IT IMPORTANT?

In general, productivity is a measure of the output of goods and services rela-tive to the input of labor, capital, and equipment. The more productive an in-dustry, the better its competitive position because its unit costs are lower.When productivity increases, businesses can pay higher wages without boost-ing inflation. As Figure 1–4 illustrates, percentage changes in U.S. productivityhave been large (particularly in 2002 and 2003) and positive over the pastdecade, largely, but not completely, due to the effect of information technol-ogy.52 A recent study found that innovative HR practices in manufacturing (e.g.,production ideas drawn from nonmanagerial employees, job rotation, tying payto performance) may account for as much as 89 percent of the growth in whateconomists call “multifactor” productivity. Multifactor productivity is a mea-sure of how businesses enhance production by combining workers and ma-chines using technology, production processes, and managerial practices.53

Improving productivity simply means getting more out of what is put in. Itdoes not mean increasing production through the addition of resources, such astime, money, materials, or people. It is doing better with what you have. Im-proving productivity is not working harder; it is working smarter. Today’sworld demands that we do more with less—fewer people, less money, lesstime, less space, and fewer resources in general. These ideas are shown graph-ically in Figure 1–5 and illustrated in the following company example.

ONE TRUCK A MINUTE AT FORD’S KANSAS CITY PLANT54

Ford’s Kansas City automobile plant is one of the largest in the United States,turning out more than 490,000 F-150 pickup trucks, Ford Escapes, and MazdaTributes each year. The plant is “flexible,” meaning that with just a little tweak-ing it can produce any kind of car that Ford makes. Mostly it produces F-150s,the best-selling vehicle of any kind in the United States for the past 22 years. Thenew model has so many options, including a paint called Screaming Yellow, thatthere are more than one million possible combinations.

In a flexible plant, each vehicle is assigned a metal pallet on which it will bebuilt. The pallet has a reprogrammable ID card that contains data on the vehicle-to-be. Parts arrive four to six hours before they’re installed, in the sequence inwhich they will be used. Assembly is synchronized by computers down to thelast rear-view mirror. As an example, consider the 11 people who attach sus-pensions to vehicle frames. Every task they do is listed on a computer printoutposted at each workstation. They have 57.5 seconds to get their jobs done.

Ford is making a companywide shift to flexible manufacturing. Doing sowill enable it to save $2 billion over the next 10 years. When plant managerDave Savchetz was asked what’s changed over the years he replied: “We didn’thave robots and computers 30 years ago.” As a manager, the basic conceptshaven’t changed, and the magnitude of the operation still overwhelms him (theplant covers 18 acres). But what impresses him most he says, is the way thatauto-manufacturing facilities, such as the one in Kansas City, have made giant,often unnoticed leaps in productivity in order to stay competitive in the mod-ern marketplace. How big a leap? The plant produces one truck a minute.





Productivity Improvement: Steps Managers Can Take

While information technology clearly drives improvements in productivity, soalso does effective management. Some steps managers can take include thefollowing:

� Efforts to rebuild employee loyalty that has been eroded by downsizing,restructuring, and mergers. Firms such as Xerox, Monsanto, and UnitedTechnologies are doing it by boosting training budgets for survivors andoverhauling pay plans to give survivors a bigger stake in the company’ssuccess.55

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Annual percentchange in U.S.productivity,1995–2003.(Source: J. Mehring,What’s lifting productivity. BusinessWeek, May 24, 2004, p. 32.)

Figure 1–5

More productiveorganizations getmore goods andservices out of agiven amount oflabor, capital, andequipment thando less productiveorganizations.

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� Helping to make both unionized and nonunionized workers aware that theirrewards depend ultimately on production.

� Recognizing that there is no “quick fix” approach. Worker training, work re-design, product reengineering—all must be linked to the priorities of the busi-ness plan and integrated into a comprehensive productivity-improvementstrategy.

� Recognition of the crucial importance of continuous improvements in qual-ity (an important aspect of productivity improvement) through preventionof errors. Doing so requires a reshaping of attitudes from the boardroom tothe loading dock so that quality becomes more important than simply get-ting a product out the door.

Greater productivity benefits organizations directly (i.e., it improves theircompetitive position relative to that of rivals), and it benefits workersindirectly (e.g., in higher pay and improved purchasing power). But manyworkers want to see a tighter connection between working smarter and thetangible and psychological rewards they receive from doing their jobs well.They want to see significant improvements in their quality of work life.

QUALITY OF WORK LIFE: WHAT IS IT?

There are two ways of looking at what quality of work life (QWL) means.56 Oneway equates QWL with a set of objective organizational conditions and prac-tices (e.g., promotion-from-within policies, democratic supervision, employeeinvolvement, safe working conditions). An example of this approach is shownin Figure 1–6. The other way equates QWL with employees’ perceptions thatthey are safe, relatively well satisfied, they have reasonable work-life balance,and they are able to grow and develop as human beings. This way relates QWLto the degree to which the full range of human needs is met.

In many cases these two views merge: Workers who like their organizationsand the ways their jobs are structured will feel that their work fulfills them. Insuch cases, either way of looking at one’s quality of work life will lead to acommon determination of whether a good QWL exists. However, because peo-ple differ and because the second view is quite subjective—it concedes, for ex-ample, that not everyone finds such things as democratic decision making andself-managed work teams to be important components of a good QWL—we willdefine quality of work life in terms of employees’ perceptions of their physicaland mental well-being at work.

Current Status of QWL Efforts

In theory, QWL is simple—it involves giving workers the opportunity to makedecisions about their jobs, the design of their workplaces, and what they needto make products or to deliver services most effectively. It requires managers totreat workers with dignity. Its focus is on employees and management operat-ing the business together.

In practice, its best illustrations can be found in the auto, steel, food,electronics, and consumer products industries and in plants characterized byself-managing work teams, flat organizational structures, and challenging





roles for all. It requires a willingness to share power, extensive training forworkers and managers, and considerable patience by all involved. Workersmust get to know the basics of cost, quality, profits, losses, and customer sat-isfaction by being exposed to more than a narrowly defined job—they mustlearn to think and act like businesspeople.57 Managers must come to under-stand their new role: leaders, helpers, and information gatherers. None ofthis is simple or easily done, and it may take several years to become fullyintegrated into a business. Now that we understand the concepts of produc-tivity and QWL, let’s examine the impact of effective HRM on them as wellas on the bottom line.

BUSINESS TRENDS AND HR COMPETENCIES

Over the past decade, organizations have become more complex, dynamic, andfast paced. As a result, senior managers recognize that attracting, retaining, andmanaging people effectively is more important than ever. In leading-edge com-panies, HR professionals are proficient in areas such as the following, althoughthis is by no means an exhaustive list:58

� Their organization’s business model—how their organization competes forbusiness in the product or service markets in which it operates. This also

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Quality of work life through quality relationships, as practiced by the Adolph Coors Company ofGolden, Colorado.





IMPACT OF EFFECTIVE HRM ON PRODUCTIVITY, QUALITY OFWORK LIFE, AND THE BOTTOM LINE

Labor markets are the tightest they have been indecades. For most of the 1990s, downsizing setthe tone for the modern employment contract.As companies frantically restructured to copewith slipping market share or heightenedcompetition, they tore up old notions of paternalism. They told employees,“Don’t expect to spend your life atone company anymore. You are re-sponsible for your own career, so getall the skills you can and prepare tochange jobs, employers, even industries.As for the implicit bond of loyalty thatmight have existed before, well, forget it.” “Inthese days of fierce global competition, loyaltyis an unaffordable luxury.”59 Today, faced withthe retirements of large numbers of babyboomers (those born between 1946 and 1964),and impending labor shortages, employershave changed their tune. Now it’s, “Don’t leave.We need you. Work for us—you can build a ca-reer here.” Employers are going to great lengthsto persuade employees that they want them to stay for years. According to a recent survey,

employees are less loyal to their companies, andthey tend to put their own needs and interestsabove those of their employers. More often theyare willing to trade off higher wages and bene-

fits for flexibility and autonomy—job char-acteristics that allow them to balance

their lives on and off the job. Almost9 out of every 10 workers live withfamily members, and nearly half carefor dependents, including children,

elderly parents, or ailing spouses.60

Among employees who switched jobs inthe last five years, pay and benefits rated in

the bottom half of 20 possible reasons they didso. Factors rated highest were “nature of work,”“open communication,” and “effect on personal/family life.” What are the implications of theseresults? When companies fail to factor inquality-of-work-life issues and quality-of-life issues when introducing any of the popularschemes for improving producti-vity, the onlything they may gain is a view of the backs oftheir best people leaving for friendlieremployers.61

includes understanding the constraints that managers face, as well as theneeds of internal and external customers.

� Basic business literacy—corporate finance, marketing, accounting, informa-tion technology, and general management.

� Functional areas within HR—legal requirements, recruitment, staffing,training and development, performance management, compensation andbenefits, labor and employee relations, occupational safety and health.

� Listening skills—as well as the courage to raise difficult issues with seniorexecutives based on what you have learned by listening.

� Skills as a strategic business partner—creating an overall talent or peoplemindset; creating an HR strategy that aligns people, processes, and systems;implementing change; developing human capital metrics that are alignedwith the strategy of the company; the ability to assess talent during the due-diligence phase of a proposed merger or acquisition; and ensuring that ethi-cal standards are actually practiced.





IMPLICATIONS FOR MANAGEMENT PRACTICE

The trends we have reviewed in this chaptersuggest that the old approaches to managingpeople may no longer be appropriate responsesto economic or social reality. A willingness toexperiment with new approaches to manag-ing people is healthy. To the extent thatthe newer approaches do enhance pro-ductivity, QWL, and profits, everybodywins. Competitive issues cannot sim-ply be willed away, and because of thiswe may see even more radical experi-ments in organizations. The traditionalrole of the manager may be blurred furtheras workers take a greater and greater part inplanning and controlling work, not simply do-ing what managers tell them to do. For example,

under its “Work-Out” program, General Electricholds corporate “town meetings” at whichlower-level blue- and white-collar employeesand even customers grill bosses and suggest

ways to improve efficiency. The boss is sup-posed to approve or deny most sugges-

tions immediately. The aim isn’t toreduce the number of employees, butto get every employee involved in im-proving efficiency. “Work-Out” is key

to the company’s sustained productiv-ity growth in the 21st century. Programs

such as GE’s suggest that human resourcemanagement, an essential part of the jobs of allmanagers, will play an even more crucial role inthe future world of work.

THE 21ST-CENTURY CORPORATION

Management systems that produce profits through people seem to share sevendimensions in common. Let’s briefly examine each one.

1. Employment security. Such security is fundamental to most other high-performance management practices. The reason is that innovations inwork practices or other forms of worker–management cooperation or pro-ductivity improvement are not likely to be sustained over time whenworkers fear that by increasing productivity they will work themselvesout of a job. Additionally, if the goal is to avoid layoffs, organizations willbe motivated to hire sparingly in order to keep their labor forces smallerand more productive.

2. Selective hiring. This requires several things, the first of which is havinga large applicant pool from which to select. Second, the organizationneeds to be clear about the most critical skills and attributes in the appli-cant pool. At Southwest Airlines, for example, applicants for flight atten-dant positions are evaluated in interviews on the basis of initiative,judgment, adaptability, and their ability to learn. Third, the skills andabilities sought should be consistent with particular job requirements andthe organization’s approach to the market (e.g., high customer service).Fourth, they screen on attributes that are difficult to change through train-ing. For example, technical skills are easier to acquire than teamwork anda service attitude.

Human ResourceManagement

in Action: Conclusion





3. Self-managed teams and decentralization are basic elements of organi-zation design. Teams substitute peer-based control for hierarchical con-trol of work. They also make all of the people in a firm feel accountableand responsible for the operation and success of the enterprise, not just afew people in senior management. This increased sense of responsibilitystimulates more initiative and effort on the part of everyone involved. Bysubstituting peer for hierarchical control, teams permit removal of layersof hierarchy and the absorption of tasks previously performed by admin-istrative specialists. The tremendously successful natural foods grocerystore chain, Whole Foods Markets, is organized on the basis of teams. It at-tributes much of its success to that arrangement.

4. Comparatively high compensation contingent on organizational perfor-mance. It is simply not true that only certain industries can or should payhigh wages. The Home Depot has been extremely successful and prof-itable. It operates in a highly competitive environment, and even though itemphasizes everyday low pricing as an important part of its business strat-egy, it pays its staff comparatively well for the retail industry. It hires moreexperienced people with building-industry experience, and it expects itssales associates to provide a higher level of customer service. Broad-basedstock ownership also figures prominently in high-performance work sys-tems. Firms such as Wal-Mart, AES Systems, and Microsoft encourageshare ownership, but that is only one part of a broader philosophy and cul-ture that incorporates other practices such as training, information sharing,and delegation of responsibility.

5. Extensive training. Training is an essential component of high-performancework systems because these systems rely on front-line employee skill andinitiative to identify and resolve problems, to initiate changes in workmethods, and to take responsibility for quality. Firms such as the Men’sWearhouse (an off-price specialty retailer of men’s tailored business attireand accessories) and Motorola use training as a source of competitive ad-vantage. Motorola mandates 40 hours of training per employee per year.It is simply part and parcel of the overall management process of thesefirms.

6. Reduced differences in status. The fundamental premise of high-performance management systems is that organizations perform at ahigher level when they are able to tap the ideas, skill, and effort of all oftheir people. Reducing the status distinctions that separate individualsand groups, causing some to feel less valued, helps make all members ofan organization feel important and committed. Sam Walton, founder ofWal-Mart, was one of the most underpaid CEOs in the United States. Hewasn’t poor, for he owned stock in his company. He also encouraged stockownership for his employees. Having his fortune rise and fall along withthose of other employees produces a sense of common fate and reducesstatus differences.

7. Sharing of information. The sharing of information on such things as financial performance, strategy, and operational measures conveys to an organization’s people that they are trusted. Even motivated and trainedpeople cannot contribute to enhancing organizational performance if theydon’t have information on important dimensions of performance andtraining on how to use and interpret that information. John Mackey, CEO





of Whole Foods Markets, states: “If you’re trying to create a high-trust organization . . . an organization where people are all-for-one and one-for-all, you can’t have secrets.”

It may appear easy to create a high-performance organization, but if thatwere so, then all firms would be as successful as the ones mentioned here.Don’t be fooled. Implementing these ideas in a systematic, consistent fashion istough, and it remains rare enough to be an important source of competitive ad-vantage for firms in a number of industries. The bottom line is that manage-ment is a human art and getting more so as information technology takes overroutine tasks. Progressive managers understand that they will provide compet-itive advantage by tapping employees’ most essential humanity: their ability tocreate, judge, imagine, and build relationships. As you can see from this case,managing 21st-century organizations will be fast-paced, exciting, and full ofpeople-related business challenges.

SUMMARY

People are a major component of any business, and the management of people(or human resource management, HRM) is a major part of every manager’s job.It is also the specialized responsibility of the HR department. In fact, we use theterm “strategic HRM” to refer to the wisest possible use of people with respectto the strategic focus of the organization. HRM involves five major areas:staffing, retention, development, adjustment, and managing change. Togetherthey compose the HRM system, for they describe a network of interrelated com-ponents. The HRM function is responsible for maximizing productivity, qualityof work life, and profits through better management of people.

The competitive business environment of the 21st century reflects factorssuch as an aging and changing workforce in a high-tech workplace that demandsand rewards ever-increasing skill and increasing global competition in almostevery sector of the economy. In response, new organization forms, such as thevirtual corporation, the virtual workplace, and the modular corporation, are appearing. The new forms imply a redistribution of power, greater participationby workers, and more teamwork. Firms are also restructuring, reengineering,implementing quality-improvement programs, and building flexibility intowork schedules in order to support their competitive strategies. The challengeof attracting, retaining, and motivating people has never been greater.

One of the most pressing demands we face today is for productivity improvement—getting more out of what is put in, doing better with what wehave, and working smarter, not harder. Nevertheless, increased productivitydoes not preclude a high quality of work life (QWL). QWL refers to employees’perceptions of their physical and psychological well-being at work. It involvesgiving workers the opportunity to make decisions about their jobs, the designof their workplaces, and ensuring work-life balance. Its focus is on employeesand management operating a business together. HR professionals can help byserving as strategic partners with operating managers, by demonstrating businessand HR literacy, and by having the courage to raise difficult issues with seniormanagers.





DISCUSSION QUESTIONS

1–1. What are the HRM implications of globalization, technology, and e-commerce?1–2. How will demographic changes and increasing diversity in the workplace affect

the ways that organizations manage their people?1–3. Considering everything we have discussed in this chapter, describe manage-

ment styles and practices that will be effective for your country’s businesses inthe next decade.

1–4. What difficulties do you see in shifting from a hierarchical, departmentalizedorganization to a leaner, flatter one in which power is shared between workersand managers?

1–5. How can effective HRM contribute to improvements in productivity and qual-ity of work life?

APPLYING YOUR KNOWLEDGE

Employee Participation and Customer Satisfaction*

“Joe and I virtually share everything. We sit together. We’re in meetings together. We’retogether even when we’re apart.” So says R. Timothy Epps, former vice president of people systems at Saturn Corporation. The partner to which he refers is Joseph D.Rypkowski, former vice president of the United Auto Workers (UAW). This partneringbetween management and labor is the crux of Saturn Corporation’s revolutionary idea.Not only are Epps and Rypkowski “paired,” but so are Saturn’s president and the UAW’stop boss. From the top management level down through the ranks, both represented andnonrepresented workers have partners, and, unlike many other organizations with ad-versarial labor–management relations, the UAW and Saturn’s management work together

staffingretentiondevelopmentadjustmentmanaging changeHRM systemauthorityglobalizationhuman resource information system

virtual organizationvirtual workplacerestructuringdownsizingtotal quality managementsix sigmareengineeringproductivityquality of work life

KEY TERMS

Case 1–1

*Adapted from: D. A. Aaker. (1994). Building a brand: The Saturn story, California Management Review, 36 (2), 114–133. R. Blumenstein (1997, Apr. 15). GM’s first-quarter profit soared 76%, aidedby strength in North America, The Wall Street Journal, pp. A3, A5. S. Rubinstein, M. Bennett, & T. Kochan. (1992). The Saturn partnership: Co-management and the reinvention of the local union,in B. E. Kaufman & M. M. Kleiner (eds.), Employment representation, Ithaca, NY: ILR Press. SaturnCompany Web page www.saturn.com. GM: Why strong profits aren’t good enough. BusinessWeek,Dec. 27, 1999, p. 56. G. L. White (2000, Oct. 6). Late to the fair, Saturn is set to unveil small SUV.The Wall Street Journal, pp. B1, B4.





as teams in virtually every facet of the operation. According to Epps, “We’re committedto an entirely different set of beliefs. One is to have UAW involvement in all aspects ofthe business. The other crucial principle is that we believe those people affected by a de-cision should be involved in that decision.”

Saturn Corporation is a wholly owned subsidiary of General Motors (GM). GM’s mar-ket share in the United States is down to 29.4 percent, and GM, the largest industrial cor-poration in the world, has been struggling of late. GM is Detroit’s high-cost producer.Saturn is part of GM’s strategy to get its North American automobile business back in gear.

The genesis of the Saturn experiment in teamwork occurred in February 1984 withthe establishment of Group 99. This group consisted of 99 employees representing abroad cross section of UAW members, GM managers, and staff from more than 50 plantsaround the country.

The goal of Group 99 was to study other top-performing, globally successful corpo-rations and create a new approach to building a small car in the United States. The hopewas that this step would enable GM to compete effectively in the small-car market,something it had been unable to do in the past.

After visiting and studying about 60 benchmark companies, Group 99 concludedthat employees did their best work and were most committed when they felt they werepart of the decision-making process. Their recommendation was that Saturn, with itsheadquarters in Troy, Michigan, and its manufacturing operations in Spring Hill, Tennessee, would have to operate with a totally new and different philosophy. Accord-ing to Epps, “The primary goal is to create a culture in which employees accept owner-ship for the direct labor functions they perform, but to also create a culture that reachesout and helps them understand the systems that support them.”

To enable Saturn to operate with a completely new philosophy, GM created Saturnas a separate subsidiary on January 7, 1985. This autonomy allowed a new structure tobe put into place and is a crucial step in Saturn’s success. The company operates ac-cording to five shared values: commitment to customer enthusiasm, commitment to ex-cellence, teamwork, trust and respect for the individual, and continuous improvement.

General Motors sees Saturn as a possible model for future GM plants. Former chair-man Roger Smith indicated that the techniques that GM would learn from the Saturn ex-periment would eventually be replicated throughout the company, “improving theefficiency and competitiveness of every plant we operate. . . . Saturn is the key to GM’slong-term competitiveness, survival, and success as a domestic producer.”

Along with a different approach to its employees, Saturn has taken a much differentapproach toward its customers. It begins with the now-famous “no-dicker sticker”—a fixed price for each automobile sold. This eliminates the price haggling many cus-tomers resent. Saturn salespeople are called “sales consultants,” and they do not workon commission. These “consultants” receive considerable training, including team-building skills and orientation toward partnering with the factory and treating cus-tomers as intelligent human beings. This approach has enabled Saturn to build up someof the strongest brand loyalty and customer satisfaction ratings in the auto industry.

Saturn’s customer orientation is illustrated in the way it handled a recall in the1990s. At that time, the company discovered that a wire may not have been properlygrounded on all models produced prior to a certain date. The publicity surrounding therecall was generally positive. For one thing, the recall was not mandated by the govern-ment. Instead, it was voluntary. And the recall was handled expeditiously. After twoweeks, about half of the cars were repaired. By comparison, a major recall by a competi-tor about the same time was only about one-third complete after a year. Finally, Saturndealers handled the recall with grace and good humor. One chartered a bus to a localbaseball game. When the bus returned, the cars had been repaired and washed. Anotherhad a barbecue for customers while their cars were being fixed. A third offered theatertickets. The result of all this? Marketing studies undertaken by J. D. Power and Associatesshowed that customer satisfaction did not decline at all as a result of the recall.





In fact, several dimensions of customer satisfaction (e.g., “takes care of customers,”“good dealer”) ratings actually improved.

One key is that the UAW has also committed to the Saturn experiment and hassigned a historic labor agreement in an attempt to minimize confrontation. “Tradition-ally, in my experience,” explains Rypkowski, “production employees felt that the cor-poration had very deep pockets and that their input wasn’t welcome. It didn’t matterwhether they provided input. Therefore, who cared if the systems that supported themor the operations around them were inefficient because it didn’t matter.”

The UAW has accepted some fundamental philosophical approaches to running theSaturn plant that are quite different. “We are trying to get more involvement in decisionmaking and ownership for activities that have traditionally been performed by manage-ment or resource people,” explains Rypkowski.

In the new approach to management at Saturn, these tasks are performed by peoplewho produce the product. For example, assembly-line workers are responsible for qual-ity control, budgeting, materials handling, and to some degree, ordering their own ma-terials. Team members even hire their own new team members.

“We’ve broadened the scope of their responsibilities so they have a bigger and bet-ter picture of what it takes to run the business,” says Rypkowski. “Even though theirpiece of running the business may be relatively small, they gain a better appreciation forwhat the organization has to do and what it costs in dollars.”

The ultimate goal at Saturn is to have self-directed work teams in which consensusis used to make decisions. Currently, there are about 150 work teams, consisting of ap-proximately 15 people each.

Saturn’s mission statement makes it clear that the intent is to allow employees to beinvolved in decision making in areas that affect them. Presently, decisions are reachedby the “70 percent comfortable” rule of consensus: Each team member must feel at least70 percent comfortable with a decision.

“All you have to do is tell somebody that once,” says Rypkowski. “They hear that,and they’re going to hold you to it. Once you make that statement, you had better be pre-pared to follow through because people take it very seriously.”

At Saturn, there is no shortage of interest and involvement. In fact, it is not uncom-mon now for employees to ask how their input was taken into consideration any time adecision is made that affects them. But people’s willingness to take responsibility andtheir ability to do so can be two different things. Employees may want to be involved,but are they able to perform in these tasks?

Questions1. What aspects of quality-of-work-life (QWL) programs does the experiment at the

Saturn plant illustrate?2. How can Saturn ensure that employees have not only the willingness to take re-

sponsibility but also the ability to do so?3. In this case, a completely new company was started with considerable autonomy

from General Motors. Why do you think so many large organizations turn to “green-field” operations such as this when undertaking major changes in corporate cultureand operations? Do you foresee any problems down the road for GM in this regard?

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