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Chapter 01 – Strategic Human Resource Management in a Changing Environment

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CHAPTER 1

STRATEGIC HUMAN RESOURCE MANAGEMENT

IN A CHANGING ENVIRONMENT

CHAPTER OBJECTIVES:

After reading this chapter, you should be able to:

1. Describe the field of HRM and its potential for creating and sustaining competitive advantage.

2. Describe discrepancies between actual HRM practices and recommendations for HRM practice

from research.

3. Describe the major activities of HRM.

4. Explain important trends relevant to HRM, including the increasing globalization of the economy,

changing technology, the role of regulations and lawsuits, the changing demographics of the

workforce, and the growing body of research linking particular HRM practices to corporate

performance.

5. Emphasize the importance of measurement for effective and strategic HRM.

6. Understand what is meant by competitive advantage, and why it is important for organizations.

Chapter 01 – Strategic Human Resource Management in a Changing Environment

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CHAPTER 1 – SUMMARY

I. Overview

A. Good measurement, allied with business strategies, will help organizations select and improve all of

their HRM activities and provide a much stronger connection between HRM activities and

organizational effectiveness.

II. What is Human Resource Management?

A. HR consists of all people who perform the organizations activities.

1. The HRM function involves all decisions that affect member of the work force

2. HRM is pervasive throughout the organization.

B. HRM and Corporate Performance

1. “High performance work practices” (HPWP) are HR practices that have been shown to have a

significant effect on corporate performance.

2. They are characteristics designed to enhance employees’ competencies and productivity so that

employees can be a reliable source of competitive advantage.

v. Group-based rewards and skill-based pay at above market rates

vi. Formal performance management and appraisal with a high % of jobs filled from within.

3. The most effective HRM functions are conceptualized in a business capacity, constantly focusing on

the strategy of the organization and the core competencies of the organization.

C. Effective HRM focus on strategy and core competencies

III. Discrepancies between Academic Research and HRM Practice

A. HR specialist must have knowledge and skills to identify best practices aligned with current research.

1. One study reinforced a “knowledge gap” between practitioners and academic findings

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C. Academic research offers objective evaluation of activities and programs.

1. There are discrepancies between findings of academic research versus current HR practice.

2. Necessary to regularly evaluate programs to be sure they continue to be valid and reliable.

1. Organizational design;

2. Staffing;

3. Performance management and appraisal;

4. Employee training and organizational development;

5. Reward systems, benefits & compliance;

i. Employer relations; and

1. HRM activities include:

i. Human resources planning,

ii. Job and work analysis,

iii. Organizational restructuring,

iv. Job design, computerization,

2. Design drives staffing, training, performance management and compensation.

i. Should almost always be the first issue addressed whenever significant change is necessary

C. Staffing is flow of people into, through, and out of the organization.

1. Recruitment, outplacement, selection, promotion, and termination are among the functions.

D. Performance management assesses individual, unit, or other aggregated levels of performance

1. Measures and improves work performance.

2. Includes employee discipline.

E. Training and organizational development establish, foster and maintain employee skills

1. Management development

2. Career Planning

3. Attitude surveys

4. Employee assistance/counseling programs

F. Reward systems and benefits have to do with any type of rewards or employee benefits.

1. Direct and indirect compensation, merit pay, profit sharing, health care, parental leave programs,

vacation leave, pensions.

2. Compliance requirements of local, state and federal agencies.

3. Labor law, health and safety issues and unemployment policy

4. Union relationships and collective bargaining

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1. Opportunity for global workforce and labor cost reduction

i. Development of a worldwide labor market for US companies

2. Increasing global competition for US products & services

3. Opportunity for expansion that presents global changes for HR

i. US exports now generate about one in six American jobs, an increase of over 20% in just 10

years

1. Great opportunities presented by Web-based systems

i. Products and services can be delivered more effectively through an optimal combination of

people, software and equipment; thereby, increasing productivity.

ii. Maximize profit margins and sustained customer value

2. New Threats: Increased focus on security of personnel information and intellectual property

i. ensuring employee privacy and confidentiality

ii. protecting intellectual property

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1. Federal, state & municipal lawsuits on the increase

i. Federal lawsuits increased over 125% since 1991.

ii. Jury awards have gotten much larger: 2010, 32% of judgments were $1 million or more

2. Wrongful discharge; negligent hiring and retention lawsuits

D. Trend #4: Changing Characteristics of the Workforce

1. Growing workforce diversity, which complicates HRM

i. more diverse HRM systems & practices increases the probability of litigation

ii. Estimated that by 2016 US workforce will be 80% white, 12% African American and 5% Asian

2. Labor shortages/aging workforce vs. Millennials rising

i. Baby Boomers:

a) Baby Boomer generation (born between 1946-64) retirements expected to create a

shortage of skilled workers and perhaps affect economic output

• By 2030, Boomers make will up 20% of population

• Age discrimination litigation is expected to increase

o 2008 Supreme Court ruling on age discrimination changed the burden of proof

needed to prove age discrimination and may further increase ligation

ii. Generation Y/ Millennials / Net Generation

a) estimated in 2014 there will be almost 63 million Gen Y (born 1979-1995) in the workforce

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• career vs. child/elder care

c) More racially and ethnically diverse than Boomers and Gen Xers

• more comfortable working in a diverse environment

iii. HRM must develop and implement programs on diversity, more flexible work schedules, better

training programs, child and elder care arrangements, and career development strategies

1. Competition for HR related projects can result in outsourcing and has reduced the size of many HR

departments

VI. The Importance of HRM Measurement in Strategic Thinking

A. A workforce than can execute strategy is the most critical and underperforming asset in most

organizations.

1. Three challenges to maximizing workforce potential to meet strategic objectives:

2. Six general steps of a workforce “scorecard”

i. identify critical and carefully defined outcome measures that really matter

3. Three challenges for successful workforce measurement & management

i. Perspective challenge

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B. The key is linking measurement to strategic goals

1. Link measurement to goals and make connections to leading and lagging indicators.

C. Chain of relationship:

1. Turnover, long-term profitability, growth and HRM practices are driven by customer satisfaction

2. In the past HRM interventions were rarely linked to financial measures or cost figures in order to

1. Requires sound measurement

2. Should try to quantify all facets of HR to determine what works and what doesn’t work; while

focusing on the big picture

VII. Competitive Advantage

A. Competitive advantage is organizational placement in favorable position relative to other companies in

industry

B. Customer Value

1. If customer perceive they receive more value from their transaction with an organization than from

its competitors.

2. Value chain analysis assesses amount of added value produced by each position, program, activity

and unit; allows the organization to refocus on its core competencies and requirements.

3. Reputation of the organization/ How a company treats its employees is important for avoiding

1. Many customers seek out products and services at least to some extent as a function of the

reputation of the organization selling the product or service

2. Some companies believe that social responsibility figures into the calculation of their value (i.e.

Special Olympics, Environmental Policies, International labor conditions, employee relations, etc).

3. Evidence indicates that corporate CSR is related to financial performance.

4. Maintaining Uniqueness

5. Sources of Uniqueness

i. Ensure uniqueness lasts over time

ii. Four mechanisms to offer customers uniqueness:

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a) Financial or economic capability derives from an advantage related to costs: produce a

good/service more cheaply; the overriding ‘cost’ equation.

b) Strategic or product capability: differentiated products or services.

c) Technological or operational capability: a distinctive process.

d) Organizational capability: matching customer and strategic needs through work structure

and design.

VIII. Summary

A. Human resource management is concerned with any decision that affects workforce and potential

workforce

1. Line management is still primarily responsible for HRM

2. Trends underscore the importance of HRM

3. Organizations need competent personnel trained in HRM and motivated managers to recognize the

1. Measured in the context of the mission and strategic objectives

2. Enhance competitive position by focusing on customers and offering uniqueness.

C. Four capabilities provide uniqueness and competitive advantage: financial, strategic or product,

technological or operational, and organizational.

D. Organizational capability derives from the organizations HRM practices

E. HRM professionals need up-to-date knowledge of HRM research and the regulatory environment.

Chapter 01 – Strategic Human Resource Management in a Changing Environment

CHAPTER 1 – IMPORTANT TERMS

Baby-Boomers – People born between 1946- 1964

Core Competencies – What a company does best and the essence of its business.

Correlation – Statistical relationship between two or more variables (-1 to 1.0)

Customer Value – Customers perceive that they receive more value for their transaction from an organization

than that of its competitors.

Competitive Advantage – customers perceive they receive more value from their transactions with an

Diversity – In context of this chapter refers to growing number of women and minorities entering the

workforce.

Effectiveness – Meeting or exceeding customer requirements.

Efficiency – In context of this chapter refers to meeting customer requirements at the lowest cost possible.

Employee training and organizational development – Programs concerned with fostering and maintaining

good or service cheaper than that of its competitors.

Generation X – people born between 1965 – 1976

Generation Y (Millennials) – people born between 1977 – 1994

High Performance Work Practices (HPWP) – HR practices that are correlated with financial performance,

productivity, product and service quality, and cost control.

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Human Resources – consist of all people who perform an organization activities

Human Resources Management – concerns the personnel polices and managerial practices and system that

influence the workforce

Lagging Indicators – Traditional financial performance measures such as return on equity (ROE), stock price, and

return on investment (ROI).

Organizational Capability – Business’s ability to manage organizational systems and people in order to match

customer and strategic needs.

Outsourcing – moving a function out of the organization to be handled by a company specializing in that

function

Organizational design – Involves the arrangement of work tasks based on the interaction of people,

behaviors affect strategy execution.

Quantitative – capable of being measured; based on math, numbers and mathematical modeling

Reward systems, benefits, and compliance – Refers to type of rewards or benefits that may be available to

employees.

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Society for Human Resource Management – 190,000-member society for HRM which established the Human

Resources Certification Institute

Staffing – Has to do with flow of people into, through, and out of the organization.

Strategic or Product Capability – Business offering of a product or service that differentiates it from other

products or services.

Socially Responsible Investing – investors buy into companies with favorable corporate social/environmental

performance.

Workforce scorecard – six steps for managing human capital to execute strategy.

Chapter 01 – Strategic Human Resource Management in a Changing Environment

CHAPTER 1 – DISCUSSION QUESTIONS

1. Describe the changing status of HRM. What factors have led to these changes?

HRM executives are now vice presidents and definitely do more than plan the company picnic. HR is often

2. How do productivity concerns influence organizational policies and procedures regarding HRM

activities?

HR policies and practices can enhance productivity, product, and service quality, and can create and sustain a

3. Describe the major HRM activities conducted in an organization. Provide an example of each from a

company with which you are familiar.

The specific examples will vary; however, the answers will be represented in Figure 1-3. The major HRM

4. What impact should the composition of the workforce have on HRM practices or activities? What

future trends do you see that will influence HRM activities? Why is the growing cultural diversity of

the workforce a management challenge?

In the past the typical worker was a male (often white) who was a member of a single-income household- fewer

than 20% of today’s employees fit this description. By 2010 only 15% of the US workforce will be native-bon

Chapter 01 – Strategic Human Resource Management in a Changing Environment

Today‘s HRM professionals must deal with a growing variety of workers who each bring with them their own

special needs and ideas. To accommodate the new workforce, organizations are offering more flexible work

the growing diverse workforce.

The future trends that will influence HRM activities are the increased globalization of the economy, changing

technology, the need to be flexible to changing business environments, increases in litigation related to HRM,

changing characteristics of the workforce and more emphasis on “bottom line” contribution. HRM may be

required to develop programs to better train employees in tune to globalization i.e., many customers from

increases.

5. Why is the support of line management critical to the effective functioning of HRM practices in an

organization? Provide some suggestions for ensuring that this support is maintained.

To the extent that management is motivated by an agenda that is incompatible with the agenda of the HRM

function, the effectiveness of that system may be seriously jeopardized. Specifically, without cooperation from