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Please click here to access the new HRM Failures case associated with this chapter. HRM
Failures features real-life situations in which an HR conflict ended up in court. Each case
includes a discussion questions and possible answers for easy use in the classroom. HRM
Failures are not included in the text so that you can provide your students with additional
real-life content that helps engrain chapter concepts.
1 Chapter Summary
This chapter describes the process an organization uses to plan and recruit so that there will be
adequate human resources. The steps described are linking business strategies to future needs,
forecasting labor demand and supply, determining in what positions there will exist a labor
shortage or surplus, setting goals regarding future human resource needs, and identifying
strategies to solve the problems of shortages and/or surpluses. The ability to recruit successfully
is described as depending upon personnel policies such as job posting (an internal strategy), level
of pay in comparison to the market, and the extent of job security. The chapter describes sources
for recruiting as well as the use of yield ratios and costs to evaluate the effectiveness of sources.
Lastly, the role of the recruiter and how to enhance his or her impact on the candidate is
presented.
2 Learning Objectives
After studying this chapter, the student should be able to:
1. Discuss how to align a company's strategic direction with its human resource planning.
2. Determine the labor demand of workers in various job categories.
3. Discuss the advantages and disadvantages of various ways of eliminating a labor surplus
or avoiding a labor shortage.
4. Describe the various recruitment policies organizations adopt to make job vacancies more
attractive.
5. List the various sources from which job applicants can be drawn, their relative
advantages and disadvantages, and the methods for evaluating them.
6. Explain the recruiter’s role in the recruitment process, the limits the recruiter faces, and
the opportunities available.
3 Extended Chapter Outline
Note: Key terms appear in boldface and are listed in the "Chapter Vocabulary" section.
4 Opening Vignette:
Made in America: A Source of Competitive Advantage?
After a long period of American companies outsourcing manufacturing, firms like Walmart,
Apple, Airbus, and Ashley Furniture are making moves that are beginning to rekindle the
manufacturing sector in the US. Cheaper energy costs, tighter safety and ethical controls, and a
more productive and technologically savvy workforce have started to make inroads in making
manufacturing in the US attractive and competitive again. And the benefits don’t stop at simply
adding jobs, it is the downstream effects like adding $1.48 to the economy for every $1.00
manufactured and allowing US companies the chance to innovate which results in US workers
having the opportunity to develop their skills that really have an impact. Apparently companies
in other countries are noticing the changes also. German-based Volkswagon and French-based
Michelin decided to open new facilities here in the US rather than their own hope countries.
Discussion Question
1. Explain how, in the midst very shakey economic times, there seems to be a resurgence in
interest in US manufacturing even with the higher cost of labor in the US. If you were an
HR professional in a company that competed for this talent, what might you do to help
your company sell the idea that manufacturing in the US can be competitive?
The reason for the resurgence is a combination of factors that over time should compound
Third, the US has tighter safety and ethical controls helping prevent issues with company
I. Introduction—Firms and the workers face challenges such as the “war for talent,” as
illustrated by this opening vignette. In particular, demand for expertise—such as
hardware and software expertise—creates constraints and opportunities, and
employers can respond in many ways.
a. Two of the major ways that societal trends and events affect employers are
through:
b. Keys to utilizing labor markets to the organizations own competitive advantages
are:
1. Companies must have a clear idea of their current level of human resources
(strengths and weaknesses).
II. The Human Resources Planning Process—The process consists of forecasting, goal
setting and strategic planning, and program implementation and evaluation (See
Figure 5.1 in text).
A. Forecasting is the attempts to determine the supply of and demand for various
types of human resources to predict areas within the organization where there will
be future labor shortages or surpluses..
1. Determining Labor Demand
a. Labor demand can be predicted by the use of statistical techniques
such as leading indicator, which is an objective measure that
accurately predicts future labor demand (for example, sales may be
directly related to a need for salespeople, but not sales support
positions).
b. Statistical planning models are useful when there is a long, stable
history that can be used to reliably detect relationships among
variables.
c. Statistical models are almost always complemented by subjective
judgments of people who have expertise in the area.
2. Determining Labor Supply
a. Internal labor supply is determined by a detailed analysis of how
many people are currently in various job categories, modified to
reflect changes in the near future caused by retirements,
promotions, transfers, voluntary turnovers, or terminations.
b. A transitional matrix is a table used to project internal labor
supply. The matrix shows the proportion or number, of employees
in different job categories at different times and how people move
from one job to another in the organization and how many people
enter and leave the organization (text Table 5.1). This method is
best combined with judgmental methods.
3. Determining Labor Surplus or Shortage—By comparing forecasts for
labor supply and demand for specific jobs, the organization can determine
what it needs to do.
Examples: It is likely that the U.S. is going to experience a labor shortage
of primary care physicians of up to 100,000 doctors by 2025 as a result of
the Affordable Care Act going in to effect. Conversely, there is an
anticipated surplus of 175,000 lawyers coming up.
B. Goal Setting and Strategic Planning—These tools define specific goals regarding
a desired end and provide benchmarks for determining the relative success of a
program aimed at addressing labor surpluses or shortages. A specific timetable is
set for when results should be achieved (See tables 5.2 and 5.3 in text). The point
should be clear that without planning by the organization, employees suffer the
most, especially in a labor surplus because of layoffs and pay reductions.
1. Options for reducing an expected labor surplus:
- Downsizing
- Pay reductions
2. Options for avoiding an expected labor shortage:
- Overtime
- Temporary employees
3. Downsizing – the planned elimination of large numbers of personnel
designed to enhance organizational competitiveness..
a. There were four major reasons that organizations engaged in
downsizing:
- Cost reduction through decreased labor.
- Closing outdated plants or introducing technological change
reduced the need for labor.
- Mergers and acquisitions reduced the need for large bureau-
cracies.
- For economic reasons, many firms relocated parts of oper-
ations. Although the jury is still our on whether these
downsizing efforts have led to enhanced organizational
effectiveness, some early reports indicate the results have not
met expectations.
Example: Yahoo cut 2,000 jobs in 2012 (15% of their workforce).
They anticipated $375 million in savings, which was partially
offset by approximately $145 million in severance pay expenses.
b. Although downsizing has an immediate effect on costs, much
evidence suggests that it has negative effects on long term
organizational effectiveness and even lower longer term profits.
Reasons include:
- Although the initial cost savings are a short-term plus, the
long-term effects of an improperly managed downsizing effort
can be negative.
- In the service industry, the effects of downsizing can be
exacerbated.
- When downsizing efforts are not complemented by changes in
the nature of work roles, performance can also suffer.
- In the age of blogs and text messaging, the once private
practice of laying off employees becomes increasingly
transparent, which can result in unwanted publicity.
- Angry employees can sue for loss of wages under the Worker
Adjustment and Training Act, which requires employers to give
workers 60 days warning regarding layoffs. There was a spike
in these lawsuits in 2009.
4. Early Retirement Programs and Buyouts—The average age of the U.S
worker is getting older. Because of improved health of the older worker
and decrease in physical demand of the job individuals are able to work
long past the traditional retirement age. Although older workers bring
experience to the table, they also create problems like being more costly
than younger workers because of seniority, higher medical costs, and
higher pension contributions. Many employers are stressing early
retirement by offering incentive programs to older employees. Figure 5.2
shows the aging population in the United States.
5. Employing Temporary Workers—Some strategies can be turned on and off
fairly painlessly, such as the use of overtime and/or temporary employees.
Operational flexibility is the primary reason for this, although the use of
temps also frees the firm from many administrative tasks and financial
burdens (health insurance, pension, worker's compensation, life insurance,
etc.). Smaller companies may use temporary agencies to do their
employment screening for them. After 90 days, if the employee works
out, he or she is often offered a permanent position. Training may be done
by the agency as well. Finally, temporary employees bring a fresh
perspective to the firm, particularly if they have temped in a number of
other organizations. The potential conflicts between permanent and
temporary employees need to be managed. There are several key issues:
a. The organization needs to have bottomed out first in terms of
any downsizing before it starts bringing in temporaries.
b. If the organization is concerned about the reactions of full-time
workers to the temporaries, it may want to go out of its way to hire
“nonthreatening” temporaries.
c. The organization, however, must be careful not to create the
perception that temporary workers are second-class organizational
citizens.
d. Finally, HR staff can also prevent feelings of a two-tiered society
by ensuring that the temporary agency provides benefits to the
temporaries that are at least minimally comparable with those
enjoyed by the full-time workers with whom they interact.
6. Outsourcing—This occurs when a firm is interested in a broad set of
services performed by an outside organization.
a. Offshoring is a special case of outsourcing where the jobs that
move actually leave one country and go to another, like the
example in the opening vignette.
b. Steps to take that help ensure the success of outsourcing strategies
include:
- When choosing an outsourcing vendor, it is usually the
bigger and older the better.
- Jobs that are proprietary or require tight security should not
be outsourced.
- It is a good idea to start small and monitor constantly.
7. Altering pay hours—Many companies that are facing labor shortages are
forced to get more hours out of existing employees. Although employers
are forced to pay higher wages, many prefer this to hiring and training new
employees.
Competing Through Globalization:
Struggling to Find a Custom Fit in an Italian Town
The Tuscan city of Prato, which produces over 27% of Italy’s textile output, is
experiencing what many other urban areas across the globe are experiencing – a large and
rapid influx of immigrant labor. In the case of Prado, over the past 25 years the
immigrant population has changed such that 25% of Prado’s residents are Chinese and
nearly 4,000 of the garment-producing businesses are Chinese owned. And while these
businesses are able to produce clothes faster and cheaper than their Italian counterparts,
they have still been able to benefit from putting a “Made in Italy” tag on their products.
Discussion Question
1. How does one balance the rights and responsibilities of labor market newcomers versus
established players when transforming from a historically important but non-viable
business model to a new and uncertain business model??
This is a tricky situation and students’ answers may vary greatly. On the one hand, it is
C. Program implementation and evaluation are critical elements to ensure that an
individual is held accountable for achieving the stated goals and has the necessary
authority and resources to accomplish goals. Program evaluation examines
results:
1. It considers whether the company has avoided any predicted shortages or
surpluses.
2. It examines the programs implemented to ensure that they had the desired
results and whether the programs were implemented as planned.
3. It is also crucial to examine the process in addition to the results, however.
For example, ultimately, human resources planning should reduce
instances of over-and- under supply of human resources. It will do this
with increasing effectiveness only if forecasts and projections become
increasingly accurate.
4.1.1.1.1 D. The Special Case of Affirmative Action Planning
Consider underutilization for voluntary affirmative action to promote diversity
and/or as a requirement of serving as a contractor to the federal government.
1. Work-force utilization review is a comparison that examines the
proportion of a company's workers in a subgroup to the proportion that
each subgroup represents in the relevant labor market. This comparison is
used to determine whether any subgroups may be underutilized.
Underutilization occurs when the proportion of the subgroup in the
organization is lower than that of the labor market.
a. A voluntary affirmative action program may be implemented in
which selection programs may be reviewed and revised to decrease
the underutilization and/or increase the diversity of the
organization and decrease the likelihood of a lawsuit. Steps for
implementation are identical to the generic planning process
discussed earlier.
b. Students should be aware, however, that voluntary affirmative
action programs may be subject to lawsuits alleging reverse
discrimination. Court-ordered affirmative action plans are
mandated by the courts as part of the settlement of discrimination
complaints.
III. The Human Resource Recruitment Process—Human resource recruitment is any orga-
nizational activity that is designed to affect the number of people who apply for
vacancies, the type of people who apply for them, and/or the likelihood that those
applying for vacancies will accept positions if offered. The goal of recruitment is to
ensure that when a vacancy occurs, the organization has a number of reasonably qualified
applicants to choose from (Figure 5.4 in text).
A. Personnel policies, in relationship to recruitment, affect the nature of the
vacancies for which people are required and impact the ability of the organization
to recruit and its level of requiring success.
1. Internal versus External Recruiting: Job Security—A decision must be
made on whether to recruit from within or outside the organization.
Companies that recruit from within often use a job posting program in
which vacancies are publicized on bulletin boards, in company
newsletters, or in memos. Employees can apply and typically receive first
consideration before the organization searches externally. Such policies
make it clear that there are opportunities to advance and increase the level
of skills within the organization.
Example: A good example of the power of tapping internal sources of recruits is
provided Edwards Lifesciences, a medical device maker that has grown an average of 7
percent a year for the last 10 years. Edwards Lifesciences identifies the 75 most critical
jobs in the company, and then identifies two or three individuals who would serve as
potential excellent replacements or successors. Identifying candidates early allows the
company to invest in them slowly but surely and gives the company “bench strength.”
2. Employment-at-Will Policies
a. Employment-at-will policies state that either party in the
employment relationship can terminate that relationship at any
rime, regardless of cause. Many legal protections exist that make
it difficult for organizations to manage employment entirely “at
will.”
b. Companies that do not have employment at will typically have
extensive due process policies that describe steps an employee can
take to appeal a termination decision. Employment-at-will
companies are only considered equally attractive to due process
companies when the lack of job security is offset by
higher-than-average total compensation.
3. Extrinsic and Intrinsic Rewards—Lead-the-market pay strategy is a policy
of paying higher-than current market wages. This creates a distinct
advantage in recruiting since higher pay can make up for a job's less
attractive features. However, employees in today’s labor pool are attracted
to other incentives besides money. There is also pressure on human
resources to deliver the best employees, so higher productivity, quality,
and so on, are achieved.
4. Image advertising promotes an organization as a good place to work in
general and may be particularly important for organizations in highly
competitive labor markets that perceive themselves as having a bad image.
B. Recruitment Sources—Since recruitment sources are unlimited, an organization
must decide how to reach the best sources of potential employees.
1. Internal versus External Sources—Relying on internal sources is useful
since employees are well known and are knowledgeable about the
organization and jobs. However, there may not be enough internal recruits
(especially for entry-level jobs); internal recruiting does not encourage
creativity or change; and, if the current force is not diverse, internal
recruiting will lead to a homogeneous work force, which can pose legal
threats
