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Chapter 1: The Nature of Human Resource Management

Chapter 1

The Nature of Human Resource Management

Learning Objectives

Opening Case: Promoting Profits through People

Chapter Outline

Closing Case: Low Prices, High Pay

Discussion Questions

Additional Resource: Putting the Human Back into Human Resources

Learning Objectives

After studying this chapter, the student should be able to accomplish the objectives given below.

2. Trace the evolution of the human resource function in organizations

4. Discuss the setting for human resource management

5. Describe the job of human resource managers from the perspectives of professionalism and

careers

Opening Case: Promoting Profits through People

Case Summary

At first glance, Google, Hilcorp, and Quicken Loans appear to have little in common. But they

do share a few things in common: They all have been cited as among the most admired

companies in the United States by Fortune magazine, they routinely appear on lists of the best

Think It Over

1. Given the success enjoyed by Hilcorp, Google, and Quicken Loans, why don’t all firms use

Chapter 1: The Nature of Human Resource Management

similar approaches to managing their employees?

2. If you were starting a new business, what kind of relationship would you want to have with

your employees? How would you go about trying to achieve this?

Students’ answers will vary. In most organizations today, the role of human resource

management has become quite important. Hiring the right people, getting them equipped

Chapter Outline

Introduction

Regardless of their size, mission, market, or environment, all organizations strive to achieve their

goals by combining various resources into goods and services that will be of value to their

customers. But managers are beginning to view less tangible resources as the most critical for

gaining a competitive advantage. For example, successful organizations need information not

only about consumers but also about the firm’s competitive environment to help managers make

decisions, solve problems, and develop competitive strategies. Many people refer to such

resources as knowledge-based resources.

Chapter 1: The Nature of Human Resource Management

organizations paying more attention to HRM in general, there are also several more recent

developments in the field that may elevate the HRM function even higher.

I. Contemporary Human Resource Management Perspectives

In most organizations today, the role of human resource management has become quite

important. For instance, the passage of Title VII of the Civil Rights Act of 1964 (and various

court decisions that followed it) made it clear that organizations had to find ways to hire, reward,

and manage people effectively within the limits of the law. As a result, the human resource

management function came to require dedicated professionals who could balance legal and

ethical concerns with the need of organizations to survive and be profitable.

The view of HRM as part of the legal enforcement arm of an organization is largely applicable

only in the United States. Yet managers around the world have come to understand that properly

managed human resources can be an important source of competitive advantage in an

increasingly competitive world. Given the shift in competitiveness, top executives in most firms

now see that HRM practices and policies significantly affect their ability to formulate and

implement strategy in any area and that other strategic decisions significantly affect the firm’s

human resources as well.

The top HR executive at most companies today has the status of vice president or executive vice

president and is a fully contributing member of the firm’s executive committee, the body

composed of key top managers that makes major policy decisions and sets corporate strategy.

Today, most firms use a term such as human resource management to reflect more accurately the

sophistication and maturity of the function.

Many aspects of the modern HRM function actually date back to the 1980s and 1990s. Some of

these firms went out of business, and employees lost their jobs. Some firms were acquired by

other, more successful companies, and in the aftermath many employees of the acquired firm

Chapter 1: The Nature of Human Resource Management

attacks of September 11, 2001, issues of security have become much more important in the

United States. But more recent terrorist attacks in San Bernardino, CA; Paris, France; and

Contemporary Challenges in HR: Labor Shortage? Or Labor Surplus?

During challenging economic times like people have faced in the last decade or so, the press

routinely reports large job cuts and predicts high unemployment. But at the same time, U.S.

businesses in some sectors are facing a growing labor shortage. There are actually several

reasons. First, individuals have entered the retirement bulge associated with the baby boomer

generations. This means that there are more workers retiring than there are younger workers

entering the workforce. Second, the U.S. workforce has a growing misalignment between what

workers can and are willing to do and what employers need for them to do, and between where

jobs are located and where workers live. Even some professional jobs are facing the same

challenges.

Think It Over

1. As an employee, how might you best prepare yourself for impending labor shortages in

some fields? For potential labor surpluses in other fields?

downturn?

Student’s answers will vary. Some may say that in a scenario of a labor shortage, an HR

manager could highlight employee benefits and a substantial bonus associated with the

job being offered. The impact of layoffs could be softened by providing an extended

notice period that may provide individuals ample time to look for other opportunities.

Many early businesses were small enterprises and farms run by families interested only in

supporting themselves and providing security for family members. The Industrial Revolution of

the 18th century sparked a greater interest in business growth and expansion, and large-scale

business operations began to emerge throughout Europe and the United States. Scientific

Chapter 1: The Nature of Human Resource Management

management was concerned with structuring individual jobs to maximize efficiency and

productivity. The major proponents of scientific management, such as Frederick Taylor and

A. Origins of the Human Resource Function

As businesses such as General Motors (started in 1908), Bethlehem Steel (1899), Ford Motor

Company (1903), Boeing (1916), and other industrial giants launched during this era

expanded rapidly and grew into big companies, they obviously needed to hire more and more

workers. As a result of growth and complexity, most large businesses, including Ford, began

hiring new employees through newly created specialized units. Although these units were

initially created to hire those new employees, they also began to help manage the existing

workforce. For example, the emergence and growth of large labor unions such as the United

Auto Workers and the passage of the Fair Labor Standards Act in 1938(which established a

minimum wage) and the National Labor Relations Act in 1935 (which dealt with unionization

procedures) made it necessary for businesses to have one or more managers represent the

interests of the business to organized labor and to administer the emerging set of laws and

regulations that governed labor practices.

Meanwhile, other developments, many taking place in other parts of the world, provided

organizations with some of the tools they would need to manage these employment processes

more effectively. For example, in England, Charles Darwin’s work was used by some

theorists to popularize the idea that individuals differed from each other in important ways. In

Chapter 1: The Nature of Human Resource Management

B. Personnel Management

Growing organizations began to create specialized units to cope with their increasing hiring

needs, deal with government regulations, and provide a mechanism for better dealing with

behavioral issues. During the 1930s and 1940s, these units gradually began to be called

personnel departments (the word personnel was derived from an Old French word that

meant “persons”). They were usually set up as special, self-contained departments charged

with the responsibility of hiring new workers and administering basic human resource

activities such as pay and benefits. The recognition that human resources needed to be

managed and the creation of personnel departments also gave rise to a new type of

management function—personnel management.

During this period, personnel management was concerned almost exclusively with hiring

first-line employees such as production workers, salesclerks, custodians, secretaries, blue-

C. Human Resource Management in the Electronic Age

Chapter 1: The Nature of Human Resource Management

One of the most dramatic changes in people’s lives over the past 10 years or so has been the

increasing presence of technology. Bigger, faster computers have allowed firms to compile

large amounts of data and keep better track of employees, and new approaches to data

analysis allow organizations to monitor patterns of behavior and preferences of those

employees. Surveillance technology enables organizations to literally watch what employees

D. Emerging Human Resource Challenges

Unemployment rates in the United States continue to head down—now the rate is below 4

percent, which comes near what is known as functional full-employment, and wages have

shown real gains as well. Recent successes in turning around the economy may actually lead

to a new set of concerns and challenges in coming months.

Some of the rights that were granted to LGBT (or LBGTQ) individuals and couples have been

challenged since Donald Trump became president. Perhaps the challenge that will be the most

III. Goals of Human Resource Management

Figure 1.1 illustrates the four basic goals of the human resource management function in most

organizations today.

Chapter 1: The Nature of Human Resource Management

A. Facilitating Organizational Competitiveness

All organizations have a general set of goals and objectives that they try to accomplish.

Regardless of the time horizon or the level of specificity involved in these goals, they are

generally intended to promote the organization’s ability to be competitive in fulfilling its

purpose or mission.

B. Enhancing Productivity and Quality

Productivity is an economic measure of efficiency that summarizes and reflects the value of

the outputs created by an individual, organization, industry, or economic system relative to

the value of the inputs used to create them. Quality is the total set of features and

C. Complying with Legal and Social Obligations

A third fundamental goal of the human resource management function today is to ensure that

the organization is complying with and meeting its legal and social obligations. The passage

D. Promoting Individual Growth and Development

Finally, a fourth goal for human resource management in most contemporary organizations is

promoting the personal growth and development of its employees. This goal usually includes

basic job-related training and development activities. But in more and more organizations, it

is increasingly going far beyond basic skills training. Some firms, for example, now offer

basic educational courses in English, math, and science for their employees. Many

organizations also include some provision for career development—helping people

understand what career opportunities are available to them and how to pursue those

opportunities.

Chapter 1: The Nature of Human Resource Management

Individual growth and development may also focus on areas that do not relate directly to job

responsibilities. For example, some organizations provide stress-management programs to

help their employees better cope with the anxieties and tensions of modern life. Wellness and

fitness programs are also becoming more common as organizations seek new and different

ways to help their employees remain physically, mentally, and emotionally fit and better

prepared to manage their lives and careers.

In general, more firms are seeing human resource management as part of the psychological

contract that they have with employees: Provide a personally rewarding work experience in

return for the employees’ working toward the firm’s strategic goals. A psychological

contract is the overall set of expectancies held by the employee with regard to what he or she

will contribute to the organization and held by the organization with regard to what it will

provide to the individual in return.

IV. The Setting for Human Resource Management

Traditionally, all HR activities resided in a separate department, but this model is becoming rare.

Instead, HR activities are carried out by both line and staff managers.

A. Human Resource Management as a Staff versus Line Function

Line managers were those directly responsible for creating goods and services; that is, their

contributions to the organization were generally assessed in terms of their actual contributions

and costs to the organization’s bottom line. Staff managers, on the other hand, were those

responsible for an indirect or support function that would have costs but whose bottom-line

contributions were less direct. Legal, accounting, and HR departments were usually thought

of as staff functions. Their role was to support line management’s efforts to achieve

organizational goals and objectives.

Today, however, many organizations have blurred this distinction. New forms of

organizational design (such as teams and an emphasis on flatter and more decentralized

Chapter 1: The Nature of Human Resource Management

are willing to pay for.

B. The Human Resource Department in Smaller versus Larger Organizations

Responsibilities for carrying out HR functions may reside in a separate HR department, but

many smaller organizations do not have such departments and must deliver the required

services in different ways. Most small organizations require line managers to handle their

basic HR functions.

A small independent business is generally operated in the same way, with the owner or

general manager handling human resource duties. Payroll and other basic administrative

C. The Human Resource Management System

A human resource management system is an integrated and interrelated approach to

managing human resources that fully recognizes the interdependence among the various tasks

and functions that must be performed. This viewpoint is illustrated in Figure 1.3. By viewing

the overall organization as a system, HRM then can be conceptualized as a subsystem within

that more general organizational system.

The HRM subsystem both affects and is affected by the other functional subsystems

throughout the organization. Thus, the global perspective on HRM includes the need to

V. Human Resource Managers

Chapter 1: The Nature of Human Resource Management

Given the rapid and dynamic changes that have characterized this field, it should come as no

surprise that HR managers represent a diverse set of professionals with a variety of backgrounds,

experiences, and career objectives. In addition, contemporary HR executives must also possess

general management abilities that reflect conceptual, diagnostic, and analytical skills. Thus, both

A. Professionalism and Human Resource Management

Accompanying the shifts and changes in human resource functions and importance is a

greater emphasis on professionalism, which is reflected by a clear and recognized knowledge

base and a generally understood way of doing business. HR managers are no longer regarded

as second-class corporate citizens, and more and more organizations are including a stint in

human resources as a normal step on a person’s way to the top. In fact, the salaries for HR

executives continue to rise at an impressive rate. Human resource departments are also being

viewed more and more as cost centers, with the goal of providing clear and measurable

financial benefits to the organization.

B. Careers in Human Resource Management

One obvious way to enter this profession is to get a degree in human resource management

(or a related field) and then seek entry-level employment as an HR manager. Alternative job

options may be as the HR manager for a small firm or as a human resource specialist in a

Chapter 1: The Nature of Human Resource Management

Closing Case: Low Prices, High Pay

Case Summary

Most major retailers follow a simple path—low prices made possible in part by low wages and

minimal benefits for their employees. But in recent years, another set of retailers has started to

thrive, often using a different business model—paying employees more and treating them better,

under the assumption that they will be more satisfied and provide better customer service. But

perhaps none sets the bar quite as high as Costco.

For starters, Costco pays its employees an average hourly wage of $21.45 and all its full-time

employees get health insurance heavily subsidized by the company. Costco got its start back in

the 1950s, went through several permutations, and eventually took shape in its current

Case Questions

1. Compare your shopping experiences at retailers such as Costco, Nordstrom, or Whole

Foods with experiences you may have had at Walmart, Sears, or Kroger.

2. Under what circumstances might Costco have to start paying its workers less?

3. Costco has a policy of not hiring business school graduates because it wants employees to

start at the bottom and work their way up. What are the advantages and disadvantages to

this approach?

Chapter 1: The Nature of Human Resource Management

Students’ answers will vary. Some of them may say that one disadvantage of not hiring

business school graduates is that the employees who work at the organization are not

knowledgeable. An advantage of this approach is that workers may conform more to the

system, without asking too many questions.

Discussion Questions

1. Identify five examples of human resources in your college or university.

Students’ answers will vary. Students will identify a variety of activities. Their examples

2. Summarize the evolution of the HR function in organizations.

The Industrial Revolution in the 18th century sparked a greater interest in business growth

and expansion that soon resulted in greater awareness of the various functions of

management that were necessary for long-term organizational success. Scientific

management (which was introduced in the early 1900s) brought about the study of

structuring jobs to maximize efficiency and productivity. In the early 20th century, large

organizations continued to grow even more. Therefore, they needed to hire more workers.

They created specialized units (that is, employment departments) to hire and manage their

workforce.

3. Summarize the basic ideas underlying the human resource management (HRM) system

concept.

Human resource activities are not self-contained, but instead they are highly interrelated

and impact one another. Human resource managers should consider the interrelatedness of

human resource activities when designing or redesigning particular human resource

4. What are the goals of HRM?

5. Who is responsible for HRM?

In contemporary organizations, human resource management responsibilities are shared.

Human resource managers and staff within the human resource department may carry out

the majority of human resource activities or may serve as human resource advisers to

6. Do you think HRM would have become more important even if laws such as the 1964 Civil

Rights Act had never been passed? Why, or why not?

Students’ answers will vary. However, it is likely that human resource management would

still have risen in importance due to an increasing amount of research stemming from the

7. What are the challenges presented by new rules concerning immigration into the United

States?

8. How does the “Me Too” movement affect HRM practices? Are there likely to be any long-

term implications of this new focus on sexual misconduct?

9. Do you think some HRM goals are more important than others? Why, or why not? What

implications might be drawn if a particular manager felt that certain goals were indeed

more important than others?

According to the text, the four goals of human resource management are as follows: to

facilitate organizational competitiveness, to enhance productivity and quality, to comply

with legal and social obligations, and to promote individual growth and development. It

seems reasonable to assume that students may find some goals more relevant or important

10. Do you think it might be possible for a large company today to function without an HR

department?

It is possible, but not likely. As human resource issues become increasingly important and

complex, it is necessary to have one or more experts dedicated to the human resource

Additional Resource

Putting the Human Back into Human Resources

Watch a TED talk by Mary Schaefer at the following website: