Foundation CLAWebinar HR Strategy EPG
Transcript of Foundation CLAWebinar HR Strategy EPG
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Human Resource Strategy:How HR Drives
PerformancePatrick M. Wright
William J. Conaty/GE Professor of Strategic HR
Leadership
School of ILR
Cornell University
www.ilr.cornell.edu
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HR Strategy EPG: Origins
Effective Practice Guidelines: Reports
summarizing the academic research on aspecific area, i.e., research-based bestpractice
Asked by SHRM Foundation to reviewresearch on the relationship between HRPractices and Performance
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What is the Impact of HR Strategy? AStory
In order to understand how HR drives
performance, our story begins in the early1990s as Delta Airlines, a company that had
been known for its outstanding customerservice, faced a difficulty strategic decision.
Up until this time, what did their HR strategylook like?
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Core Competence
Profits
Costs
Revenues
OutstandingCustomer
Service
ValuedCustomerOutcome
Skilled,Experienced,CommittedEmployees
Deliveredby?
Internal PromotionExtensive Training
High PayNon-Union
Flexible work rulesFamily Culture
Driven by?
Figure 1: Delta Air Lines Pre 1994 Business Model:
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Our Storycontinued
Faced by a war in the Middle East, rising fuel
prices, and an economic recession (soundfamiliar?), Delta was losing $400-500 million($10 per share).
They unveiled a new business strategy(Leadership 7.5) with its accompanying HRstrategy
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Profits
Costs
Revenues
Competitive(Low) Cost
Travel
ValuedCustomerOutcome
CommodityWorkforce:ContingentTemporaryLow Tenure
Deliveredby?
LayoffsLow Wage
Low TrainingContractors
Driven by?
Post 1994 Business Model (Leadership 7.5):
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What were the outcomes?
By 1994, Delta was making record profits.
Their costs had gone from 10.1 cent/ASM, to9.8, and the costs rose at a CAGR of 2%through 1998
Their revenues were flat, rising at CAGR of3%.
By 1998, the CAGR was 13% for the industry
Why?7
There are morale
problemsso be itCEO Ron Allen
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Profits
Costs
Revenues
Competitive(Low) Cost
Travel
ValuedCustomerOutcome
CommodityWorkforce:ContingentTemporaryLow Tenure
Deliveredby?
LayoffsLow Wage
Low TrainingContractors
Driven by?
Post 1994 Business Model (Leadership 7.5):
Unintended Consequences:Unions
Customer ServiceBaggage Handling
Safety
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What is the moral of the story?
How companies treat employees, particularly
through the HR practices they use, canultimately impact firm performance, eitherpositively or negatively
But, what is HR strategy?
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IBM
STRATEGY
Innovation BusinessValue
GlobalIntegration
On DemandInfrastructure
Focus onEnterprises thatValue Innovation
IBMDifferentiators:The Employee
Experience
HumanResourcesFocus Areas
Diverse,Talented PeopleLeadership
Performance-Based
Opportunities
Values-based
Climate
Anticipate and Build Skills
Lead the Transformation
Grow IBM
Flexibility An inspiringclimate inwhichemployeesflourish bycreating valuefor our clientsand the world
Figure 2: How The IBM HR Strategy Supports and Enables the BusinessStrategy
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HR Strategy
HR Strategy is the system of human resource
practices for a particular job or collection ofjobs aimed at the best employee performancepossible to meet the firms ultimate goals
System of practices
Job or collection of jobs
Performance oriented (have, feel, do)
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Strategic HRM
Human Capital
Organization or businesslevel
Designed jointly betweenline and HR
Get right people in rightplace in the business tomaximize businesssuccess
HR Strategy
Human ResourcePractice System
Job Level
Designed mostly by HR
Get people to have(skills), feel (attitudes)and do (behaviors) thingsthat lead to job andbusiness success
HR BestPractices
Single HR Practice
Job Level
Designed entirely byHR
Get people to have(skills), feel(attitudes) ordo(behaviors)something that leadsto job success
Key Terms
Focus
Level ofInterest
Responsibility
Goal orObjective
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HR Strategy Approaches
HighRoad/Commitment/HR as an Asset
High Pay
Selective Hiring
Importance ofRetention
Intensive Training
Broad Work Design
Opportunities forParticipation
Information Sharing
LowRoad/Control/HR asa Cost orCommodity
Low Pay
Hire anyone
High turnover
Low Training
Narrow Work Design Autocratic DecisionMaking
Little InformationShared
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Another Conceptualization: AMO
Ability
Selection tests, selectivity, structured interviews,training more than 20 hours/year
Motivation
Pay for performance, merit pay, individualincentives, performance feedback, performancemanagement
Opportunity
Quality circles, suggestion systems, informationsharing, participation in decisions, grievance
procedures 14
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Sams Club vs. Costco
Profit per
employee
$11,615 $21,805
Average HourlyWage
$9.86 $17.00
Percent withHealth Care
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HR StrategyRecruitment
SelectionTraining
DevelopmentPerformanceManagement
Rewards
Communication
WhatEmployees
HaveSkills,
Abilities,Competencies
WhatEmployees
FeelMotivation
CommitmentEngagement
WhatEmployees
DoTask,
Discretionary,Counterproductive
Behavior,Attendance,
Turnover
CustomerOutcomesSatisfaction
Retention
OperationalOutcomesProductivity
QualityShrinkageAccidents
FinancialOutcomesExpensesRevenues
Profits
HR Strategy and Performance
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HR and Performance: What does theresearch say?
There are over 100 studies now on the
relationship between HR practices andperformance, and in the aggregate, theysuggest a positive relationship
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HR and Performance: What does theresearch say?
Employees
Feel Engagement/Commitment Do - Behavior
Have - Skill?
Customers - consistent
Operations pretty consistent
Financials strong and consistent
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Caveats to the Research
Causal Direction
Measuring HR Practices Which HR Practices
Single respondents
Fit to Strategy Has not been demonstrated
Due to measuring principles, not practices
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HR Impact: Sysco Foods
Sysco Corporation exemplifies how they have
attempted to implement HR strategies to drivebusiness performance
Decentralized structure with earnedautonomy principle provides lattitude in howbusinesses manage people
They wanted to test how these peoplemanagement practices impacted
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HR and Employee Engagement
Note: In order todisguise the date, themean has beensubtracted from thenumbers on the Y-axis.
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HR Practices and Operating Expense
Note: In order todisguise the date, themean has beensubtracted from thenumbers on the Y-axis.
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HR Practices and Pre-Tax Profitsat Sysco
Note: In order to disguisethe date, the mean hasbeen subtracted from thenumbers on the Y-axis.
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HR StrategyRecruitment
SelectionTraining
DevelopmentPerformanceManagement
Rewards
Communication
WhatEmployees
HaveSkills,
Abilities,Competencies
WhatEmployees
FeelMotivationCommitmentEngagement
WhatEmployees
DoTask,
Discretionary,Counterproductive
Behavior,Attendance,
Turnover
CustomerOutcomesSatisfaction
Retention
OperationalOutcomesProductivity
QualityShrinkageAccidents
FinancialOutcomesExpensesRevenues
Profits
HR Strategy and Performance: Sysco Findings
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Now, how do you develop an HRStrategy?
Before getting to the details, we need to
recognize a caveat While it is important to treat everyone well, in
a world of limited resources, we mustprioritize where to devote our resources
This prioritization entails determining the keyjob groups that will leverage firm success
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Now, how do you develop an HRStrategy? How about Dell?
Step 1: Analyze the industry to determine
what pressures exist Innovation pressures?
Cost pressures?
Customer pressures?
Step 2: Analyze your value chain todetermine how/where you create value
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Supply Chain/Inventory
DistributionManufacturing Service
ProcessesProcesses
Processes
VALUE
Processes
Dells Value Chain
Design
Processes
strong
strong
Weak
Weak
Weakwith
consum
ers
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How to build an HR Strategy
Step 3: Determine the key job groups to focus
on Could be based on most critical to strategy
Could be based on most critical to the strategicchange
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InnovativeProductDesigners
Supply Chain/Inventory
DistributionManufacturing Service
ProcessesProcesses
Processes
VALUE
Processes
Dells people needs
Design
Processes
Sales to RetailersConsumerService Techs
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How to build an HR Strategy
Step 4: Determine the key HR practices
necessary to build a workforce that has theright competencies, feels the right level ofcommitment, and does the right things
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InnovativeProductDesigners
Supply Chain/Inventory
DistributionManufacturing Service
VALU
E
Dells HR Strategy
Design
ProcessesRecruitment:
Where to find these people?
Selection:
What skills do they need andhow to assess those skills
Rewards:
What is the market pay rate andwhat types of incentives willattract and motivate them?
Training and Development
What skills do they need trained?How do we orient them to Dell?
Performance Management:
What competencies andoutcomes should be evaluated?
Information/Participation:
What information should beshared with them and in whatareas should they participate?
HR Strategy
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Conclusion
The relationship between HR practices and
performance (employee, customer,operational, and financial) is well documented
While there are some caveats, we can bepretty certain that all else equal, firms arebetter off implementing progressive HRpractices rather than not doing so
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Patrick M. Wright
Cornell University
ILR School397 ILR Library BuildingIthaca, New York 14853
t. 607.255.3429
www.ilr.cornell.edu