Introduction to Human Resource Management. Fall 2008Management 412 / Intro to HRMPage 2 Introduction...

Introduction to Human Resource Management

Fall 2008Management 412 / Intro to HRM

Introduction to HRM

• Two questions:• Does it matter?• Why does it matter?

• What is HRM?• Organization’s methods and procedures for

managing people to enhance skills and motivation

• Activities to enhance the organization’s ability to attract, select, retain and motivate people


The Death of HR ?

• Traditional “personnel” function• Recordkeeping• Perceived as a dumping ground

• The death of HR?• HR’s rebirth

Sources: Caudron (2003); Schuler (1990); Schuler & Walker (1990); Stewart (1996); Sunoo & Laabs (1999); Ulrich (2000); Wells (2003)


Outsourcing HR

• Would it just make more sense to outsource HR functions?

• Many organizations are doing just this• Recordkeeping and administrative,

perhaps• Basic functions…..

Sources: Caudron (2003); Stewart & Woods (1996); Zimmerman (April 2001)


Approaches to Revitalizing HR

• Accounting for human resources• Managing people for competitive

advantage


Accounting for Human Resources

• Cascio’s costing approach:• Cost accounting for employee outcomes• Calculate cost of interventions and outcomes on

individual basis

• Tracking costs and contributions to firm net profitability

• Human capital approach• Employees are intangible assets, but can still be

valued• Based on assumed contribution of employees to

corporate earningsSources: Cascio (1982); Sheley (1996) Solomon (2000); Stewart (1995); Zimmerman (February 2001)


Costing HR: Example

• The costs of turnover per individual:• Exit interviews• Unemployment tax• Recruitment advertising• Staff time to interview applicants• Reference checking, medical exams• Training new employees

• Costs of reducing turnover• Additional training• Realistic job previews

• Net savings

Calculated per person,

then totaled

Source: Cascio (1982)


Human Capital: The Steps

• Determine three years’ total pretax earnings• Determine average assets over same three

years• Calculate firm’s return on assets (ROA)• Determine industry average ROA• Calculate “excess returns”• Subtract taxes• Calculate net present value of excess return• Result: “intangible value” of firm’s human capital

Sources: Stewart (October 1995); Zimmerman (February 2001)


Human Resources and Competitive Advantage

• The basic idea: establishing and maintaining competitive advantage through people.

• Competitive advantage:• Valuable, rare, inimitable, nonsubstitutable• Achieved not through strategy, but

strategy implementation

Source: Pfeffer (1994, 1998)


Traditional Sources of Competitive Advantage…and Where They’ve Gone

• Product and process technology• Technological innovations make innovation easier and faster• Development and manufacturing technology freely available

• Protected and regulated markets• Move to global economy• Deregulation

• Access to financial resources• Global capital market• Venture capital

• Economies of scale• Fragmented markets• Less important with advances in technology

• So, what’s left…peopleSource: Pfeffer (1994, 1998)


Competitive Advantage Through People

• Viewing the work force as an asset, not an expense

• The result:• Harder work, from increased involvement

and commitment• Smarter work, through enhanced skills and

competence• Lower overhead, by pushing responsibility

downward• High performance work systems



High-Performance Work Systems: The Seven Practices

• Employment security• Selective hiring• Self managed teams and decentralized

decision making• High compensation, based on organizational

performance• Extensive training• Reduced status distinctions• Extensive information sharing (both financial

and performance)Critical to remember that all of these are part of a system



The Research Evidence

• Garment manufacturing• Steel minimills• Initial public offerings


Garment Manufacturing

Performance Measure Bundle Modular Gross margin 26.0% 31.6% Operating profit 7.9% 13.0%

Average discount 14.6% 10.2% Sewing throughput (days) 9.5 days 1.8 days

• Bundle system = traditional assembly line (the employee receives a bundle of garments, does one thing, then passes the bundle on to the next worker)

• Modular system = small cross-trained and self-managed work teams, team pay

Source: Pfeffer (1998)


The Minimills

Management Practice Control Commitment %

Improvement Wages $18.07 $21.52 19% % of employees in teams

36.6% 52.4% 43%

Decentralization * 2.42 3.04 26% General training * 1.92 3.35 74% Labor hours / ton - 34% Scrap rate - 63%

* 1 = very little to 6 = very muchSource: Pfeffer (1998)


The Case of the IPOs

Probability of 5 Year Survival of IPO

79%87%

60%45%

HR Value Rewards

Top 16% of Firms Bottom 16% of Firms



Why Not?The Downward Performance Spiral

Individual BehaviorsDecreased motivation

More accidentsHigher turnoverReduced effort

Performance ProblemsLow profitsHigh costs

Poor customer serviceLow stock price

Organizational ResponseReduce training

LayoffsSalary freeze

Contingent staffing



Aligning Strategy and HR

• Determine the firm’s strategy• Determine the competencies needed to

carry out the strategy• Examine current management practices• Determine congruence

• Do the current practices work to enhance needed competencies?

• Are the current practices internally consistent?



External Influences on HRM

• Economic conditions• Legal requirements and constraints• Demographics• Technology


General Economic Conditions

• Global economy• Lower wage levels vs. quality and productivity• Ethical issues and political considerations

• Domestic factors• Move from manufacturing economy to service /

information economy• Mergers duplication of functions layoffs

• Supply and demand of labor influences price• Supply and demand of company’s product,

which determines available resourcesSources: Challenger (2003); Cole, et al. (2003)


Changes in the U.S. Economy, 1939 to Present

0%

20%

40%

60%

80%

100%

1939 1944 1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004

Natural Resources & Mining Construction

Manufacturing Trade, Transportation & Utilities

Information Professional & Business Services

Leisure & Hospitality Government

Source: U.S. Department of Labor, Bureau of Labor Statistics


Fastest Growing Occupations, 2006-2016 (by percentage growth)

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Technology Age Society

Source: Department of Labor, Bureau of Labor Statistics


Fastest Growing Occupations, 2006-2016 (by number of jobs)

0

1,000

2,000

3,000

4,000

5,000

6,000

Num

ber ofJ

obs

(000)

Jobs in 2006 Growth



Largest Job Losses, 2006-2016

0

1,000

2,000

3,000

4,000

Num

ber ofJ

obs

(000)

2016 Decline


Legal Requirements and Constraints

• Government now an intermediary in the relationship between employers and employees

• Legal requirements and constraints are usually a reflection of social attitudes and opinions


Demographics

• Supply of labor (number of people, skills, etc.)• New skills needed, but are they present in

workforce?• Basic skills availability?

• Different needs of different groups in the population• Increasing number of women in paid workforce• Dual-earner families• Family friendly benefits• Aging population

Sources: Challenger (2003); Cole, et al. (2003)


Participation in the Paid Labor Force by Gender: 1948 to 2007

0102030405060708090

100

% L

abor

For

ce P

artic

ipat

ion

Men Women



Labor Force By Age, 2006-2016

Projected % Change in Labor Force By Age, 2006-2016

16 to 24

25 to 54

55 to 64

65 to 74

75 and older

-50% 0% 50% 100%

Labor Force By Age, 2006

65 +4%

Labor Force By Age, 2016

65 +6%


Technology

• New jobs; old jobs vanish• Need for new skills• Need for continuous skills

development• Managing the HR function

• Data management• Employee communications


HR Functions: What We’ll Be Looking At

RewardSystem

s

LegalComplianc

e

Staffing

Planning

Trainingand

Development

Employee andLabor

Relations

Introduction to Human Resource Management. Fall 2008Management 412 / Intro to HRMPage 2 Introduction...

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