Chapter 1 The Strategic Role of Human Resource Management

HUMAN RESOURCE MANAGEMENT

BY:GARY DESSLER

NINTH EDITION

PEARSON EDUCATION INTERNASIONAL

COPY RIGHT 2003

USA

After studying this chapter, you should be able to:

• Explain what human resource management (HR) is and how it relates to the management process. 
• Give at least eight examples of how managers can use HR concepts and techniques.
• Illustrate the HR management responsibilities of line and staff (HR) managers.
• Illustrate HR's role in formulating and executing company strategy.
• Outline the plan of this book. 

Strategic Overview The headline said it all: Despite plummeting profit margins, Dell computer margins, Dell computer Corp, has no intension of backing off from an aggresive PC Pricing Strategy initiated earlier this year,"The first few years of the 21st century had thrown the (PC) industry for a loop. To maintain its new position as the world's number one personal computer maker, Dell's average price per computer fell to about $2,000 in the first quarter of 2001, from about $2,300 the year before. Its profit margin fell from 21% to 18%. The only way it could keep that 18% margin intact while cutting prices was to find new ways to slash cost. For a company that had always pursued a low cost leader strategy, doing so wouldn't be easy. How could Dell cut costs from an already lean operation? The firm's HR managers had to decide what they could do to support Dell's new cost-cutting efforts.

 The purpose of this chapter is to explain what human resource management is and the plan of this book. We'll see that HR management activities like recruiting, hiring, training, compensation, appraising and developing employees is part of every manager's job. And we'll see that it is also a separate "staff function, and that the HR manager assists all managers in many important ways. The main topics well cover are the manager's human resource management jobs, strategic planning and important strategic trends, and HR's strategic role in formulating and executing the company's strategy. The following chapter completes the introductory part of the book and provides you with the knowledge you'll need to deal effectively with equal employment opportunity questions on the job.

THE MANAGER'S HUMAN RESOURCE MANAGEMENT JOBS

Most writers agree that there are certain basic functions all managers perform. These are planning, organizing, staffing, leading and controlling. In total, they represent what managers call the management process. Some of the specific activities involved in each function include: Planning. Establishing goals and standards; developing rules and procedures; developing plans and forecasting.

Organizing. Giving each subordinate a specific task; establishing departments; delegating authority to subordinate a specific task; establishing department; delegating authority to subordinates; establishing channels of authority and communication; coordinating the work of subordinates.

Staffing. Determining what type of people should be hired; recruiting prospective employees; selecting employees; setting performance standards; compensating employees; evaluating performance; training and developing employees.

Leading. Getting others to get the job done; maintaining morale; motivating subordinates.

Controlling. Setting standards such as sales quotas, quality standards, or production levels; checking to see how actual performance compares with these standards; taking corrective action as needed.

We are going to focus on one of these functions in this book the staffing personal management, or (as it's usually called today) the human resource management (HRM) function. Human resource management is the process acquiring, training, appraising, and compensating employees and attending to their labor relations, health and safety and fairness concerns.The topics we'll discuss should therefore provide you with the concepts and techniques you need to carry out the "people" or personnel aspects of your management job. These include:

• Conducting job analyses (determining the nature of each employees job)
• Planning labor needs and recruiting job candidates
• Selecting job candidates
• Orienting and training new employees
• Managing wages and salaries (compensating employees)
• Providing incentives and benefits
• Appraising performance
• Communicating (interviewing, counseling, disciplining)
• Training and developing managers
• Building employee commitment

And what a manager should know about:

• Equal opportunity and affirmative action
• Employee health and safety
• Handling grievances and labor relations 

Why is HR Management Important to All Managers?

Why are these concepts and techniques important to all managers? Perhaps it's easier to answer this by listing some of the personnel mistakes you don't want to make while managing. For example, you don't want to:

• Hire the wrong person for the job
• Experience high turnover
• Find your people not doing their best 
• Waste time with useless interviews
• Have your company taken to court because of discriminatory actions
• Have your company cited under federal occupational safety laws for unsafe practices
• Have some employees think their salaries are unfair and inequitable relative to others in the organization
• Allow a lack of training to undermine your departments effectiveness
• Commit any unfair labor practices  

Carefully studying this book will help you avoid mistakes like these. And more important, it can help ensure that you get the right results. Remember, you can do everything else right as a manager lay brilliant plans, draw clear organization charts, set up modern assembly lines and use sophisticated accounting controls but still fail as a manager by hiring the wrong people or by not motivating subordinates, for instance. On the other hand, many managers presidents, generals, governors, supervisors have been successful even with inadequate plans, organization, or controls. They were successful because they had the knack of hiring the right people for the right jobs and motivating, appraising and developing them. Remember as you read this book that getting results is the bottom line of managing  and that as a manager you will have to get those results through people. As one company president summed up:

For many years it has been said that the capital is the bottleneck for a developing industry. I don't think this any holds true. I think it's the work force and the company's inability to re recruit and maintain a good work force that does constitute the bottleneck for production. I do know of industries whose growth has been partly stopped or hampered because they can't maintain an efficient and enthusiastic labor force, and I think this will hold true even more in the future,,,

Line and Staff Aspects of HRM

All managers are, in a sense, HR managers, since they all get involved in activities like recruiting, interviewing, selecting and training. Yet most firms also have a human resource department with its own top manager. How the duties of this HR manager and his or her staff relate to "line" managers human resources duties? Lets answer this question, starting with a short definition of line versus staff authority.

Line Versus Staff Authority is the right to make decisions, to direct the between line authority and staff authority.

Line managers are authorized to direct the work of subordinates they're always someone's boss. In addition, line managers are in charge of accomplishing the organization's basic goals. (Hotel managers and the managers for production and sales are generally line managers, for example.) Staff managers, on the other hand, are authorized to assist and advise line managers in accomplishing these basic goals. HR managers are generally staff managers. They are responsible for assisting and advising line managers in areas like recruiting, hiring and compensation.

Line Managers HRM Responsibilities According to one expert,"The direct handling of people its and always has been, an integral part of every line managers responsibility, from president down to the lowest level supervisor.

For example, one major company outlines its line supervisors responsibilities for effective human resource management under the following general beading's;

1. Placing the right person on the right job
2. Starting new employees in the organization (orientation)
3. Training employees for jobs that are new to them
4. Improving the job performance of each person
5. Gaining creative cooperation and developing smooth working relationships
6. Interpreting the company's policies and procedures
7. Controlling labor costs
8. Developing the abilities of each person 
9. Creating and maintaining department morale
10. Protecting employee's health and physical condition  

In small organizations, line managers may carry out all these personnel duties unassisted. But as the organization grows, they need the assistance, specialized knowledge and advice of a separate human resources staff. The human resource department provides this specialized assistance. In doing so, the HR manager carries out three distinct functions:

1. A line function. The HR manager directs the activities of the people in this or her own department and in related service areas (like the plant cafeteria). In other words, he or she exerts line authority within the HR department. While they generally can't wield line authority outside HR, they are likely to exert implied authority.

2. A coordinative function. HR managers also coordinate personnel activities, a duty often referred to as functional control. Here the HR manager and department act as the "right arm of the top executive" to ensure that line managers are implementing the firm's HR objectives, policies and procedures (for example, adhering to its sexual harassment policies).

3. Staff (service) function. Assisting and advertising line managers is the "bread and butter" of the HR manager's job. For example, HR assists in the hiring, training, evaluating, rewarding, counseling, promoting and firing of employees. It also administers the various benefit programs (health and accident insurance, retirement, vacation and so on). It helps line managers comply with equal employment and occupational safety laws, and plays an important role in handling grievances and labor relations. It carries out an innovator role, by providing "up to date information on current trends and new methods of solving  problems" such as today's interest in instituting six-sigma quality programs and creating "learning organizations". And it plays an employee advocacy role: It helps define how management should be treating "learning organizations." And it plays an employee advocacy role: It help define how management should be treating employees, makes sure employees can contest unfair practices and represents the employees interests within the framework of its main obligation to senior management. In most firms today, HR also play strategic role, by helping the CEO craft and implement the firm's strategy. We'll return to this in a moment.

Recruiters. Search for qualified job applicants.

Equal employment opportunity (EEO) coordinators. Investigate and resolve EEO grievances, examine organizational practices for potential violations and compile and submit EEO reports.

Job analyst. Collect and examine information about jobs to prepare job descriptions.

Compensation managers. Develop compensation plans and handle the employee benefits program.

Training specialist. Plan, organize and direct training activities.

Labor relations specialists. Advise management on all aspects of union management relations.

Cooperative Line and Staff HR Management: An Example

Exactly which HR management activities are carried out by line managers and by staff managers? There is ni single division of responsibilities we could apply across the board in all organizations, but we can make some generalizations.

For example, in recruiting and hiring, its generally the line manager’s responsibility to specify the qualifications employees need to fill specific positions. Then the HR staff takes over. They develop sources of qualified applicants and conduct initial screening interviews. They administer the appropriate tests. Then they refer the best applicants to the supervisor (line manager), who interviews and select the ones he or she wants.

Some activities tend to be HR”s alone. For example, 83% of firms assign responsibility for pre employment testing exclusively to HR 75% assign college recruiting to HR, 86% insurance benefits administration, 84% exit interviewers, and 88% personnel HR recordkeeping. But employers split most activities, such as employment interviews, performance appraisal, skills training, job descriptions, and disciplinary procedures between HR and line departments.
In summary you should see that HR management (as discussed in this book) is an integral part of every managers job. Whether you’re a production manager, sales manager, office manager, hospital administrator, country manager (or HR manager), getting results through committed people is the name of the game. And to do this you’ll need a good workong knowledge of the human resources management concepts and techniques in this book.

STRATEGIC PLANNING AND STRATEGIC TRENDS

Perhaps the most striking change in HR’s role today is its increased involvement in developing and implementing the company’s strategy. Strategy the company’s long term plan for how it will balance its internal strength and weaknesses with its external opportunities and threats to maintain a competitive advantage was traditionally a job mostly for the firms top operating (line) managers. Thus, the president and his or her staff might decide to enter new markets, drop product lines, or embark on a five year cost cutting plan. Then he or she would more or less leave the personnel implications of that plan (hiring or firing new workers, hiring outplacement firms for those fired, and so on) for HR management to carry out. Today, HR ussually plays a more central role.

The Basic of Strategic Planning

Managers engage in three levels strategic planning for their firms. Many firms, such as AOL/Time Warner, consist of several bussiness: AOL, Warner Music, Warner Pictures, and Turner Networks. They therefore need a corporate level strategy. A company’s corporate level strategy identifies the portfolio of businesses that comprise the organization, and the ways in which these businesses relate to one another. The AOL/Time Warner business portfolio consists of media related businesses. Firms like GE are more widely diversified, with a portfolio that spans jet engines and lightbulbs.

At the next level down, each of these businesess (Such as Warner Music) needs a business level competitive strategy. This strategy identifies how its managers will build and strengthen that business’s long term competitive position in the marketplace. It identifies, for instance, how Warner Music will compete with Sony, or how Wal-Mart will compete with Kmart. Thus Volvo differentiates itself based on safety, Rolex on quality, AOL on usability and Wal-Mart on price. Every business also has a competitive advantage that supports its competitive strategy and sets it apart from those it competes with. As with many firms today, AOL’s usability, Rolex’s quality and Saturn’s low-cost, high quality cars all reflect their decisions to build their competitive advantages around the quality of their employees.

Finally, each business AOL, Warner Music, GE Jet Engines is itself comprised of departments, such as sales, manufacturing and human resources management. Functional strategies identify the basic courses of action that each of the departments will pursue in order to help the business attain its competitive goals. These functional strategies have to make sense in terms of the business competitive strategy: For example, it would be foolish for Wal-Mart’s construction division to build stunningly expensive stores, or for Rolex HR to hire any but the finest craftspeople. We’ll see that HR takes on added significance in firms that build their competitive advantage around their people.

The Strategic Planning Process

There is nothing particularly mysterious about the strategic planning process. The heart of strategic planning entails SWOT analysis, which stands for strengths, weaknesses, opportunities and threats. The best strategic plans endeavor to balance the firm’s capabilities its strengths and weaknesses with the opportunities and threats the firm faces. Thus, faced with the threat posed by Microsoft’s Internet Explorer, AOL bought Netscape, which happened to be for sale. When AOL bough Time Warner to form a huge multimedia company, Seagram decided to sell its Universal Music and other Media properties to the French Internet and telecom company Vivendi, which was seeking media properties. Managers are for ever scanning the environment for opportunities and threats.

What may be an important opportunity or threat to one firm may be meaningless to another. For example, it probably doesn’t matter to General Motors that Time Warner and AOL merged (although that merger was a big event for Seagram). However, there are several basic trends that have been important across the board in determining the strategic direction of most firms today. Lets look at these.

Basic Strategic Trends

Globaliation refers to the tendency of firms to extend their sales, ownership and or manufacturing to new markets abroad. The rate of globalization in the past decade has been striking. For example, the total value of US imports and exports almost tripled from $907 billion in 1991 to 2.5 trillion in 2000.

Globalization of markets is perhaps the most obvious: Sony, Calvin Klein, The Gap, Nike and Mercedez Benz are some of the firms that market all over the world. Firms are globalizing their production too by putting facilities where they will be most adventageous. Toyota produces its Camry in Georgetown, Kentucky, with almost 80% US made parts, for instance. And with globalized markets and production, globalized ownership increasingly makes more sense. For out of five “American” textbook publishers, for example Prentice Hall, Harcourt, Houghton Mifflin and Wiley are owned by firms outside America (Britains Pearson owns Prentice Hall).

Globalization has strategic implications. Firms that once competed only with local firms from airlines to automakers to banks now face foreign competitors. As one expert puts it “The bottom line is that the growing integration of the world economy into a single, huge marketplace is increasing the intensity of competition in a wide range of manufacturing and service industries. Thus Ford and GM are pressuring Fiat in Europe, while Germany’s Deutsch Bank pressures Citicorp in New York. Deregulation has reinforced this trend, as nations eliminate the legal barriers that protected industries like banking and aviation from unbridled competition.

More globalization means more competition and more competition means more pressure to  improve to lower costs, to make employees more productive and to find new ways to do things better and less expensively. Some firms are therefore transferring operations abroad, not jus to seek cheaper labor around the world. Levi Strauss once a leading “made in the USA” advocate closed most of its remaining U.S. plants in 1991 shifting more production overseas. Others, like Saturn depend on highly motivated self managing teams to ensure continous improvements in operations. It’s in programs like these that HR (hiring the right people and training them, for instance) understandably plays a more strategic role).

Technological Advances similarly the Internet Information technology have been forcing and enabling firms to become more competitive. For example, Carrier Corporation at $ 10 billion in yearly sales and 40,000 employees, the world’s largest manufacturer of air conditioners saves an estimated $100 million per year with the Internet. In Brazil for instance carrier handles all its transaction with its channel partners (its 550 dealers, retailers, and intallers) over the Web. More than 80% of its revenues there now passes through Carrier’s Web enabled partners. “The time required to get an order entered and confirmed by our channel partners has gone from six days to six minutes.”Around the world, Carrier’s gain is some competitor’s loss: Firms that can’t match its Web technology simply can’t compete.

The Nature of Work Technology is doing more than reducing costs and opening up newys to compete: Its also changing the nature of work. This does not apply just to new jobs at dot com first like Amazon; even factory jobs are becoming more technologically demanding. For one thing “knowledge intensive high tech manufacturing jobs in such industries as aerospace, computers, telecommunications, home electronics, pharmaceuticals and medical instruments are replacing factory jobs in steel, auto, rubber, and textiles. Even heavy manufacturing jobs are becoming more high tech. At Alcoa Alumuniums, Davenport, lowa, plant, a computer stands ae each work post to help each employee controlhis or her machines. As fortune magazine says, today practically every package delivery, bank teller, retail clerk, telephone operator and bill collector in America works with a computer.

Technology is not the only trend driving this change from “brawn to brains.” There is also continuing shift from manufacturing jobs to service jobs in North America and Western Europe. Today, over two thirds of the us work force is employed in producing and delivering services not products. It’s estimateed that between 1998 and 2008 the number of jobs in good producing industries will stay almost unchanged, at about 25.5 million, while the number of jobs in service producing industries will climb from 99 million to 118.8 million. These service jobs will in turn require new types of “knowledge” workers, new HR management methods to manage them and new focus on human capital. Human capital refers to the knowledge, education, training, skills and expertise of a firms workers and you can see its more important than it has ever been before.

What does this mean for managing companies? For one thing “the center of gravity in employment is moving fast from manual and clerical workers to knowledge workers, who resist the command and control model that business took from the military 100 yearso.” Firms need new, world class HR systems to select, train, and motivate these employees and to win their commitment to the technologies and continous improvement program firms today depend on.

The workforce demograhics are changing as well. Most notably, the workforce is becoming more diverse as women, minority group members and older workers enter the workforce. Diversity has been defined as any attribute that humans are likely to use to tell themselves, that person is different from me and thus includes such factors as race, sex, age, values and cultural norms.

For example, between 1992 and 2005 people classified as Asian and other (including Native Americans) in the workforce will have jumped by just over 81%. The number of Hispanics in the workforce will have jumped by almost 64%, so that Hispanics will represent 11% of the civilan labor force in 1994, and will represent an estimated 47.8% by 2005. About two thirds of all single mothers (Separated, divorced, widowed, or never married) are in the labor force today, as are almost 45% of mothers with children under three years old.

The labor force is also getting older. The medoian age of the labor force, 37.8 years in 1995, is projected to rise to 40.5 years in 2005. (This is due mostly to the aging of the baby boom generation, those born between 1946 and 1964, since baby boomers now comprise just over half the U.S. labor force.). Employees will also likely remain in the work force past the age at which their parents retired due to Social Security and Medicare changes and the termination of traditional benefit plans by many employers.

Creating unanimity from a diverse workforce may turn out to be a considerable challenge for HR. As several nexperts have said, there are “two fundamental and inconsitent realities operating today with regard to diversity. One is that organizations claim they seek to maximize diversity in the work place and maximize the capabilities of such a diverse workforce. The other is that traditional human resources systems will not allow diversty, only similarity. What they mean is that employers traditionally hire, appraise and promote people who fit their image of their firms employees should believe and act like, and there’s tendency to screen out those who don’t fit. Establishing HR programs that don’t just pay lip service to diversity may thus be a challenge for many employers.

Managerial Consequences of the Basic Trends

Managers have to craft strategies that balance opportunities and threats like those above with their firms strengths and weaknesses, and this has produced the strategies and organizational changes with which you ‘re already probably familiar. A strategy of global expansion has been perhaps the most obvious response to this trends: Firms ranging from giants like GE to smaller ones like Carrier to even the smallest enterpreneurial enterprises have a growing international presence.

Improved competitiveness is another popular strategy, one aimed at buttressing the firms strengths and reducing its weaknessess. This strategy manifests itself in many ways: in down sizing, to boost productivity; in mergers to achieved increased size while stripping redundant cost; in prorams aimed at continously improving operations; and in using the Web to “integrate channels”. This lets firms and their suppliers and customers interact directly and thus further string costs from operations.

Global expansion and improved competitiveness are in turn driving other, organizational changes. Rather than pyramidal chains with 9 or 10 levels, firms are flat; self directed teams of empowered employees, close to the customers, now make decisions that once had to be shifted up for managerial review. Boundary less decision making means employees interact freely across departmental and level boundaries to get the information and decisions they need quickly. Knowledge management intiatives mean systems are inplace to ensure that employees across the company can share their special expertise.

The bases of poweer are also therefore changing. In the new workplace, say one expert, position, title and authority no longer adequate tools for managers to rely on to get their jobs done. Instead, “success depends increasingly on tapping into sources of good ideas, on figuring out whose collaboration is needed to act on those ideas and on working with both to produce results. In short, the new managerial work implies very different ways obtaining and using power.

HR STRATEGIC ROLE

Of Course, the question is “ What does this all mean for human resources management?” The answer in brief, is that firms to day are instituting HR practices aimed at gaining competitive advantage from their employees. For example, GE’s former Chairman Jack Welch has said, “The only way I see to get more productivity is by getting people involved and excited about their jobs. You cant afford to have anyone walk through a gate of a factory or into an office who is not giving 120%. A survey of 377 CEOs from the world 2,000 largest companies shows that GE’s emphasis isn’t unique. About half the CEOs said they spend a “great deal” of time “reshaping corporate culture and employee behavior,”even more time than they spend monitoring corporate financial information. Another study found that 70% of companies with above average financial performance considered employee training and development a critical factor in corporate success. These companies help build competitive advantage by developing their human capital.

HR’s Evolving Role

Today it’s the firm workforce its knowledge, commitment, skills, and training that provides the competitive advantage for world class companies like Microsoft, Sony, AOL and GE. And its HRs job to build the competitive advantage.

That means an upgrading of HRs traditional role. In the early 1900s, personnel people first took over hiring and firing from supervisors, ran the payroll department and administeredbenefit plans. The job consisted largely of ensuring that procedures were followed. As new technology in areas like testing and interviewing began to emerge, the personnel department began to play an expanded role in employee selection, training and promotion.

The emergence of union legislation in the 1930 s led to a new HR emphasis on protecting the firm in its interaction with unionsa. The discrimination legislation of the 1960s and 1970s meant the potential for more lawsuits and effective personnel practices became even more important. However, the emphasis was still on what HR could do to protect the organiation rather than the positive contribution id made to the firms effectiveness.

Todays HRs role is shifting from protector and screener to strategic partner and change agent. The metamorphosis of “personnel” into human resource management” reflects that. In today’s flattened, downsized and high performing organiations, trained and comitted employees not machines are the firms competitive key.

Strategic Human Resource Management

If a firm’s competitiveness depends on its employees, then the business function responsible for acquiring, training, appraising and copensating those employees has to play a bigger role in the firm’s success. The notion of employees as competitive advantage has therefore led to a new field of study known as strategic human resource management, the linking of HRM with strategic goals and objectives in order to improve business performance and develop organizational cultures that foster innovation and flexibility.”Ideally HR and top management together craft the company’s business strategy. That strategy then provides the framework that guides the design of specific HR activities such as recruiting and training. This should produce the employee competencies and behaviors that in turn should help the business implement its business strategy and realize its goals.

HR strategies are the courses of action HR uses to help the company achieve its strategic aims. One of Fedex strategic aims is to achieve superior levels of customer service and high profitability through committed employees. Its basic HR objectives is thus to build a committed workfoirce, preferably in a nonunion environment. Fedex pursues specific HR strategies to accomplish that strategic aim. It uses mechanisms to build healthy two way communication; It screens out potential managers whose values are not people oriented; it provides highly competitive salaries and pay for performance incentives; It provides for fair treatment and employee security for all employees; and it uses promotion from within and development activities to give employees every opportunity to use their skills and gifts at work. Lets take a closer look at HRs strategic partner role.

HRs Role As a Strategic Partner

Unfortunately HRs long history as a staff or advisory function has left it with a some what Impoverished reputation some still tend to view it as less than it is. For example, one view is that HR is strictly operational and that HR activities are not strategic at all. According to this line of reasoning, HR activities “involve putting out small fires ensuring that people are paid on the right day; the job advertisement meets the newspaper deadlone and a suitable supervisor is recruited for the night shift by the time it goes ahead.

A second, more expansive view is that HR’s Role is to fit or adapt to the company’s strategy. Here HRs strategic role is to adapt individual HR practices (recruiting, rewarding and so on) to fit specific corporate and competitive strategies. Top management crafts a corporate strategy such as AOL’s decision to merge with Time Warner and then HR creates the HR programs reqired to execute that corporate strategy. As two strategy planning experts have argued, “the human resources management system must be tailored to the demands of business strateg.”The idea here is that “for any particular organizational strategy, there is purpotedly a matching human resources strategy.

A third view of HR management is that it is an equal partner in the strategic planning process. Here, HRs role is not just to adapt its activities to the firm’s business strategy, not certainly just to carry out operational day to day tasks like paying employees. Instead, the need to forge the firms workforce into competitive advantage means that HR management must be an equal partner in both the formulation and the implementation of the company’s strategies. Here, for instance, HR participates in and influences decisions like AOL decision to merge with Time Warner.

Is this third view realistic? One study of top HR managers in New Zaeland is probably typical and suggests the answer is “yes and no”. By their own descriptions, most of these managers were “more intimately involved with the implementation of strategic change and with the recruitment and development of key staff, notably managers “than with actually formulating the firms strategic plans. Yet even in this sample, there was a tendency for HR executives to increasingly take a broader view of the business as a whole and its wider environment. A study by Price waterhouseCoopers found that about 27% of the responding companies included HRs perspective when starting their strategic planning cycles. HR managers therefore both traditionally and today seem to have their greatest strategic impact on executing a company’s plans; however the opportunity and need exists for their involvement in strategy formulation as well.

HRs Role in Executing Strategy Execution has traditionally been the heart of HRs strategic role, and that make sense. A firm’s functional strategies should support its competitive strategies. For example, Fedex’s competitive strategy is to differentiate itself from its competitors by offering superior customer service and guaranteed one time deliveries. This requires highly comitted employees ones who’ll “go the extra mile” to do their best. Since the same basic technologies are available to UPS, DHL and Fedexs other competitors, it is Fedexs workforce its human resources that provides Fedex with its competitive advantage. This means Fedex as discussed earlier, must design its HR processes to create a commited, competent and customer oriented workforce. A different approach to HR.

HR support strategy implementation in other ways. For example, HR handles the executiuon of most firms downsizing and restructing strategies by outplacing employees, instituting pay for performance plans, reducing health care costs, and retraining employees. When wells Fargo acquired First Interstate Bancorp, HR played a strategic role in merging two “widly divergent” culktures. It helped deal with the unvertainty and initial shock the rippled through both organizations when management announced the merger.

 HR and Value Chain Analysis Strategy execution ussually involves identifying and reducing costs, and therefore value chain analysis. A companys value chain “identifies the primary activities that create value for customers and the related support activities”. Every business consists of a chain of activities, each of which contributes to designing, producing, marketing and delivering a product or service. Each activity gives rise to costs. Managers use the value chain for visualizing their firms strategic activities, and as a tool for isolating and analkyzing the company’s strategic costs. Value chain analysis prompts quiestions such as: “How do our costs for this activity compare with our competitor? ‘Is there some way we can gain a competitive advantage with this activity? Is there a more efficient way for us to deliver these services? And do we have to perform these services in house?

By applying value chain analysis, HR managers are finding ingenious ways to deliver their own services more cost effectively,IBM’s HR group, faced with drastic cost cutting in the 1990s, first slimmed down from 3,400 to 2,000 employees. Told to cut costs by another 40% to 50%, the HR team consolidated all its service fuinctions into a centralized human resource service center based in Releigh, North Carolina. This Technology rich call center helps more than 700,000 IBM “customers”, handling over 7 million transactions a year. It reportedly saved IBM over $180 million in its first six or so years.

Outsorcing letting outside venders provide services is another option. In one survey, about 71% of respondents said there were outsourcing one or more HR activities such as temporary staffing, recruiting, benefit administration, payroll and training. Cost reduction was the most commonly citede explanation.

HRs Role in Formulating Strategy Formulating a strategic plan requires identifying, analyzing and balancing the companys external opportunities and threats and its internal strengths and weaknesses. HR plays a role here, too.

For example, HR Management can help with what strategic planners call environmental scanning, identifying  and analyzing external opportunities and threats that may be crucial to the company’s success. Thus, American Airlines considered and then rejected the opportunity acquire USAir, a smaller and relatively weak airline. While American had several reasons for rejecting a bid, HR considerations loomed large. American had doubts about its ability to successfully negotiate new labor agreements wit USAir employees and felt the problems of assimilating them might be too great.

Formulating plans requires competitive intellegence, and HR management can supply useful information. Details regarding new competitors incentive plans and information about pending legislation like labor laws or mandatory health insurance are some examples. Furthermore:

From public information and legitimate recruiting and interview activities, you ought to be able to construct organization chart, staffing levels and group mission for the various organizational components of each of your major competitors. Your knowledge of how brands are sorted among sales divisions and who reports to whom can give important clues as to a competitors strategic priorities. You may even know the track record and characteristic behaviour of the executives.

HR also supplies information regarding the company’s internal strengths and weaknesses. For example, AOL’s decision to buy Netscape was probably prompted in part by AOLs assessment that its own human resources were inadequate for the task of creating a browser that could compete with Internet Explorer, or at least doing so quickly enough.
Some firms even build their strategies around an HR based competitive advantage. For example, in the process of automating its factories, farm equipment manufacturer John Deere developed a workforce that was exceptionally talented  New Technology division to offer automation services to other companies. As another example, the firm Arthur Andersen developed unique human resource capabilities in training. The firms illionis training facility is so technologically advanced that it provides the firm with a competitive advantage, enabling it to provide fast, uniform trainining in house and “react quickly to the changing demands of its clients.”

HR and Technology

Indeed, technology can be an egine of strategic change. AT IBM, for instance creating a centralized HR call center did more than save the company $180 million. Studies (like one conducted at pharmaceuticals company Warner Lambert) show that as much as 70% of HR employees time is devoted to transactional tasks like checking leave balances, maintaining address records and maintaining address records and monitoring employee benefits distributions. Consolidating and digitizing transactional services like these therefore meant IBM could redoplay HR assets to more value added services like helping divisional managers develop their employees and create their strategic plans. Doing so helped turn IBM HR into a truly strategic partner. We’ll look at how technology is changing HR in this section.

Basic HR systems HR can be an enormously paper intensive process. For example, just recruiting and hiring an employee might require a Notice of Available Position, a help wanted advertising listing, an employment application, an interviewing checklist and a telephone refrence checklist. You then need an employment agreement, a  confidentially and noncompete agreement and a hiring authorization form and employee background verification. To keep track of the employee once he or she is on board, you need just to start an employee change form, personnel data sheet and daily or weekly time records. Then come the performance appraisal forms, notice of probation and dozens of other, similar forms and this list doesn’t even scratch the surface.

Where do forms and systems like these come from? For start up business, office supply stores such as Office Depot and Office Max sell paper and Pencil forms. For example, Office Depot sells packages of individual personnel forms, including an employment application, performance evaluation and weekly expense report. But as your company grows, it becomes increasingly unwieldy and inefficient to rely on manual HR systems. Conducting performance appraisals for a few employees and tracking the results may not be much of a problem for a small store, but for a company with 40 or 50 employees, the management time devoted to conducting appraisals can multiply into weeks. It is about this stage that most small tomedium sized firms begin computerizing individual HR tasks.

There are many sources of help available. For example, the web site for the international association for human resource information management www.ihrim.org/marketplace/buyers_guide/buyers_guide_cat.html contains a buyers guide listing software vendors by functional category. These vendors provide software solutions for virtually all HR tasks, including compensation management, payroll and time attendance systems. HR supply firms such as G. Neil Companies and HR Direct sell off the shelf software packages for controlling attandance, employee record keeping, writing job descriptions and conducting computerized employee appraisals.

Human Resources Information System (HRIS) As companies grow, they integrate their separate HR systems into human resource information system (HRIS). An HRIS is “interrelated components working together to collect, process, store, and disseminate information to support decision making, coordination, control, analysis and visualization of an organization’s human resources management activities.

Integrating separate HR system can be highly cost effective. For example, W.H Brady company, a Milwaukee based manufacturer of identification products such as labels, reportedly cut several hundred thousand dollars a year from its HR budget through the use of HRIS. The cost effectiveness derives from three factors: streamlined transaction processing (for instance, computerizing more of the firm’s HR process, such as appraisal); improved reporting capability (for instance, letting the CEO quickly acess reports on things like health care cost peremployee and cost per hire); and making it easier for the firm to puts its HR system online. Well turn to online HR next.

HR and the Internet The Internet triggered a revolution in what HR departments do and how they do it. First, the Internet anabled any HR department to shift some activities to specialized online HR service providers. For example, Swales Aerospace recruit many enginers and uses hire.com for its recruiting. Hire.com does not just post job openings. When a client position becomes available, hire.com sifts through its active and passive files to identify likely candidates. According to Swales’s HR director,”hire.com was able to meet all our needs for building a pool of people that only we had to access to, that we knew were interested in our company and that had the skills we were looking for.”

Yet, while turning to specific online services like these is benefecial, it’s the movement to HR portals that prompted the most striking changes in what HR does and how it does it. As the head of the technology group for the Society for Human Resources Management has said, “the number one trend from a technology perspective is the evolution of intranets into full fledged portals.

HR portals, ussually hosted on a company’s intranet, provide employee with a single access point or “gateway” to all HR information. They let the firm’s employees, managers and executives interactively (and selectively) access and modify HR information. They thereby streamline the HR process and enable HR managers to focus more on strategic issues.

Sometimes the firm’s gateway HR portal supports just a few HR specialists. Anheuser Busch used this approach when the time came for annual benefits package enrollments. HR knew there would be a large number of employee inquiries. It therefore replaced its manual inquiry process with Authoria HR, an HR portal from Authoria, Inc. (www.authoria.com). Doing so let HR digitize and agreement through a single source (the new portal) all the farmer paper benefits reprts, electronoic spreadsheets, and benefit summaries that the firm’s benefits counselors had been using. That made it much easier for specialist in Anheuser Busch’s HR call center to answer employees questions as they came in. The aim is to eventually allow employees to research and answer their own HR question through a browser based interface.

Wells Fargo used an HR portal when it merged with Norwest Corporation. The merger meant moving 90,000 employees to a new benefits plan, which of course triggered numerous employee inquiries. As at Anheuser Busch, Wells Fargo armed its HR call center counselors with a specialized portal; this helped them research and answer employees inquiries.

NCR also installed an HR portal. It is called HR express and is organized into three information areas: benefits and compensation, training and career growth, and NCR values and HR policies. NCR also added a Forms Center to the site’s title bar. HR express gives NCR employees a shortcut to all the information they need to manage HR tasks, such as those relating to company benefits and updating their personal information. The Forms Center gives them quick access to any forms they need.

Again putting HR services online doesn’t just cut costs by letting employees research their own inquiries or by letting HR call center counselors do their jobs more easily(although it certainly does both). It also enables HR to redeploy its assets and focus on more strategic issues. As one manager put it: We weren’t looking for cost savings but to transform the work HR was doing from reactionary dealing with paper and manual tasks to proactive being on the cutting edge, making people better employees.

HR and Employee Performance and Commitment

It is one thing to argue that HR can help create competitive advantage, the real question is:”Can HR have a measureable impact on a company’s bottom line?”There is evidence that the answer is yes. The U.S. government, for instance, found that using personnel screening tests to select high potential computer programmers saved millions of dollars per year. For many firms, instituting tough head count controls is the first line of attack in lowering labor costs. HR generally plays a major role in planning and implementing corporate downsizings, and then in maintaining the morale of the remaining employees.

A study by HR consulting firm Watson Wyatt Worldwide of Bethesda, Maryland, found that significant improvements in key HR management practices correlated with significant increases in market  value in the 405 publicly related firm studied. We can’t draw any conclusions regarding cause effect. However significantly improving recruiting practice was linked to a 10% increase in market value while establishing clear rewards and accountabilty was associated with a 9.2% market value rise.

Employee behavior (and therefore HR) is especially important in service firms like brands and retail stores. If your customer is cronfonted by a salesperson who is tactless, unprepared to discuss the different product or discourteous all your other efforts advertising campaigns and redecorated stores for instance will have been wasted. That makes service firms especially dependent on employees attitudes and motivation and on HR Management. One study of service firms found that HR practice improved customer service from the customer point view. Fedex built its competitive advantage on this idea. Fred Smith its chairman and founder call this “People Service Profits”: Use HR to build employee commitment; employees will then provide excellent customer service, which in turn will generate profits.

Fedex is not alone in using HR to help build employee commitment an employees identification with and agreement to pursue the company’s or the unit mission. Many firms today know they need employees to work “as if they own the company”. At Toyota Motor Manufacturing in Georgetown Kentucky employee commitment helps explain the firms superior performance and product quality. Toyota instituted an HR system thay cultivates commitment. For example, Toyota has programs that guarantee fair treatment of employees grievances and disciplinary concerns. It also has programs that help ensure employees can use all their skills and gifts at work, such as career oriented performance appraisal procedures and extensive training and development opportunities.

HR practices also enable companies to respond faster to product and technological innovations and competitors moves. For example, downsizing empowering employees and organizing around teams all HR jobs aim to improve communications and make it easier for employees to make decisions. At Levi Straus HR helped create the firms team based manufacturing system. This system ties employees incentives to team goals and along with Levi’s new flexible hours program helps inject more flexibility into the firms production process.

Strategic HR

From its start in Michael Dells college dorm room, Dell computer’s competitive strategy was always to be the PC industry’s low cost leader. While others like Apple competed based on differentiating features like multimedia software, Dell stripped away the retailers profit and drove its costs down by selling direct and relentlessly slashing costs. That’s why it was and is the industry low cost leader. But recently with PC sales falling. It was aggresively slashing prices and the executives of its various divisions had to make sure their own strategies were in sync with the firmwide strategy to further cut costs.

As many firms in the same siyuation, Dell HRs first task was to manage Dells downsizing In the first half 2001, 4000 Dell workers were let go. HR had to manage the system for choosing those who would leave the firm and then handle the thousands of details involved in the dismissals. Terminated workers got their yearly bonuses early, severance packages including two months salary and health benefits and job counseling among other benefits.

Dell HR managers have found a variety of other ongoing ways to help Dell’s top management execute the firms low cost leader strategy. For one thing and as you might imagine Dell noe delivers most of its HR services via the Web. A manager tools section on the firm’s internet contains about 30 automated Web applications allowing managers to perform HR tasks that previously required costly participation by HR department personnel. The intranet also lets Dell employee administer their own 401(k) plans, check job postings and monitor their total compensation statement. This dramatically reduces the number of HR people required to administer these activities and thus the cost of doing so.

Dell also reorganized its delivery of HR services. Rather than a traditional organization with HR heads for areas such as employment services, compensation and employee health, Dell distinguishes between HR “operations” and HR “management”. Operation staff deal directlty with employees and coordinate transactional functions such as benefits, compensation  and employee relations through a central call center. Operation staff members rarely have contact with managers of Dells business units. In contrast HR management includes the company’s education and training function, as well as functions like recruitment and selection. HR management staff report to both the vice president of a business unit such as Laptop Computers and the vice president of HR. They attend their business unit’s staff meetings as consultant, develop HR strategies for the partiucular line of business and assist with matters such as identifying personnel needs, training employees, and contributing HRs perspective to the business unit stratergic plan.

The division of works lets Dells central HR operations staff efficiently address routine matters, while each business units relatively small HR management staff can efficiently provide spacialize HR support in areas like personnel testing and strategic planning. That along with Dell's use of Web based self serve HR services illustrates how Dell HR helps Dell computer remain the PC industry's low cost leader.

Is There a “One Best HR Way”?

Assuming HR can affect the bottom line is there a set of HR “best practice” such as a particular way to appraise or compensate employees that is applicable to all or most companies and strategies or do we have to adjust the HR practice to fit each situation? This question has been the subject of much debate and we can draw some conclusions.

First, studies do suggest that some HR approaches are applicable to all or most companies. For example, profit sharing, result oriented appraisals and employment security all had strong relationships with mesures of organizational performance in a range of situations. Similarly several HR practices seem “universal” for firms that do business globally: fostering informal relationships between employees with the aim of promoting worldwide communication; developing global executives through international assignment having people with internasional experience in the key global HR management positions; and having a global HR person on the initial business strategy team when entering new markets.

On the other hand there appears to be no “best practices” magic bullet, except to organize a firm’s HR practices to fit its strategy and to support the firms operating and strategic initiatives. In other words, dropping an HR practice into your firm just because it worked well in another is risky.

RESEARCH INSIGHT Two studies illustrate this. In study of Banks, researchers measured performance on two financial measures: return on average assets and return on equity. They found that “the result of these analyses show that  differences (approximately 30%) in financial performance. However, whether the banks benefited from the specific types of HR practices (such as employee participation, results oriented appraisals and internal career opportunities) depended on the type of bank and on it was trying to achieve strategically (cut cost, boost quality, expand geographically, or something else). A study of 97 manufacturing plants in the metalworking industry similarly concluded that HR practices has to fit the company’s strategy and what the company wants to achieve.

For current and futuring managers, the best advice seems to be learn as much as possible about the HR practices well discuss in the following chapters and then design a practice that’s consistent with what your company wants to achieve. The corollary is that flexibilty is advisable: You may have to modify an HR practice as competitive conditions cause you to modify your firm’s business strategy.