Chap 1 - Human Resource Management

WHAT IS HUMAN RESOURCE MANAGEMENT AND WHY IS IT IMPORTANT? What Is Human Resource Management? L.L.Bean is an organization.An organization consists of people with formally assigned roles who work together to achieve the organization s goals. A manager is the person responsible for accomplishing the o...

WHAT IS HUMAN RESOURCE MANAGEMENT AND WHY IS IT IMPORTANT? What Is Human Resource Management? L.L.Bean is an organization.An organization consists of people with formally assigned roles who work together to achieve the organization s goals. A manager is the person responsible for accomplishing the organizations goals, who does so by managing the efforts of the organizations people. Most experts agree that managing involves five functions: planning, organizing, staffing, leading, and controlling. In total, these functions represent 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 subordinates; establishing channels of authority and communication; coordinating subordinateswork. * Staffing. Determining what type of people you should hire; recruiting prospective employees; selecting employees; training and developing employees; setting performance standards; evaluating performance; counseling employees; compensating employees. * Leading. Getting others to get the job done; maintaining morale; motivating subordinates. * Controlling. Setting standards such as sales quotas, quality standards, or produc tion levels; checking to see how actual performance compares with these standards; taking corrective action, as needed. In this book, we are going to focus on one of these functions the staffing, per sonnel management, or human resource management (HRM) function. Human resource management is the process of acquiring, training, appraising, and com pensating employees, and of attending to their labor relations, health and safety, and fairness concerns. The topics well discuss should therefore provide you with the concepts and techniques you need to perform 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 CHAPTER 1 INTRODUCTION TO HUMAN RESOURCE MANAGEMENT 5 2 Show with examples why human resource management is important to all managers. 2 Show with examples why human resource management is important to all managers. Why Is Human Resource Management Important to All Managers? These concepts and techniques important to all managers for several reasons. AVOID PERSONNEL MISTAKES First, having a command of this knowledge will help you avoid the sorts of personnel mistakes you dont want to make while managing. For example, no manager wants to: * Hire the wrong person for the job * Experience high turnover * Have your people not doing their best * Waste time with useless interviews * Have your company taken to court because of your discriminatory actions * Have your company cited under federal occupational safety laws for unsafe practices * Have some employees think their salaries are unfair 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. IMPROVE PROFITS AND PERFORMANCE Similarly, effective human resource management can help ensure that you get results through people. Remember that you can do everything else right as a manager lay brilliant plans, draw clear organization charts, set up world-class assembly lines, and use sophisticated accounting controls but still fail, by hiring the wrong people or by not motivating subordinates. On the other hand, many managers presidents, generals, governors, supervisors have been successful even with inadequate plans, organizations, 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 capital is the bottleneck for a developing industry. I dont think this any longer holds true. I think its the work force and the companys inability to recruit and maintain a good work force that does constitute the bottleneck for production. I dont know of any major project backed by good ideas, vigor, and enthusiasm that has been stopped by a shortage of cash.I do know of industries whose growth has been partly stopped or hampered because they cant maintain an efficient and enthusiastic labor force, and I think this will hold true even more in the future.3 Indeed, well see that because of global competition, technological advances, andthe changing nature of work,that presidents statement has never been truer than it is today. organization People with formally assigned roles who work together to achieve the organizations goals. manager The person responsible for accomplishing the organizations goals, and who does so by managing (planning, organizing, staffing, leading, and controlling) the efforts of the organizations people. management process The five basic functions of planning, organizing, staffing, leading, and controlling. human resource management (HRM) The process of acquiring, training, apprais ing, and compensating employees, and of attending to their labor relations, health and safety, and fairness concerns. 6 PART 1 INTRODUCTION YOU TOO MAY SPEND SOME TIME AS AN HR MANAGER Here is a third reason to be familiar with this book s contents. You may well make a planned (or unplanned) stopover as a human resource manager. For example, Pearson Corporation (which publishes this book) recently promoted the head of one of its publishing divisions to chief human resource executive at its corporate headquarters. After General Motors emerged from bankruptcy a few years ago,it replaced its human resource director with Mary Barra, GMs vice president for global manufacturing engineering, an executive with no human resource management experience.4 One survey found that about one-fourth of large U.S.businesses appointed managers with no human resource management experience as their top human resource executives. Reasons given include the fact that these people may give the firmsHR efforts a more strategic emphasis, and the possibility that theyre sometimes better equipped to integrate the firms human resource efforts with the rest of the business.5 However,most top human resource executives do have prior human resource expe rience. About 80% of those in one survey worked their way up within HR.6 About 17% of these HR executives had earned the Human Resource Certification Institutes Senior Professional in Human Resources (SPHR) designation, and 13% were certified Profes sionals in Human Resources (PHR). The Society for Human Resource Management (SHRM) offers a brochure describing alternative career paths within human resource management. Find it at www.shrm.org/Communities/StudentPrograms/Documents/ 07- 0971%20Careers%20HR%20Book_final.pdf. 3 Illustrate the human resources responsibilities of line and staff (HR) managers. 3 Illustrate the human resources responsibilities of line and staff (HR) managers. HR FOR ENTREPRENEURS Finally, another reason to study this book is that you might end up as your own human resource manager.More than half the people working in the United States about 68 million out of 118 million work for small firms. Small businesses as a group also account for most of the 600,000 or so new businesses created every year. Statistically speaking, therefore, most people graduating from college in the next few years either will work for small businesses or will create new small businesses of their own. Especially if you are managing your own small firm with no human resource manager, youll have to understand the nuts and bolts of human resource management.7 Well specifically address HR for entrepreneurs in Chapter 18. Line and Staff Aspects of Human Resource Management All managers are,in a sense,human resource managers,because they all get involved in recruiting, interviewing, selecting, and training their employees. Yet most firms also have human resource departments with their own top managers.How do the duties of this human resource manager and department relate to the human resource duties of sales and production and other managers? Answering this requires a short defini tion of line versus staff authority. Authority is the right to make decisions, to direct the work of others, and to give orders. Managers usually distinguish between line authority and staff authority. In organizations, having what managers call line authority traditionally gives managers the right to issue orders to other managers or employees. Line authority therefore creates a superior (order giver) subordinate (order receiver) relationship. When the vice president of sales tells her sales director to get the sales presentation ready by Tuesday, she is exercising her line authority. Staff authority gives a manager the right to advise other managers or employees. It creates an advisory relationship. When the human resource manager suggests that the plant manager use a particular selection test, he or she is exercising staff authority. On the organization chart, managers with line authority are line managers. Those with staff (advisory) authority are staff managers. In popular usage, people tend to associate line managers with managing departments (like sales or production) that are crucial for the companys survival. Staff managers generally run departments that are advisory or supportive, like purchasing, and human resource management. Human resource managers are usually staff managers. They assist and advise line managers in areas like recruiting, hiring, and compensation. CHAPTER 1 INTRODUCTION TO HUMAN RESOURCE MANAGEMENT 7 Source: Fotolia. Line authority gives the manager the right to issue orders. Line Managers Human Resource Duties However, line managers still have many human resource duties. This is because the direct handling of people has always been part of every line managers duties, from president down to first-line supervisors. For example, one major company outlines its line supervisors respon sibilities for effective human resource management under these general headings: 1. Placing the right person in 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 cooperation and developing smooth working relationships 6. Interpreting the companys policies and procedures 7. Controlling labor costs 8. Developing the abilities of each person 9. Creating and maintaining department morale 10. Protecting employeeshealth and physical condition In small organizations, line managers may carry out all these personnel tasks unassisted. But as the organization grows, they need the assistance, specialized knowledge, and advice of a separate human resource staff. The human resource department provides this specialized assistance. Human Resource Managers Duties In providing this specialized assistance, the human resource manager carries out three distinct functions: 1. A line function. The human resource manager directs the activities of the people in his or her own department, and perhaps in related areas (like the plant cafeteria). 2. A coordinative function. The human resource manager also coordinates personnel activities, a duty often referred to as functional authority (or func tional control). Here he or she ensures that line managers are implementing the firms human resource policies and practices (for example, adhering to its sexual harassment policies). 3. Staff (assist and advise) functions. Assisting and advising line managers is the heart of the human resource managers job. He or she advises the CEO so the CEO can better understand the personnel aspects of the companys strategic op tions. HR assists in hiring, training, evaluating, rewarding, counseling, promoting, and firing employees. It 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 authority The right to make decisions, direct others work, and give orders. line authority The authority exerted by an HR manager by directing the activities of the people in his or her own department and in service areas (like the plant cafeteria). staff authority Staff authority gives the manager the right (authority) to advise other managers or employees. line manager staff manager A manager who assists and advises line managers. functional authority A manager who is authorized to direct the work of subordinates and is responsible for accomplishing the organizations tasks. The authority exerted by an HR manager as coordinator of personnel activities. The authority exerted by an HR manager as coordinator of personnel activities. 8 PART 1 INTRODUCTION FIGURE 1-1 Human Resources Organization Chart Source: www.co.pinellas.fl.us/persnl/pdf/orgchart.pdf, accessed April 1, 2009. Used with permission of Pinellas County Govt. Source: www.co.pinellas.fl.us/persnl/pdf/orgchart.pdf, accessed April 1, 2009. Used with permission of Pinellas County Govt. innovator role, by providing up-to-date information on current trends and new methods for better utilizing the companys employees (or human resources ). It plays an employee advocacy role, by representing the interests of employees within the framework of its primary obligation to senior management.Although human resource managers generally cant wield line authority (outside their departments), they are likely to exert implied authority. This is because line managers know the human resource manager has top managements ear in areas like testing and affirmative action. The size of the human resource department reflects the size of the employer. For a very large employer, an organization chart like the one in Figure 1-1 would be typical, containing a full complement of specialists for each HR function. Examples of human resource management specialties include:8 * 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 analysts. Collect and examine information about jobs to prepare job descriptions. * Compensation managers. Develop compensation plans and handle the employee benefits program. * Training specialists. Plan, organize, and direct training activities. * Labor relations specialists. Advise management on all aspects of union management relations. CHAPTER 1 INTRODUCTION TO HUMAN RESOURCE MANAGEMENT 9 Manager Human Resources Human Resources Coordinator Office Generalist Office Generalist FIGURE 1-2 HR Organization Chart (Small Company) At the other extreme,the human resource team for a small manufacturer may contain just five or six (or fewer) staff, and have an organization similar to that in Figure 1-2. There is generally about one human resource employee per 100 company employees. New Approaches to Organizing HR Employers are also offering human resource services in new ways. For example, some organize their HR services around four groups: transactional, corporate, embedded, and centers of expertise.9 * The transactional HR group uses centralized call centers and outsourcing arrangements (such as with benefits advisors) to provide support for day-to-day transactional activities (such as changing benefits plans and employee assistance and counseling). In one survey, about 75% of respondents said their firms were providing transactional, administrative human resource services through such arrangements.10 * The corporate HR group focuses on assisting top management in top level big picture issues such as developing and explaining the personnel aspects of the companys long-term strategic plan. * The embedded HR unit assigns HR generalists (also known as relationship managers or HR business partners ) directly to departments like sales and production. They provide the localized human resource management assistance the departments need. * The centers of expertise are like specialized HR consulting firms within the company for instance, they provide specialized assistance in areas such as organizational change. IBM EXAMPLE Randall MacDonald, IBMs senior vice president of human resources, noted that the traditional human resource organization often isolates HR functions into silos such as recruitment, training, and employee relations. He says this silo approach often means theres no one team of human resource specialists focusing on the needs of specific groups of employees. MacDonald therefore reorganized IBMs human resource function.He segmented IBMs 330,000 employees into three sets of customers : executive and technical employees, managers, and rank and file. Separate human resource management teams (consisting of recruitment, training, and compensation specialists, for instance) now focus on serving the needs of each employee segment. These specialized teams help ensure that the employees in each segment get precisely the talent, learning, and compensation they require to support IBMs needs.11 Cooperative Line and Staff HR Management: An Example Because line managers and human resource managers both have human resource management duties,it is reasonable to ask, Exactly which HR duties are carried out by line managers and which by staff managers? No one division of responsibilities would apply to all organizations, but we can generalize. 10 PART 1 INTRODUCTION FIGURE 1-3 Employment and Recruiting Who Handles It? (Percentage of All Employers) Source: HR Magazine, Copyright 2002 by Society for Human Resource Management (SHRM). 4 Briefly discuss and illustrate each of the important trends influencing human resource management. 4 Briefly discuss and illustrate each of the important trends influencing human resource management. Employment interviews Recruiting (other than college recruiting) Temporary labor administration Preemployment testing (except drug tests) College recruiting 0% 10% 20% HR department only 30% 40% 50% 60% HR and other departments 70% 80% 90% 100% Other departments only Note: Length of bars represents prevalence of activity among all surveyed employers. The most important generalization is that the line staff relationship should be cooperative.12 For example, in recruiting and hiring, the line manager describes the qualifications employees need to fill specific positions. Then the human resource team 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 line manager,who interviews and selects the ones he or she wants.In training, the line manager again describes what he or she expects the employee to be able to do. Then the human resource team devises a training program, which the line manager then (usually) administers. Some activities are usually HRs alone. For example, 60% of firms assign to human resources the exclusive responsibility for preemployment testing, 75% assign it college recruiting, and 80% assign it insurance benefits administration. But employers split most activities, such as employment interviews, performance appraisal, skills training, job descriptions, and disciplinary procedures, between HR and line managers.13 Figure 1-3 illustrates the typical HR line management partnership. For example, HR alone typically handles interviewing in about 25% of firms. But in about 60% of firms, HR and the other hiring departments are both involved in interviewing. In summary, human resource management is part of every managers job. Whether youre a first-line supervisor, middle manager, or president or whether youre a production manager or county manager (or HR manager) getting results through people is the name of the game.And to do this,you will need a good working knowledge of the human resource management concepts and techniques in this book. THE TRENDS SHAPING HUMAN RESOURCE MANAGEMENT What human resource managers do and how they do it is changing. Some of the reasons for these changes are obvious. One is technology. For example, employers now use their intranets to let employees change their own benefits plans, something they obviously couldnt do years ago. Other trends shaping human resource management include globalization, deregulation, changes in demographics and the nature of work, and economic challenges (summarized in Figure 1-4). Lets look at these trends next.14 CHAPTER 1 INTRODUCTION TO HUMAN RESOURCE MANAGEMENT 11 FIGURE 1-4 Trends Shaping Human Resource Management Trends Globalization Increased competition Deregulation and increased indebtedness Technological innovation More high-tech jobs More service jobs More knowledge work An aging workforce Dramatic economic downturn starting in 2007/2008 De-leveraging plus a likely slowdown in deregulation and globalization Slower economic growth in many countries So Companies Must Be More competitive Faster and more responsive More cost-effective Human-capital oriented Quality conscious Downsized Organized flatter (fewer layers) Organized around empowered teams Leaner More fiscally conservative More scientific in how they make decisions Employers Will Therefore Expect from HR Management That They Globalization and Competition Trends Focus more on big picture issues such as helping the company achieve its strategic goals Find new ways to provide transactional services such as benefits administration Create high- performance work systems Take steps to help the employer better manage challenging times Formulate practices and defend its actions based on credible evidence Manage ethically Have the proficiencies required to do these things for instance, a command of strategic management and financial budgeting Globalization refers to the tendency of firms to extend their sales, ownership, and/or manufacturing to new markets abroad. Examples surround us. Toyota produces the Camry in Kentucky,while Dell produces PCs in China.Free trade areas agreements that reduce tariffs and barriers among trading partners further encourage international trade. NAFTA (the North American Free Trade Agreement) and the EU (European Union) are examples. Companies expand abroad for several reasons. Sales expansion is one. Walmart is opening stores in South America. Dell, knowing that China will soon be the worlds biggest market for PCs, is aggressively selling there. Firms go abroad for other reasons. Some manufacturers seek new foreign prod ucts and services to sell, and to cut labor costs. Thus, some apparel manufacturers design and cut fabrics in Miami, and then assemble the actual products in Central America, where labor costs are relatively low. Sometimes, its the prospect of forming partnerships that drives firms to do business abroad. When IBM sold its PC division to the Chinese firm Lenovo, it did so partly to cement firmer ties with the booming China market. For businesspeople, globalization means more competition, and more competition means more pressure to be world- class to lower costs, to make employees more productive, and to do things better and less expensively. 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. 15 Both workers and companies have to work harder and smarter than they did without globalization.16 Globalization therefore brings both benefits and threats. For consumers it means lower prices and higher quality on products from computers to cars, but for globalization The tendency of firms to extend their sales, ownership, and/or manufacturing to new markets abroad. 12 PART 1 INTRODUCTION workers it means the prospect of working harder, and perhaps less secure jobs. Job offshoring having employees abroad do jobs that Americans formerly did illustrates this threat. For example, in the next few years, many employers plan to offshore even highly skilled jobs such as sales managers, general managers and HR managers.17 (On the other hand, what USA Today calls A small but growing band of U.S. manufacturers including giants such as General Electric, NCR, and Caterpillar are actually reshoring jobs bringing them back to the United States. Reasons range from rising shipping and labor costs abroad to occasional poor quality goods and intellectual property theft abroad.)18 For business owners, globalization means (potentially) millions of new consumers, but also new and powerful global competitors at home. For 50 or so years, globalization boomed. For example, the total sum of U.S. imports and exports rose from $47 billion in 1960, to $562 billion in 1980, to about $4.1 trillion in 2010.19 Economic and political philosophies drove this boom. Govern ments dropped cross-border taxes or tariffs, formed economic free trade areas such as NAFTA, and took other steps to encourage the free flow of trade among countries. The fundamental economic rationale was that by doing so, all countries would gain. And indeed, economies around the world, not just in the United States but also in Europe and Asia, did grow rapidly. Indebtedness ( Leverage ) and Deregulation Other trends contributed to this economic growth. Deregulation was one. In many countries, governments stripped away regulations. In the United States and Europe, for instance, the rules that prevented commercial banks from expanding into stock brokering were relaxed. Giant, multinational financial supermarkets such as Citibank quickly emerged. As economies boomed, more businesses and consumers went deeply into debt. Homebuyers bought homes, often with little money down. Banks freely lent money to developers to build more homes. For almost 20 years, U.S. consumers actually spent more than they earned. On a grander scale, the United States itself increasingly became a debtor nation. Its balance of payments (exports minus imports) went from a healthy positive $3.5 billion in 1960, to a not-so-healthy minus $19.4 billion in 1980 (imports exceeded exports), to a huge $497 billion deficit in 2010.20 The only way the country could keep buying more from abroad than it sold was by borrowing money. So, much of the boom was built on debt. By 2011, Standard & Poors said it would lower the ratings of U.S. sovereign (treasury) bonds, fearing Washington policymakers could not get a handle on the huge indebtedness. Rating agencies had already lowered their ratings on the bonds of countries such as Japan and Greece. Source: Digital Vision/Thinkstock. Source: Digital Vision/Thinkstock. Technological Trends Many blue-collar workers no longer do hard physical labor with dangerous machinery like this. Instead, as explained in the text, Chad Toulouse spends most of his time as a team leader keying commands into computerized machines. Everyone knows that technology changed almost everything we do.We use smartphones and iPads to communicate with the office, and to plan trips, manage money, and look for local eateries. We also increasingly use technology for many human resource management type applications, such as looking for jobs. Facebookrecruiting is one example.21 According to Facebooks Facebookrecruiting site, employers start the process by installing the Careers Tab on their Facebook page.Once installed, companies have a seamless way to recruit and promote job listings from directly within Facebook. 22 Then, after creating a job listing, the employer can adver tise its job link using Facebook Advertisements. CHAPTER 1 INTRODUCTION TO HUMAN RESOURCE MANAGEMENT 13 Trends in the Nature of Work Technology has also had a huge impact on how people work,and therefore on the skills and training todays workers need. HIGH-TECH JOBS For example, skilled machinist Chad Toulouse illustrates the modern blue-collar worker. After an 18-week training course, this former college student works as a team leader in a plant where about 40% of the machines are automated. In older plants, machinists would manually control machines that cut chunks of metal into things like engine parts. Today, Chad and his team spend much of their time keying commands into computerized machines that create precision parts for products, including water pumps.23 As the U.S. governments Occupational Outlook Quarterly put it, knowledge-intensive high-tech manufacturing in such industries as aerospace, computers, telecommunications, home electronics, pharmaceuticals, and medical instruments is replacing factory jobs in steel, auto, rubber, and textiles.24 SERVICE JOBS Technology is not the only trend driving the change from brawn to brains. Today over two-thirds of the U.S. workforce is producing and delivering services, not products. Between 2004 and 2014, almost all of the 19 million new jobs added in the United States will be in services, not in goods producing industries.25 Several things account for this.26 With global competition, more manufacturing jobs have shifted to low-wage countries. For example, Levi Strauss, one of the last major clothing manufacturers in the United States, closed the last of its American plants a few years ago. Furthermore, higher productivity enables manufacturers to produce more with fewer workers. Just-in-time manufacturing techniques link daily manu facturing schedules more precisely to customer demand, squeezing waste out of the system and reducing inventory needs. As manufacturers integrate Internet based customer ordering with just-in-time manufacturing, scheduling becomes more precise. For example, when a customer orders a Dell computer, the same Internet message that informs Dells assembly line to produce the order also signals the screen and keyboard manufacturers to prepare for UPS to pick up their parts. The net effect is that manufacturers have been squeezing slack and inefficiencies out of production, enabling companies to produce more products with fewer employees. So, in America and much of Europe, manufacturing jobs are down, and service jobs up. KNOWLEDGE WORK AND HUMAN CAPITAL In general,the best jobs that remain require more education and more skills.For example,we saw that automation and just-in-time manufacturing mean that even manufacturing jobs require more reading, math, and communication skills.27 For employers this means relying more on knowledge workers like Chad Toulouse, and therefore on human capital.28 Human capital refers to the knowledge, education, training, skills, and expertise of a firms workers.29 Today, as management guru Peter Drucker predicted years ago, the center of gravity in employment is moving fast from manual and clerical workers to knowledge workers. 30 Human resource managers now list critical thinking/problem-solving and information technology application as the two skills most likely to increase in importance over the next few years.31 The accompanying HR as a Profit Center feature illustrates how human resource management methods can boost profitability by building and capitalizing on such employee skills. human capital The knowledge, education, training, skills, and expertise of a firms workers. 14 PART 1 INTRODUCTION HR AS A PROFIT CENTER Boosting Customer Service A bank installed special software that made it easier for its customer service representatives to handle customers inquiries. However, the bank did not otherwise change the service reps jobs in any way. Here, the new software system did help the service reps handle more calls. But otherwise, this bank saw no big performance gains.32 A second bank installed the same software. But, seeking to capitalize on how the new software freed up customer reps time, this bank also had its human resource team upgrade the customer service representatives jobs. This bank taught them how to sell more of the banks services, gave them more authority to make decisions, and raised their wages. Here, the new computer system dramatically improved product sales and profitability, thanks to the newly trained and empowered customer service reps. Todays employers want and need human resource practices like these that improve employee performance and company profitability.33 Workforce and Demographic Trends All of this is occurring along with big changes in workforce and demographic trends. DEMOGRAPHIC TRENDS Most importantly, the U.S. workforce is becoming older and more multiethnic.34 Table 1-1 provides a bird s-eye view. For example, between 1998 and 2018, the percent of the workforce that it classifies as white, non-Hispanic will drop from 83.8% to 79.4%. At the same time, the percent of the workforce that is black will rise from 11.6% to 12.1%,those classified Asian will rise from 4.6% to 5.6%, and those of Hispanic origin will rise from 10.4% to 17.6%. The percentages of younger workers will fall, while those over 55 of age will leap from 12.4% of the workforce in 1998 to 23.9% in 2018.35 At the same time, demographic trends are making finding and hiring employees more challenging. In the United States, labor force growth is not expected to keep pace with job growth, with an estimated shortfall of about 14 million college educated workers by 2020.36 One study of 35 large global companies senior human resource officers said talent management in particular, the acquisition, develop ment, and retention of talent to fill the companies employment needs ranked as their top concern.37 GENERATION Y Also called Millennials, Gen Y employees are roughly those born 1977 2002. They take the place of the labor forces previous new entrants, TABLE 1-1 Demographic Groups as a Percent of the Workforce, 1998 2018 Age, Race, Ethnicity 1998 2008 Age: 16 24 25 54 55+ White, non-Hispanic Black Asian Hispanic origin 15.9% 71.7 12.4 83.8 11.6 4.6 10.4 2018 14.3 67.7 18.1 81.4 11.5 4.7 14.3 12.7 63.5 23.9 79.4 12.1 5.6 17.6 Source: Adapted from www.bls.gov/news.release/ecopro.t01.htm, accessed May 10, 2010. CHAPTER 1 INTRODUCTION TO HUMAN RESOURCE MANAGEMENT 15 Generation X, those born roughly 1965 1976 (and who themselves were the children of, and followed into the labor force, the Baby Boomers, born just after the Second World War,roughly 1944 1960). Although every generation obviously has its own labor force entrants, Gen Y employees are different. For one thing, says one expert, they have been pampered, nurtured,and programmed with a slew of activities since they were toddlers,meaning they are both high-performance and high-maintenance. 38 As a result: 1. They want fair and direct supervisors who are highly engaged in their profes sional development. 2. They seek out creative challenges and view colleagues as vast resources from whom to gain knowledge. 3. They want to make an important impact on Day 1. 4. They want small goals with tight deadlines so they can build up ownership of tasks. 5. They aim to work faster and better than other workers.39 Fortune Magazine says that todays Generation Y employees will bring challenges and strengths. It says they may be the most high-maintenance work force in the history of the world. Referring to them as the most praised genera tion, the Wall Street Journal explains how Lands End and Bank of America are teaching their supervisors to complement these new employees with prize pack ages and public appreciation.40 But, as the first generation raised on cell phones and e-mail, their capacity for using information technology will also make them the most high-performing. RETIREES Many human resource professionals call the aging workforce the biggest demographic trend affecting employers. The basic problem is that there arent enough younger workers to replace the projected number of baby boom era older-worker retirees.41 Employers are dealing with this challenge in various ways. One survey found that 41% of surveyed employers are bringing retirees back into the workforce, 34% are conducting studies to determine projected retirement rates in the organization, and 31% are offering employment options designed to attract and retain semi retired workers.42 NONTRADITIONAL WORKERS At the same time, there has been a shift to nontraditional workers. Nontraditional workers include those who hold multiple jobs, or who are contingent or part-time workers,or who are working in alternative work arrangements (such as a mother daughter team sharing one clerical job). Today, almost 10% of American workers 13 million people fit this nontraditional workforce category. Of these, about 8 million are independent contractors who work on specific projects and move on once they complete the projects. Technological trends facilitate such alternative work arrangements. For example, professional online Web sites such as LinkedIn (www.linkedin.com) enable free agent professionals to promote their services. Thanks to technology, people working from remote locations at least once per month rose about 39% from 2006 to 2008 to just over 17 million people. Seeking the collaboration thats often missing when one works alone, co-working sites are springing up. These offer freelance workers and consultants office space and access to office equipment (and of course an oppor tunity to interact with other independent workers) for fees of perhaps $200 or $300 per month.43 WORKERS FROM ABROAD With retirements triggering projected workforce shortfalls, many employers are hiring foreign workers for U.S. jobs. The countrys H-1B visa program allows U.S. employers to recruit skilled foreign professionals to work in the United States when they cant find qualified U.S. workers. U.S. t find qualified U.S. workers. U.S. 16 PART 1 INTRODUCTION (Change from year ago, billions of dollars) 900 FIGURE 1-5 Gross National Product (GNP) Source: U.S. Department of Commerce: Bureau of Economic Analysis, http://research.stlouisfed.org /fred2/fredgraph?chart_type=line&s [id]=GNP&s[transformation]=ch1, accessed April 18, 2009. FIGURE 1-6 Case-Shiller Home Price Indexes Source: S&P, Fiserv, and MacroMarkets, LLC, http://www. clevelandfed.org/research/trends/ 2009/0309/04ecoact.cfm, accessed April 18, 2009. 800 700 600 500 400 300 200 100 0 100 1940 1950 1960 1970 1980 Shaded areas indicate US recessions. 2009 research.stlouisfed.org 1990 2000 2010 employers bring in about 181,000 foreign workers per year under these programs. Particularly with high unemployment, such programs face opposition. For example, one study concluded that many workers brought in under the programs filled jobs that didn t actually demand highly specialized skills, many paying less than $15 an hour.44 Economic Challenges and Trends All these trends are occurring in a context of economic upheaval. As shown in Figure 1-5, gross national product (GNP) a measure of U.S. total output boomed between 2001 and 2008. During this period, home prices leaped as much as 20% per year.(See Figure 1-6.) Unemployment remained at about 4.7%.45 Then, around 2007 2008, all these measures seemingly fell off a cliff. GNP fell. Home prices dropped by 20% or more (depending on city). Unemployment nationwide rose to more than 9.1%. Why did all this happen? That is a complicated question, but for one thing, all those years of accumulating excessive debt seems to have run their course. Banks and other financial institutions (such as hedge funds) found themselves with trillions of dollars of worthless loans on their books. Governments stepped in to try to prevent their collapse. Lending dried up. Many businesses and consumers simply stopped buying. The economy tanked. Economic trends will undoubtedly turn positive again, perhaps even as you read these pages. However, they have certainly grabbed employers attention. After what the world went through starting in 2007 2008, its doubtful that the deregulation, leveraging, and globalization that drove economic growth for the previous 50 years Index, January 2000 = 100 230 210 190 170 150 130 110 90 70 10-City index 20-City index 50 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 CHAPTER 1 INTRODUCTION TO HUMAN RESOURCE MANAGEMENT 17 will continue unabated. That may mean slower growth for many countries, perhaps for years. This means challenging times ahead for employers. The challenging times mean that for the foreseeable future and even well after things turn positive employers will have to be more frugal and creative in managing their human resources than perhaps theyve been in the past. THE NEW HUMAN RESOURCE MANAGERS Trends like these mean changes in human resource management practices, and in what employers expect from their human resource managers. Well look at some specifics. Human Resource Management Yesterday and Today 5 List and briefly describe important traits of today's human resource managers. For much of the twentieth century, personnel/HR managers focused on day-to-day transactional types of activities. For example in the earliest firms, they first took over hiring and firing from supervisors, ran the payroll department, and administered benefits plans. As expertise in areas like testing began to appear, the personnel depart ment began to play an expanded role in employee selection and training.46 The emergence of union legislation in the 1930s added, Helping the employer deal with unions to its list of duties. Then, as Congress passed new equal employment legislation in the 1960s and 1970s, employers began leaning on their human resource managers expertise for avoiding and managing discrimination claims.47 Today, weve seen that trends like globalization, indebtedness, and technology confront employers with new challenges, such as squeezing more profits from opera tions. Employers expect their human resource managers to have what it takes to address these challenges. We can list 10 characteristics of todays human resource professionals. They Focus More on Strategic, Big Picture Issues Todays human resource managers are more involved in longer term, strategic big picture issues. Well see in Chapter 3 (Strategy) that strategic human resource managementmeans formulating and executing human resource policies and practices that produce the employee competencies and behaviors the company needs to achieve its strategic aims. We illustrate this throughout this book with The Strategic Context features such as the accompanying one. THE STRATEGIC CONTEXT Building L.L.Bean Strategic human resource management means formulating and executing human resource policies and practices that produce the employee competencies and behaviors the company needs to achieve its strategic aims. L.L.Bean illustrates how companies do this. The heart of L.L.Bean s strategy has always been offering great outdoor equipment with outstanding service and expert advice. As its company history said, L.L.Bean, Inc., quickly established itself as a trusted source for reliable outdoor equipment and expert advice. The small company grew. Customers spread the word of L.L.Beans quality and service. 48 To provide such service, L.L.Bean needs employees with special, outdoors-skills performing in a special way. As its Web site says, L.L.Bean attracts a special sort of person. Like our customers, we are passionate about the L.L.Bean brand and our love for the outdoors. You already know the outstanding service L.L.Bean customers receive. Now imagine how we treat our employees. 49 L.L.Bean's HR policies and practices attract and develop just such employees. For one thing, the company knows just who to recruit for. It wants sociable, friendly, experienced, outdoors-oriented applicants and employees.50 To attract and (Continued) (Continued) 18 PART 1 INTRODUCTION cultivate these sorts of employee competencies and behaviors, the company uses multiple interviews to screen out applicants who might not fit in. And L.L.Bean offers an outdoors-oriented work environment and competitive pay and benefits. To help encourage great employee service, L.L.Bean also provides a supportive environment. For example, when its Web sales recently for the first time exceeded phone sales, L.L.Bean closed four local call centers, but arranged for the 220 employees to work from their homes. And instead of sending jobs abroad, the company keeps its jobs close to the town where Leon Leonwood Bean started his company almost 100 years ago.51 L.L.Beans managers built the firms strategy and success around courteous, expert service. They know that having the right employees is the key to its success, and that it takes the right blend of human resource practices to attract and nurture such employees. As at L.L.Bean in the Strategic Context feature, today s employers want their HR managers to put in place practices that will help the company achieve its strategic aims. Employers want them to be the firms internal consultants, by identifying and institutionalizing changes that help employees better contribute to the companys success, and by helping top management formulate and execute its long-term plans.52 HR managers no longer just do everyday transactional things like signing on new employees or changing their benefits plans. They Use New Ways to Provide Transactional Services But then, how do employers perform these day-to-day transactional tasks?53 The answer is that todays human resource managers must be skilled at offering these transactional HR services in innovative ways. For example, they outsource more bene fits administration and safety training to outside vendors.54 They use technology, for instance, company portals that allow employees to self-administer benefits plans, Facebookrecruiting to recruit job applicants, online testing to prescreen job applicants, and centralized call centers to answer HR-related inquiries from supervisors. Table 1- 2 lists some other examples of how employers use technology to support human resource management activities.55 As another example, more employers are installing their own internal social networking sites. For example, after the real estate bubble burst several years ago, many realtors from Long Realty in Tucson,Arizona, wanted a place where they could discuss the current market and how to deal with it. Long Realty therefore set up Long Connects. This internal social networking site lets its employees share experiences, suggestions, and advice without exposing their comments to the wider world (as would posting them on Facebook).IBM calls its internal social network site w3.IBMs employees around the world use w3 to create personal profiles similar to those on TABLE 1-2 Some Technology Applications to Support Human Resource Activities Technology How Used by HR Streaming desktop video Used to facilitate distance learning and training or to provide corporate information to employees quickly and inexpensively Internet- and network-monitoring software Data warehouses and computerized analytical programs Used to track employees Internet and e-mail activities or to monitor their performance Help HR managers monitor their HR systems. For example, they make it easier to assess things like cost per hire, and to compare current employees skills with the firms projected strategic needs CHAPTER 1 INTRODUCTION TO HUMAN RESOURCE MANAGEMENT 19 LinkedIn, bookmark web sites and news stories of interest, comment on company blogs, contribute to wikis, share files, and gain knowledge from white papers, videos, and podcasts. 56 They Take an Integrated, Talent Management Approach to Managing Human Resources Next, with employers competing for talent, no one wants to lose any high-potential employees,or to fail to attract or fully utilize top-caliber ones.57 One survey of human resource executives found that talent management issues were among the most pressing ones they faced.58 Human resource managers are therefore emphasizing talent management. WHAT IS TALENT MANAGEMENT? Talent management is the goal-oriented and integrated process of planning, recruiting, developing, managing, and compensating employees.59 It involves instituting a coordinated process for identifying, recruiting, hiring, and developing high-potential employees. What does this mean in practice? For one thing, talent management means being more focused in how you manage your companys talent.For example,IBM segmented its employees into three groups. Now it can fine-tune the way it serves the employees in each segment. As another example, many employers are segmenting out their most mission-critical employees, and managing their development and rewards separately from the firms other employees. Well look more closely at talent management techniques starting in Chapter 4. They Manage Ethics Well see in Chapter 14 (Ethics) that 6 of the 10 most serious workplace ethical issues workplace safety, security of employee records, employee theft, affirmative action, comparable work, and employee privacy rights were human resource management related.60 Ethics means the standards someone uses to decide what his or her conduct should be. For example, prosecutors filed criminal charges against several Iowa meatpacking plant human resource managers who allegedly violated employment law by hiring children younger than 16.61 Every human resource manager (and line manager) needs to understand the ethical implications of his or her employee-related decisions. They Manage Employee Engagement In todays challenging environment, no employer can afford to have its employees physically present but checked out mentally. The Institute for Corporate Productivity defines engaged employees as those who are mentally and emotionally invested in their work and in contributing to an employers success. Unfortunately, studies suggest that less than one-third of the U.S. workforce is engaged.62 One Gallup study estimated that $350 billion is lost annually in the United States alone on damage done by disengaged workers.63 Todays human resource managers need the skills to foster and manage employee engagement. They Measure HR Performance and Results In todays performance-based environment, employers expect their human resource managers to take action based on measurable performance-based criteria.For example, IBMs Randall MacDonald needed $100 million from IBM to reorganize its HR s Randall MacDonald needed $100 million from IBM to reorganize its HR talent management The goal-oriented and integrated process of planning, recruiting, developing, managing, and compensating employees. 20 PART 1 INTRODUCTION operations. He told top management, Im going to deliver talent to you thats skilled and on time and ready to be deployed.I will be able to measure the skills, tell you what skills we have, what [skills] we dont have [and] then show you how to fill the gaps or enhance our training. 64 6 Define and give an example of evidence- based human resource management. 6 Define and give an example of evidence-based human resource management. SAMPLE METRICS To make claims like these, human resource managers need performance measures (or metrics ). For example, median HR expenses as a proportion of companies total operating costs average just under 1%. There tends to be between 0.9 and 1.0 human resource staff persons per 100 employees.65 To see how theyre doing compared to others, employers obtain customized benchmark comparisons from services such as the Society for Human Resource Managements Human Capital Benchmarking Service.66 Well look at improving performance through human resource management more closely in Chapter 3. They Use Evidence-Based Human Resource Management Basing decisions on the evidence, as practiced by IBMs Randall MacDonald ( I will tell you what skills we have... ) is the heart of evidence-based human resource man agement. This is the use of data, facts, analytics, scientific rigor, critical evaluation, and critically evaluated research/case studies to support human resource management proposals, decisions, practices, and conclusions.67 Put simply, evidence-based human resource management is the deliberate use of the best available evidence in making decisions about the human resource management practices you are focusing on.68 The evidence may come from actual measurements you make (such as, how did the trainees like this program?). It may come from existing data (such as, what happened to company profits after we installed this training program?). Or, it may come from published critically evaluated research studies (such as, what does the research literature conclude about the best way to ensure that trainees remember what they learn?). They Add Value This focus on performance, measurement, and evidence reflects another charac teristic of todays human resource managers.From top managements point of view, its not sufficient that HR management just oversee activities such as recruiting and benefits. It must add value, particularly by boosting profitability and performance in measurable ways. Professors Dave Ulrich and Wayne Brockbank explain this in terms of what they call The HR Value Proposition. 69 They say the human resource managers programs (such as screening tests and training tools) are just a means to an end.His or her ultimate aim must be to add value. Adding valuemeans helping the firm and its employees gain in a measurable way from the human resource managers actions. Well see in this book how human resource practices improve organizational profitability and performance. For example, studies of personnel testings effective ness conclude that screening applicants with personnel tests can produce employees who perform better.70 Similarly, well-trained employees perform better than untrained ones, and safe workplaces produce fewer lost-time accidents and accident costs than do unsafe ones. Putting in place a high-performance work system is one way to add value. Such a system is a set of human resource management practices that together produce superior employee performance. One study looked at 17 manufacturing plants, some of which adopted high-performance work system practices. For example, the high performance plants paid more (median wages of $16 per hour compared with $13 per hour for all plants), trained more (83% offered more than 20 hours of training per year, compared with 32% for all plants), and used more sophisticated recruitment and hiring practices (tests and validated interviews, for instance). These plants also had the best overall profits, operating costs, and turnover.71 Well discuss high-performance work systems in Chapter 3. CHAPTER 1 INTRODUCTION TO HUMAN RESOURCE MANAGEMENT 21 They Have New Competencies72 Adding value, strategizing, and using technology all require that human resource managers have new competencies. They still need proficiencies in human resource management functional areas such as selection, training, and compensation. But they also require broader business competencies. For example,human resource managers must speak the CFOs language by proposing and explaining human resource plans in measurable terms (such as return on investment), and be able to measure HRs impact.73To assist top management in formulating strategies, the human resource manager must understand strategic planning,marketing,production, and finance.74 With companies grappling to adjust to competition, the human resource manager must be skilled at formulating and implementing large-scale organizational changes, designing organizational structures and work processes, and at understanding what it takes for the company to compete in and succeed in the marketplace.75 THE HUMAN RESOURCE MANAGERS COMPETENCIES The accompanying Figure 1-7 provides one view of the competencies todays HR managers need.76 Professor Dave Ulrich and his colleagues say that today's human resource managers need the knowledge,skills, and competencies to be: * Talent Managers/Organization Designers, with a mastery of traditional human resource management tasks such as acquiring,training,and compensating employees. * Culture and Change Stewards, able to create human resource practices that support the firms cultural values. * Strategy Architects, with the skills to help establish the companys overall strate gic plan, and to put in place the human resource practices required to support accomplishing that plan. PEOPLE * Operational Executors, able to anticipate, draft, and implement the human resource practices (for instance in testing and appraising) the company needs to implement its strategy. * Business Allies, competent to apply business knowledge (for instance in finance, sales, and production) that enable them to help functional and general managers to achieve their departmental goals. * Credible Activists, with the leadership and other competencies that make them both credible (respected, admired, listened to) and active (offers a point of view, takes a position, challenges assumptions.) 77 FIGURE 1-7 The Human Resource Managers Competencies Source: Used with permission of The RBL Group, www.rbl.net, accessed April 4, 2011. ORGANIZATION CAPABILITIES Talent Mgr/ Org Designer Strategy Architect Culture & Change Steward SYSTEMS & PROCESSES Operational Executor Operational Executor Business Ally RELATIONSHIPS Credible Activist HR BUSINESS PROFESSIONALISM 22 PART 1 INTRODUCTION HR Certification As the human resource manager 7 Outline the plan of this book. 7 Outline the plan of this book. s job becomes more demanding, human resource managers are becoming more professional. More than 115,000 HR professionals have already passed one or more of the Society for Human Resource Manage ments (SHRM) HR professional certification exams. SHRMs Human Resource Certification Institute offers these exams. Exams test the professionals knowledge of all aspects of human resource management, including ethics, management practices, staffing, development, compensation, labor relations, and health and safety. Those who successfully complete all requirements earn the SPHR (Senior Professional in HR), GPHR (Global Professional in HR), or PHR (Professional in HR) certificate. You will find certification-related exercises in the end-of-chapter exercises throughout this book. The test specifications for the HRCI exams, as well as new SHRM-related learning guidelines and exercises for human resource management courses, are in the SHRM appendix at the end of this book.Managers can take an online HRCI assessment exam at www.HRCI.org (or by calling 866- 898-HRCI). SHRM provides an assurance of learning assessment preparation guide book for students.78 Finally, with all the changes taking place, the employment prospects for human resource managers look good.The U.S.Department of Labor projects that employment for human resource, training, and labor relations professionals will experience much faster than average growth in the next few years.79 Top-ranked human resource managers earn multimillion dollar total take-home pay.80 THE PLAN OF THIS BOOK The Basic Themes and Features In this book, well use several themes and features to highlight particularly important issues, and to provide continuity from chapter to chapter. PRACTICAL TOOLS FOR EVERY MANAGER First,human resource management is the responsibility of every manager not just those in human resources. Throughout every page in this book,youll therefore find an emphasis on practical material that you as a manager will need to perform your day-to-day management responsibilities,even if you never spend one day as an HR manager. HR AS A PROFIT CENTER Second, weve seen that employers need human resource management practices that add value. To illustrate this throughout the book, each chapter contains illustrative HR as a Profit Center features. These show actual examples of how human resource management practices add measurable value. THE STRATEGIC CONTEXT Third, weve seen that at companies such as L.L.Bean, strategic human resource management means formulating and executing human resource policies and practices that produce the employee competencies and behaviors the company needs to achieve its strategic aims. Well use boxed The Strategic Context features in most chapters to help illustrate the strategic context of each chapters material for instance, how L.L.Beans employee selection standards help support the firms strong customer service philosophy, and thus its strategy. EVIDENCE-BASED HR Fourth, the intensely competitive nature of business today means human resource managers must defend their plans and contributions in measurable terms. Chapter 3 (Strategy) explains how managers do this. We also use (1) Evidence-Based HR features in most chapters to present examples of how managers manage based on facts and evidence, and (2) brief Research Insights to illustrate the evidence that supports what HR managers do. CHAPTER 1 INTRODUCTION TO HUMAN RESOURCE MANAGEMENT 23 CHAPTER CONTENTS OVERVIEW Following is a brief overview of the chapters and their content. Part 1: Introduction Chapter 1: Introduction to Human Resource Management. The manager s human resource management jobs; crucial global and competitive trends; how managers use technology and modern HR measurement systems to create high performance work systems. Chapter 2: Equal Opportunity and the Law.What you should know about equal opportunity laws and how they affect activities such as interviewing, selecting employees, and evaluating performance. Chapter 3: Human Resource Management Strategy and Analysis.What is strategic planning; strategic human resource management; building high performance HR practices; tools for evidence-based HR. Part 2: Recruitment, Placement, and Talent Management Chapter 4: Job Analysis and the Talent Management Process.How to analyze a job; how to determine the human resource requirements of the job,as well as its specific duties, and what is talent management. Chapter 5: Personnel Planning and Recruiting. Human resource planning; determining what sorts of people need to be hired; recruiting them. Chapter 6: Employee Testing and Selection. Techniques you can use to ensure that youre hiring the right people. Chapter 7: Interviewing Candidates. How you can interview candidates effectively. Part 3: Training and Development Chapter 8: Training and Developing Employees. Providing the training and development to ensure that your employees have the knowledge and skills needed to accomplish their tasks. Chapter 9: Performance Management and Appraisal. Techniques you can use for appraising employee performance. Chapter 10: Employee Retention, Engagement, and Careers. Coaching employees; managing careers; techniques such as career planning and promotion from within; talent management methods. Part 4: Compensation Chapter 11: Establishing Strategic Pay Plans. How to develop equitable pay plans for your employees. Chapter 12: Pay for Performance and Financial Incentives.Pay-for-performance plans such as financial incentives, merit pay, and incentives that help tie performance to pay. Chapter 13: Benefits and Services. Providing benefits that make it clear the firm views its employees as long- term investments and is concerned with their welfare. Part 5: Employee Relations Chapter 14: Ethics and Employee Rights and Discipline. How you can ensure ethical and fair treatment through grievance and discipline processes. Chapter 14: Ethics and Employee Rights and Discipline. How you can ensure ethical and fair treatment through grievance and discipline processes. 24 PART 1 INTRODUCTION Chapter 15: Labor Relations and Collective Bargaining. How to deal with unions, including the union organizing campaign, negotiating and agreeing upon a collective bargaining agreement between unions and management, and managing the agreement via the grievance process. Chapter 16: Employee Safety and Health. How you can make the workplace safe, including the causes of accidents, and laws governing your responsibilities for employee safety and health. Chapter 17: Managing Global Human Resources. Special topics in managing the HR side of multinational operations. Chapter 18: Managing Human Resources in Entrepreneurial Firms. Special topics you can use in managing human resources in smaller firms, including using Internet and government tools to support the HR effort, leveraging small size, using professional employer organizations, and managing HR systems, procedures, and paperwo