Introduction to Human Resource Management

1 Thinkstock/iStockphoto Introduction to Human Resource Management Learning Objectives After reading this chapter, you should be able to Explain what human resource management (HRM) is and how it relates to the management process Define each of the major HRM functions and processes of strategic HRM planning, job analysis and design, recruitment, selection, training and development, compensation and benefits, and performance appraisal Describe the strategic importance of HRM activities performed in the organizational setting Identify your own HRM responsibilities and challenges as an organizational participant and decision maker Identify major recent trends in HRM

Section 1.1 What Is HRM? 1.1 What Is HRM? Consider the various organizations you have been involved in as an employee, as a customer, as a volunteer, and as a member. From grocery stores and banks to sports teams and summer camps, all organizations share a common theme: they have goals, and they need to accomplish these goals through people. Of course, they also need financial resources, a viable business plan, the right technology, and a market. However, an organization s success relies not only on the availability of these resources but also on the people who will organize, lead, control, and use the resources to achieve the organization s goals. It is critical to an organization s success that it manage its people effectively. That s why Bill Gates of Microsoft and Herb Kelleher of Southwest Airlines, along with many other well-known leaders of highly successful organizations, often assert that people are their most important assets. Human resource management (HRM) is the managing of human skills and talents to make sure they are used effectively and in alignment with an organization s goals. Neither the size nor type of a company affects this definition. For example, big and small, profit and nonprofit organizations all perform HR functions that relate to the recruitment, selection, training, and management of their workforces. In addition, every organization is concerned with offering competitive salaries and benefits to attract, motivate, and retain talented employees. Even nonprofit organizations that rely on volunteers are often concerned with attracting, motivating, and retaining the best volunteers through providing nonfinancial incentives and designing meaningful roles for them. Larry Busacca/Wire Image/Getty Images Bill Gates, CEO of Microsoft, believes the success of an organization depends not on the availability of resources but on its employees ability to organize, lead, and control the use of these resources to achieve organizational goals. It is important to note that HRM activities exist throughout any organization, whether or not there is a recognized HRM department. For instance, you will find managers of various functions such as finance, production, and marketing doing such HR activities as hiring, training, and scheduling employees and appraising their performance. And HRM activities extend further. HRM also involves handling the legal issues related to hiring, training, compensating, rewarding, disciplining, promoting, demoting, or even firing people. HRM can provide a competitive advantage to organizations through the efficient and effective use of the tools, data, and processes provided by HRM specialists. Yet HRM should also focus on pursuing one strategic priority: helping the organization be an exceptional employer that provides rewarding work to qualified and exceptional employees. HRM

Section 1.1 What Is HRM? should not be seen as merely performing routine administrative activities. While these activities are important for organizational and legal purposes, human resources should, first and foremost, be looked on as an asset that plays a strategic role in giving the organization a competitive advantage in the marketplace. The University of Michigan and the Society for Human Resource Management (SHRM) identify a critical set of competencies that enable HR professionals to carry out their duties successfully: 1. Strategic contribution means that HR has to be able to be a key contributor to organizational success. 2. HR professionals must attain business mastery deeply understanding their organization s business and its technological, economic, and financial aspects. 3. HR professionals must also attain HR mastery being able to execute their practices effectively, and making sure that these practices meet employees needs and are also aligned with organizational goals. 4. HR professionals must embrace and leverage HR technology to be able to transform HR s performance of its roles and functions. 5. And it is very important for HR professionals to acquire a fifth competency: HR personal credibility, which occurs through building and developing both internal and external relationships (Brockbank & Ulrich, 2003). Firms usually deal with four types of capital assets: physical (e.g., buildings, lands, and equipment), financial (e.g., cash and financial securities), intangible (e.g., patents and information systems), and human assets (e.g., people s talents, knowledge, skills, abilities, experience, personalities, attitudes, and motives). Each of these assets has a different role in an organization. However, human assets are the only ones capable of managing all the other assets to accomplish organizational goals. For example, retail chains such as Target and Walmart possess substantial physical, financial, and intangible assets. However, these assets are meaningless until they are coordinated, integrated, and offered to the customer in terms of the right products at the right prices. At the top of the organization, organizational decision makers perform these strategic coordination and integration functions. Furthermore, even this strategic work of those at the top can be meaningless if it s not implemented effectively by frontline employees, who are often the only employees a customer will ever meet or be directly affected Tom Starkweather/Bloomberg via Getty Images Retail chains such as Target have substantial physical and financial assets that are meaningless unless they are managed, coordinated, and offered to the customer by employees.

Section 1.2 From Personnel Administration to Strategic HRM by. For example, you may never meet or interact with the CEO of your grocery store, yet your experience (and willingness to return) is directly influenced by whether employees promptly stock the shelves with your favorite items; whether the janitor properly cleans the aisles and bathrooms; whether the customer service representative knows the answers to your questions and offers them in a friendly manner; and whether the cashier rings up your selections accurately, efficiently, and courteously. Thus, all those organizational human assets, not just those at the top, perform the roles necessary to transform other types of assets into effective means to achieve organizational goals and maintain a competitive advantage. The efficient use of the organization s human assets affects its market value. For example, an enormous gap is revealed by comparing the market value of publicly traded companies to the value of their physical, financial, and even their intangible assets. This gap can only be accounted for through the value added by the companies human assets (Echols, 2007). Firms in the United States seem to be aware of this truth. U.S. firms spend almost double the amount European firms spend on salaries and benefits, and in the United States, there is slightly more than a 150% return on this investment in human assets (Burton & Pollack, 2006). WEB LINKS Human Resource Management Career Overview: http://www.youtube.com/watc h?v=rxulwgg41gc&noredirect=1 1. What are some of the most important attributes one must possess in order to have success in a career in HRM? 2. According to the video clip, majoring in business, the behavioral sciences, or liberal arts will offer the best preparation for a career in human resources. Why do you think this is so? 1.2 From Personnel Administration to Strategic HRM As mentioned earlier, day-to-day personnel administration is one of the HR department s roles or functions in an organization. However, for the past two decades, personnel administration has received less study than the relationship between applied, effective HRM practices and organizational performance. HRM practices are effective when they impact such employee factors as skills, motivation, morale, absenteeism, retention, productivity, and performance quality. These factors can be measured and related to such organizational goals and success indicators as profitability, efficiency, and effectiveness. The link between HR and organizational performance is called strategic human resource management; it can be defined as leveraging certain linkages for certain purposes namely, leveraging the linkages between human resource practices and organizational objectives for the purpose of cultivating a positive corporate culture. This leveraging can promote innovation and flexibility and boost a competitive edge. Based on that definition, it follows that HRM serves a critical, strategic function, and thus HR should be involved in the design and implementation of organizational plans and strategies.

Section 1.2 From Personnel Administration to Strategic HRM The strategic value of HRM for employees and the organization Every organization has its own strategic plan; it includes the organization s long- and short-term goals, and it also includes the procedures for deciding how to allocate organizational resources to achieve these goals. Strategic HRM is the link between strategic planning and HRM. It incorporates HRM strategies and policies to achieve organizational goals while meeting employees and stakeholders needs. In addition, these practices can increase the market value of an organization by as much as 50% when they are consistently followed (McFarlin, 2006). HR practices will be discussed in detail in the following chapters. HRM s contribution to motivation, morale, retention, productivity, and performance quality Managing employee productivity is a critical factor in both for-profit and nonprofit organizations success. Higher productivity levels enable firms to offer high salaries and still be competitive. Effective HRM practices have been shown to reduce turnover, increase productivity, and directly contribute to corporate financial performance (Huselid, 1995). Thus, HRM is able to contribute to overall organizational competitiveness through improving employee retention and productivity. Effective HRM practices can also enhance employee motivation and morale, which can in turn positively affect organizational outcomes. For example, effective job analysis and design can balance the demands of a job with the resources provided to accomplish its tasks, and this balance has been shown to contribute to work engagement (Schaufeli & Bakker, 2004). The relationship between work engagement, job satisfaction, and business unit outcomes is supported by numerous studies (Harter, Schmidt, & Hayes, 2002). There are numerous other ways in which HRM can contribute to employee motivation and morale, such as providing a family-friendly environment, sponsoring social events and activities, and offering opportunities for learning and career development (Collins & Allen, 2006; Czinege, 2009). HRM s contribution to profitability, efficiency, and effectiveness Organizational effectiveness is the degree to which an organization is able to meet its goals and objectives. Organizational efficiency, on the other hand, is the degree to which an organization is able to maximize the productivity of given resources, produce a given amount of output with minimal resources, or accomplish both tasks. HRM can contribute to an organization s efficiency and effectiveness by leveraging human assets through their selection, allocation, deployment, development, management, and retention; in turn, these contributions can improve an organization s financial performance (Kroll, 2006). Moreover, employee motivation, morale, retention, productivity, and performance all have a great influence on an organization s efficiency and effectiveness. Because HRM practices have positive effects on such factors, applying these practices will also have a significant influence on an organization s profitability. HR strategic effectiveness can be measured in many ways, such as return on investment (ROI), economic value added (EVA), and balanced scorecards. Some of these approaches

Section 1.2 From Personnel Administration to Strategic HRM will be introduced in subsequent chapters. At this point, however, you should know that for each of its activities, HR should be capable of presenting financial justification. Strategic HRM perspectives Strategic human resource management includes three schools of thought: best practice, best fit, and resource-based view (RBV) (Paauwe, 2009). 1. Best practice As the name implies, best practice refers to the practice that results in the best possible organizational performance. Numerous best practices in HR have been demonstrated to relate to organizational performance as it is measured by the market value per employee of publicly traded companies in the United States (Huselid, 1995). However, since there are numerous studies about best practices, it is hard to tell which practices are truly best (Becker & Gerhart, 1996). Based on Pfeffer s (1994) work, seven practices are claimed to be the most effective for gaining competitive advantage through the workforce and generating additional profits by considering people as a top priority: offering employment security selective hiring extensive training sharing information self-managed teams company performance-based pay overcoming status differences 2. Best fit Best fit can also be referred to as the contingency approach to HRM. The claim behind the concept of best fit is that HRM practices are able to enhance performance if a close vertical fit exists between the HRM practices and the firm s strategy. This vertical fit denotes that HR activities and policies are in an alignment with the business strategy (Kochan & Barocci, 1985). For example, imagine that an organization seeks to develop innovative and complex products that would be best designed by cross-functional teams. An aligned HR practice would then be to design compensation and reward systems that recognize and promote creativity, teamwork, and collaboration, rather than individual productivity and competition among employees. Many theories have been developed concerning the type of this vertical integration. For example, configuration models offer a two-step approach. The first step is the study and analysis of the organization s strategy, and the second step is the establishment of corresponding HR policies and activities that best fit the results of the analysis. The downside of this approach is that it assumes the organization s strategy always exists, which is not always the case for firms that are in their developmental stages (Delery & Doty, 1996). 3. Resource-based view (RBV) A resource-based view follows an inside-out approach by giving special attention to the strategic internal resources available to a company. In addition, this view focuses on

Section 1.3 What Do HR Managers Do? Comstock/Thinkstock The seven best practices for better organizational performance focus on making people a top priority. how the application of these valuable resources contributes to competitive advantage. Tangible and intangible resources by themselves do not confer any benefit to the firm unless they are effectively used, at which point they are able to provide the firm with competencies. In order for the internal resources of a company to be of great significance, they have to be valuable, rare, and not capable of being imitated or substituted. Accordingly, the effective use of such strategic and unique resources will enable the company to acquire a sustainable competitive advantage (Prahalad & Hamel, 1990). According to the RBV school of thought, the best approach to strategic HRM is therefore to create and maintain human assets that are also valuable, rare, inimitable, and nonsubstitutable. These human assets can then serve as a sustainable source of competitive advantage. For example, an organization that buys into RBV would develop proprietary selection tools and training programs for its employees, require their employees to maintain secrecy about pay and benefits, and take extra measures to avoid knowledge sharing in their industry so that their competitors cannot imitate their practices. Of course, each of those three schools of thought has its merits that should be considered in conjunction with other approaches. For example, the contingency best fit approach is more compatible with industries where change is fast and unpredictable. These industries require continual reconsideration and reconfiguration of what constitutes the mix of best practices utilized by the organization. Moreover, RBV may have limited use in industries where entry and exit costs are low for competitors for example, where technology is readily accessible, limited up-front capital investments are needed, or skilled labor is in abundant supply. Many home-based businesses such as childcare, lawn care, bookkeeping, and housecleaning fall in that category. 1.3 What Do HR Managers Do? HR and line management have one common goal, which is to bring capable human assets into the organization who can perform the duties and responsibilities that will keep the organization functional and competitive in the market. HR management and line management must work together at all times to ensure that all their common deliverables are successfully met. However, HR management has many unique functions and tasks. These are the main roles of the HR manager: providing guidance and advice providing service creating and implementing policies advocating for employees

Section 1.3 What Do HR Managers Do? Provide guidance and advice HRM directly contributes to defining and shaping the ethical culture within an organization; hence, HRM governs the behavior of executives, managers, and employees. This role is of crucial significance since organizations achieve their long-term objectives and goals through setting clear ethical standards. Owing to their extensive knowledge of the internal employment affairs of the organization, HR managers provide crucial guidance and advising to executives, managers, and supervisors in critical areas such as policies, labor agreements, past practices, ethics, corporate control, and employment requirements. HR managers also consult with other managers and executives based on their extensive knowledge of external tendencies and such market movements as economic and employment details, as well as updates in legal and regulatory issues. For instance, HR managers often provide good support and advice pertaining to vague and obscure ethical areas where it is hard for employees and other managers to determine whether an issue can safely be deemed right or wrong. Organizations with high levels of integrity are favorably recognized and respected in the market by their customers, employees, and other organizations recognition and respect which, in turn, translate into higher profits. More attention has been drawn lately to the importance of creating strong ethical cultures within an organization and raising its levels of integrity, especially after numerous financial scandals surfaced in the past few years in many organizations around the world (Cherenson, 2006). HR managers have the vital role of policing, monitoring, and establishing control within the organization to ensure that top executives and managers do not abuse their authority and that all employees adhere to company policies and norms. This function of HR managers is commonly known as corporate governance. The term describes the relationship Thinkstock/iStockphoto HR managers provide crucial guidance and advice to executives and managers about policies concerning labor agreements, ethics, corporate control, and employee requirements. between managers and shareholders in terms of shared corporate rights and responsibilities. Another very important task of every HR manager is to provide guidance and advice in matters of employee compensation and appraisals based on past evaluations and performance details.

Section 1.3 What Do HR Managers Do? Provide service The service role of HR managers is to successfully plan and execute all the activities related to employee selection, scheduled testing, training and development, and listening and responding to employees concerns and complaints. This fundamental area of HR management involves a myriad of skills and technical expertise. HR managers must establish and build influential HR systems and programs that effectively support and serve these purposes. Other executives, managers, and supervisors must take the initiative of positively supporting the HR manager in accomplishing this service role. They should believe in the critical function of HR in increasing the ultimate productivity and efficiency of the organization, and they should act on this belief by collaborating with HR and following the policies and procedures pertinent for HRM in their organizations. In addition, they should neither create hurdles that negatively impact the organization nor circumvent the HR department by doing things their way. To help an organization s managers achieve these goals, the HR manager must have the skill to take a step back and observe problematic scenarios from the managers points of view. An even more challenging skill that HR managers develop over time and through experience is to find tactful ways to communicate their opinions and advice to managers. Create and implement policies HR managers must foresee potential problems, identify recurring problems, and use past experience to create, update, modify, and enforce company policies and norms. All policy drafts and phases are proposed to executive managers for revisions and approvals before the drafts and phases can be issued or deemed active. To ensure absolute compliance and conformance, HR management must enforce established policies, norms, procedures, and practices, and then follow this enforcement with extensive monitoring and control of line managers and employees. HR managers also serve to elucidate enforced policies to managers and employees, ensuring adequate interpretation and application of all rules. Advocate for employees HR managers are the employees representatives within organizations in more or less the same manner that attorneys represent citizens in the courthouse. HR managers are therefore often referred to as the employee advocates. They listen to, consider, and evaluate employees assisting them with their needs, concerns, and issues. HR managers also bring employees cases to their direct managers or to other decision makers within the organization, pleading employees needs. In other words, HR managers are the voice of employees to executives and line managers. This advocating role serves to highlight and convey employee interests and, furthermore, align them with the interests of the organization as a whole. Effective employee relations are the backbone of a successful organization: they preserve its most valuable asset the human asset and hence promote the organization s survival and competitiveness in the market (Mathis & Jackson, 2007).

Section 1.4 What Are the Responsibilities of the HR Department? 1.4 What Are the Responsibilities of the HR Department? As the name indicates, the human resource department is responsible for the management of the organization s employee-related matters. The HR department attracts, hires, and retains the right employees, and it makes sure they perform according to expectations. The HR department also establishes organizational goals and plans as they relate to human assets. The HR department s major everyday tasks are planning and alignment staffing preparing compensation offers orchestrating cultural change The following sections on these tasks feature detailed discussions of each of the HR department s roles, pointing out the positives and negatives as well as strategies to help increase a given department s effectiveness (Handy, 1999; Hyde, 2004). Planning and alignment One of the HR department s most important roles is planning for the human side of the organization s operations. The department has to accurately judge the number of employees the organization needs to be capable of performing its activities and operations efficiently. Having more than the required number of staff members will harm the company by drawing scarce financial resources away from other important functions and uses. On the other hand, having insufficient employees means that they will be stretched beyond their limits, lose motivation due to the extended hours of work, and eventually experience burnout, which can be detrimental for productivity and well-being (Schaufeli & Bakker, 2004). With no clear direction, employees will not be able to perform effectively. Two of the roles of the HR department are therefore to participate in planning for future organizational objectives and to act as a liaison to make sure that staff members understand these objectives. These roles enable employees to embrace a purpose-oriented approach while performing their duties. Employees and staff members who do not have a clear understanding of the organizational objectives cannot contribute effectively to organizational success. Moreover, since performance is a function of time, it is in the best interest of the HR department to actively work towards promoting and sustaining a better use of time among all other departments of the organization. In other words, time can be regarded as an asset that must be utilized efficiently to maximize the productivity of the organization and, ultimately, thereby achieve set targets and goals (Kerzner, 2003). The HR department can achieve these results by the active planning and proper scheduling of activities and by ensuring that information flows swiftly though proper channels, which provides better support and coordination between departments in HR-related matters.

Section 1.4 What Are the Responsibilities of the HR Department? ThinkStock/Stockbyte Onboarding helps new employees get acquainted with the organization s functions. Training and development are crucial to be able to adapt to the ever-changing work environment. There are many ways the HR department can provide alignment. One way is through onboarding, training, and development. Just because an employee has a great resume or did well in an interview does not mean he or she will be able to perform organizational activities effectively. Onboarding helps new employees get acquainted with the firm s functions. In an ever-changing environment, training and development are very important to an organization s ability to adapt to change. Adapting to change is crucial in order to compete in the market. Training and development can also be used to improve employees attitudes, inspire employees, and energize them when they must perform under stress. It is the responsibility of the HR department to set the timing and place of training, decide who will deliver it, and decide who will participate in it. Accountability is another very important factor that the HR department can use in its alignment activities. Accountability ensures that employees efficiently fulfill their set goals and objectives in the allocated time frame, rather than routinely reporting to work and performing some daily activities with no real sense of connection to the work they do. Designing effective performance management systems can help in these alignment activities maintaining clear communication and holding employees accountable for specific, measurable outcomes. Staffing One of the critical tasks of the HR department is staffing the organization. Staffing includes recruiting and selecting the right employees and then placing them in jobs that fit their personalities, capabilities, and future potential. The HR department has to be selective while recruiting, and it must make sure that only the most qualified, skilled employees are chosen employees who are a good fit for the company s positions and are able to contribute to the company s goals. The department must then evaluate prospective employees abilities and competencies against the company s needs. When the HR department is able to execute this task properly, the organization will be better able to achieve its goals and objectives. There is more than one way to facilitate the process of effective staffing. Conducting psychological and physical assessments of abilities, skills, and personality traits is one option. These assessments help the company choose employees with the necessary qualifications. Another option is interviewing applicants. The purpose of the interview is to ask applicants questions that reveal their decision-making skills and their reactions to specific

Section 1.4 What Are the Responsibilities of the HR Department? situations. These and numerous other techniques for the effective recruitment and selection of employees are discussed in detail in chapters 4 and 5. Preparing compensation offers In order for employees to be motivated, their efforts need to be adequately rewarded. Offering attractive compensation packages is one way organizations increase employee motivation. When employees know that they will be rewarded for their actions, this knowledge pushes them to go beyond their comfort zones. Compensation packages can come in the form of pay, benefits, and such incentives as days off, bonuses, equities, awards, raises, flexible working hours, or promotions and opportunities for career development. Effective compensation packages can increase retention rates by boosting employee satisfaction. This boost can also have a positive impact on employee loyalty, and thus increase the firm s stability and security (Handy, 1999). Compensation packages may cause unexpected problems. For example, an organization might try to reward employees and managers by offering them financial incentives while it is suffering financial losses. Organizations have to pay out their contractual obligations to their employees. For example, Robert L. Nardelli, former chief executive of Home Depot, was asked to resign due to his failure to improve profitability and stock prices. Yet Home Depot still had to pay him $210 million in compensation that he was contractually and legally entitled to. This is one way that compensation packages sometimes hurt organizations (Barbaro, 2007). Orchestrating cultural change Organizational culture can be defined as the specific collection of values and norms that are shared by people and groups in an organization and that control the way they interact with each other and with stakeholders outside the organization (Hill & Jones, 2001). Organizational cultures shape people s attitudes and behaviors. Moreover, organizational cultures are very difficult to change once they are created because they become perceived as the correct, mutually agreeable, and safest way to do things. One of the most prominent duties and responsibilities of the HR department is to shape, outline, and define the culture of the organization though a four-phase process: 1. Observe the main characteristics and features of the current state of the company culture. The challenge for HR is to ensure that any proposed cultural change is relevant to all employees within the organization so that a change will be favorably received and practiced. 2. Communicate cultural changes to employees and stakeholders and justify their advantages to both the individual employees and the organization as a whole (Erica, 2006). To deter any conflicts arising from the successful execution or maturity of the change, HR must accompany this step with a great deal of clarification and support to all employees who experience cultural shocks. 3. Determine factors that would facilitate and promote a successful and complete transition to the new culture. HR must also gather data and analyze its relevance, sufficiency, and implications. In this phase, data refining and data evaluation are constantly performed.

Section 1.5 The Legal Environment 4. Execute the cultural change. In this stage, HR should promote and steer the entire organization toward the change by setting and highlighting its benefits and implementation deadline. This stage must be accompanied by periodic audits and checks to ensure that the execution is successful (Erica, 2006; Kerzner, 2003). 1.5 The Legal Environment The HRM legal environment includes numerous laws and regulations that protect against discrimination based on race, sex, color, religion, or national origin. Other laws relate to plant closures, mergers, and acquisitions. Laws and regulations have a great influence on personnel decisions. Throughout this textbook, you will learn about the many laws that govern HR processes such as job design (chapter 3), recruitment (chapter 4), selection (chapter 5), performance appraisal (chapter 6), training and development (chapter 7), compensation (chapter 8), and benefits (chapter 9). The number of HR-related federal lawsuits has been increasing in recent years and is expected to continue to increase. The number of Equal Employment Opportunity (EEO) laws and regulations is also expected to increase. Defending against legislative violations can require substantial organizational time, energy, and money. Unions and labor relations There are three primary reasons why employees join unions. The first reason can be employee dissatisfaction and discomfort with the currently existing work environment including working conditions, compensation systems, and management and supervision methods. Another reason originates in an employee s personal need to make a difference in the work environment or the industry as a whole. Finally, employees also join unions because they recognize unions prospective advantages. HR managers must work hard to listen to and interpret employee complaints; HR managers must also create and develop strategies to rectify complaints in order to create cooperative, rather than antagonistic, relations with unions. Labor relations are the relationship between management and unionized workers regarding employment conditions. The National Labor Relations Act (NLRA) addresses issues such as employee representation rights, interfering with union affairs, and discrimination in employment. Again, HR managers must work toward employee satisfaction and claim resolution to preserve the integrity of the organization (Kochan, 1980). Health and safety regulations Industry-related accidents adversely impact the U.S. economy; with more and more jobrelated injuries, occupational illnesses, and fatalities reported every year, it is evident that organizations must impose and strictly practice a stringent code for health and safety. HR managers have the role of creating programs to proactively mitigate jobrelated accidents.

Section 1.6 The HRM Process Some of the techniques that HR uses to avoid future health and safety issues include matching employee personalities with their job descriptions and environment during the hiring process, conducting on-the-job safety awareness and training programs (Budd, 1996), rewarding safe behavior with incentives (Mace, 1988), and distributing guidelines and handbooks that detail safety and regulatory policies. 1.6 The HRM Process The HRM process consists of eight practices or activities whose purposes are to attract, retain, and motivate qualified employees. Using such practices results in greater profitability, low rates of employee turnover, high-quality products, reduced production costs, and alignment of HR with an organization s strategic goals (Schuler & MacMillan, 1984). Below is a brief summary of each of these eight practices, which will be discussed in greater detail in chapters 2 through 9. Figure 1.1 also summarizes the HRM process and serves as an outline for the book. Figure 1.1: The strategic HRM process Strategic HR planning Benefits and benefit administration Job analysis and job design Compensation Attraction and recruitment of talent Training and development Selection and job fit Performance appraisal/ management

Section 1.6 The HRM Process 1. Strategic HR planning To maintain business competitiveness, managers forecast future labor supply and demand. An organization has to make sure that it has access to the knowledge, skills, and abilities it needs at the times these human capacities are needed. These needs can then be fulfilled through various means such as employment, contracting out, partnerships, and other means. One of the activities of HR strategic planning is that it takes into account the risk that having an insufficient or unqualified workforce poses to the organization s competitive advantage. Another strategic HR activity is retaining a well-qualified workforce. Strategic planning considers meeting resource demands, examining and evaluating resource deployment, estimating capacity, and also recognizing and handling human talent to satisfy capacity needs. istockphoto/thinkstock Strategic planning involves meeting resource demands, evaluating resource capacity, and recognizing and developing talent to satisfy company needs. The main approaches to strategic HR planning are environmental scanning, labor market analysis and forecasting, internal analysis and forecasting, and gap analysis. Planning will be discussed in detail in chapter 2. 2. Job analysis and job design The term job analysis refers to providing detailed job descriptions and specifications. It also includes the collection of job information and the systematic analysis of that information. The type of information gathered in job analysis includes jobs context, content, and requirements. Job analysis can be used for recruitment and selection procedures, performance evaluation, training, compensation, and many other purposes. Job analysis is critical for hiring the right workforce for specific jobs (Cascio & Aguinis, 2005). The term job design refers to identifying the elements of a job and arranging its tasks and responsibilities for the purpose of creating a productive work unit. Moreover, job design involves studying what a job entails as well as how it affects employees. Job design can help alleviate many of the problems companies face, such as employee performance, job satisfaction, grievances, absenteeism, and physical and mental health (Lawler, 1973). Job design and job analysis will be addressed in detail in chapter 3. 3. Attracting and recruiting talent The recruitment of talent entails three main processes: attracting, screening, and selecting qualified potential employees for further consideration. All three processes can be either

Section 1.6 The HRM Process done in-house or outsourced to recruitment agencies. The first step in the recruiting process is advertising job offers. Advertising is followed by screening, for which recruiters use resumes, application forms, initial interviews, tests, and other screening tools to identify qualified candidates. Then a candidate is selected for further consideration based on how well he or she did during the screening process. Attraction and recruitment of talent will be discussed in detail in chapter 4. 4. Selection and job fit Selection is the method through which organizations choose their most valuable asset people to fill jobs within the organization with the right, qualified individuals. Selection is one of the most crucial processes for an organization: it is only through qualified employees that corporate goals and objectives are fulfilled, success is attained, and the organization gains a competitive edge in the market. Employees can be managed much more easily in the long term, and many problems can be avoided, if enough time, effort, and planning are initially invested in recruitment and selection. Difficulties will be eventually faced with the selected employees if the selection process is not successfully executed based on adequate planning, job analysis, and job design. These difficulties may not be possible to rectify, even with extensive training. Clearly, the selection process affects the well-being of the organization and, ultimately, its future. However, the process of employee selection is successful only if the employees knowledge, skills, and abilities (or KSA for short) are carefully matched with the characteristics of the jobs they are assigned to fill. Employees who are successful in their current positions are the best candidates to help identify the most significant KSA requirements for their jobs. A good fit between the nature of the job and the employee s personality, interpersonal skills, and academic and technical knowledge is critical toward sustaining the organization s prosperity. Selection and job fit will be discussed in more detail in chapter 5. 5. Performance appraisal/management Performance appraisal is rating and evaluating the accomplishments of employees, relative to set goals and objectives, and rewarding the employees accordingly. Rating the individual employee is equivalent to evaluating the greater objectives of the organization as a whole. Accordingly, performance appraisal is of crucial importance to any organization since it impacts the strategic plan of the entire organization. Performance appraisals can be conducted through a variety of approaches and methodologies. These methods include employees evaluating themselves supervisors evaluating their employees employees evaluating their supervisors team members evaluating one another external specialized organizations or consultants being contracted for the purpose of rating employees

Section 1.6 The HRM Process In most cases, performance appraisals are conducted using a combination of these approaches in order to formulate the most informative and accurate assessments. The performance-appraisal process takes place in a series of six consecutive phases or steps: 1. Identify, highlight, and clearly define the performance levels that employees are expected to attain based both on their jobs and responsibilities and on the organizational strategic plan as a whole. 2. Communicate the defined performance metrics to employees while sustaining, encouraging, and promoting superior performance levels within the organization, in order achieve the set objectives in the allocated time frame. 3. Measure the actual performance of each employee, and then evaluate it based on the individually set targets and goals. This measurement and evaluation determine the extent to which each of the set objectives has been accomplished. 4. Ensure that employee performance is aligned with the set goals and organizational objectives by communicating employee performance back to the employee at regular intervals. 5. Provide any assistance needed to get employees back on track and ensure that all organizational targets are met after employees have been informed where they stand relative to their set goals and objectives. 6. Reward employees based on the extent of their accomplishment of their set goals and objectives. Performance appraisal/management will be discussed in detail in chapter 6. Thinkstock/iStockphoto Performance evaluation of employees is vital because it impacts an organization s strategic plan. 6. Training and development Training and development involves four different activities: onboarding, training, education, and development. The purpose of these activities is to enhance the performance of individual employees and to enhance group performance in an organizational setting. Training and development is given many names in various organizations and industries, including learning and development, human resource development, and employee development. Onboarding is the first step of the training and development process. In this process, new employees receive various forms of orientation to enhance their understanding of the culture and familiarize them with what the new job entails so that they can perform their duties effectively. Training emphasizes current job requirements, and it is evaluated against these requirements. In contrast, education focuses not on current job requirements but on requirements or responsibilities for positions that an employee may hold in the

Section 1.6 The HRM Process future. Education is evaluated against these future requirements. Finally, development involves attention to current and future job requirements that are difficult to evaluate and assess (Garavan, Costine, & Heraty, 1995; Harrison, 2005). Training and development will be discussed in detail in chapter 7. 7. Compensation Employee compensation is critical for the satisfaction, motivation, and preservation of the workforce. Organizations spend a great deal of time, money, and effort every year on planning, creating, implementing, and successfully executing employee compensation strategies. Accordingly, it is vitally important for HR managers and other organizational decision makers to carefully examine the organization s targets and objectives. A number of significant decisions have to be made to create compensation and reward systems based on what the organization is attempting to accomplish. For instance, a compensation plan has to satisfy and fully comply with all legal rules and regulations, which may vary between different work locations. A compensation plan must also be cost effective for the organization; otherwise it will become a burden. Most importantly, a compensation plan must yield a considerable performance advantage for the organization through attracting, motivating, and retaining high performers, and it must align the performance of those employees with the goals and objectives of the organization. In other words, a compensation plan has to identify, distinguish, and reward employees whose efforts and talents have successfully accomplished the goals, objectives, and performance expectations of their roles in ways that directly contribute to organizational goals, objectives, and overall competitiveness. The compensation plan should motivate these employees to remain within the organization. Photodisc/Thinkstock Waged employees receive compensation based on the number of hours worked, while salaried employees receive a fixed compensation regardless of the number of hours worked. An organization can use many types of compensation systems to reward people for fulfilling their set targets. Compensation systems include base pay, variable pay, and incentive systems. Base pay, as the name implies, is the basic compensation that an employee receives from an organization in exchange for his or her basic services usually in the form of a wage or salary or a combination of the two, depending on the nature of the job. Waged employees receive compensation based on the number of hours worked over a predetermined period of time. On the other hand, salaried employees receive a fixed compensation over certain periods of time regardless of the number of hours invested in work. A combination of these two systems is the overtime system, which pays employees a fixed salary for the regular number of hours worked, as well as additional overtime pay for every extra hour worked. Variable pay is compensation that varies directly with measurable aspects of employee

Section 1.6 The HRM Process performance. The most commonly used variable-pay system in organizations is the sales commission, in which a sales person s compensation is entirely or mostly based on the number of units sold or the value of sales they generated within a previously specified period of time. Variable pay can also be used in conjunction with base pay. An incentive compensation system is compensation connected to individual, team, and organizational performance. The most common variable-pay systems are performance bonuses, stock options, and high-level executive compensation for top executive managers. Incentive systems are designed to reward employees beyond their normal expectations for their excellence in performing above and beyond the immediate goals and objectives of their roles. The concept behind incentive systems is the fact that some employees perform much better than others, and such employees must be recognized and rewarded for their performance with extra compensation. Many companies tie employee compensation to performance in order to motivate employees to exceed performance expectations, ultimately contributing to the organization s success. 8. Benefits and benefit administration Benefits are an essential part of the total compensation package. They are considered a supplement to salaries and wages. Benefits cost companies a great deal, but they also give employers an advantage. Benefits programs have a positive effect on employee attraction, motivation, and work satisfaction. Furthermore, they help companies meet employee health and security requirements, retain a quality workforce, and sustain competitive advantages (Cascio & Boudreau, 2011). In general, nearly a quarter of the benefits package offered to full-time employees is required by law. The rest is offered voluntarily by employers. The legally required benefits include employer contribution to Social Security taxes, unemployment insurance, workers compensation insurance, and state disability insurance. The contributions of both employers and employees to Social Security taxes is used in the payment of retirement, disability, and survivors benefits. It may come as a surprise that health, dental, vision, life, supplemental disability insurance, and paid time off for vacations and illness are all voluntary benefits that are not required by law, even to full-time employees. However, organizations often offer these benefits. Many organizations offer numerous additional benefits such as exercise facilities, childcare, elder care, employee-assistance programs, and tuition reimbursement. Some organizations even offer unique benefits such as car detailing, oil changes, laundry, dry cleaning, and a variety of concierge services. On average, benefits often cost an organization about 75% of an employee s salary, making them the second-largest expense item for many organizations after payroll. Companies should have a sound benefit program in order to gain a human-based competitive advantage. Two important factors must be considered for this to happen: first, the benefit program has to be established on certain objectives. These objectives should be aligned with the organizational policies and values. Second, the program should be affordable a consideration that requires effective management. Benefits will be discussed in detail in chapter 9.

Section 1.6 The HRM Process A MOMENT IN THE LIFE OF AN HR MANAGER Every manager is an HR manager John is a production facility manager. He graduated several years ago with a degree in industrial engineering and landed a job as a production engineer at a midsize production facility. The job was great great pay, great benefits, great coworkers and life was good. Due to his knowledge, diligence, and hard work, he was offered a promotion. The opportunity was extremely exciting to him more pay, better hours, and he got to manage the facility! John s first few weeks in management were calm and uneventful more scheduling and logistical responsibilities, which he had been trained for when he was the technical lead for several projects in the past. He also had less involvement in day-to-day production problems, which he did not really miss at all. Then came a call from the HR department at the head office. The HR manager, Maria, wanted to know when John would be sending his quarterly workforce status and projections report, and whether he needed help in preparing it since it was his first such report. It turned out that every one of the organization s 200 facility managers across the nation needed to turn in their reports, and the deadline was in two weeks! John was baffled! He knew the facility inside out. He knew the answer to any technical question about any product, machine, or piece of equipment, and he could give you the answer on the spot. He had no problem presenting a quarterly production status and projections report off the top of his head. He knew the status and progress of every project and order the facility handled, down to the minute, thanks to his dedication and to the facility s state-of-the-art information system. But he didn t know what he needed for a quarterly workforce status and projections report. Maybe looking at past reports could help, he thought so he started digging into the former manager s files. John breathed a sigh of relief when he found every quarterly workforce status and projections report for the last five years in a designated folder on the facility s database system. However, his relief was short lived. He started browsing through the table of contents: performance appraisal results employee morale assessments and recommendations health and safety checklists Jette Productions/Blend Images/Superstock Formal performance appraisal is important for communicating an organization s goals and priorities to employees. notes from interviews with job candidates and recommendations for acceptance or rejection