LO 2-1 Describe the differences between strategy formulation and strategy implementation, page 74

CHAPTER 2 Strategic LEARNING OBJECTIVES After reading this chapter, you should be able to: Human Resource Management LO 2-1 Describe the differences between strategy formulation and strategy implementation, page 74 LO 2-2 List the components of the strategic management process, page 75 LO 2-3 Discuss the role of the HRM function in strategy formulation, page 77 LO 2-4 Describe the linkages between HRM and strategy formulation, page 78 LO 2-5 LO 2-6 Discuss the more popular typologies of generic strategies and the various HRM practices associated with each, page 83 Describe the different HRM issues and practices associated with various directional strategies, page 92

E n t e r t h e W o r l d o f B u s i n e s s HP's New Strategy In the face o f increasing co m p e titio n, the largest producer o f PCs and laptops, H ew lett Packard, recently d ecided to g e t o u t o f the PC business altogether. A fte r o utd uelin g Dell to becom e the world's largest m anufacturer o f com puters (HP shipped over 64 m illion PCs in 2010), the company has announced its intention to spin or sell its personal-system s group, a division th at brought in $40.74 b illion in sales in 2010. CEO Leo A p otheker concluded that, "to be successful in the consum er device business we w ould have had to invest a lot o f capital and I believe we can invest it in b e tte r places." These investm ents seem to be taking HP further into markets th at ta rg et businesses as customers. The thinking is th at such businesses provide higher potential p ro fit margins. For instance, in 2008 the com pany acquired the tech services company Electronic Data Systems fo r $13.9 billion in an effort to com pete against IBM's tech-services division. In 2010 it also acquired 3Com in an effort to com pete with Cisco Systems' networkequipm ent business. HP recently announced a $10.25 billion purchase o f British enterprise software com pany Autonom y, which will com pete against Mr. Apotheker's fo rm e r em ployer, SAP. Industry analysts agree th a t the conditions of the PC m arket make it a business which is hard to i for Chir>a, m M < > run. M argins fo r PCs run in the 2-6% range, much low er than HP thinks it can generate by focusing on softw are and services. Interestingly, this is n ot the first tim e th at the m arkets have questioned the w isdom o f HP's strategy. Ten years ago HP m ade headlines for m aking a controversial $25 billion acquisition. W hat was the acquisition? Ironically in light o f today's strategy, HP b o u g h t PC m aker C om paq in an e ffo rt to strengthen its position in the PC market. SOURCE: From Y. Kane and N. Wingfield, "Pioneering Firm Bows to Post-PC W orld," Wall Street Journal, August 19, 2011. Reproduced with permission of Dow Jones & Company, Inc. via Copyright Clearance Center.

7 2 PART I The Hum an Resource Environm ent Introduction A s the HP example just illustrated, business organizations exist in an environment of competition. They can use a number of resources to compete with other companies. These resources are physical (such as plant, equipment, technology, and geographic location), organizational (the structure, planning, controlling, and coordinating systems, and group relations), and human (the experience, skill, and intelligence of employees). It is these resources under the control of the company that provide com petitive advan tage.1 The goal of strategic management in an organization is to deploy and allocate resources in a way that gives it a competitive advantage. A s you can see, two of the three classes of resources (organizational and human) are directly tied to the human resource management function. A s Chapter 1 pointed out, the role of human resource management is to ensure that a company s human resources provide a competitive advantage. Chapter 1 also pointed out some of the major competitive challenges that companies face today. These challenges require companies to take a proactive, strategic approach in the marketplace. To be maximally effective, the HRM function must be integrally involved in the company s strategic management process.2 This means that human resource managers should (1) have input into the strategic plan, both in terms of people-related issues and in terms of the ability of the human resource pool to implement particular strategic alternatives; (2) have specific knowledge of the organization s strategic goals; (3 ^ know what types of employee skills, behaviors, and attitudes are needed to support the strategic plan; and (4) develop programs to ensure that employees have those skills, behaviors, and attitudes. We begin this chapter by discussing the concepts of business m odels and strategy and by depicting the strategic management process. Then, we discuss the levels of integration between the HRM function and the strategic management process in strategy formulation. N ext, we review some of the more common strategic models and, within the context of these models, discuss the various types of employee skills, behaviors, and attitudes, and the ways H RM practices aid in implementing the strategic plan. Finally, we discuss the role of HR in creating com petitive advantage. O What Is a Business Model? A business model is a story of how the firm will create value for customers and, more important, how it will do so profitably. We often hear or read of companies that have transformed their business model in one way or another, but what that means is not always clear. To understand this, we need to grasp a few basic accounting concepts. First, fixed costs are generally considered the costs that are incurred regardless of the number of units produced. For instance, if you are producing widgets in a factory, you have the rent you pay for the factory, depreciation of the machines, the utilities, the property taxes, and so on. In addition, you generally have a set number of employees who work a set number of hours with a specified level of benefits, and while you might be able to vary these over time, on a regular basis you pay the same total labor costs whether your factory runs at 70% capacity or 95% capacity. Second, you have a number of variable costs, which are those costs that vary directly with the units produced. For instance, all of the materials that go into the widget might cost a total of $10, which means that you have to charge at least $10 per widget, or you cannot even cover the variable costs o f production.

CHAPTER 2 S trategic Hum an Resource M anagem ent 7 3 Third is the concept o f contribution m argins, or margins. Margins are the difference between what you charge for your product and the variable costs of that product. They are called contribution margins because they are what contributes to your ability to cover your fixed costs. So, for instance, if you charged $15 for each widget, your contribution margin would be $5 ($15 price - $10 variable cost). Fourth, the gross margin is the total amount of margin you made and is calculated as the number of units sold times the contribution margin. If you sold 1,000,000 units, your gross margin would then be $5,000,000. Did you make a profit? That depends. Profit refers to what is left after you have paid your variable costs and your fixed costs. If your gross margin was $5,000,000, and your fixed costs were $6,000,000, then you lost $1,000,000. GM'S ATTEMPT TO SURVIVE Let s look at how a business model plays out with the recent challenges faced by General Motors (G M ). Critics of G M talk about the fact that G M has higher labor costs than their foreign competitors. This is true, but misleading. G M s average hourly wage for their existing workforce is reasonably competitive. However, the two aspects that make GM uncompetitive are their benefit costs (in particular, health care) and most important, the cost of their legacy workforce. A legacy workforce describes the former workers (i.e., those no longer working for the company) to whom the firm still owes financial obligations. G M and the United Auto Workers (UAW ) union have negotiated contracts over the years that provide substantial retirement benefits for former G M workers. In particular, retired G M workers have defined benefit plans that guarantee a certain percentage of their final (preretirement) salary as a pension payment as long as they live as well as having the company pay for their health insurance. In addition, the contract specifies that workers are entitled to retire at full pension after 30 years of service. This might have seemed sustainable when the projections were that G M would continue growing its sales and margins. However, since the 1970s, foreign competitors have been eating away at G M s market share to the extent that G M s former 50% of the market has shrunk to closer to 20%. In addition, with the current economic crisis, the market itself has been shrinking, leaving GM with a decreasing percentage of a decreasing market. For instance, in December of 2005, GM sold 26% of the cars in the global market of almost 1.5 million, but by January of 2009, the market had shrunk to 656,000, and G M was down to 20% of those sales. Thus, in addition to the legacy workforce, they had a significant number of plants with thousands of employees that were completely unnecessary, given the volume o f cars G M can produce and sell.3 4 If you look at Figure 2.1, you ll see that the solid lines represent the old GM business model, which was based on projections that GM would be able to sell 4 million units at a reasonably high margin, and thus completely cover its fixed costs to make a strong profit. However, the reality was that its products didn t sell at the higher prices, so to try to sell 4 million vehicles, GM offered discounts, which cut into its margins. When GM ended up selling only 3.5 million vehicles, and those were sold at a lower margin, the company could not cover its fixed costs, resulting in a $9 billion loss in 2008 (this is illustrated by the dotted blue line in the figure). So, when GM refers to the redesigned business model, what it is referring to is a significant reduction in fixed costs (through closing plants and cutting workers) to get the fixed-cost base low enough (.the dotted red line) to be able to still be profitable selling fewer cars at lower margins (again, the dotted blue line). One can easily see how, given the large component that labor costs are to most companies, reference to business models almost inevitably leads to discussions of

7 4 PART 1 The Hum an Resource E nvironm ent figure 2.1 An Illustration of a Business Model for GM labor costs. These can be the high cost associated with current unionized employees in developed countries within North Am erica or Europe or, in some cases, the high costs associated with a legacy workforce. For instance, the Big Three automakers have huge numbers of retired or la id-off workers for whom they still have the liability of paying pensions and health care benefits. This is a significant component of their fixed-cost base, which makes it difficult for them to compete with other automakers that either have fewer retirees to cover or have no comparable costs because their home governments provide pensions and health care. LO 2-1 Describe the differences between strategy formulation and strategy implementation. <What Is Strategic Management? Many authors have noted that in today s competitive market, organizations must engage in strategic planning to survive and prosper. Strategy comes from the Greek word strategos, which has its roots in military language. It refers to a general s grand design behind a war or battle. In fact, Webster s Nevu American Dictionary defines strategy as the skillful employment and coordination of tactics and as artful planning and management. Strategic management is a process, an approach to addressing the competitive challenges an organization faces. It can be thought of as managing the pattern or plan that integrates an organization s major goals, policies, and action sequences into a cohesive whole. 5 These strategies can be either the generic approach to competing or the specific adjustments and actions taken to deal with a particular situation. First, business organizations engage in generic strategies that often fit into some strategic type. One example is cost, differentiation, or focus. 6 Another is defender, analyzer, prospector, or reactor. 7 Different organizations within the same industry often have different generic strategies. These generic strategy types describe the consistent way the company attem pts to position itself relative to competitors. However, a generic strategy is only a small part of strategic management. The second aspect of strategic management is the process of developing strategies for achieving the company s goals in light of its current environment. Thus, business organizations engage in generic strategies, but they also make choices about such things as how to

CHAPTER 2 S trategic Hum an Resource M anagem ent 7 5 scare off competitors, how to keep competitors weaker, how to react to and influence pending legislation, how to deal with various stakeholders and special interest groups, how to lower production costs, how to raise revenues, what technology to implement, and how many and what types of people to employ. Each of these decisions may present competitive challenges that have to be considered. Strategic management is more than a collection of strategic types. It is a process for analyzing a company s competitive situation, developing the company s strategic goals, and devising a plan of action and allocation of resources (human, organizational, and physical) that will increase the likelihood of achieving those goals. This kind of strategic approach should be emphasized in human resource management. HR managers should be trained to identify the competitive issues the company faces with regard to human resources and think strategically about how to respond. Strategic human resource management (SH R M ) can be thought of as the pattern of planned human resource deployments and activities intended to enable an organization to achieve its goals. 8 For exam ple, manv firms have developed integrated manufacturing systems such as advanced manufacturing technology, just-intime inventory control, and total quality management in an effort to increase their competitive position. However, these systems must be run by people. SH R M in these cases entails assessing the employee skills required to run these systems and engaging in HRM practices, such as selection and training, that develop these skills in employees.9 To take a strategic approach to HRM, we must first understand the role of HRM in the strategic m anagem ent process. Strategic Human Resource Management (SHRM) A pattern o f planned hum an resource d e ploym ents and activities intended to enable an organization to achieve its goals. COMPONENTS OF THE STRATEGIC MANAGEMENT PROCESS The strategic management process has two distinct yet interdependent phases: strategy formulation and strategy implementation. During strategy formulation the strategic planning groups decide on a strategic direction by defining the company s mission and goals, its external opportunities and threats, and its internal strengths and weaknesses. They then generate various strategic alternatives and compare those alternatives ability to achieve the company s mission and goals. During strategy implementation, the organization follows through on the chosen strategy. This consists of structuring the organization, allocating resources, ensuring that the firm has skilled employees in place, and developing reward systems that align employee behavior with the organization s strategic goals. Both of these strategic management phases must be performed effectively. It is important to note that this process does not happen sequentially. A s we will discuss later with regard to emergent strategies, this process entails a constant cycling of information and decision making. Figure 2.2 presents the strategic management process. In recent years organizations have recognized that the success of the strategic management process depends largely on the extent to which the HRM function is involved.10 LINKAGE BETWEEN HRM AND THE STRATEGIC MANAGEMENT PROCESS The strategic choice really consists of answering questions about competition that is, how the firm will compete to achieve its missions and goals. These decisions consist of addressing the issues of where to compete, how to compete, and with what to compete, which are described in Figure 2.3. LO 2-2 List the components of the strategic management process. Strategy Formulation The process of d e c id in g on a strate g ic direction by d e fining a com pany's mission and goals, its external o p p o rtu n itie s and threats, and its internal strengths and weaknesses. Strategy Implementation The process of devising structures and allocating resources to enact the strategy a com pany has chosen.

figure 2.2 A M odel of the Strategic Management Process Emergent strategies 76

CHAPTER 2 S trategic Hum an Resource M anagem ent 7 7 1. W here to compete? In what market or markets (industries, products, etc.) will w e compete? 2. How to compete? On what criterion or differentiating characteristic(s) will w e com pete? Cost? Quality? Reliability? Delivery? 3. W ith w hat will we compete? W hat resources will allow us to beat our competition? How will we acquire, develop, and deploy those resources to compete? figure 2.3 Strategy Decisions about Competition Although these decisions are all important, strategic decision makers often pay less attention to the with what will we com pete issue, resulting in poor strategic decisions. For example, PepsiCo in the 1980s acquired the fast-food chains of Kentucky Fried Chicken, Taco Bell, and Pizza Hut ( where to compete decisions) in an effort to increase its customer base. However, it failed to adequately recognize the differences between its existing workforce (mostly professionals) and that of the fast-food industry (lower skilled people and high schoolers) as well as its ability to manage such a workforce. This was one reason that PepsiCo, in 1998, spun off the fast-food chains. In essence, it had made a decision about where to compete without fully understanding what resources would be needed to compete in that market. Boeing illustrates how failing to address the with what issue resulted in problems in its how to com pete decisions. W hen the aerospace firm s consumer products division entered into a price war with Airbus Industrie, it was forced to move away from its traditional customer service strategy toward emphasizing cost reduction.11 The strategy was a success on the sales end as Boeing received large numbers of orders for aircraft from firms such as Delta, Continental, Southwest, and Singapore Airlines. However, it had recently gone through a large workforce reduction (thus, it didn t have enough people to fill the orders) and did not have the production technology to enable the necessary increase in productivity. The result of this failure to address with what will we compete in making a decision about how to compete resulted in the firm s inability to meet delivery deadlines and the ensuing penalties it had to pay to its customers. The end result is that after all the travails, for the first time in the history of the industry, Airbus sold more planes than Boeing in 2003. Luckily, Boeing was able to overcome this stumble, in large part because of a number of stumbles on the part of its chief rival, Airbus. Boeing s 787 Dreamliner has generated a number of orders, while Airbus s behemoth A 380 has been beset by a number of production delays, enabling Boeing to regain its market lead. The Com peting through Globalization box illustrates how firms face a with what to compete question in India in terms of talent. ROLE OF HRM IN STRATEGY FORMULATION As the preceding examples illustrate, often the with what will we compete questions present ideal avenues for HRM to influence the strategic management process. This might be through either limiting strategic options or forcing thoughtfulness among the executive team regarding how and at what cost the firm might gain or develop the human resources (people) necessary for such a strategy to be successful. For example, HRM executives at PepsiCo could have noted that the firm had no expertise in managing the workforce of fast-food restaurants. The limiting role would have been for these executives to argue against the acquisition because of this lack of resources. O n LO 2-3 Discuss the role of the HRM function in strategy formulation.

7 8 PART 1 The Human Resource E nvironm ent the other hand, they might have influenced the decision by educating top executives as to the costs (of hiring, training, and so on) associated with gaining people who had the right skills to manage such a workforce. A firm s strategic management decision-making process usually takes place at its top levels, with a strategic planning group consisting of the chief executive officer, the chief financial officer, the president, and various vice presidents. However, each component of the process involves people-related business issues. Therefore, the HRM function needs to be involved in each of those components. One recent study of 115 strategic business units within Fortune 500 corporations found that between 49 and 69% of the companies had some link between HRM and the strategic planning process.12 However, the level of linkage varied, and it is important to understand these different levels. Four levels of integration seem to exist between the HRM function and the strategic management function: administrative linkage, one-way linkage, two-way linkage, and integrative linkage.13 These levels o f linkage will be discussed in relation to the different components of strategic management. The linkages are illustrated in Figure 2.4. LO 2-4 Describe the linkages between HRM and strategy formulation. Adm inistrative Linkage In administrative linkage (the lowest level o f integration), the H RM function s attention is focused on day-to-day activities. T he HRM executive has no time or opportunity to take a strategic outlook toward HRM issues. The company s strategic business planning function exists without any input from the HRM department. Thus, in this level o f integration, the H RM department is completely divorced from any com ponent of the strategic management process in both strategy formulation and strategy implementation. The department simply engages in administrative work unrelated to the com pany s core business needs. One-Way Linkage In one-way linkage, the firm s strategic business planning function develops the strategic plan and then informs the HRM function of the plan. Many believe this level of integration constitutes strategic HRM that is, the role of the HRM function is to design systems and/or programs that implement the strategic plan. A lthough one-way figure 2.4 Linkages o f S trategic Planning and HRM Administrative linkage Strategic planning One-way linkage Two-way linkage Strategic planning Integrative linkage HRM fu n c tio n J HRM fu n c tio n J SOURCE: A dapted from K. G olden and V. Ramanujam, "Between a Dream and a Nightmare: On the Integration o f the Human Resource Function and the Strategic Business Planning Process," Human Resource M anagem ent 24 (1985), pp. 429-51. i HRM fu n c tio n r

c h a p t e r 2 Strategic Hum an Resource M anagem ent 7 9 linkage does recognize the importance of hum an resources in implementing the strategic plan, it precludes the company from considering human resource issues while formulating the strategic plan. This level of integration often leads to strategic plans that the company cannot successfully implement. Two-Way Linkage Two-way linkage allows for consideration of human resource issues during the strategy formulation process. T his integration occurs in three sequential steps. First, the strategic planning team informs the HRM function of the various strategies the company is considering. Then HRM executives analyze the human resource implications of the various strategies, presenting the results of this analysis to the strategic planning team. Finally, after the strategic decision has been made, the strategic plan is passed on to the HRM executive, who develops programs to implement it. The strategic planning function and the HRM function are interdependent in two-way linkage. Integrative Linkage Integrative linkage is dynamic and multifaceted, based on continuing rather than sequential interaction. In most cases the HRM executive is an integral member of the senior management team. Rather than an iterative process of information exchange, companies with integrative linkage have their HRM functions built right into the strategy formulation and implementation processes. It is this role that we will discuss throughout the rest of this chapter. Thus, in strategic H RM, the H RM function is involved in both strategy formulation and strategy implementation. The HRM executive gives strategic planners information about the company s human resource capabilities, and these capabilities are usually a direct function of the HRM practices.14 This information about human resource capabilities helps top managers choose the best strategy because they can consider how well each strategic alternative would be implemented. O nce the strategic choice has been determined, the role of HRM changes to the development and alignment of HRM practices that will give the company employees having the necessary skills to implement the strategy.15 In addition, HRM practices must be designed to elicit actions from employees in the company.16 In the next two sections of this chapter we show how HRM can provide a competitive advantage in the strategic management process. Strategy Formulation Five major components of the strategic management process are relevant to strategy formulation.17 These components are depicted in Figure 2.5. The first component is the organization s mission. The mission is a statement of the organization s reason for being; it usually specifies the customers served, the needs satisfied and/or the values received by the customers, and the technology used. The mission statement is often accompanied by a statement of a company s vision and/or values. For example, Table 2.1 illustrates the mission and values of Merck & Co., Inc. A n organization s goals are what it hopes to achieve in the medium- to long-term future; they reflect how the mission will be operationalized. The overarching goal of most profit-making companies in the United States is to maximize stockholder wealth. But companies have to set other long-term goals in order to maximize stockholder wealth. Goals W hat an organization hopes to achieve in the m edium - to longterm future.

8 0 PART 1 The Human Resource E nvironm ent figure 2.5 Strategy Form ulation External analysis O pportunities Threats Mission Goals Strategic choice j Internal analysis Strengths Weaknesses HR input SOURCE: Adapted from K. Golden and V. Ramanujam, "Between a Dream and a Nightm are," Human Resource M anagem ent 24 (1985), pp. 429-51. External Analysis Exam ining the org a nization's opera tin g environm ent to id entify strategic o p p o rtu n itie s and threats. Internal Analysis The process o f exam ining an org a nization's strengths and weaknesses. Strategic Choice The organization's strategy; the ways an organization will a tte m p t to fulfill its mission and achieve its long-term goals. External analysis consists of exam ining the organization s operating environment to identify the strategic opportunities and threats. Examples of opportunities are customer markets that are not being served, technological advances that can aid the company, and labor pools that have not been tapped. Threats include potential labor shortages, new competitors entering the market, pending legislation that might adversely affect the company, and com petitors technological innovations. Internal analysis attempts to identify the organization s strengths and weaknesses. It focuses on the quantity and quality of resources available to the organization financial, capital, technological, and human resources. Organizations have to honestly and accurately assess each resource to decide whether it is a strength or a weakness. External analysis and internal analysis combined constitute what has come to be called the SW O T (strengths, weaknesses, opportunities, threats) analysis. Table 2.2 shows an exam ple of a SW O T analysis for G oogle. A fter going through the SW O T analysis, the strategic planning team has all the information it needs to generate a number of strategic alternatives. T he strategic managers compare these alternatives ability to attain the organization s strategic goals; then they make their strategic choice. The strategic choice is the organization s strategy; it describes the ways the organization will attem pt to fulfill its mission and achieve its long-term goals. Many of the opportunities and threats in the external environm ent are peoplerelated. W ith fewer and fewer highly qualified individuals entering the labor market,

c h a p t e r 2 S trategic Hum an Resource M anagem ent 81 M ISSIO N STATEMENT Merck & Co., Inc. is a leading research-driven pharm aceutical products and services company. Merck discovers, develops, m anufactures and markets a broad range of innovative products to im prove human and animal health. The M erck-m edco M anaged Care Division manages pharm acy benefits fo r m ore than 40m illion Americans, encouraging the appropriate use o f m edicines and providing disease m anagem ent programs. O ur Mission The mission o f M erck is to p ro vid e society w ith sup erior products and services innovations and solutions th a t im prove the qu a lity o f life and satisfy custom er needs to pro vid e em ployees w ith m eaningful w ork and advancem ent o p p o rtu n itie s and investors w ith a sup erior rate o f return. O ur Values 1. O ur business is preserving and im proving human life. A ll o f o u r actions m ust be m easured by o u r success in achieving this goal. W e value above all our a b ility to serve everyone w ho can b e n e fit from the a p p ro p ria te use o f o u r p ro ducts and services, the re by p ro vid ing lasting consum er satisfaction. 2. W e are com m itted to th e highest standards o f ethics and integrity. W e are responsible to ou r custom ers, to M erck em ployees and th e ir fam ilies, to the environm ents w e inhabit, and to th e societies we serve w o rldw id e. In discharging our responsibilities, we d o n o t take professional or ethical shortcuts. O u r interactions w ith all segm ents o f society m ust reflect the high standards we profess. 3. W e are d ed icated to th e highest level o f scientific excellence and com m it our research to im proving human and animal health and th e quality o f life. W e strive to id e n tify th e m ost critical needs o f consum ers and custom ers; we de vo te ou r resources to m ee ting those needs. 4. W e expect profits, but only from w ork th a t satisfies custom er needs and b enefits humanity. O u r a b ility to m ee t o u r responsibilities d e p e n d s on m aintaining a financial positio n th a t invites investm ent in le a d in g -e d g e research and th a t m akes possible effective delivery o f research results. 5. W e recognize th at the ability to excel to most com petitively m eet society's and customers' needs depends on the integrity, know ledge, imagination, skill, diversity, and team w ork o f em ployees, and w e value these qualities most highly. To this end, w e strive to create an environm ent o f m utual respect, encouragem ent, and team w ork a w orking environm ent th a t rewards com m itm e nt and perform ance and is responsive to the needs o f em ployees and the ir families. table 2.1 M erck & Co.'s Mission and Values SOURCE: Courtesy o f Merck. r STRENGTHS W EAKNESSES 1 table 2.2 SW OT Analysis for Expanding Liquidity Issues w ith Chinese G overnm ent G oogle, Inc. O perational Efficiency D ependence on A dvertising Segm ent Broad Range o f Services P ortfolio Losses at YouTube OPPORTUNITIES THREATS G row ing D em and fo r O nline V id eo W eak E conom ic O u tlo o k G row th in Internet A dve rtisin g M arket Invalid Clicks Inorganic G row th M icrosoft-y ahoo! Deal SOURCE: GlobalData.

COMPETING THROUGH GLOBALIZATION A Talent Shortage among Millions of Graduates We often hear about how many firms have m oved call center and technology operations to India because o f the large supply o f college graduate talent. For example, universities in India have seats fo r 1.5 m illion engineering students, up from 390,000 in 2000. However, according to assessment tests administered by the National Association o f Software and Services Com panies, 75% of technical graduates and 85% o f general graduates are unem ployable in the inform ation te ch nology and call center industries. The problem is m ultifaceted. First, because faculty are paid so low, they do not put much effort into teaching. For instance, Pradeep Singh, a 23-year-old engineering graduate, quickly learned that they need n ot go v to classes. "The faculty take it very casually, and the students take it very casually, like they've all agreed n ot to be bothered to o m uch," he says. In a d d itio n, ch ea ting, often enco uraged by the graders, is w idespread. For instance, Deepack Sharma says he fa ile d several exams until he fo u n d the secret: p u ttin g his cell phone n um ber on his exam. A fte r d o in g this he says he g o t a call from th e exam iner w ho o ffered to pass him and his friends if th ey paid 10,000 rupees each (about $250). A fte r g e ttin g the m oney to g e th e r and paying the exam iner, th e y all passed the test. He says, "I feel alm ost certain th a t if I d id n 't pay the m oney, I w o u ld have fa ile d the exam a g a in." Large Indian com panies such as W ip ro and Tata have a tte m p te d to b ridge the w ide gap betw een jo b requirem ents and skills o f graduates through d e ve lo pin g significant internal training program s. For instance, Tata puts recent graduates th ough a 72-day training p ro cess and W ip ro has deve lo ped a 90-day program. As human capital (or ta l ent) continues to becom e one o f the critical assets th at com panies m ust m anage to be co m p etitive, firm s d oing business in India may have to th in k tw ice before they let the idea o f m illions o f college graduates entice them to make investm ents. SOURCE: From G. Anand, "India Graduates Millions, b u t Too Few Are Fit to Hire," Wall Street Journal Online, April 6, 2011. Reproduced with permission of Dow Jones & Company, Inc. via Copyright Clearance Center. organizations compete not just for customers but for employees. It is H R M s role to keep close tabs on the external environm ent for hum an resource related opportunities and threats, especially those directly related to the HRM function: potential labor shortages, com petitor wage rates, governm ent regulations affecting employment, and so on. For example, as discussed in Chapter 1, U.S. companies are finding that more and more high school graduates lack the basic skills needed to work, which is one source of the human capital shortage. 18 However, not recognizing this environmental threat, many companies have encouraged the exit of older, more skilled workers while hiring less skilled younger workers who require basic skills training.19 In fact, the Com peting through G lobalization box illustrates how a skill shortage exists in India, in spite of the huge number of college graduates. A n analysis of a com pany s internal strengths and weaknesses also requires input from the H RM function. Today com panies are increasingly realizing that their hum an resources are one of their m ost im portant assets. In fact, one estimate is that over one-third of the total growth in U.S. gross national product (G N P ) between 1943 and 1990 was the result of increases in human capital. A com pany s failure to consider the strengths and w eaknesses >f its workforce may result in its choosing strategies it is not capable o f pursuing.20 However, some research 8 2

CHAPTER 2 S trategic Human Resource M anagem ent 8 3 has dem onstrated that few com panies have achieved this level of linkage.21 For exam ple, one com pany chose a strategy o f cost reduction through tech n o logical improvem ents. It built a plant designed around a com puter-integrated manufacturing system with statistical process controls. A lthough this choice may seem like a good one, the company soon learned otherwise. It discovered that its employees could not operate the new equipm ent because 25% of the workforce was functionally illiterate.22 Thus, with an integrative linkage, strategic planners consider all the people-related business issues before making a strategic choice. These issues are identified with regard to the mission, goals, opportunities, threats, strengths, and weaknesses, leading the strategic planning team to make a more intelligent strategic choice. A lthough this process does not guarantee success, companies that address these issues are more likely to make choices that will ultimately succeed. Recent research has supported the need to have HRM executives integrally involved in strategy formulation. One study of U.S. petrochemical refineries found that the level of HRM involvement was positively related to the refinery manager s evaluation of the effectiveness of the HRM function.23 A second study of m anufacturing firms found that HRM involvement was highest when top managers viewed employees as a strategic asset and associated them with reduced turnover.24 However, both studies found that HRM involvement was unrelated to operating unit financial performance. Research has indicated that few companies have fully integrated HRM into the strategy formulation process.25 A s we ve m entioned before, com panies are beginning to recognize that in an intensely competitive environment, managing human resources strategically can provide a competitive advantage. Thus, companies at the administrative linkage level will either become more integrated or face extinction. In addition, companies will move toward becoming integratively linked in an effort to manage hum an resources strategically. It is o f utmost importance that all people-related business issues be considered during strategy formulation. These issues are identified in the HRM function. M echanisms or structures for integrating the HRM function into strategy formulation may help the strategic planning team make the most effective strategic choice. Once that strategic choice is determined, HRM must take an active role in implementing it. This role will be discussed in the next section. Strategy Implementation After an organization has chosen its strategy, it has to execute that strategy make it come to life in its day-to-day workings. T he strategy a company pursues dictates certain H R needs. For a company to have a good strategy foundation, certain tasks must be accomplished in pursuit of the company s goals, individuals must possess certain skills to perform those tasks, and these individuals must be motivated to perform their skills effectively. The basic premise behind strategy implementation is that an organization has a variety of structural forms and organizational processes to choose from when im plementing a given strategy, and these choices make an economic difference.26 Five important variables determine success in strategy implementation: organizational structure; task design; the selection, training, and developm ent o f people; reward systems; and types of information and information systems. LO 2-5 Discuss the more popular typologies of generic strategies and the various HRM practices associated with each.

8 4 PART 1 The Hum an Resource Environm ent figure 2.6 Variables to Be C onsidered in Strategy Im plem entation Organizational structure Types of information Product m arket strategy Reward systems Seloction, training, and developm ent of people J Performance A s we see in Figure 2.6, H RM has primary responsibility for three of these five im plem entation variables: task, people, and reward systems. In addition, HRM can directly affect the two remaining variables: structure and inform ation and decision processes. First, for the strategy to be successfully im plem ented, the tasks must be designed and grouped into jobs in a way that is efficient and effective.27 In C hapter 4 we will exam ine how this can be done through the processes of job analysis and job design. Second, the HRM function must ensure that the organization is staffed with people who have the necessary knowledge, skill, and ability to perform their part in im plem enting the strategy. T his goal is achieved primarily through recruitment, selection and placem ent, training, developm ent, and career m anagem ent topics covered in Chapters 5, 6, 7, and 9. In addition, the HRM function must develop performance m anagem ent and reward systems that lead employees to work for and support the strategic plan. T he specitic types of perform ance m anagem ent systems are covered in C hapter 8, and the many issues involved in developing reward systems are discussed in C hapters 11 through 13. In other words, the role of the H RM function becomes one o f (1) ensuring that the company has the proper number of employees with the levels and types of skills required by the strategic plan28 and (2) developing control systems that ensure that those employees are acting in ways that prom ote the achievem ent of the goals specified in the strategic plan.29 In essence, this is what has been referred to as the vertical alignm ent of H R with strategy. Vertical alignment means that the H R practices and processes are aimed at addressing the strategic needs of the business. But the link between strategy and HR practices is primarily through people. For instance, as IBM moved from being a manufacturer of personal computers to being a fully integrated service provider, the types of people it needed changed significantly. Instead of employing thousands of workers in manufacturing or assembly plants, IBM increasingly needed software engineers to help write new middleware programs, and an army of consultants who could help their corporate customers to implement these systems. In addition, as IBM increasingly differentiated itself as being the integrated solutions provider (m eaning it could sell

COMPETING THROUGH SUSTAINABILITY Helping the Rainforest Tribes? As many firm s seek to p ro m o te the w elfare o f th e ir suppliers, some firm s have gone far back into the supply chain. Many firm s d eve lo p partnerships with rainforest villages as a way to seek to p ro fit w hile helping the planet. For instance, Aveda, the cosm etics com pany which is a unit o f Estee Lauder, has established a partnership with the Yawanawa' Indian trib e in the rainforest o f western Brazil. Aveda uses pictures o f the Indian trib e m em bers to prom ote its popular Uruku line of lipsticks, eye shadows, and facial bronzers th a t are supposed to use urukum, a fru it the tribe uses to make b ody paint. The "g reen/su sta in a bility" emphasis allows them to charge a prem ium price to consumers. However, the trib e has not delivered any urukum to Aveda betw een 2008 and 2010 since it is m ore com m only referred to as "a n n a tto " which is grown com m ercially all over the glo be. This does n ot mean th a t Aveda has not helped the village; it has im proved access to health care, education, and g o ve rn m e nt services. They p rovided $50,000 fo r the trib e to buy seedlings to grow urukum on a larger scale. The p rovided a dditional funds fo r the trib e to buy fo o d, cloth ing, and o ther supplies. They helped build a new village, a school, and a health clinic. However, the trib e soon lost interest in the required w eeding and caring fo r the plants to the p o in t th a t the plants were in a "state o f crisis" according to the d irector o f the zoo-botanical park o f the Federal University o f Acre Flavio Rodriques. In a d d i tio n, an internal tribal squabble created division regarding w hether or not the tribe should even continue the partnership. W hile one can certainly adm ire the m otivation of Aveda to d o well by doing good, given th a t the m arket crop fo r urukum is about $500 annually, it by no means provides enough to make the village self-sufficient. This led Mr. Rodrigues to write in a 2001 report th a t "The pro je ct probably does not have econom ic viability. The im pression th a t rem ained with the technical team is th at the m ultinational has m ore interest in the m arketing aspect o f w orking w ith an indigenous com m u nity in the Am azon than it does in the p ro duction o f annatto." SOURCE: From John Lyons, "Skin-Deep Gains fo r Amazon Tribe, Wall Street Journal Online, May 5, 2011. Reproduced with permission o f Dow Jones & Company, Inc. via C opyright Clearance Center. the hardware, software, consulting, and service for a company s entire information technology needs), employees needed a new mindset which emphasized cooperating across different business divisions rather than running independently. Thus, the change in strategy required different kinds of skills, different kinds of employees, and different kinds of behaviors. The Com peting through Sustainability box illustrates how the cosmetics company Aveda sought to support an Amazonian tribe through sourcing cosm etic raw materials from them. How does the HRM function implement strategy? A s Figure 2.7 shows, it is through administering H R M practices: job analysis/design, recruitment, selection systems, training and development programs, performance management systems, reward systems, and labor relations programs. The details of each of these HRM practices are the focus of the rest of this book. However, at this point it is important to present a general overview of the HRM practices and their role in strategy implementation. We then discuss the various strategies com panies pursue and the types of H RM systems congruent with those strategies. First we focus on how the strategic types are implemented; then we discuss the HRM practices associated with various directional strategies. 8 5

8 6 PART 1 The Human Resource Environm ent figure 2.7 Strategy Im plem entation HRM practices R ecruitm ent Training Perform ance m anagem ent Labor relations E m ployee relations t Jo b analysis Jo b design Selection D e v e lo p m e n t Pay structure Incentives B enefits Human resource capability Skills A b ilitie s K n o w ledg e Human resource actions Behaviors Results (P roductivity, absenteeism, tu rn o v e r) Emergent strategies HRM PRACTICES The HRM function can be thought of as having six menus of HRM practices, from which companies can choose the ones most appropriate for implementing their strategy. Each of these menus refers to a particular functional area of HRM : job analysis/ design, recruitment/selection, training and development, performance management, pay structure/incentives/benefits, and labor employee relations.30 These menus are presented in Table 2.3. Job Analysis The process o f g e t tin g de tailed inform ation ab o u t jobs. Job Design The process o f de fining th e way w ork will be perform e d and the tasks th a t w ill be required in a given jo b. Job Analysis and Design Com panies produce a given product or service (or set of products or services), and the manufacture of these products requires that a number of tasks be performed. These tasks are grouped together to form jobs. Job analysis is the process of getting detailed information about jobs. Job design addresses what tasks should be grouped into a particular job. The way that jobs are designed should have an important tie to the strategy of an organization because the strategy requires either new and different tasks or different ways of performing the same tasks. In addition, because many strategies entail the introduction of new technologies, this affects the way that work is performed.31 In general, jobs can vary from having a narrow range of tasks (most of which are simplified and require a limited range of skills) to having a broad array of complex tasks requiring multiple skills. In the past, the narrow design of jobs has been used to increase efficiency, while the broad design of jobs has been associated with efforts to

CHAPTER 2 Strategic Human Resource M anagem ent 8 7 table 2.3 Job Analysis and Design Few tasks M any tasks S im ple tasks <-» C o m p le x tasks Few skills required M any skills required Specific jo b descriptions <-> G eneral jo b descriptions Recruitm ent and Selection External sources <-» Internal sources Lim ited socialization <-> Extensive socialization Assessm ent o f specific skills Assessm ent o f general skills N arrow career paths Broad career paths Training and D evelopm ent Focus on current jo b skills Focus on future jo b skills Individual orien ta tion <-> G roup orientation Train few em ployees <-> Train all em ployees Spontaneous, unplanned Planned, system atic Perform ance M an agem ent Behavioral criteria Results criteria D evelopm ental orien ta tion A dm inistra tive orientation S hort-term criteria *-> Long-term criteria Individual orien ta tion G roup orien ta tion Pay Structure, Incentives, and Benefits Pay w e ig h te d tow a rd salary and Pay w e ig h te d to w a rd incentives benefits S hort-term incentives <-> Long-term incentives Emphasis on internal equity <-4 Emphasis on external eq uity Individual incentives G roup incentives Labor and Em ployee Relations C ollective bargaining Individual bargaining Top-dow n decision m aking P articipation in decision m aking Formal due process N o due process View em ployees as expense View em ployees as assets M enu o f HRM Practice O ptions SOURCES: A dapted from R. S. Schuler and S. F. Jackson, "Linking C om petitive Strategies with Human Resource M anagem ent Practices," Academ y o f M anagem ent Executive 1 (1987), pp. 207-19; and C. Fisher, L. Schoenfeldt, and B. Shaw, Human Resource M anagem ent, 2nd ed. (Boston: H oughton M ifflin, 1992). increase innovation. However, with the advent of total quality management methods and a variety of employee involvement programs such as quality circles, many jobs are moving toward the broader end of the spectrum.32 Employee Recruitm ent and Selection Recruitm ent is the process through which the organization seeks applicants for potential employment. Selection refers to the process by which it attem pts to identify applicants with the necessary knowledge, skills, abilities, and other characteristics that will help the company achieve its goals. Com panies engaging in different strategies need different types and numbers of employees. Thus, the strategy a company is pursuing will have a direct impact on the types of employees that it seeks to recruit and select.33 Recruitm ent The process of seeking a p p licants fo r potential em ploym ent. Selection The process by which an organization attem pts to identify applicants with the necessary knowledge, skills, abilities, and other characteristics that will help it achieve its goals.

8 8 PART 1 The Human Resource E nvironm ent Training A planned effort to facilitate the learning o f jo b-related know ledge, skills, and behavior by employees. Development The acquisition o f know ledge, skills, and behaviors that im prove an em ployee's a b ility to m eet changes in jo b requirem ents and in client and custom er dem ands. Performance Management The means through which m anagers ensure th a t e m p lo y ees' activities and outputs are con gruent w ith the organization's goals. Employee Training and Deveiopment A number of skills are instilled in employees through training and development. Training refers to a planned effort to facilitate the learning of job-related knowledge, skills, and behavior by employees. Developm ent involves acquiring knowledge, skills, and behavior that improve employees ability to meet the challenges of a variety of existing jobs or jobs that do not yet exist. Changes in strategies often require changes in the types, levels, and mixes of skills. Thus, the acquisition of strategy-related skills is an essential element o f the implem entation of strategy. For example, many com panies have recently emphasized quality in their products, engaging in total quality management programs. These programs require extensive training of all employees in the T Q M philosophy, methods, and often other skills that ensure quality.34 Through recruitment, selection, training, and development, companies can obtain a pool of human resources capable of implementing a given strategy.35 In fact, it s not uncommon for companies to partner with universities to develop students while obtaining important information. Performance Management Perform ance management is used to ensure that employees activities and outcomes are congruent with the organization s objectives. It entails specifying those activities and outcomes that will result in the firm s successfully implementing the strategy. For example, companies that are steady state (not diversified) tend to have evaluation systems that call for subjective performance assessments of managers. This stems from the fact that those above the first-level managers in the hierarchy have extensive knowledge about how the work should be performed. O n the other hand, diversified companies are more likely to use quantitative measures of performance to evaluate managers because top managers have less knowledge about how work should be performed by those below them in the hierarchy.36 Similarly, executives who have extensive knowledge of the behaviors that lead to effective performance use performance m anagem ent systems that focus on the behaviors of their subordinate managers. However, when executives are unclear about the specific behaviors that lead to effective performance, they tend to focus on evaluating the objective performance results o f their subordinate m anagers.37 A n example of how performance management can be aligned with strategy is provided in Figure 2.8. This comes from a firm in the health care industry whose strategy figure 2.8 Percentage o f O bje ctives Id e n tifie d in Individual Perform ance Plans T hat A re Tied to Each Strategic Im perative S tra te g ic Im perative Business A Business B International Investm ent Finance Legal IT HR8.S Enterprise A chieve su p e rio r medical perform ance E ffe ctive ly serve o u r custom ers C reate g re a t p ro d u cts and services C reate a w in n in g environm ent 10.5% 12.5% 2.7% 7.6% 3.1% 2.7% 11.4% 2.1% 10.0% 2 4.7% 2 7.2% 36.7% 12.2% 10.3% 27.2% 18.9% 19.5% 23.7% 5.6% 6.1% 10.1% 9.8 % 5.0% 10.1% 1 5.3% 8.9% 6.9 % 27.7% 2 9.7% 30.1 % 2 9.9 % 30.3 % 33.7% 2 2.4 % 39.4% 2 7.7 % E stablish a cost a dva n ta q e 31.5% 2 4.5 % 20.5 % 4 0.5 % 51.3 % 26.3% 3 2% 30.0% 31.7% Total 100% 100% 100% 100% 100% 100% 100% 100% 100%

COMPETING THROUGH TECHNOLOGY Exam Revision and Project Supervision made Easy through Technology The University o f Portsm outh, UK, has d eve lo ped a novel way of im proving exam revision and project supervision. They've developed a wiki to enable students to w ork collaboratively during exam revision and em ployed the use o f Twitter, a wiki and online learning logs to facilitate p roject supervision. Exam revision and project work are both situations where students go th rough sim ilar activities b u t te nd to be isolated from each and th e ir tutor. In such situations, students could often struggle and it was fe lt they could b e n e fit from sharing th e ir experience and the tu to r could be o f m ore help by being able to identify w hat areas th e ir students struggled with. The wiki used fo r exam revision goes by the name o f "E xam opedia". The tu to r creates pages containing the questions from past exams in a ta bular form and students have read / w rite access. The tools used fo r p ro je ct supervision are Tw itter fo r short progress updates o r queries, and a wiki which can be used to post and collaboratively e d it larger items, and online logs or e-logs, w hich are used to m o n ito r the progress of the project. From the students' perspective, the response to the survey fo r Examopedia showed th a t m ost of the students (17 o ut o f 28) agreed th a t it is useful and helped them collaborate. In term s o f being a helpful source o f inform ation on the course, it came second to lectures. SOURCE: Study Author: Phil Barker, ICBL, School of Mathematical and Computer Sciences, Heriot-Watt University. Tutor in Study: Manish Malik, Electronic and Computer Engineering, University of Portsmouth. consisted of five strategic imperatives, or things that the company was trying to accomplish. In this company all individuals set performance objectives each year, and each of their objectives have to be tied to at least one of the strategic imperatives. The senior VP of HR used the firm s technology system to examine the extent to which each business unit or function was focused on each of the imperatives. The figure illustrates the percentage of objectives that were tied to each imperative across the different units. It allows the company to determine if the mix of objectives is right enterprisewide as well as within each business unit or function. Pay Structure, Incentives, an^i B e n e f it s The pay system has an important role in implementing strategies. First, a high level of pay and/or benefits relative to that of competitors can ensure that the company attracts and retains high-quality employees, but this might have a negative impact on the com pany s overall labor costs.38 Second, by tying pay to performance, the com pany can elicit specific activities and levels of performance from employees. In a study of how com pensation practices are tied to strategies, researchers examined 33 high-tech and 72 traditional companies. They classified them by whether they were in a growth stage (greater than 20% inflation-adjusted increases in annual sales) or a maturity stage. They found that high-tech com panies in the growth stage used com pensation systems that were highly geared toward incentive pay, with a lower percentage of total pay devoted to salary and benefits. O n the other hand, com pensation systems among mature com panies (both high-tech and XiauiVvOTYaY) ie\' oxei a W w peicentage c>i toxa\ to m c H im e s aw g'n percentage to benefits.39 89

9 0 PART 1 The Hum an Resource E nvironm ent Labor and Employee Relations W hether companies are unionized or not, the general approach to relations with employees can strongly affect their potential for gaining competitive advantage. In the late 1970s Chrysler Corporation was faced with bankruptcy. Lee Iacocca, the new president of Chrysler, asked the union for wage and work-rule concessions in an effort to turn the company around. The union agreed to the concessions, in return receiving profit sharing and a representative on the board. W ithin only a few years, the relationship with and support from the union allowed Chrysler to pull itself out of bankruptcy and into record profitability.40 Com panies can choose to treat employees as an asset that requires investment of resources or as an expense to be minimized.41 They have to make choices about how much employees can and should participate in decision making, what rights employees have, and what the company s responsibility is to them. The approach a company takes in making these decisions can result in it either successfully achieving its shortand long-term goals or ceasing to exist. Recent research has begun to exam ine how com panies develop sets of HRM practices that maximize performance and productivity. For example, one study of autom obile assembly plants around the world found that plants that exhibited both high productivity and high quality used H RM best practices, such as heavy emphasis on recruitment and hiring, com pensation tied to performance, low levels of status differentiation, high levels of training for both new and experienced employees, and employee participation through structures such as work teams and problem -solving groups.42 A nother study found that H RM systems composed of selection testing, training, contingent pay, performance appraisal, attitude surveys, employee participation, and inform ation sharing resulted in higher levels o f productivity and corporate financial performance, as well as lower employee turnover.43 Finally, a recent study found that com panies identified as some of the best places to work had higher financial performances than a set of m atched com panies that did not make the list.44 Sim ilar results have also been observed in a number of other studies.45 In addition to the relationship between HR practices and performance in general, in today s fast-changing environment, businesses have to change quickly, requiring changes in employees skills and behaviors. In one study the researchers found that the flexibility of H R practices, employee skills, and employee behaviors were all positively related to firm financial performance, but only the skill flexibility was related to cost efficiency.46 W hile these relationships are promising, the causal direction has not yet been proven. For instance, while effective H R practices should help firms perform better, it is also true that highly profitable firms can invest more in H R practices.47 The research seems to indicate that while the relationship between practices and performance is consistently positive, we should not go too far out on a limb arguing that increasing the use of HRM practices will automatically result in increased profitability.48 STRATEGIC TYPES A s we previously discussed, companies can be classified by the generic strategies they pursue. It is important to note that these generic strategies are not what we mean by a strategic plan. They are merely similarities in the ways companies seek to compete in their industries. Various typologies have been offered, but we focus on the two generic strategies proposed by Porter: cost and differentiation.49

CHAPTER 2 S trategic Hum an Resource M anagem ent 91 According to M ichael Porter of Harvard, competitive advantage stems from a company s being able to create value in its production process. Value can be created in one of two ways. First, value can be created by reducing costs. Second, value can be created by differentiating a product or service in such a way that it allows the company to charge a premium price relative to its competitors. This leads to two basic strategies. According to Porter, the overall cost leadership strategy focuses on becoming the lowest cost producer in an industry. This strategy is achieved by constructing efficient large-scale facilities, by reducing costs through capitalizing on the experience curve, and bv controlling overhead costs and costs in such areas as research and development, service, sales force, and advertising. This strategy provides above-average returns within an industry, and it tends to bar other firms entry into the industry because the firm can lower its prices below com petitors costs. T he differentiation strategy, according to Porter, attem pts to create the impression that the company s product or service is different from that of others in the industry. The perceived differentiation can come from creating a brand image, from technology, from offering unique features, or from unique customer service. If a com pany succeeds in differentiating its product, it will achieve above-average returns, and the differentiation may protect it from price sensitivity. For instance, Dell Computer Com pany built its reputation on providing the lowest cost computers through leveraging its supply chain and direct selling model. However, recently they have seen share eroding as the consumer market grows and HP has offered more differentiated, stylish-looking computers sold through retail outlets where customers can touch and feel them. In addition, A pple has differentiated itself through its own operating system that integrates well with peripheral devices such as the ipod and iphone. In both cases, these companies can charge a premium (albeit higher for Apple) over Dell s pricing.50 HRM NEEDS IN STRATEGIC TYPES W hile all of the strategic types require competent people in a generic sense, each of the strategies also requires different types of employees with different types o f behaviors and attitudes. A s we noted earlier, different strategies require employees with specific skills and also require these employees to exhibit different role behaviors. 51 Role behaviors are the behaviors required of an individual in his or her role as a jobholder in a social work environment. These role behaviors vary on a number of dimensions. Additionally, different role behaviors are required by the different strategies. For example, companies engaged in a cost strategy require employees to have a high concern for quantity and a short-term focus, to be comfortable with stability, and to be risk averse. These employees are expected to exhibit role behaviors that are relatively repetitive and performed independently or autonomously. Thus, companies engaged in cost strategies, because of the focus on efficient production, tend to specifically define the skills they require and invest in training employees in these skill areas. They also rely on behavioral performance management systems with a large performance-based compensation component. These companies promote internally and develop internally consistent pay systems with high pay differentials between superiors and subordinates. They seek efficiency through worker participation, soliciting employees ideas on how to achieve more efficient production. O n the other hand, employees in companies with a differentiation strategy need to be highly creative and cooperative; to have only a moderate concern for quantity, a long-term focus, and a tolerance for ambiguity; and to be risk takers. Employees Role Behaviors Behaviors th a t are required o f an individual in his or her role as a jo b h o ld e r in a social work environm ent.

9 2 PART 1 The Hum an Resource E nvironm ent in these companies are expected to exhibit role behaviors that include cooperating with others, developing new ideas, and taking a balanced approach to process and results. Thus differentiation companies will seek to generate more creativity through broadly defined jobs with general job descriptions. They may recruit more from outside, engage in limited socialization of newcomers, and provide broader career paths. Training and developm ent activities focus on cooperation. T he com pensation system is geared toward external equity, as it is heavily driven by recruiting needs. These companies develop results-based performance management system and divisional corporate performance evaluations to encourage risk taking on the part of managers.52 EVIDENCE-BASED HR Control (mechanisms through which employees are managed in an organization)' vs commitment (the extent to which employees identify with and are involved in an organization). W ith the increase of women in the workplace and in management, studies show that whilst men are more task-orientated, women are more relationship orientated when managing and that there is not one best way. Studies also show that companies with women-friendly policies that take into account family responsibilities increase workplace commitment, meaning that women are less likely to change organizations than their male counterparts. LO 2-6 Describe the different HRM issues and practices associated with various directional strategies. External Growth Strategy An em phasis on acquiring vendors and suppliers or buying businesses th a t allow a co m pany to expand into new markets. DIRECTIONAL STRATEGIES A s discussed earlier in this chapter, strategic typologies are useful for classifying the ways different organizations seek to compete within an industry. However, it is also necessary to understand how increasing size (growth) or decreasing it (downsizing) affects the HRM function. For example, the top management team might decide that they need to invest more in product development or to diversify as a means for growth. W ith these types of strategies, it is more useful for the HRM function to aid in evaluating the feasibility of the various alternatives and to develop programs that support the strategic choice. Com panies have used four possible categories of directional strategies to meet objectives.53 Strategies emphasizing market share or operating costs are considered concentration strategies. W ith this type of strategy, a company attempts to focus on what it does best within its established markets and can be thought of as sticking to its knitting. Strategies focusing on market development, product development, innovation, or joint ventures make up the internal growth strategy. Companies with an internal growth strategy channel their resources toward building on existing strengths. Those attempting to integrate vertically or horizontally or to diversify are exhibiting an external grow th strategy, usually through mergers or acquisitions. This strategy attempts to expand a company s resources or to strengthen its market position through acquiring or creating new businesses. Finally, a divestment, or downsizing, strategy is one made up of retrenchment, divestitures, or liquidation. These strategies are observed among companies facing serious economic difficulties and seeking to pare down their operations. The human resource implications of each of these strategies are quite different.

CHAPTER 2 S trategic Hum an Resource M anagem ent 9 3 Concentration Strategies Concentration strategies require that the company maintain the current skills that exist in the organization. This requires that training programs provide a means of keeping those skills sharp among people in the organization and that compensation programs focus on retaining people who have those skills. Appraisals in this strategy tend to be more behavioral because the environment is more certain, and the behaviors necessary for effective performance tend to be established through extensive experience. internal Growth Strategies Internal growth strategies present unique staffing problems. Growth requires that a company constantly hire, transfer, and promote individuals, and expansion into different markets may change the necessary skills that prospective employees must have. In addition, appraisals often consist of a combination of behaviors and results. The behavioral appraisal emphasis stems from the knowledge of effective behaviors in a particular product market, and the results appraisals focus on achieving growth goals. Com pensation packages are heavily weighted toward incentives for achieving growth goals. Training needs differ depending on the way the company attempts to grow internally. For example, if the organization seeks to expand its markets, training will focus on knowledge of each market, particularly when the company is expanding into international markets. O n the other hand, when the company is seeking innovation or product development, training will be of a more technical nature, as well as focusing on interpersonal skills such as team building. Joint ventures require extensive training in conflict resolution techniques because of the problems associated with combining people from two distinct organizational cultures. Concentration Strategy A strategy focusing on increasing market share, reducing costs, or creating and m aintaining a m arket niche for products and services. Internal Growth Strategy A focus on new m arket and pro d uct developm ent, innovation, and jo in t ventures. Mergers and Acquisitions Increasingly we see both consolidation within industries and mergers across industries. For example, British Petroleum s acquisition of A m oco O il represented a con solidation, or reduction in the number of firms within the industry. O n the other hand, Citicorp s merger with Traveller s Group to form Citigroup represented firms from different industries (pure financial services and insurance) combining to change the dynamics within both. W hatever the type, one thing is for sure mergers and acquisitions are on the increase, and HRM needs to be involved.54 In addition, these mergers more frequently consist of global megamergers, in spite of some warnings that these might not be effective. According to a report by the Conference Board, people issues may be one of the major reasons that mergers do not always live up to expectations. Som e companies now heavily weigh firm cultures before embarking on a merger or acquisition. For example, prior to acquiring ValueRx, executives at Express Scripts Inc. interviewed senior executives and middle managers at the potential target firm in order to get a sense of its culture.55 In spite of this, fewer than one-third of the H RM executives surveyed said that they had a major influence in how mergers are planned, yet 80 percent of them said that people issues have a significant im pact after the deals are finalized.56 In addition to the desirability of HRM playing a role in evaluating a merger opportunity, HRM certainly has a role in the actual implementation of a merger or acquisition. Training in conflict resolution is also necessary when companies engage in an external growth strategy. A ll the options for external growth consist of acquiring or developing new businesses, and these businesses often have distinct cultures. Thus many HRM

9 4 PART 1 The Hum an Resource E nvironm ent programs face problems in integrating and standardizing practices across the com pany s businesses. The relative value of standardizing practices across businesses must be weighed against the unique environmental requirements of each business and the extent of desired integration of the two firms. For example, with regard to pay practices, a company may desire a consistent internal wage structure to maintain employee perceptions of equity in the larger organization. In a recent new business developed by IBM, the employees pressured the company to maintain the same wage structure as IBM s main operation. However, some businesses may function in environments where pay practices are driven heavily by market forces. Requiring these businesses to adhere to pay practices in other environments may result in an ineffective wage structure. Downsizing The planned elim ination o f large num bers o f personnel, designed to enhance organizational effectiveness. Downsizing O f increasing importance to organizations in today s competitive environment is H R M s role in downsizing or rightsizing. The number of organizations undergoing downsizing increased significantly from the third to the fourth quarter of 2008, and while this trend has slowed, layoffs are still significant (see Figure 2.9).57 One would have great difficulty ignoring the massive war for talent that went on during the late 1990s, particularly with the notable dot-com craze. Firms during this time sought to become employers of choice, to establish employment brands, and to develop employee value propositions as ways to ensure that they would be able to attract and retain talented employees. figure 2.9 Layoff Events and Separations 2004-2011 800,000 Layoffs over the past 7 years 4,000 2004 2005 2006 2007 2008 2009 2010 2011 r = revised p = preliminary SOURCE: http://www.bls.gov/news.release/mslo.nro.htm.

CHAPTER 2 S trategic Human Resource M anagem ent 9 5 The current economic crisis means that one important question facing firms is, How can we develop a reputation as an employer of choice, and engage employees to the goals of the firm, while laying off a significant portion of our workforce? How firms answer this question will determine how they can compete by meeting the stakeholder needs of their employees. In spite of the increasing frequency of downsizing, research reveals that it is far from universally successful for achieving the goals of increased productivity and increased profitability. For example, Table 2.4 illustrates the results of a survey conducted by the Am erican M anagement Association indicating that only about one-third of the companies that went through downsizings actually achieved their goal of increased productivity. Another survey by the A M A found that over two-thirds of the com panies that downsize repeat the effort a year later.58 Also, research by the consulting firm Mitchell & Com pany found that companies that downsized during the 1980s lagged the industry average stock price in 1991.59 Thus it is important to understand the best ways of m anaging downsizings, particularly from the standpoint of HRM. Downsizing presents a number of challenges and opportunities for H RM.60 In terms of challenges, the HRM function must surgically reduce the workforce by cutting only the workers who are less valuable in their performance. Achieving this is difficult because the best workers are most able (and often willing) to find alternative employment and may leave voluntarily prior to any layoff. For example, in 1992 G eneral Motors and the United Auto Workers agreed to an early retirement program for individuals between the ages of 51 and 65 who had been employed for 10 or more years. The program provided those who agreed to retire their full pension benefits, even if they obtained employment elsewhere, and as much as $13,000 toward the purchase of a GM car.61 A s mentioned earlier in the chapter, this is part of G M s labor cost problem. Early retirement programs, although humane, essentially reduce the workforce with a grenade approach. T his type of reduction does not distinguish between r. DESIRED O U T C O M E Reduced expenses 46% Increased profits 32 Im proved cash flow 24 Increased p ro du ctivity 22 Increased return on investm ent 21 Increased c o m p e titive advantage 19 Reduced bureaucracy 17 Im proved decision m aking 14 Increased custom er satisfaction 14 Increased sales 13 Increased m arket share 12 Im proved p ro d u c t quality 9 Technological advances 9 Increased innovation 7 A voidance o f a takeover 6 PERCENTAGE THAT AC HIEVED DESIRED RESULT. Reproduced with permission of Dow Jones & Comtable 2.4 Effects o f D ow nsizing on Desired O utcom es SOURCE: From Wall Street Journal, June 6, 1991. pany, Inc. via Copyright Clearance Center.

9 6 PART 1 The Hum an Resource E nvironm ent good and poor performers but rather eliminates an entire group of employees. In fact, recent research indicates that when companies downsize by offering early retirement programs, they usually end up rehiring to replace essential talent within a year. Often the company does not achieve its cost-cutting goals because it spends 50 to 150% of the departing employee s salary in hiring and retraining new workers.62 A nother HRM challenge is to boost the morale of employees who remain after the reduction; this is discussed in greater detail in Chapter 5. Survivors may feel guilt over keeping their jobs when their friends have been laid off, or they may envy their friends who have retired with attractive severance and pension benefits. Their reduced satisfaction with and commitm ent to the organization may interfere with work performance. Thus the H RM function must m aintain open communication with remaining employees to build their trust and com m itm ent rather than withholding information.63 A ll employees should be informed of the purpose of the downsizing, the costs to be cut, the duration of the downsizing, and the strategies to be pursued. In addition, com panies going through downsizing often develop com pensation programs that tie the individual s com pensation to the company s success. Employee ownership programs often result from downsizing, and gainsharing plans such as the Scanlon plan (discussed in Chapter 12) originated in companies facing econom ic difficulties. In spite of these challenges, downsizing provides opportunities for H RM. First, it often allows the company to get rid o f dead wood and make way for fresh ideas. In addition, downsizing is often a unique opportunity to change an organization s culture. In firms characterized by an tagonistic labor-m anagem ent relations, downsizing can force the parties to cooperate and to develop new, positive relationships.64 Finally, downsizing can dem onstrate to top-m anagem ent decision makers the value o f the com pany s human resources to its ultimate success. T he role of HRM is to effectively m anage the process in a way that m akes this value undeniable. We discuss the im plications of downsizing as a labor force m anagem ent strategy in C hapter 5. STRATEGY EVALUATION AND CONTROL A final com ponent to the strategic m anagem ent process is that o f strategy evaluation and control. Thus far we have focused on the planning and implementation of strategy. However, it is extremely important for the firm to constantly monitor the effectiveness of both the strategy and the implementation process. This monitoring makes it possible for the company to identify problem areas and either revise existing structures and strategies or devise new ones. In this process we see emergent strategies appear as well as the critical nature of human resources in competitive advantage. O The Role of Human Resources in Providing Strategic Competitive Advantage Thus far we have presented the strategic management process as including a step-bystep procedure by which HRM issues are raised prior to deciding on a strategy and then HRM practices are developed to implement that strategy. However, we must note that hum an resources can provide a strategic com petitive advantage in two additional ways: through emergent strategies and through enhancing competitiveness.

CHAPTER 2 S trategic Hum an Resource M anagem ent 9 7 EMERGENT STRATEGIES Having discussed the process of strategic management, we also must distinguish between intended strategies and emergent strategies. Most people think of strategies as being proactive, rational decisions aimed toward some predetermined goal. The view of strategy we have presented thus far in the chapter focuses on intended strategies. Intended strategies are the result of the rational decision-making process used by top managers as they develop a strategic plan. This is consistent with the definition of strategy as the pattern or plan that integrates an organization s major goals, policies, and action sequences into a cohesive whole. 65 The idea of emergent strategies is evidenced by the feedback loop in Figure 2.2. Most strategies that companies espouse are intended strategies. For example, when Howard Schultz founded Starbucks, he had the idea of creating a third place (between work and home) where people could enjoy traditional Italian-style coffee. He knew that the smell ot the coffee and the deeper, darker, stronger taste would attract a new set of customers to enjoy coffee the way he thought it should be enjoyed. This worked, but as Starbucks grew, customers began asking if they could have non-fat milk in their lattes, or if they could get flavor shots in their coffees. Schultz swore that such things would essentially pollute the coffee and refused to offer them. Finally, after repeated requests from his store managers who kept hearing customers demanding such things, Schultz finally relented.66 Emergent strategies, on the other hand, consist of the strategies that evolve from the grassroots of the organization and can be thought of as what organizations actually do, as opposed to what they intend to do. Strategy can also be thought of as a pattern in a stream of decisions or actions. 67 For example, when Honda M otor C om pany first entered the U.S. market with its 250-cc and 350-cc motorcycles in 1959, it believed that no market existed for its smaller 50-cc bike. However, the sales on the larger motorcycles were sluggish, and Japanese executives running errands around Los Angeles on Honda 50 s attracted a lot of attention, including that of a buyer with Sears, Roebuck. Honda found a previously undiscovered market as well as a new distribution outlet (general retailers) that it had not planned on. This emergent strategy gave Honda a 50% market share by 1964.68 The distinction between intended and emergent strategies has im portant im plications for human resource management.69 The new focus on strategic HRM has tended to focus primarily on intended strategies. Thus H R M s role has been seen as identifying for top m anagem ent the people-related business issues relevant to strategy formulation and then developing HRM systems that aid in the implementation of the strategic plan. However, most em ergent strategies are identified by those lower in the organizational hierarchy. It is often the rank-and-file employees who provide ideas for new markets, new products, and new strategies. H RM plays an im portant role in facilitating com m unication throughout the organization, and it is this com m unication that allows for effective emergent strategies to make their way up to top management. For exam ple, Starbucks Frappucino was a drink invented by one of the store employees in California; Starbucks leaders (including Schultz) thought it was a terrible idea. They fought it in a number of meetings, but the employee kept getting more and more information supporting her case for how much customers seemed to like it. T he leaders finally gave the go-ahead to begin producing it, and it has become a $1 billion a year product, and one that has contributed to the Starbucks brand.70

9 8 P A R T 1 The Human Resource Environm ent ENHANCING FIRM COMPETITIVENESS A related way in which human resources can be a source of competitive advantage is through developing a human capital pool that gives the company the unique ability to adapt to an ever-changing environm ent. Recently managers have become interested in the idea of a learning organization, in which people continually expand their capacity to achieve the results they desire.71 This requires the company to be in a constant state of learning through monitoring the environment, assimilating information, making decisions, and flexibly restructuring to compete in that environment. Com panies that develop such learning capability have a com petitive advantage. A lthough certain organizational information-processing systems can be an aid, ultimately the people (human capital) who make up the company provide the raw materials in a learning organization.72 Thus, the role of human resources in competitive advantage should continue to increase because o f the fast-paced change characterizing today s business environment. It is becoming increasingly clear that even as U.S. automakers have improved the quality of their cars to compete with the Japanese, these competitors have developed such flexible and adaptable manufacturing systems that they can respond to customer needs more quickly.73 This flexibility of the manufacturing process allows the emergent strategy to come directly from the marketplace by determining and responding to the exact mix of customer desires. It requires, however, that the company have people in place who have the skills to similarly adapt quickly.74 A s Howard Schultz, the founder and chairman of Starbucks, says, If people relate to the company they work for, if they form an emotional tie to it and buy into its dreams, they will pour their heart into making it better. W hen employees have self-esteem and self-respect they can contribute so much more; to their company, to their family, to the world. 75 This statem ent exemplifies the increasing importance o f hum an resources in developing and m aintaining com petitive advantage.76 A L o o k Ba c k HP'S WAY FORWARD As you have seen, any business strategy has a num ber o f im plications fo r the w orkforce, and the HR function plays a critical role in im p lem enting the strategy th rough p ro vid ing systems and solutions to these p eople issues. As the opening case illustrated, HP's strategy is being driven by a num ber o f dynam ics in the industry. As m argins fo r PCs decrease, HP has to find higher m argin businesses to enter. However, entry often requires the acquisition o f an existing com pany th at already has the human capital and organizational capabilities to co m pete in th at m arket. Thus, HP's acquisitions over the past few years make sense strategically, b u t w ill create a host o f problem s. M erging cultures, policies, com pensation system s, inform ation systems, business processes, etc. is n o t easy w ith tw o com panies, b u t HP w ill be doin g it w ith three. In a d d itio n, one can expect HP to have to elim inate som e redundant jo b s resulting in layoffs. W ith all the changes required and the uncertainty arising a b o u t the future, one can expect th a t em ployee m orale issues will soon surface. So, w hile the fo rm u la tion o f this strategy makes sense on paper, the effectiveness o f the strategy w ill d e p end largely on how well it is im p lem en te d. In o th e r w ords, m any argued th a t HP's decision to acquire

CHAPTER 2 S trategic Human Resource M anagem ent 9 9 Com paq was n o t the rig h t one. Now, how the p e o p le react may largely d ete r mine w hether o r n ot this decision a b o u t the PC m arket is the rig h t one. Questions 1. W hat do you th ink o f HP's decision to g e t rid o f its PC business? 2. W hat d o you th ink are th e m ajor hum an resource issues facing HP? 3. W hat are the m ajor human resource im plications o f HP's new strategy? SOURCE: Y. Kane and N. W ingfield, "Pioneering Firm Bows to "Post-PC W o rld," The Wall Street Journal, www.online.wsj.com, accessed August 19, 2011. Please see th e V id e o th a t co rre sp o n d s to th is ch a p te r at w w w.m h h e.c o m /n o e 8 e. S u m m a r y A strategic approach to human resource management seeks to proactively provide a competitive advantage through the company s most important asset: its human resources. While human resources are the most important asset, they are also usually the single largest controllable cost within the firm s business model. The HRM function needs to be integrally involved in the formulation of strategy to identify the people-related business issues the company faces. Once the strategy has been determined, HRM has a profound impact on the implementation of the plan by developing and aligning HRM practices that ensure that the company has motivated employees with the necessary skills. Finally, the emerging strategic role of the HRM function requires that HR professionals in the future develop business, professional-technical, change management, and integration competencies. As you will see more clearly in later chapters, this strategic approach requires more than simply developing a valid selection procedure or state-of-the-art performance management systems. Only through these competencies can the HR professional take a strategic approach to human resource management. Ke y T e r m s Strategic human resource management (SHRM), 75 Strategy formulation, 75 Strategy implementation, 75 Goals, 79 External analysis, 80 Internal analysis, 80 Strategic choice, 80 Job analysis, 86 Job design, 86 Recruitment, 87 Selection, 87 Training, 88 Development, 88 Performance management, 88 Role behaviors, 91 External growth strategy, 92 Concentration strategy, 93 Internal growth strategy, 93 Downsizing, 94 D is c u s s io n Q u e s t io n s 1. Pick one of your university s major sports teams (like football or basketball). How would you characterize that team s generic strategy? How does the composition of the team members (in terms of size, speed, ability, and so on) relate to that strategy? What are the strengths and weaknesses of the team? How do they dictate the team s generic strategy and its approach to a particular game? 2. Do you think that it is easier to tie human resources to the strategic management process in large or in small organizations? Why? 3. Consider one of the organizations you have been affiliated with. What are some examples of human resource practices that were consistent with that organization s strategy? What are examples of practices that were inconsistent with its strategy?

10 O PARTI The Hum an Resource E nvironm ent 4. How can strategic management within the HRM department ensure that HRM plays an effective role in the company s strategic management process? 5. What types of specific skills (such as knowledge of financial accounting methods) do you think HR professionals will need to have the business, professional-technical, change management, and integrative competencies necessary m the future? Where can you develop each of these skills? 6. What are some of the key environmental variables that you see changing in the business world today? What impact will those changes have on the HRM function in organizations? S e l f -A s s e s s m e n t E x e r c is e Think of a company you have worked for, or find an annual report for a company you are interested in working for. (Many companies post their annual reports online at their website.) Then answer the following questions. Questions 1. How has the company been affected by the trends discussed in this chapter? 2. Does the company use the HR practices recommended in this chapter? 3. What else should the company do to deal with the challenges posed by the trends discussed in this chapter? E x e r c is in g St r a t e g y : A t t e n t i o n S h o p p e r s : N e r v o u s B r e a k d o w n in P r o g r e s s o n A i s l e % Working in retail was never an easy job. Long hours, standing on your feet all day, limited benefits, difficult customers, having to work most weekends and holidays, and all for an average of about $10 an hour (in the US). But on top of all this we now have scheduling to demand. It would appear that in addition to just-in-time delivery of goods and material, retailers would now like just-intime delivery of workers. According to the Retail Action Project (RAP), an organization of retail workers dedicated to improving working conditions, this is a disturbing and growing trend. The goal of scheduling to demand is to always have the minimum number of workers needed to service a given number of customers. No more. No less. But it is often difficult to accurately predict just how many workers will be needed on any given day, when they will be needed and for just how long. That is why stores try to wait until the last possible moment before posting the coming week s job schedule, or ask workers to sit patiently by the phone and remain on call should they be needed. Furthermore, these schedules are often subject to last minute changes, meaning that someone can show up for work only to be told by a manager that they are not needed that day, or conversely, that the store is too busy and that they can t go home. Horror stories from the industry abound. One result of this erratic scheduling is an erratic pay check. Often workers will be assigned hours that vary from week to week, meaning feast one pay period, famine the next. 70% of the workers surveyed said that they only knew about their upcoming scheduling within a week of having to work it. Long range personal plans, it would seem, are not be an option. Another problem is not so much the number of hours a worker can get but when they must work them. Employees are often expected to be available 24 hours a day, 7 days a week. They can be required to work an early morning shift one day and a late evening shift the next, without any concern for the stress and strain this might cause the body. A policy paper by Nancy Cauthen states that it is this uncertainty with regards to scheduling that is one of the main causes of the high turnover rate found in retail, currently running at 56% annually. Turnover can be a huge source of cost and inefficiency for any business. When one thinks of the time and energy it takes to train someone, only to see them leave once they become proficient, one has to weigh these costs against any possible gain from scheduling to demand. The American Management Association has estimated that the cost of hiring and training a new employee can vary anywhere from 25% to 200% of a worker s annual salary. This doesn t even begin to take into account the damage done due to poor worker morale or poor customer service as a result of employees constantly coming and going. But for some managers employees constantly quitting can be seen as a blessing in disguise. It can save them from the unpleasant task of having to fire or lay people off. Also, if someone quits of their own accord they usually don t receive a severance package or unemployment insurance. So what s the solution? Advocates say that businesses should take W more humane approach with regards to scheduling, taking into account the havoc that this system can wield on an employee s personal life (complicating

CHAPTER 2 S trategic Human Resource M anagem ent 101 child care arrangements, aggravating personal issues, interfering with school and transportation schedules, etc.). But with a continuing weak job market in many places, employers appear to have the upper hand. And with increasing competition and wafer thin profit margins, the practice of scheduling to demand" isn t likely to be going away anytime soon. It s best to be ready to sit patiently by the phone just in case we need you. Questions 1. What is driving the increased use of just in time scheduling in the retail industry? 2. From a human resources standpoint, do you believe that schedule to demand does more harm or good for a company? Why? 3. As a human resources manager, what steps would you take to reduce the negative impact of schedule to demand? S O U R C E S: Am erican M anagement Association: amanet.org; Discounted jobs: How retailers sell workers short A report from the Retail Action project. A ccessed at: http://retailactionproject.org/wp-content/uploads/2012/01/ RAP_Executive_Summary_and_Cover.pdf; Retail Workers C an t Stand This Growing Management Trend by Gus Lubin, January 17, 2012, Business Insider. Accessed at: http://articles.businessinsider.com/ 2012-01 -17/strategy/30634343_l_shifts-schedule-worker#ixzzl ItuwPuRw; retailactionproject.org/ Scheduling Hourly Workers: How Last Minute, Just-In-Tim e Scheduling Practices Are Bad for Workers, Families and Business by N ancy K. Cauthen, March 14, 2011, a policy paper for Demos. A ccessed at: http://www.demos.org/sites/default/files/ publications/scheduling_hourly_workers_demos.pdf; U S Bureau of Labor Statistics: bls.gov Ma n a g in g P e o p l e Is Dell Too Big for Michael Dell? He's back in charge and he may have the to u g h est job in the com puter business. Welcome back, Michael. Don t get too comfortable. By returning to the top job at Dell Inc., replacing departing chief executive Kevin Rollins, founder Michael S. Dell takes on perhaps the toughest job in the computer industry. Since mid-2005 the PC maker has battled problems with customer service, quality, and the effectiveness of its direct-sales model. Lately, rivals Hewlett-Packard Co. and Apple Inc. have been gaining in sales and market share. On January 31, the day Rollins s departure was announced, the Round Rock (Texas) company disclosed that its fourth-quarter earnings and sales would fall short of analyst estimates. It s also under scrutiny by the Securities & Exchange Commission and a U.S. attorney for accounting irregularities. As recently as last November, Dell insisted to BusinessWeek that Rollins s job was safe. Now, in an interview, he insists the decision to push Rollins out started with him. I recommended to our board that I become the CEO, Dell says. For years, Dell and Rollins were held up as a prime example of the company s two-in-abox management structure, in which two leaders worked together in lockstep. When Rollins was president, Michael Dell was CEO; when Rollins was promoted to CEO in 2004, Michael remained chairman. But financial performance has been deteriorating for a while now, and Michael Dell apparently ran out of patience in light of the latest disappointment. People are looking forward to a change," said an analyst at one of Dell s largest institutional shareholders. Indeed, the company s share price jumped 3.6% in the couple of hours after the shift was announced. But does Michael Dell have what it takes to turn the company around? It s been years since he shouldered dayto-day operational responsibility on his own. Since the early 1990s, Dell has always had a strong No. 2; back then, the company had less than $3 billion in yearly sales. Today it is a $60 billion company. But Dell says he has a clear plan. He believes the company s supply chain and manufacturing can be improved. I think you re going to see a more streamlined organization, with a much clearer strategy. But none of the paths to improve performance will be easy. Dell doesn t have the innovation DNA of an Apple or even an HP, should it want to overhaul its utilitarian products and services. Any effort to crank up R&.D would crimp margins. Trying to win over more consumers, the fastestgrowing part of the market, may well require a move away from its direct-sales model into retail. That could prove costly as well. Dell himself says he doesn t anticipate leaving the direct-sales model behind: It s a significant strength of the company. Nor does a big acquisition seem to be an option, given that Dell has never done one in the past. Slots to fill But standing in place also looks hazardous, since Dell may now be slipping in its core corporate business, too. According to a January 30 study done by Goldman, Sachs & Co., Dell is losing share in business spending for PCs. (Hewlett-Packard is also losing share of spending, while Lenovo and Apple are gaining.) Dell s troubles seem to be bleeding into its corporate business, which, up until now, had been a stronghold, the report

1 0 2 P A R T I The Hum an Resource E nvironm ent said. Dell has also lost the top spot in the worldwide PC market-share rankings. In the fourth quarter, Hewlett- Packard s worldwide market share grew to 18.1%, while Dell s share dropped to 14.7%, according to market researcher I DC. Dell also has several slots to fill in the executive suite; Rollins is only the latest departure among key managers. But for the first time in years, the tough choices will be solely in the lap of the man who started the company in his University of Texas dorm room back in 1984. I m not hiring a COO or a CEO, Dell says, I m going to be the CEO for the next several years. He adds: We re going to fix this business. Questions 1. How does the case describe Dell s transformed strategy over the years in terms of where to compete, how to compete, and with what to compete? 2. What are the major people issues that exist as Michael Dell retakes the reins at Dell? 3. How would HR help in addressing the issues that Dell faces? SO U R C E : From L. Lee and P. Burrows, Is Dell Too Big for M ichael Dell? Businessweek, April 4, 2007. Used with permission of Bloomberg L. P. Copyright 2007. All rights reserved. T w i t t e r F o c u s : R a d io F lyer R o l l s F o r w a r d Using Twitter, continue the conversation about strategic HR management by reading the Radio Flyer case at www.mhhe.com/noe8e. Famous for its little red wagons, Radio Flyer had a difficult time in the mid-2000s. The company spent hundreds of thousands of dollars on a product idea that failed miserably, and it made a tough decision to shift manufacturing jobs to China as a way of keeping costs down. During this difficult time, senior management never lost track of what made the company successful: its employees. Radio Flyer focused its corporate energies on building morale among its global employees, and the company has never looked back. Engage with your classmates and instructor via Twitter to chat about Radio Flyer using the case questions posted on the Noe website. Don t have a Twitter account yet? See the instructions for getting started on the Online Learning Center. N o t e s 1. J. Barney, Firm Resources and Sustained Competitive Advantage, Journal of Management 17 (1991), pp. 99-120. 2. L. Dyer, Strategic Human Resource Management and Planning, in Research in Personnel and Human Resources Management, ed. K. Rowland and G. Ferris (Greenwich, CT; ]A I Press, 1985), pp. 1-30. 3. P. Ingrassia, G M s Plan: Subsidize Our 48-Year-Old Retirees, Wall Street journal, February 19, 2009, http://online.wsj.com/ article/sbl 23500874299418721.html. 4- S. Terlep, and N. King, Bondholders say G M s Plan Fails to Tackle Issues, The Wall Street Journal, February 19,2009, http://online.wsj.com/article/sb 123 500467245718075.html?mod=cestMod. 5. J. Quinn, Strategies for Change: Logical Incrementalism (Homewood, IL: Richard D. Irwin, 1980). 6. M. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980). 7. R. Miles and C. Snow, Organisational Strategy, Structure, and Process (New York: McGraw-Hill, 1978). 8. P. Wright and G. McMahan, Theoretical Perspectives for Strategic Human Resource Management, Journal of Management 18 (1992), pp. 295-320. 9. D. Guest, Human Resource Management, Corporate Performance and Employee Well-Being: Building the Worker into HRM, Journal of Industrial Relations 44 (2002), pp. 335-58; B. Becker, M. Huselid, P. Pinckus, and M. Spratt, HR as a Source of Shareholder Value: Research and Recommendations, Human Resource Management 36 (1997), pp. 39 47. 10. P. Boxall and J. Purcell, Strategy and Human Resource Management (Basingstoke, Hants, U.K.: Palgrave MacMillan, 2003). 11. F. Biddle and J. Helyar, Behind Boeings Woes: Chunky Assembly Line, Price War with Airbus, The Wall Street Journal, April 24, 1998, pp. A l, A16. 12. K. Martell and S. Carroll, How Strategic Is HRM? Human Resource Management 34 (1995), pp. 253-67. 13. K. Golden and V. Ramanujam, Between a Dream and a N ightmare: On the Integration of the Human Resource Function and the Strategic Business Planning Process, Human Resource Management 24 (1985), pp. 429-51. 14- P. Wright, B. Dunford, and S. Snell, Contributions of the Resource-Based View of the Firm to the Field of Strategic HRM: Convergence of Two Fields, Journal of Management 27 (2001), pp. 701-21. 15. J. Purcell, N. Kinnie, S. Hutchinson, B. Rayton, and j. Swart, Understanding the People and Performance Link: Unlocking the Black Box (London: CIPD, 2003). 16. P M. Wright, T. Gardner, and L. Moynihan, The Impact of Human Resource Practices on Business Unit Operating and Financial Performance, Human Resource Management Journal 13, no. 3 (2003), pp. 21-36. 17. C. Hill and G. Jones, Strategic Management Theory: An Integrated Approach (Boston: Houghton Mifflin, 1989). 18. W. Johnston and A. Packer, Workforce 2000: Work and Workers for the Twenty-First Century (Indianapolis, IN: Hudson Institute, 1987).

CHAPTER 2 S trategic Human Resource M anagem ent 10 3 19. Labor Letter, The Wall Street Journal, December 15, 1992, p. A l. 20. P. Wright, G. McMahan, and A. McWilliams, Human Resources and Sustained Competitive Advantage: A Resource- Based Perspective, International Journal of Human Resource Management 5 (1994), pp. 301-26. 21. P Buller, Successful Partnerships: HR and Strategic Planning at Eight Top Firms, Organizational Dynamics 17 (1988), pp. 27 42. 22. M. Hitt, R. Hoskisson, and J. Harrison, Strategic Competitiveness in the 1990s: Challenges and Opportunities for U.S. Executives, The Executive 5 (May 1991), pp. 7-22. 23. P. Wright, G. McMahan, B. McCormick, and S. Sherman, Strategy, Core Competence, and HR Involvement as Determinants of HR Effectiveness and Refinery Performance. Paper presented at the 1996 International Federation of Scholarly Associations in Management, Paris, France. 24. N. Bennett, D. Ketchen, and E. Schultz, Antecedents and Consequences of Human Resource Integration with Strategic Decision Making. Paper presented at the 1995 Academy of Management Meeting, Vancouver, BC, Canada. 25. Golden and Ramanujam, Between a Dream and a Nightmare. 26. ]. Galbraith and R. Kazanjian, Strategy Implementation: Structure, Systems, and Process (St. Paul, M N: West, 1986). 27. B. Schneider and A. Konz, Strategic Job Analysis, Human Resource Management 27 (1989), pp. 51-64 28. P. Wright and S. Snell, Toward an Integrative View of Strategic Human Resource Management, Human Resource Management Review 1 (1991), pp. 203-25. 29. S. Snell, Control Theory in Strategic Human Resource Management: The Mediating Effect of Administrative Information, Academy of Management Journal 35 (1992), pp. 292-327. 30. R. Schuler, Personnel and Human Resource Management Choices and Organizational Strategy, in Readings in Personnel and Human Resource Management, 3rd ed., ed. R. Schuler, S. Youngblood, and V. Huber (St. Paul, MN: West, 1988). 31. J. Dean and S. Snell, Integrated Manufacturing and Job Design: Moderating Effects of Organizational Inertia, Academy of Management Journal 34 (1991), pp. 776-804. 32. E. Lawler, The Ultimate Advantage: Creating the High Involvement Organization (San Francisco: Jossey-Bass, 1992). 33. J. Olian and S. Rynes, Organizational Staffing: Integrating Practice with Strategy, Industrial Relations 23 (1984), pp. 170 83. 34. G. Smith, Quality: Small and Midsize Companies Seize the Challenge N ot a Moment Too Soon, BusinessWeek, Novem ber 30, 1992, pp. 66-75. 35. J. Kerr and E. Jackofsky, Aligning Managers with Strategies: Management Development versus Selection, Strategic Management Journal 10 (1989), pp. 157-70. 36. J. Kerr, Strategic Control through Performance Appraisal and Rewards, Human Resource Planning 11 (1988), pp. 215-23. 37. Snell, Control Theory in Strategic Human Resource Management. 38. B. Gerhart and G. Milkovich, Employee Compensation: Research and Practice, in Handbook of Industrial and Organizational Psychology, 2nd ed., ed. M. Dunnette and L. Hough (Palo Alto, C A : Consulting Psychologists Press, 1992), pp. 481-569. 39. D. Balkin and L. Gomez-Mejia, Toward a Contingency Theory of Compensation Strategy, Strategic Management Journal 8 (1987), pp. 169-82. 40. A. Taylor, U.S. Cars Com e Back, Fortune, November 16, 1992, pp. 52, 85. 41. S. Cronshaw and R. Alexander, One Answer to the Demand for Accountability: Selection Utility as an Investment Decision, Organisational Behavior and Human Decision Processes 35 (1986), pp. 102-18. 42. P. MacDuffie, Human Resource Bundles and Manufacturing Performance: Organizational Logic and Flexible Production Systems in the World Auto Industry, Industrial and Labor Relations Review 48 (1995), pp. 197-221; P. McGraw, A Hard Drive to the Top, U.S. News & World Report 118 (1995), pp. 43-44. 43. M. Huselid, Tine Impact of Human Resource Management Practices on Turnover, Productivity, and Corporate Financial Performance, Academy of Management Journal 38 (1995), pp. 635-72. 44- B. Fulmer, B. Gerhart, and K. Scott, Are the 100 Best Better? An Empirical Investigation of the Relationship between Being a Great Place to Work and Firm Performance, Personnel Ps^c/iology 56 (2003), pp. 965-93. 45. J. E. Delery and D. H. Doty, Modes of Theorizing in Strategic Human Resource Management: Tests of Universalistic, Contingency and Configurational Performance Predictions, Academy of Management Journal 39 (1996), pp. 802-83; D. Guest, J. Michie, N. Conway, and M. Sheehan, Human Resource M anagement and Corporate Performance in the U K, British Journal of Industrial Relations 41 (2003), pp. 291-314; J. Guthrie, High Involvement Work Practices, Turnover, and Productivity: Evidence from New Zealand, Academy of Management Journal 44 (2001), pp. 180-192; j. Harter, F. Schmidt, and T. Hayes, Business-Unit-Level Relationship between Employee Satisfaction, Employee Engagement, and Business Outcomes: A M eta-analysis, Journal of Applied Psychology 87 (2002), pp. 268-79; W atson Wyatt, Worldwide, Human Capital Index : Human Capital as a Lead Indicator of Shareholder Value (2002). 46. M. Bhattacharya, D. Gibson, and H. Doty, The Effects of Flexibility in Employee Skills, Employee Behaviors, and Human Resource Practices on Firm Performance, Journal of Management 31 (2005), pp. 622 40. 47. D. Guest, J. Michie, N. Conway, and M. Sheehan, Human Resource Management and Corporate Performance in the UK, Bricis/i Journal of Industrial Relations 41 (2003), pp. 291-314; P. Wright, T. Gardner, L. Moynihan, and M. Allen, The H R- Performance Relationship: Examining Causal Direction, Personnel Psychology 58 (2005), pp. 409-76. 48. P. Wright, No Strategy: Adaptive to the Age of Globalization (Arlington, VA: SH RM Foundation, 2008). 49. M. Porter, Competitive Advantage (New York: Free Press, 1985). 50. C. Lawton, How HP Reclaimed Its PC Lead over Dell, June 2007; C an Dell s Turnaround Strategy Keep HP at Bay? September 2007, Knowledge Wharton, http://knowledge.wharton.upenn.edu/article.cfm?articleid= 1799. 51. R. Schuler and S. Jackson, Linking Competitive Strategies with Human Resource Management Practices, Academy of Management Executive 1 (1987), pp. 207-19. 52. R. Miles and C. Snow, Designing Strategic Human Resource Management Systems, Organizational Dynamics 13, no. 1 (1984), pp. 36-52. 53. A. Thompson and A. Strickland, Strategy Formulation and Implementation: Tasks of the General Manager, 3rd ed. (Plano, TX: BPI, 1986). 54- J- Schmidt, Making Mergers Work. The Strategic Importance of People (Arlington, VA: SH RM Foundation, 2003). 55. G. Fairclough, Business Bulletin, The Wall Street Journal, March 5, 1998, p. A l.

1 0 4 PART I The Hum an Resource E nvironm ent 56. P. Sebastian, Business Bulletin, The Wall Street Journal, October 2, 1997, p. A 1. 57. www.bls.gov/news.release/mslo.nro.gov. 58. S. Pearlstein, Corporate Cutback Yet to Pay Off, Washington Post, January 4, 1994, p. B6. 59. K. Cameron, Guest Editor s Note: Investigating Organizational Downsizing Fundamental Issues, Human Resource Management 33 (1994), pp. 183-88. 60. W. Cascio, Responsible Restructuring: Creative and Profitable Alternatives to Layoffs (San Francisco: Berrett-Koehler, 2002). 61. N. Templin, UAW to Unveil Pact on Slashing G M s Payroll, The Wall Street Journal, December 15, 1992, p. A3. 62. J. Lopez, Managing: Early-Retirement Offers Lead to Renewed Hiring, The Wall Street Journal, January 26, 1993, p. Bl. 63. A. Church, Organizational Downsizing: What Is the Role of the Practitioner? Industrial-Organisational Ps^c/iobgist 33, no. 1 (1995), pp. 63-74. 64. N. Templin, A Decisive Response to Crisis Brought Ford Enhanced Productivity, The Wall Street Journal, December 15, 1992, p. A l. 65. Quinn, Strategies for Change. 66. H. Schultz and D. Yang, Pour Your Heart Into It (New York: Hyperion, 1987). 67. R. Pascale, Perspectives on Strategy: The Real Story behind Hon da s Success, California Management Review 26 (1984), pp. 47-72. 68. Templin, A Decisive Response to Crisis. 69. P. Wright and S. Snell, Toward a Unifying Framework fo Exploring Fit and Flexibility in Strategic Human Resource Man agement, Academy of Management Review 23, no. 4 (1998) pp. 756-72. 70. H. Behar, It s Not about the Coffee: Lessons for Putting Peopl First from a Life at Starbucks (New York, NY: Penguin Group 2007). " 71. T. Stewart, Brace for Japan s Hot New Strategy, Fortune September 21, 1992, pp. 62-76. 72. B. Dunford, P. Wright, and S. Snell, Contributions of th< Resource-Based View of the Firm to the Field of Strategic HRM Convergence of Two Fields, Journal of Management 27 (2001) pp. 701-21. 73. C. Snow and S. Snell, Staffing as Strategy, vol. 4 of Personne Selection (San Francisco: Jossey-Bass, 1992). 74. T. Batten, Education Key to Prosperity Report, Houstor Chronicle, September 7, 1992, p. IB. 75. Schultz and Yang, Pour Your Heart Into It. 76. G. McMahan, University of Texas at Arlington, persona communications.