e“r=" Human Resource Management: Gaining a Competitive Advantage G & LEARNING OBJECTIVES After reading this chapter, you should be able to: LO 41 Discuss the roles and activities of a company's human resource management function. page 5 LO 4-2 _ Discuss the implications of the economy, the makeup of the labor force, and ethics for company sustainability. page 17 LO 1-3 _ Discuss how human resource management affects a company’s balanced scorecard. page 29 LO1-4 Discuss what companies should do to compete in the global marketplace. page 45 LO4-5 Identify how social networking, artificial intelligence, and robotics is influencing human resource management. page 50 LO4-6 Discuss human resource management practices that support high-performance work systems. page 54 LO1-7 _ Provide a brief description of human resource management practices. page 56 Bh Bmo16 EVIDENCE-BASED HR 653 Education-Human Capital 654 Political-Legal System 654 Integrity in Action Did They Know, or Not Want to Know? 655 Competing Through Sustainability Company Solutions to the Refugee Crisis 656 Economic System 656 Managing Employees in a Global Context 658. ‘Types of International Employees 658 Levels of Global Participation 659 Managing Expatriates in Global Markets 662 A Look Back 672 Summary 672 Key Terms 672 Discussion Questions 672 Self-Assessment Exercise 673 Exercising Strategy 673 Managing People: Huawei's Culture 674 HR in Small Business 674 Notes 675 Strategically Managing the HRM Function 678 Enter the World of Business: Cisco is Rewiring HR 679 Introduction 679 Activities of HRM 680, Strategic Management of the HRM Function 681 Building an HR Strategy 683 ° Contents Improving HRM Effectiveness 693 Restructuring to Improve HRM Effectiveness 693, Outsourcing to Improve HRM Effectiveness 695 Improving HRM Effectiveness Through Process Redesign 696 Competing Through Globalization Hershey's Rebuffs Mondelez's Takeover Offer 697 ‘Competing Through Technology Charity: Water Connects Donors with Beneficiaries through Technology 701 Improving HRM Effectiveness through New Technologies—HRM Information Systems 705 EVIDENCE-BASED HR 706 ‘The Future for HR Professionals 706 Competing Through Sustainability Saving Citigroup 708 The Role of the Chief Human Resource Officer 709 Integrity in Action Uber's CEO Needs CHRO Help 710 ALook Back 711 Summary 712 Key Terms 712 Discussion Questions 713 Self-Assessment Exercise 713 Exercising Strategy 714 Managing People: Well Fargo's Recovery? 714 HR in Small Business 715 ‘The Basic Process 683 Notes 716 Involving Line Executives 685 Characterizing HR Strategies 686 Glossary 717 Measuring HRM Effectiveness 687 Name and Company Index 727 Audit Approach 688 Subject Index 733 ‘The Analytic Approach 690 1Publi Employees and Customers Publix is a leader in the supermarket industry. As the largest employee-owned grocery store chain in the United States, Publix employs over 189,000 people in the Southeast, with over 1,100 store locations, eight distribution centers, and ten manufacturing facilities. Publix is a great place to work and to shop. Publix has been recognized as one of Fortune magazine's “100 Best Companies to Work For” for nineteen consecutive years and as one of Fortune's “100 Best Workplaces for Millennials.” The company has also received numerous awards for customer service and satisfaction. Publix’s mission is to be the world’s premier quality food retailer, Publix strives to do so through its commitment to providing customers with value; its intolerance of waste; its dedication to the dignity, value, and employment security of its as- sociates; ts devotion to stewardship for stockhold- ers; and its involvement in the communities in which Publix stores operate, Publix employees are extremely loyal. The aver- age store manager has been with Publix for over twenty-five years, and over 24,000 associates have been with the company for more than thirty years. Its voluntary turnover rate is 5%, compared to the retail industry average of 65%. Other supermarket chains such as Whole Foods and Safeway have recently laid off employees, but Publix has never laid, off an employee in its history. Infact, rather than closing or consolidating stores, as its competitors have done, Publix continues to grow through open- ing new stores. ‘What accounts for Publix’s business success and makes it a great place to work? Its human resource management practices play an important role in ensuring that employees are satisfied and motivated at work and committed to the company. One man- agement practice is to help all associates in ENTER THE WORLD OF BUSINESS ~ : HR Practices Result in Happy < ¢ identifying and moving along their career path Computers are located in offices and breakrooms of every store to make it easy for associates to access, training courses. Associates receive training on standards for customer service, cleanliness, safety, teamwork, merchandising, waste intolerance, and a drug-free work environment. Publix has a generous tuition reimbursement program that supports employ- 2s who want to eam a college degree to expand their career opportunities. Supporting employees’ development and career growth is the Publix policy to, promote from within to fill all store manager positions and most department manager positions. Publix does this to ensure that managers are aware of company standards, best practices, and culture, Any current associate interesting in moving into a management role can register their interest by completing what is called an ROI. The RO! helps managers understand associates’ career ambitions and match their skills to Job openings. Typically, more than 60,000 associates complete ROIs each year, with more than 9,500 pro- moted into positions leading to management and 2,100 promoted into management positions. Associ- ates who become managers must move toa different store than the one in which they worked. This practice ensures that management talent is spread across the company, and it also helps employees create new personal and professional networks. Another management practice is to give associ- ates the opportunity to become an owner of Publix. Any associate who stays with Publix for more than a year and works more than 1,000 hours is granted shares of company stock that are worth between 8% ‘and 12% of their annual pay. Once in the plan, they can buy additional stock through a paycheck deduc- tion. From 1974 through 2015, the stock has provided an average annual return of nearly 17%. conTinueD 3Beyond holding stock, being a true owner requires an understanding of how you are doing and receiving rewards for your accomplishments. Publix makes sure its associates receive frequent feedback, and good performance is linked to raises. New employ- ees have “check-ins” with their manager every thirty, sixty, and ninety days. After six months, associates receive a full month's pay. Finally, Publix supports its associates’ efforts to give back to the communities where they live and work, Publix and its associates contribute more than $36 milion a year and hours of volunteer work to charitable organizations such as the United Way, Special Olympics, March of Dimes, Children’s Miracle Network, and Food for All ‘qualify for their first raise and are eligible for future raises every six months. Full- and part-time ‘associates receive an annual holiday bonus, which is uncommon in the retail industry. Full-time associates receive two weeks’ pay, and salaried associates ‘SOURCES: Based on wiwcorporatepublixcom, visited February 22, 2017: C. Tkaczyk, "My Five Days of Bleeding Green,” Fortune, ‘Mareh 15, 2016, pp. 166-76; “Publix Super Markets Inc.” p/reviews. ‘reatplacetowork com/publxsuper-markets-inc, accessed February &, 2007 Introduction Publix illustrates the key role that human resource management plays in determining the survival, effectiveness, and competitiveness of U.S. businesses. Competitiveness refers toa company’s ability to maintain and gain market share in its industry. Publix’s human resource management practices are helping support the company’s business strategy and provide services the customer values. The value of a product or service is determined by its quality and how closely the product fits customer needs. Competitiveness is related to company effectiveness, which is determined by whether the company satisfies the needs of stakeholders (groups affected by business practices). Important stakeholders include stockholders, who want a return on their investment; customers, who want a high-quality product or service; and employees, who desire inter- esting work and reasonable compensation for their services. The community, which wants the company to contribute to activities and projects and minimize pollution of the environment, is also an important stakeholder. Companies that do not meet stakeholders’ needs are unlikely to have a competitive advantage over other firms in their industry. Human resource management (HRM) refers to the policies, practices, and systems that influence employees’ behavior, atitudes, and performance. Many companies reler to HRM as involving “people practices.” Figure 1.1 emphasizes that there are several important HRM practices. The strategy underlying these practices needs to be consid ered to maximize their influence on company performance. As the figure shows, HRM. practices include analyzing and designing work, determining human resource needs (HR planning), attracting potential employees (recruiting), choosing employees (selection), teaching employees how to perform their jobs and preparing them for the future (training and development), rewarding employees (compensation), evaluating their performance (performance management), and creating a positive work environment (employee rela- tions), The HRM practices discussed in this chapter's opening highlighted how effective HRM practices support business goals and objectives. That is, effective HRM practices are strategic! Effective HRM has been shown to enhance company performance by con- uuting to employee and customer satisfaction, innovation, productivity, and develop ment of a favorable reputation in the firm’s community.! The potential role of HRM in company performance has been recognized only recently. We begin by discussing the roles and skills that a human resource management depart- ‘ment and/or managers need for any company to be competitive. The second section of ‘Competitiveness company's abilty to ‘maintain and gain ‘market share in its industry Human resource management (HRM) The policies, practices, and systems that influ cence employees’ behavior, attitudes, and performances.CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage Figure 14 Human Resource Management Practices Strategic HRM ‘Company Performance enna nn ERR RRRRRReeEEEE the chapter identifies the competitive challenges that U.S. companies currently face, which influence their ability to meet the needs of shareholders, customers, employees, and other stakeholders. We discuss how these competitive challenges are influencing HRM. The chapter concludes by highlighting the HRM practices covered in this book and the ways they help companies compete. What Responsibilities and Roles Do HR Departments Perform? Only recently have companies looked at human resource management as a means to contribute to profitability, quality, and other business goals through enhancing and sup- porting business operations. ‘Table 1.1 shows the responsibilities of human resource departments. How much should companies budget for HR and how many HR professionals should a company employ? One study estimates that HR budgets on average are $2,936 per employee? High-impact HR teams have one staff person per 64 employees, spend more than the average HR budget per employee ($4,434 on average per employee), and employ a higher percentage of HR specialists than more compliance-driven and basic HR organizations. High-impact HR functions are more integrated with the business, skilled at helping ‘managers in attracting, building, engaging, and retaining talented employees. They can ‘adapt quickly to business needs and workforce changes, identify and promote talent from within the company, and are continuously trying to identify what motivates employees to help them grow and develop. Also, high-impact HR functions ensure that they are continuously building the talent and skills of HR professionals necessary to help the ‘company meet new competitive challenges. ‘The greater cost-per-employee of high- impact HR functions is offset by the greater savings resulting from reduced turnover and increased levels of employee engagement, ‘The HR department is solely responsible for outplacement, labor law compliance, record keeping, testing, unemployment compensation, and some aspects of benefits admin- istration. The HR department is most likely to collaborate with other company functions on Low Discuss the roles and activities of a compa rny’s human resource ‘management function.6 CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage Table 14 Responsibilities of HR Departments FUNCTION fspen ss Mules Analysis and design of work Job analysis, work analysis, job descriptions Recruitment and selection Recruiting, posting job descriptions, interviewing, testing, coordi- nating use of temporary employees Training and development Otientation, skills raining, development programs, career development Performance management Performance measures, preparation and administration of perfor- mance appraisals, feedback and coaching, discipline ‘Compensation and benefits Wage and salary administration, incentive pay, insurance, vacation, retirement plans, profit sharing, health and wellness, stock plans Employee relations/labor relations Attitude surveys, employee handbooks, labor law compliance, relocation and outplacement services Personnel policies Policy creation, policy communications Employee data and information systems Record keeping, HR information systems, workforce analytics, social media, Intranet and Internet access Legal compliance Policies to ensure lawful behavior; safety inspections, accessibility accommodations, privacy policies, ethics ‘Support for business strategy Human resource planning and forecasting, talent management, change management, organization development SOURCES: Based on Bureau of Labor Statistics, US. Department of Labor, "Human Resources Specialists Occupational Outlook Handbook, 2016-17 Eaton, iipsi?maibis qoviooh/business-and fnanciaUuman ‘esources-speciast him, accessed February 9, 2017; SHRM-BNA Survey No. 68 “Policy and Practice Forum: Human Resource Actives, Budgets, and Staffs, 2000-2001" Bulletin to Management, Bureau of Notional Airs Policy and Practice Series, June 28, 2001 Washington, DC: Bureau of National Afar) employment interviewing, performance management and discipline, and efforts to improve quality and productivity. Large companies are more likely than small ones to employ HR specialists, with benefits specialists being the most prevalent. Other common special tions include recruitment, compensation, and training and development.> Many different roles and responsibilities can be performed by the HR department, depending on the size of the company, the characteristics of the workforce, the industry, and the value system of company management. The HR department may take full respon sibility for human resource activities in some companies, whereas in others it may share the roles and responsibilities with managers of other departments such as finance, opera- tions, or information technology. [n some companies the HR department advises top-level management; in others the HR department may make decisions regarding staffing, train- ing, and compensation after top managers have decided relevant business issues. One way to think about the roles and responsibilities of HR departments is to consider HR asa business within the company with three product lines. Figure 1.2 shows the three product lines of HR. The first product line, administrative services and transactions, is, the traditional product that HR has historically provided. The newer HR. products— business partner services and the strategic partner role—are the HR functions that top managers want HR to deliver. To ensure that HR is business focused, Walgreens’s HR professionals are paired with functional leaders.! The HR field organization works to develop strategic talent plans for each business and helps implement important initiatives such as succession planning, change management, organizational design, and culture and leadership development.CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage Figure 1.2 HR as a Business with Three Product Lines Compensation, hiring, ‘and staffing * Emphasis: Resource efficiency and service quality ‘SOURCE: Adapted from Figure 1"HR Product Lines” in .E, Lawler, “From Human Resource Management to Organizational Efeciveness Human Resource Management Aa (2008), pp. 155-69. ‘The HR director at TAMKO Building Products Inc. helped align the company’s HR function to business needs.s She noticed that inexperienced HR professionals were spending too much time on transactional duties such as payroll and benefits adminis tration, She wanted them to focus on supplying managers with skilled, well-trained employees and meaningful data, She revised their training to ensure that they under- stood the industry and the skills that the company needed for continued success. She urged her staff to be proactive (rather than reactive) about offering HR solutions to help managers avoid or solve workplace problems. The team responded by identifying, and implementing a new time-and-attendance tracking system, a virtual onboarding and orientation process, and a leadership development program. ‘The amount of time that the human resource management function devotes to adminis- trative tasks is decreasing, and its roles as a strategic business partner, change agent, and ‘employee advocate are increasing. HR managers face two important challenges: shifting their focus from current operations to strategies for the future and preparing non-HR ‘managers to develop and implement HR practices.” To ensure that HRM contributes to the company’s competitive advantage, many HR departments are organized on the basis of a shared service model. The shared service model can help control costs and improve the business relevance and timeliness of HR practices. A shared service model is a way to organize the HR function that includes centers of expertise or excellence, service cen- ters, and business partners. Centers of expertise or excellence include HR specialists in areas such as staffing or training who provide their services companywide. Service cen- ters are a central place for administrative and transactional tasks such as enrolling in training programs or changing benefits that employees and managers can access online. Business partners are HR staff members who work with business-unit managers on strategic issues such as creating new compensation plans or development programs for preparing high-level managers. Walgreens provides employee relations, recruiting, and HR data services through a shared services team. Walgreens introduced a website, Away to organize the HE funetion that includes centers of expertise or excellence, service centers, and business partners.8 CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage Selt-service Giving employees online access to human resources information, Outsourcing ‘An organization's use of an outside organization fora broad set of services, myHR, that employees can access to get answers to their questions about benefits, HR policies, and talent management. It provides confidential personalized information that is easy for employees to access. We will discuss the shared service model in more detail in Chapter 16. The role of HRM in administration is decreasing as technology is used for many administrative purposes, such as managing employee records and allowing employees to ¢get information about and enroll in training, benefits, and other programs. The availabil- ity of the Internet has decreased the HRM role in maintaining records and providing self-service to employees.'° Selfservice refers to giving employees online access to, oF apps that provide, information about HR issues such as training, benefits, compensation, and contracts; enrolling online in programs and services; and completing online attitude surveys. The shift to self-service means that HR can focus more time on consulting wit ‘managers on important employee issues and less time on day-to-day transactional tasks. For example, U.S. Bancorp implemented the PeopleSoft 9.1 human capital management system, which allows managers to review or approve basic personnel actions such as terminations, relocations, and salary changes."' As managers became more comfortable with the system, they were given control over transactions such as approving bonuses, reviewing résumés, and evaluating job candidates. Managers were initially resistant to take on duties that previously were handled by HR staff, but they accepted the change because it enabled them to exec tions more quickly and gave them more access to workforce data they could use for decision making. HR professionals now have more time to work with managers on ensuring the right employee development plans are in place, evaluating workforce needs due (o retirements or growth, and ensuring their orga- nizational structures are efficient and effective. Many companies are also contracting with HR service providers to conduct important but administrative HR functions such as payroll processing, as well as to provide exper- tise in strategically important practice areas such as recruiting. Outsourcing refers to the practice of having another company (a vendor, third party, or consultant) provide services. The most commonly outsourced activities include those related to benefits administra- tion (e.g., flexible spending accounts, health plan eligibility status), relocation, and payroll. The major reasons that company executives choose to outsource HR practices include cost savings, increased ability to recruit and manage talent, improved HR service quality, and protection of the company from potential lawsuits by standardizing processes such as selection and recruitment.!2 ADP, Hewitt, IBM, and Accenture are examples of leading outsource providers. Goodyear Tire and Rubber Company reenergized its recruitment and hiring practices through outsourcing recruiting practices." The recruiting outsource provider worked with the company to understand its culture, its history, and its employees’ recruitment experiences. The recruiting outsourcing service provider was able to help Goodyear streamiine the recruiting process by providing hiring managers with online access to cre~ ate new job requisitions, providing interview feedback, scheduling interviews, ing customized job offer letters, and gaining a real-time perspective on job candidates’ progress in the recruitment process. Goodyear recognized several benefits from out- sourcing recruitment, including improving the timeliness of job offers, increasing the diversity and quality of new hires, and reducing turnover. Traditionally, the HRM department (also known as “personnel” or “employee rela- tions”) was primarily an administrative expert and employee advocate. The department took care of employee problems, made sure employees were paid correctly, administered labor contracts, and avoided legal problems. The HRM department ensured that employee- related issues did not interfere with the manufacturing or sales of products of services.CHAPTER1 Human Resource Management: Gaining a Competitive Advantage 9 ‘Human resource management was primarily reactive; that is, HR issues were a con- cern only if they directly affected the business. That still remains the case in many companies that have yet to recognize the competitive value of HRM, or among HR professionals who lack the competencies and skills or understanding needed to anti pate problems and contribute to the business strategy. However, other companies believe that HRM is important for business success and therefore have expanded the role of HRM as a change agent and strategic partner. ‘A discussion group of company HR directors and academic thought-leaders reported that increasingly HR professionals are expected to lead efforts focused on talent manage- ment and performance management." Also, HR professionals should take the lead in helping companies attract, develop, and retain talent in order to create the global work- forces that companies need to be successful. HR professionals have to be able to use and analyze data to make a business case for ideas and problem solutions. In many compa- nies, top HR managers report directly to the CEO, president, or board of directors to answer questions about how people strategies drive value for the company. For example, at Marsh, an insurance brokerage and risk management company, the chief human resources officer (CHRO) is a true strategic partner with the CEO.'5 The CHRO is included in meetings with the company’s CEO and chief financial officer (CFO). In these meetings the company’s financial performance and talent reviews are discussed. The group works to identify how people issues affect the business. For example, the group recently discussed and implemented a new compensation plan for Marsh’s sales force. The CHRO contributed to the discussion (and the business) by considering whether the sales compensation plan was motivating the right behaviors and positively influenc- ing the financial results of the business. Consider how HRM has supported the business at Juniper Networks and Abbott.'6 Juniper Networks, a networking technology company that had become successful by introducing a new router, was a major innovator in the computer network industry. But Juniper found that, despite its success, it needed to reinvent its business strategy and grow. To help reinvent its business strategy and structure, Juniper's HR team had conver- sations with 150 senior company leaders, including the company chairman, and 100 other managers located around the world. During these conversations, the HR team asked the leader or manager questions about important environmental challenges facing Juniper, how the challenges affected the leader’s or manager's team, what most excited them about Juniper’s business strategy and execution of that strategy, and key business concerns. The conversations helped identify that Juniper had too many business priorities, leaders tended to avoid conflict, and work was overly complex, making it difficult to provide customers with the best solutions. As a result of the conversations, product lines have been streamlined and the company adopted a simpler and more integrated business structure. For example, across the company, any decision can be made by six people. Abbott spun off a new company, AbbVie, which focused on pharmaceutical research and development, while keeping consumer-oriented health care products such as Ensure nutrition shakes. Spin-offs are new companies that are created from the parent company with a specialized focus on one aspect of the business market. They are expected to be ‘worth more as independent businesses than as part of a larger business. Human resource issues such as retaining talent, making sure employees are enthusiastic and motivated, and making sure employees are in the right roles in the new company are important for the success of spin-offs. The CHRO for AbbVie, who worked for Abbott, was faced with the challenging and complex assignment of helping to get the new company established. Specifically, he worked with other executives to create the new organizational structure, logo, and branding campaign. Also, he worked on people issues such as making sure the10 CHAPTER1 Human Resource Management: Gaining a Competitive Advantage Table 1.2 Questions to Ask: Is HRM Playing a Strategic Role in the Business? reasons for the spin-off were communicated, to reduce employees’ fear and anxiety: deciding which employees would join the new company and determining their job assignments; and developing a new compensation and benefits plan. The success of his efforts were one of the reasons the combined value of Abbott and AbbVie has nearly doubled since 2013. The structure and responsibilities of HR departments are likely to continue to change in the future to ensure that they remain strategic. Some companies, such as Airbnb, are beginning to recognize that the employee experience is critical for keeping employees happy and committed to the company. Happier employees are more likely to work hard to satisfy customers, which helps the company grow and prosper.!7 To maximize the employee experience, Airbnb combined three separate HR groups (talent, recruiting, and Ground Control”) into one group. Airbnb’s top HR officer's title is chief employee experience officer (CEO). At Airbnb, human resources involves marketing, communi- cations, real estate, and social responsibility, in addition to traditional HR functions, The CEO's responsibilities go beyond the traditional HR functions such as talent manage- ment, and compensation to include workplace design and facilities, food, global citizen- ship, and the network of community managers who interact daily with Airbnb employees. For example, Airbnb’s airy, open workplace includes small lockers for employees to charge their devices, which provides more room for a conference room, couches, nap spaces, communal tables, and small spaces for employees to have conversations with their peers. Numerous cafes are available where employees can eat or collaborate on projects. Also, human resources helps employees give back to the communities where Airbnb operates by encouraging four hours a month of individual volunteering as well as by participating in larger events such as painting a homeless shelter or cooking meals for hospital patients’ families. Table 1.2 provides several questions that managers can use to determine if HRM is playing a strategic role in the business. If these questions have not been considered, it is highly unlikely that (1) the company is prepared to deal with competitive challenges or (2) HRM is being used strategically to help a company gain a competitive advantage. The bottom line for evaluating the relationship between HRM and the business strategy is to consider this question: “What is HRM doing to ensure that the right people with the right skills are doing the right things in the jobs that are important for the execution of the business strategy?" We will discuss strategic HRM in more detail in Chapter 2. Some companies that want managers 10 have more accountability for employees, believe that traditional HR departments are unnecessary because they inhibit innovation by creating unnecessary and inefficient policies and procedures." In these companies, What is HRM doing to provide value-added services to internal clients? Do the actions of HRM support and align with business priorities? How are you measuring the effectiveness of HRM? How can we reinvest in employees? What HRM strategy will we use to get the business from point A to point B? From an HRM perspective, what should we be doing to improve our marketplace position? What's the best change we can make to prepare for the future? Do we reactto business problems or anticipate them in advance? oasens ex SOURCES: Based on A, Holerow, “Survey Shows HR in Transton” Workforce, June 1988, p. 74; Wight, Human Resource Strategy: Adopting to the sige of Globalization (Alexanksia, VB: Society for Human Resource Management Foundation, 2008}; . Mundy, "Be a Strategie Performance Constant” HR Magazine, March 2013, pp. 44-46,CHAPTER1 Human Resource Management: Gaining a Competitive Advantage 11 important payroll, benefits, and other HR processes are automated or outsourced. For example, managers at Ruppert Landscape, which has 900 employees working in different markets across the United States, perform HR responsibilities such as recruiting employ- ees and explaining the company's retirement plan. Its managers spend about 5% of their time on human resources. The CEO feels that local managers are in a better position to understand and solve employee problems than is an HR professional located in the com- pany’s Maryland headquarters. However, there are many advantages to having HR professionals and an HR department. Managers often lack the specialized knowledge necessary to understand employment laws and how to identify potential employees, determine skills and salaries for positions, and develop current employees. HR profes- sionals can create systems to avoid legal liability, counsel employees, and coach manag- rs on how to identify, retain, and develop talent. Consider the role of HRM at Tesla Motors, an automotive company with all of the characteristics of a high-tech company.» Tesla builds cars, manufactures electric powertrains for other car companies, operates car-charging stations around the world, and sells its cars directly to customers. The luxurious Model S has won numerous awards, and Tesla recently introduced Model 3, a more affordable sedan, and Model X, a sport-utility vehicle. The role of HRM at Tesla is to support the business by finding and helping to retain the most talented employees and ensure they understand and believe in the company’s fast-paced culture, which requires long workdays and constant change. They do this in several different ways. The HR team seeks talented employees who have a positive, self-starting attitude and have tried to improve pro- cesses in the areas in which they have worked. They encourage employee referrals because they have found that their best employees attract other high performers who fit the company’s culture. To find talent to fill a robotics team, the HR staffing team Tooked beyond the traditional sources, such as other automakers, and instead focused ‘on robotics competitions at colleges and industries, such as biotechnology, that employ robotic-programming specialists. Human resources worked with employees from legal, security, and environmental health and safety departments and a small group of employees from company stores and the factory to develop an employee handbook. The handbook, known as the “anti-handbook handbook,” captures in just four pages written in a conversational style what Tesla stands for and what it is like to work there. For example, the employee attendance policy emphasizes that employees should be the kind of person their work team can rely on. Emphasis is placed on employees being at work when they are supposed to be, because the team can’t get things done if employ- es are absent. Human resources supports Tesla's emphasis on open communications through the “Answer Bar” at its Freemont, California, factory. At the Answer Bar employees can walk up to HR staffers and ask questions they have about benefits or the company. Tesla encourages employees to use the Answer Bar to provide personal feed- back. This allows Tesla to quickly make changes when new employee programs are introduced. Human resources has developed training that meets company and employee needs for just-in-time learning, that is, learning that is meaningful, is short, holds employees’ attention, and is provided when needed. For example, factory employees can use their smartphones next to their workstations to scan codes that allow them to view short tutorial videos on job tasks. Tesla regularly surveys employees to get a feel for employees’ levels of enthusiasm. What separates Telsa’s use of the surveys from many other companies is that it quickly shares survey results with employees, provides them with access to the data, and requires ‘managers to hold action planning sessions with employees and identify one change the12 CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage Evidence-based HR Demonstrating that HR practices have a posi- live influence on the company's bottom line orkey stakeholders (employees, customers, ‘community, shareholders) HR or workforce analytics The practice of using data from HR databases and other data sources to make evidence- based HR decisions. Big data Information merged from a variety of sources, including HR databases, corporate financial statements, and employee surveys, to make evidence. based HR decisions and show that HR practices can influence the organization's bottom ine team will make based on the discussion of results. Testa also has shown that more posi- tive survey results translate into business results: less employee absenteeism, less turn- over, and fewer safety issues and increased profitability and productivity. HRM may be the most important lever for companies to gain a competitive advantage over both domestic and foreign competitors. We believe this is because HRM practices are directly related to companies’ success in meeting competitive challenges. The lenges and their implications for HRM are discussed later in the chapter DEMONSTRATING THE STRATEGIC VALUE OF HRM: HR ANALYTICS AND EVIDENCE-BASED HR For HRM to contribute to business goals, there is increasing recognition that data must be used to answer questions such as “Which practices are effective?” and “Which practices are cost effective?” and to project the outcomes of changes in practices on employees’ attitudes, behavior, and company profits and costs. This helps show that time and money invested in HR programs are worthwhile and that human resources is as important to the business as finance, marketing, and accounting. Evidence-based HR refers to the demon- stration that HR practices have a positive influence on the company’s bottom line or key stakeholders (employees, customers, community, shareholders). Evidence-based HR requires the use of HR or workforce analytics. HR or workforce analytics refers to the practice of using quantitative methods and scientific methods to analyze big data. Big data refers to information merged from HR databases, corporate financial statements, employee surveys, and other data sources to make evidence-based HR decisions and show that HR practices influence the organization's bottom line, including profits and costs.2! Several companies have used workforce analytics to analyze big data to help improve HR practices.2® Google was one of the first companies to use analytics to improve its workforce. Google created algorithms or equations to identify which job candidates were most likely to succeed, It also produced algorithms to review applications that were rejected. This helped Google hire engineers who its normal application screening process would have missed, Mattress Firm evaluates job applicants based on their online assessments of 39 behav- ioral, cognitive, and cultural traits. The job applicants’ characteristics are compared against a benchmark of strong-performing employees. The analytics are then used to hire new salespeople. Based on two years of hiring and sales data, the company found that the salespeople hired were 80% less likely to leave and sold 11% more products than others who were hired but not recommended by the analytics Credit Suisse has a department of HR analysts who speciali ing workforce data to help reduce turnover. This can provide substantial cost savings to the company. For example, if the turnover rate for the company’s 46,600 employees could be reduced by 1% per year, it could save $100 million! Each year, eight different pieces of data, includ- ing employees’ performance ratings, their bosses’ performance ratings, their yearly changes in compensation, and the length of time they have been in a job without a promotion, are used to identify who is likely to leave. The analysis provides reports for managers showing the turnover risk of their employees, which they can use to decide how to prevent them from leaving. For example, managers can use this information to recommend a raise, a promotion, or access to development training or opportunities for high-performing employees they don’t want to lo: Because evidence-based HR and analytics are important for showing the value of HR practices and how they contribute to business strategy and goals, throughout each chap- ter of the book we provide examples of companies’ use of workforce analytics to make evidenced-based HR decisions or to evaluate HR practices.CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 13 Table 1.3 [xed clei Median Salaries for HRM Positions Top HR executive $240,206 Global HR manager 121,095 Management development manager 147,114 Health and safety manager 101,872 Employee benefits manager 95,244 HR manager 95,267 Mid-level labor relations specialist 83,974 Campus recruiter 64,725 Entry-level HRIS specialist 54,233 HR generalist 51,180 Entry-level compensation analyst 56,267 Entry-level employee training specialist 48,286 ‘SOURCE: Based on dat from Salary Wizard, htps/swsalarycom, accessed February 23, 2017 THE HRM PROFESSION: POSITIONS AND JOBS ‘There are many different types of jobs in the HRM profession. Table 1.3 shows various HRM positions and their salaries. A survey conducted by the Society for Human Resource Management (SHRM) to better understand what HR professionals do found that the pri- mary activities involve performing the HR generalist role (providing a wide range of HR services); fewer HR professionals are involved in the HR function at the executive level of the company, training and development, HR consulting, and administrative activi- ties.28 Projections suggest that overall employment in HR-related positions is expected to grow by 9% between 2014 and 2024, faster than the average for all occupations in the United States. Salaries for HR professionals vary according to position, level of experience, training, location, and firm size. As you can see from Table 1.3, some positions involve work in specialized areas of HRM, like recruiting, training, or labor and industrial relations. HR ing, selection, training, labor relations, and benefits administration. HR specialists work in one specific functional area such as training or compensation. Although HR general- tend to be found in smaller companies, many mid- to large-size companies employ HR general ists at the corporate, prod- uct, or regional levels. Most HR professionals chose human resources as a career because they found it appealing as a career, they wanted to work with people, or they were asked by chance to perform HR tasks and responsibilities.2°> EDUCATION AND EXPERIENCE The HR profession will likely continue to be in transition in the near future.*® A large number of HR professionals who will be retiring soon have held mainly administrative roles with little previous formal education in HRM. As is currently the ease for many HR professionals, the new generation of HR professionals will likely have a four-year college degree and many will have completed a graduate HR degree. Business is typically the field of study (human resources or industrial relations), although some HR professionals have degrees in the social sciences (economies or psychology), the humanities, or law.14 CHAPTER1 Human Resource Management: Gaining a Competitive Advantage ‘Those who have completed graduate work have master’s degrees in HRM, business man- agement, industrial organizational psychology, or a similar field. Human resource pro- fessionals can be expected to have both strategic and tactical roles. For example, a senior HR role will likely involve developing and supporting the company culture, employee recruitment, retention and engagement, succession planning, and designing the compa- ny’s overall HR strategy. Junior HR roles will handle all of the transactions related to paperwork, benefits and payroll administration, answering employee questions, and data management. Professional certification demonstrating that an individual has gained foundational knowledge in human resources is available through the Human Resources Certification Institute (HRCD or SHRM.” Only 12% of U.S. HR professionals hold certification. One reason for the low level of certification is that many companies value education and/or experience more than certification when hiring for HR positions. As a result, professional certification in HRM js less common than membership in professional associations. A well-rounded educational background will likely serve a person well in an HRM position. As one HR professional noted, “One of the biggest misconceptions is that itis all warm and fuzzy communications with the workers. Or that it is creative and involved in making a more congenial atmosphere for people at work. Actually it is both of those some of the time, but most of the time it is a big mountain of paperwork which calls on ‘a myriad of skills besides the ‘people’ type. It is law, accounting, philosophy, and logic as well as psychology, spirituality, tolerance, and humility.” COMPETENCIES AND BEHAVIORS Many experts acknowledge that top-level HR professionals are generalists who have expertise in benefits, compensation, and labor relations and focus on important issues such as employee engagement and managing company culture? However, they lack business acumen, the expertise in relating human resources to real-world business nee ‘That is, they don’t know how key decisions are made and are unable to determine why employees or parts of the company fail to meet performance goals. This is congruent with the belief of companies’ top HR leaders that developing the skills of professionals working in human resources is an urgent need.*? Less than 10% of HR leaders believe that their functional teams have the skills needed to help companies meet their current competitive challenges. Consider the requirements that Netflix wanted when it was look- ing for a new HR director.®' Netflix wanted someone who puts business first, customers second, and talent third. It did not want a change agent, organizational development practitioner, a SHRM certificate, or a people person. HR professionals should consider themselves as business people, not morale boosters. They need to be able to consider key questions, such as “What's good for the company?” “How do we communicate that to employees?” and “How can we help every employee understand what is meant by high performance?” HR professionals need to have the nine competencies shown in Figure 1.3. These are the most recent competencies developed by SHRM, based on a literature review, input from over 1,200 HR professionals, and a survey of over 32,000 respondents. The full version of the competency model, which can be found on the SHRM website (www.shrm.org), provides more detailed information on the competencies, behaviors, and standards for proficiency for HR professionals at entry, mid, senior, and executive career stages. Demonstrating these competencies can help HR professionals show ‘managers that they are capable of helping the HR function create value, contribute to the business strategy, and shape the company culture. They also help the HR departmentCHAPTER 1 Figure 1.3 ‘Competencies and Example Behaviors for HR Professionals Example behav Femomscrtent on eleva aw et ule ona Yeats: ‘oetops and laze best prectces Example hos: Demensats capac or indartanding te business operons nd functon within th eeanzaton. Understand eguzatoral mets tad teirrloboneip o business ‘ample betas ‘Saners cet imermaton, totes sound decors Sains fomoson Competencies for HR Professionals. Example behaviors: Montane coniceraty bets personal profesional ana Dehoworalimtegy ale bans roi ety ith ‘Sere euros one Example boars ‘Sect heps managers ‘orvmuniste not ust on HR Human Resource Management: Gaining a Competitive Advantage 15 Example betas: ‘roanzational stakeholder, Insresasgamen wtin H when detvering sences and Infomation the rganizaon Sambar peste menspoment onetsve and Example behavior: Feuur eolaboration, etn an canning othe rganation care ‘SOURCE: Bosed on SHRM Competency Medel, Society for Human Resource Management, 2012, wivwshim.org, accessed February 8, 2017 effectively and efficiently provide the three HR products discussed earlier and shown in Figure 1.2. These competencies and behaviors show that although the level of expertise required may vary by career level, all HR professionals need to have a working know! edge of strategic business management, HR planning, development, compensation and benefits, risk management (safety, quality, etc.), labor relations, HR technology, evidence-based decision making, and global human resources. HR professionals need to be able to interact and coach employees and managers, yet engage in ethical practice through maintaining confidentiality and acting with integrity. Providing support for the usefulness and validity of the SHRM competency model, research shows that HR professionals who have a higher level of proficiency on the SHRM competencies do perform better in their jobs.*>16 CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage Sustainability The ability of a com- any to make a profit without sacrificing the resources ofits employ- fees, the community, or the environment. Based fon an approach to ‘organizational decision ‘making that considers the long-term impact of strategies on stake- holders (e.., employ- ‘ees, shareholders, suppliers, community, Stakeholders ‘The various interest ‘groups who have Felationships with ang, ‘consequently, whose interests are tied to the organization (e.., employees, suppliers, customers, sharehold- crs, community) Many top-level managers and HR professionals believe that the best way to develop employees who have the competencies needed to be eflective in an HR role is to train them or insure they have on-the-job experiences that help them understand the business and the role of HRM in it, For example, an HR leader at Rivermark Community Credit Union developed skills in reading and interpreting financial data by spending time with the CFO. This has allowed her to contribute more in senior-level leader meetings. Both Garden City Group and General Motors use job experiences for insuring that rent and aspiring HR professionals have the competencies they need to meet both employees and managers needs." Also, these opportunities help build relationships both in the HR department and across locations. Garden City rotates HR professionals through each of its office locations and encourages its staff to shadow other HR professionals working in differ- ent functional areas. To develop future HR leaders General Motors has two specialized HR career paths: a manufacturing path and a corporate path, In the manufacturing path, employ- ¢ees who already work for General Motors but want to work in HR spend a year each working, in labor relations, as a business partner, and in a production group. Similarly, the corporate path offered for HR interns include a labor relations assignment as well as a year assignment in global compensation and benefits and either talent acquisition or talent management. Participants in both career paths are matched with mentors who can provide personal insight and advice. Also, participants in both tracks have opportunities to attend training, presenta- tions from speakers outside the company, and forums with senior leaders. ‘The primary professional organization for HRM is the Society for Human Resource Management. SHRM is the world’s largest HRM association, with more than 285,000 professional and student members throughout the world, If you are interested in human resources, you should join SHRM. The organization provides education and information services, conferences and seminars, government and media representation, certification, and online services and publications (such as HR Magazine). You can visit SHRM’s website at www.shrmorg. Competitive Challenges Influencing Human Resource Management ‘Three competitive challenges that companies now face will increase the importance of human resource management practices: the challenge of sustainability, the global chal- lenge, and the technology challenge. These challenges are shown in Figure 1.4. As you will see in the following discussion, these competitive challenges are directly linked to the HR challenges that companies are facing, including developing, attracting, and retaining talented employees; finding employees with the necessary skills; and breaking down cultural barriers to create a global company. COMPETING THROUGH SUSTAINABILITY ‘Traditionally, sustainability has been viewed as one aspect of corporate social responsi- bility related to the impact of the business on the environment.” However, we take a broader view of sustainability. Sustainability refers to the company’s ability to meet its needs without sacrificing the ability of future generations to meet their needs.** Orgai ns pursuing a sustainable strategy pursue the “triple bottom line”: economic, social, and environmental benefits. Company success is based on how well the company meets the needs of its stakeholders, Stakeholders refers to shareholders, the community, cus- tomers, employees, and all of the other parties that have an interest in seeing that theCHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 17 Competing through ‘Competing through ‘Competing through Sustainability Globalization ‘Technology * Deal with the workforce and employment markets implications of the Dffshor ‘economy, ‘* Understand and ‘enhance the value of intangible assets and human capital + Meet the needs of stakeholders: shareholders, customers, employees, and the community ‘+ Emphasize customer service and quality ‘+ Recognize and capitalize on the ‘demographics and diversity of the ‘workforce * Deal with legal and ethical issues. US. Business Competitiveness company succeeds. Sustainability includes the ability to deal with economic and social changes, practice environmental responsibility, engage in responsible and ethical busi- ness practices, provide high-quality products and services, and put in place methods to determine if the company is meeting stakeholders’ needs; that is, HR systems that create the skills, motivation, values, and culture that help the company achieve its triple bottom line and ensure long-term benefits for the organization's stakeholders, Deal with the Workforce and Employment Implications of the Economy ‘The economy has important implications for HRM. Some key statistics about the economy, and the workforce are shown in Table 1.4-and we will discuss their implications in greater detail below. These include the structure of the economy, aging of the workforce, and growth in professional and service occupations. Growth in professional and service occu- pations means that skill demands for jobs have changed, with knowledge becoming more valuable. Not only have skill demands changed, but remaining competitive in a global economy requires demanding work hours and changes in traditional employment patterns. ‘The creation of new jobs, aging employees leaving the workforce, slow population growth, and a lack of employees who have the skills needed to perform the high-demand jobs ‘means that companies need to give more attention to HR practices that influence their ability to attract and retain employees. Figure 1.4 ‘Competitive Challenges Influencing US. ‘Companies Lo12 Discuss the implications of the economy, the makeup of the labor force, and ethics for company sustainability18 CHAPTER1 Human Resource Management: Gaining a Competitive Advantage Table 1.4 Highlights of Employment Projections to 2024 + The labor force is expected to increase by 8 million, reaching 164 milion. + Today, 93% of US. jobs are nonagriculture wage and salary jobs: 12% are in goods-producing industries (mining, construction, manufacturing); 81% are in service-providing industries; and 1.3% in agriculture, forestry, fishing, and hunting, The distribution of jobs across industries is projected to be similar in 2024. + 46,5 milion job openings are expected, with more than three-fourths resulting from the need to replace workers who retire or leave an occupation. + The median age of the workforce will increase to 42.4 years. + Health care support and practitioner occupations are projected to be the fastest-growing occupational groups and contribute the most new jobs (one out of four new jobs), SOURCE:M. Toossi, “Labor Force Projections to 2024: The Labor Force Is Growing, but Stowly” Monthly Labor Review, December 2015, fom htps!// \www.bis.gov/opubimi, accessed May 3, 2017: A. Hogan and B. Roberts, “Occupational Employment Projections to 2024" Monthy Labor Review, December 2015 tom hiips/wrwbls gow/opubimi, accessed May 3, 2017; Bureau of Labor Statistics, “Employment Projections: Replacement Needs fom hitos:/wun bls goviemplep_table_M10htm, accessed February 10,2017; R. Henderson, ‘industry Employment and Output Projections to 12024” Monthly Labor Review, December 2015, fom hips: bls goviopublml), accessed May 3, 2072 The economy is steady but has some issues.” Overall, in January 2017, U.S. bu nesses appeared to have gained confidence to add jobs and expand, partly in response to President Donald Trump's promises to reduce regulations and cut taxes and also because of a sense of economic stability. For 2016, real GDP increased 1.6%, which was less than occurred in 2015. The increase in real GDP in 2016 reflected increases in consumer spending, residential investment, state and local government spending, exports, and fed- eral government spending. The stock market reached record highs at the start of 2017: The Dow Jones Industrial Average exceeded 20,000. In April 2017, the labor market was at or close to full employment, with the unem- ployment rate remaining below 5%. The labor force participation rate, the percentage of those with or actively seeking jobs, remained near a four-year low of 62.9%. The econ- ‘omy added almost 2.2 million jobs in 2016, but this represents the smallest gain since 2012. Further, many of these jobs were low-paying jobs in the retail, hospitality, restau- rant, and health care sectors. If the Federal Reserve Bank follows through on its planned three interest rate increases in 2017, this could likely slow hiring. For some workers, wages began to grow as unemployment dropped. For example, hourly wages rose 4.4% in 2016 for restaurant workers and bartenders in the leisure and hospitality sector, Skilled job candidates in high-demand fields such as information tech- nology received competing offers with increasing pay. However, hourly wage growth for production and nonsupervisory employees and education and health care workers was smaller, Regardless of wage growth, because consumer-price inflation was low, workers lost less of what they earned due to the rising costs of goods and services. In the business cycle that followed the recession of 2009, labor productivity growth was at its lowest point since the early 1980s. Labor productivity is based on a comparison of the amount of goods and services produced with the number of labor hours used to produce them, Labor productivity growth is important because if the economy is able to produce more goods and services for the same amount of work, this leads to improvements in employees’ wages and increases in leisure time for workers and profits and capital gains for business, all of which contribute to improvements in our standards of living. The United States had a trade deficit of over $502 billion in 2016, the largest in four years.” The deficit means that the United States imports more products than it exports to the rest of the world. The value of imports and exports with Canada and MexicoCHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 19 covered by the North American Free Trade Agreement (NAFTA) are somewhat compa- rable, But the value of U.S. imports from China and other fast-developing Asian countries such as Vietnam and Malaysia is considerable more than the value of goods exported. President Trump has said that stimulating economic growth and supporting U.S. jobs is critical, especially for helping working-class Americans. One way to try to stimulate ‘economic growth and protect and create new jobs is to reduce the trade deficit through tariffs on imports, new legislation, and the renegotiation or cancellation of trade deals such as NAFTA and the Trans-Pacific Partnership (TPP), which involved 12 countries (the United States, Japan, Mexico, Canada, Australia, New Zealand, Vietnam, Peru, Chile, Malaysia, Singapore, and Brunei). However, the relationship between trade, eco- nomic growth, and employment is complex, influenced by such factors as currency exchange rates and government spending and taxation. In fact, the United States has had trade deficits during periods of economic expansion and recession, and under high and low employment. ‘The current economic period has several implications for HRM. Companies are using HR practices to enhance labor productivity by improving the design of work and the use of technology, upskilling employees through training, and managing performance and ‘compensation to incentivize and motivate workers to work smarter and harder. Although ‘companies are looking to add new employees to expand operations, replace retiring employees, or keep up with increased demand for their products and services, many may be unable to find new employees with the skills they need.*! ‘Also, valuable high-performing employees may be looking to change jobs for higher ‘wages or better career opportunities. As a result, companies are having problems attract- ing and retaining talented employees. Many are increasing wages, paying for benefits, and providing training as part of the solution. For example, one Wendy's franchise owner raised his store’s average pay by almost $1 per hour; in addition, he provides $500 refer- ral bonuses to employees who find new hires and offers employees more flexible work schedules.*? The availability of workers with the right skill set is a key factor that many companies, such as Salesforce.com and Cisco, are using to determine in which city or region to open new offices. Tn addition to raising pay, companies are focusing on learning.#? For example, Starbucks has focused on learning as a way to attract and retain employees and show itis, ‘committed to their success. The Starbucks College Achievement Plan covers employees’ tuition to earn an online bachelor’s degree from Arizona State University. Employees can ‘choose from 60 undergraduate degree programs. The only requirements are that employ- ees must work at least 20 hours per week for three consecutive months; be U.S.-based working in support centers, plants, or at any company-operated store (including Teavana, Evolution Fresh, and Seattle's Best Coffee stores); and not yet have a bachelor’s degree. Employees have no commitment to remain at Starbucks after they graduate. EJ Ajax Metalforming Solutions posts a skills matrix on a bulletin board where all employees can see it, The skills matrix lists employees’ skill levels and all machines and tasks required within a department. This shows employees available training opportunities they can request from their supervisors. The currently lower unemployment rate is especially affecting the ability of small businesses to find qualified employees with the skills they need. As a result, many are spending more time training workers. For example, precision tool maker Mountz Inc, now spends about 36 hours each year on training, compared to six to eight hours three years ago. HR programs and the HR function are under pressure to relate to their company's business strategy and show a return on investment. Customer focus needs to be included in all HRM practices. New technology means that administrative and transactional HR20 CHAPTER1 Human Resource Management: Gaining a Competitive Advantage activities will be delivered via technology, creating less need for HR professionals to’ provide these activities. The aging workforce, combined with reduced immigration because of security concerns, may lead employers to focus more on retraining employees or encouraging older, skilled workers to delay retirement or work part time. Labor Force and Employment Characteristics. Table 1.4 highlights employment pro- jections to 2024, Our discussion of employment projections is based on the work done by the U.S, Bureau of Labor Statistics.*® Population is the most important factor in deter- mining the size and composition of the labor force. The labor force is expected to grow to almost 164 million by 2024. The size of the labor force will increase, but itis growing more slowly than in previous decades primarily because of the declining growth rate of the population. The labor force will continue to age with more people from the Baby Boomer generation (born between 1946 and 1964) entering retirement age or having already left the workforce. Because the U.S. population is expected to become increasingly diverse, so is the U.S. workforce. The growth rate of women in the labor force will be faster than the growth rate for men. Immigration is an important force in population and workforce growth and diversity. Traditionally, Hispanic and Asian men have high labor force participation. All racial and ethnic groups, except non-Hispanic whites, are expected to grow by 2024; the share of non-Hispanic whites is expected to decline. With the fastest population growth of all racial and ethnic groups, Hispanics are projected to make up nearly 20% of the labor force (the diversity and aging of the workforce is discussed in more detail later in this chapter). ‘The importance of the service sector in the U.S. economy is emphasized by consider- ing industry and occupational employment rates and future projections. In all, 80% of jobs are in the service sector. Currently, the largest percentages of jobs are found in health care and social assistance, leisure and hospitality, state and local government, professional and business services, and retail trade. Most of the employment growth will be in the health care and social assistance sector, which will account for over one-third of projected job growth through 2024. The construction industry is expected to add the largest number of jobs by 2024 but not back to prerecession levels.4* Table 1.5 provides examples of the largest percentage growth in jobs from 2014 to 2024. Of the 15 fastest growing occupations, over half are related to health care (such as ‘occupational therapy assistants, home health aides, nurse practitioners, and physical therapists). The growth in health care reflects the inpatient and outpatient medical care that is needed for the aging U.S. population. All major occupations are projected to gain jobs between 2014 and 2024 except production occupations, and farming, fishery, and forestry. Six industries are projected to have decreases in employment—manufacturing; federal government; agriculture; forestry, fishing, and hunting; information; and utilities. This loss of jobs and workers is due to several factors including technological improvements, which means fewer workers are needed; global competition; industry consolidation; cost-cutting and more efficient work processes; and decrease in the number of workers who want to work in these occupations, Education plays an important role in meeting occupational or job requirements and in employee earnings.” A minimum level of education is not required for approximately 31% of US. jobs. But, 22% of jobs require some form of training such as a certificate or license. Further, 11 of the 15 fastest-growing occupations require some level of postsec- ondary education and have higher median weekly earnings than the national average. Today, the median weekly earnings for jobs requiring a high school diploma is $678,CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 21 Buc ares oti ese Occupations with the Iecurten ales Largest Growth in PAO EDUCATION OR Jobs liye THOUSANDS) PERCENT TRAINING Wind turbine service 9 100 Some college, no degree technicians Occupational therapy 47 43 Associate degree assistants: Physical therapy assistants 11 41 Associate degree Physical therapists aides 69 39 High school diploma or equivalent Home health aides 1,262 38 No formal educational requirement Commercial divers 6 37 Postsecondary nondegree award Nurse practitioners 172 35 Master's degree Physical therapists 283 34 Doctoral or professional degree Statisticians 40 34 Master's degree Ambulance drivers and 26 33 High school diploma or attendants, except emergency equivalent medical technicians SOURCE: Based on Bureau of Labor Statistics, “Employment Projections: 2014-2024 Summary Nows Release, December 8, 2015, wwebls.govlemp, accessed February 23, 2017 compared to $738 for those who have some college but no degree, $798 for an associate degree, $1,137 for a bachelor’s degree, and $1,730 for a professional degree. The dis- crepancy in earnings is expected to continue in the future. Despite the availability of unemployed and underemployed workers and new high school and college graduates, companies are having a difficult time finding employees with the right skills. Several studies illustrate how the skills deficit is influencing com- panies and identify what skills are in short supply: Although many businesses plan to hire new employees, they are concerned that they will not be able to find the talent needed to capitalize on investments they are making in new technology and other strate- gic capabilities. Skills deficits are not limited to any one business sector, industry, or job. Nearly half of CEOs of U.S. businesses believe that a significant skills gap exists that will result in loss of business, loss of revenue, decreased customer satisfaction, or a delay in new products or services. The Manufacturing Institute found that 80% of manufactur ‘ers report a moderate or serious shortage of qualified applicants for skilled and highly skilled production positions. One estimate is that 60% of manufacturing job openings in the next 10 years are likely to be unfilled due to the lack of employees with the necessary skills, The Organisation for Economic Co-operation and Development (OECD) found that the United States ranked 21 out of 23 countries in math and 17 out of 19 countries in problem solving. But skills de its are not just a problem facing U.S. companies. They are occurring around the world. For example, in Italy and Spain nearly 3 out of 10 adults perform at or below the lowest proficiency level in literacy and numerical ability. One22 CHAPTER1 Human Resource Management: Gaining a Competitive Advantage: Intangible assets Atype of company asset that includes ‘human capital, cus- tomer capital, social capita, and intellectual capital study found that, regardless of their education level, only half the companies surveyed rated new employees as adequately prepared for work. Companies’ greatest basic skills needs were in reading, writing, and math. Many employers also feel that they are having a difficult time finding employees with the right “soft skills” such as work ethic, team- work, and communications that they believe are more important for success on the job than job-specific or “hard skills” such as blueprint reading or writing. Interpersonal skills, the ability to learn, creativity, and problem solving are especially important in the service economy because employees have responsibility for the final product or service provided. There is especially a shortage of employees with skills in science, technology, engineering, and math (STEM skills). ‘Companies are partnering with unions, elementary and secondary schools, and col- leges and universities to develop the necessary skills needed in today’s workforce.” As the aluminum manufacturer Alcoa works with Airbus to provide 3-D-printed titanium fuselage parts for commercial airlines, it needs more workers with technical skills focused on 3-D printing. To meet this need, Alcoa has quadrupled its internships in the past three years at its Technology Center in New Castle, Pennsylvania, The company is also partner- ing with a community college to train 60 students for jobs, Some companies are even choosing to locate new plants close to college towns, where they have access to employees with the skill sets they need and the opportunity to collaborate on research that has busi- ness implications. For example, General Electric (GE) chose to locate a plant that would use 3-D printing to make products in Auburn, Alabama (home of Auburn University). General Electric picked Auburn because it could find and train technicians needed to operate the printers and work with the university on research products focused on under standing the properties of the powder used in the printers in order to improve product consistency. Auburn University bought the same 3-D printer that GE uses so that students can learn how to use the machine. Recognizing the future growth potential of the 3-D printing industry, Auburn University and the city of Auburn, Alabama, are hopeful that they can attract other 3-D printer manufacturers and suppliers and vendors. Understand and Enhance the Value Placed on Intangible Assets and Human Capital Today more and more companies are interested in using intangible assets and human capital as a way to gain an advantage over competitors. A company’s value includes three types of assets that are critical for the company to provide goods and services: financial assets (cash and securities), physical assets (property, plant, equipment), and intangible assets. Table 1.6 provides examples of intangible assets. Intangible assets include human capital, customer capital, social capital, and intellectual capital. Intangible assets are equally or even more valuable than financial and physical assets, but they are difficult to duplicate or imitate. By one estimate, up to 75% of the source of value in a company is in intangible assets." Intangible assets have been shown to be responsible for a company’s competitive advantage. Human resource management practices such as training, selection, perfor- mance management, and compensation have a direct influence on human and social capital through influencing customer service, work-related know-how and competence, and work relationships. Blue Apron, a company that delivers the fresh ingredients and cooking instruction: customers need to prepare delicious meals, puts a great deal of effort into developing human capital, social capital, and customer capital.52 Blue Apron hosts a wine happy hour that brings customers together to help build friendships, facilitate networking, and intro- duce wines the company is selling that month as part of its meal delivery subscription.CHAPTER 1 Human Resource Management: Gaining @ Competitive Advantage 23 Table 1.6 Human capital Examples of + Tacit knowledge Intangible Assets + Education + Work-related know-how + Work-related competence Customer capital + Customer relationships + Brands + Customer loyalty + Distribution channels Social capital + Corporate culture + Management philosophy + Management practices + Informal networking systems + Coaching/mentoring relationships Intellectual capital + Patents + Copyrights + Trade secrets + Intellectual property SOURCES: Based on L. Weatherly, Human Capita: The Elsive Asset (Alexandia, VA: SHRM Research Quarterly, 2003}: Holton and S. Naquin, "New Metrics for Employee Development” Perfomance improvement Quarterly 77 (2004), pp. 56-20; M, Huselc, 8. dacker, and R. Beaty, The Workforce Scorecard (Boston: Harvard University Press, 2005}, Full-time employees attend an annual camping trip, which often involves visiting a farm to see where its ingredients are grown. Blue Apron provides leadership training programs. for every level of manager the company. The training programs focus on how man- agers want to develop as leaders, how they can help their employees develop, and how to ead across the organization. Intangible assets have been shown to be related to a company’s financial performance, productivity, and innovation. The American Society for Training and Development found that companies that invested the most in training and development had a share- holder return 86% higher than companies in the bottom half and 46% higher than the market average. ‘One way companies try to increase intangible assets is through attracting, developing, and retaining knowledge workers. Knowledge workers are employees who contribute 0 Knowledge workers the company not through manual labor, but through what they know about customers or Employees who own a specialized body of knowledge. Employees cannot simply be ordered to perform tasks; tR Intellectual means they must share knowledge and collaborate on solutions. Knowledge workers contribute 0! Producing @ product specialized knowledge that their managers may not have, such as information about cus- tomers. Managers depend on them to share information. Knowledge workers have many job opportunities. If they choose, they can leave a company and take their knowledge to ‘a competitor. Knowledge workers are in demand because companies need their skills and jobs requiring them are growing (see Table I.5). Empowering Emphasize Empowerment and Continuous Learning. To completely benefit from — Sva cnrovees me employees’ knowledge requires a management style that focuses on developing and Suthority to make empowering employees. Empowering means giving employees responsibility and authority decisions24 CHAPTER1 Human Resource Management: Gaining a Competitive Advantage Learning organization ‘An organization whiose employees are continu- ously attempting to learn new things and apply what they have learned to improve product or service aval. Change The adoption of anew idea or behavior by a company. to make decisions regarding all aspects of product development or customer service. Employees are then held accountable for products and services; in return, they share the rewards and losses of the results. For empowerment to be successful, managers must be trained to link employees to resources within and outside the company (people, websites, etc.), help employees interact with their fellow employees and managers throughout the company, and ensure that employees are updated on important issues and cooperate with each other. Employees must also be trained to understand how to use the Web, e-mail, and other tools for communicating, collecting, and sharing information, ‘As more companies become knowledge-based, it’s important that they promote con- tinuous learning at the employee, team, and company levels. A learning organization embraces a culture of lifelong learning, enabling all employees to continually acquire and share knowledge. Improvements in product or service quality do not stop when for- mal training is completed.‘ Employees need to have the financial, time, and content resources (courses, experiences, development opportunities) available to increase their knowledge. Managers take an active role in identifying training needs and helping to ensure that employees use training in their work. Also, employees should be actively encouraged to identify problems, make decisions, continuously experiment, and improve. Keller Williams Realty, which focuses on buying and selling residential and commer cial real estate, emphasizes continuous learning both (o altract new real estate agents and to help all agents boost their sales, which means the company makes profits and they carn more money.** Learning is accessible for agents anywhere and anytime via KW Connect, a learning platform that includes all of the company’s training programs and materials, as well as user-generated content from top real-estate professionals. For exam- ple, KW Connect includes videos, audio files, and Tinks, a feature that allows learners to follow top executives and agents and receive notifications when they post new content, a question-and-answer forum, user ratings and comments for all content that helps identify the best ideas, and a searchable calendar that allows agents to sign up for over 250,000 instructor-led training classes. Top agents provide videos explaining how they deal with common real estate challenges. Office managers can create custom content for new agents or other groups. Adapt to Change. Change refers to the adoption of a new idea or behavior by a company. Technological advances, changes in the workforce or government regulations, globaliza- tion, and new competitors are among the many factors that require companies to change. Change is inevi as products, companies, and et experi- ence shorter life cycles.*? This has played a major role in reshaping the employment relationship.** New or emergent business strategies that result from these changes cause ‘companies to merge, acquire new companies, grow, and in some cases downsize and restructure. This has resulted in changes in the employment relationship. Companies demand excellent customer service and high productivity levels. Employees are expected to take more responsibility for their own careers, from seeking training to balancing work and family. In exchange for top performance and working longer hours without job secu- rity, employees want companies to provide flexible work schedules, comfortable working conditions, more autonomy in accomplishing work, training and development opportuni- ties, and financial incentives based on how the company performs. Employees realize that companies cannot provide employment security, so they want employability—that is, they want their company to provide training and job experiences to help ensure that employees can find other employment opportunities. The HRM challenge is how to build a committed, productive workforce in economic conditions that offer opportunity for financial success but can also quickly turn sour, making every employee expendable. ire industri ible in companiCHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 25 Consider how Portsmouth Naval Shipyard embraced the need to change.5? It was per- forming poorly compared to other government-run shipyards in the United States. Sub- marine maintenance and upgrades took longer to complete and were more costly than they should have been. Employees, managers, and the unions recognized the need to change or otherwise risk the shipyard closing and its business going to other government or for-profit shipyards. They collectively developed a “Declaration of Excellence,” which included the values, belief, and attitudes that employees should strive to achieve. It rep- resented a commitment to excellence for employees and the entire shipyard to try to achieve every day. To help facilitate positive changes in operations, whiteboards were placed around the shipyard to provide a way for employees to write down ideas for improving safety and suggestions for changing work processes to save time and money. Ideas were reviewed and implemented by a joint labor-management committee. The change effort continues, but so far results have been positive. Portsmouth has moved from the bottom to the top of government rankings for cost and time of maintenance and ship upgrades Maximize Employee Engagement. Employee engagement refers to the degree to which Employee employees are fully involved in their work and the strength of their commitment to their engagement job and the company. How do we know if an employee is engaged? An engaged Thscegea wast employee is passionate about his or her work, is committed to the company and its mis- FMBIOVeSS We ly sion, and works hard to contribute, Engagement survey results show that approximately nd the sttength of 32% of US employees are engaged in their work, 51% are not engaged, und 17% are —theirjob and company actively disengaged." Actively disengaged employees cost the United States billions of commitment dollars every year in lost productivity. Perhaps the best way to understand engagement is to consider how companies measure employee engagement. Companies measure employees’ engagement levels with attitude or opinion surveys. Although the types of questions asked on these surveys vary from com- pany to company, research suggests the questions generally measure 10 common themes. shown in Table 1.7. As you probably realize after reviewing the themes shown in Table 1.7, employees’ engagement is influenced by how managers treat employees as well as HR practices such as recruiting, selection, training and development, performance man: ment, work design, and compensation. Consider how Echo Global Logistics, Whole Foods, and Timberlane support employee engagement. Echo Global Logistics uses a Facebook-like application to allow employ- e28 to provide positive feedback and badges to other employees. The application gives Table 17 Pride in employer Common Themes of Satisfaction with employer Employee Engagement Satisfaction with the job Opportunity to perform challenging work Recognition and positive feedback for contributions Personal support from manager Effort above and beyond the minimum Understanding the link between one’s job and the company’s mission Prospects for future growth with the company Intention to stay with the company SOURCE: Based on R, Vance, Employee Engagement and Commiament (Alexancria, VA: Secety for Human Resource Management, 2006); Lyle, “The Engagement Challenge” He Magazine, October 2016, pp. 52-58.26 CHAPTER1 Human Resource Management: Gaining a Competitive Advantage Talent management Attracting, retaining, developing, and motivating highly skiled employees ‘and managers. employees the ability t0 use sayings in their feedback to each other that reflect Echo's values such as “Bring Your Own,” which refers to employees bringing their best effort to work. The use of the sayings as part of employees’ feedback to each other has resulted in their more seriously paying attention to the company values. The application also has a survey function that can be used to measure employee engagement and track improve- ments. The surveys can be administered weekly or even daily, which allows the company to take fast action to implement necessary improvements. The surveys ask employees to icate their level of agreement with statements such as, “I can see a link between my performance and total compensation,” “Echo operates by strong values and ethics,” and “There is good teamwork across departments.” Whole Foods supports engagement by allowing employee teams to make recommendations about whether new hires should be hired permanently at the end of their probationary period. Timberlane uses results from a test of employees’ preferences to match them with the tasks they are most interested in and comfortable performing. Manage Talent, Talent management refers to the systematic planned strategic effort by a company to use bundles of HRM practices—including acquiring and assessing employ- ees, learning and development, performance management, and compensation—to attract, retain, develop, and motivate highly skilled employees and managers. This means recog- nizing that all HR practices are interrelated, are aligned with business needs, and help the organization manage talent to meet business goals. For example, at Qualcomm, a San Diego company, talent management is organized around core values that emphasize recruiting smart, motivated employees and creating a work environment that allows them to innovate, execute, partner, and lead. When Qualcomm wanted to introduce technol- ogy for its performance management proce: s worked together with orga- nizational development and information technology specialists to ensure that what employees were being evaluated on (performance management) and what employees were paid and rewarded for (compensation and rewards) were aligned. Managers were trained to use the performance management system and now focus on identifying employee skills gaps to identify opportunities to improve performance. Survey results suggest that having opportunities for career growth, learning, and development, and performing exciting and challenging work are some of the most impor- tant factors in determining employees’ engagement and commitment to their current employer. As the economy improves, high-achieving employees may be looking to eave companies if they do not feel they have adequate opportunities to develop or move to positions in which they can best utilize their skills. Consider how YUM! Brands and BNSF manage talent. All corporate employees at YUM! Brands are provided with a midyear development plan and reviews of their skills from their boss and peers to help them identify their strengths and weaknesses. Managers provide the coaching necessary to help the employees set short- and long-term career goals and identify training and development activities. BNSF, the largest freight railroad in North America, recognizes that developing and promoting talent from within the company is critical for business success because of the technical nature of the work, the complicated operating environment, and the company’s desire to maintain its strong culture. BNSF uses programs and processes to develop its internal talent, including an internship and manage- ‘ment training program that starts with college and graduate school hires, regular department- level discussions of top talent and talent movement, and development plans matched to ich employees’ development needs and desired career path. The emphasis on talent has paid off: 38% of the company’s top talent received a development move or promotion and 96%¢ of its top 500 leadership positions have been filled with internal talent.CHAPTER 1 Human Resource Management: Gaining a Competitive Advantage 27 Consider Nontraditional Employment and the Gig Economy, More companies are moving away the traditional employment model based on full-time workers to increas- ingly rely on nontraditional employment. Nontraditional employment includes the use of _ Nontraditional independent contractors, freelancers, on-call workers, temporary workers, and contract employment company workers. Studies estimate that between 20% and 35% of the total U.S. workforce cludes the use of is engaged in nontraditional employment, including those who have a full-time job (what ee cence onccan is called “moonlighting”). Companies that rely primarily on nontraditional employment workers, temporary to meet service and product demands are competing in the gig economy.” Although many — workers, and contract companies will continue to rely on a traditional employment model using full- and part- company workers. time employees, 40% believe they will use a nontraditional model (independent contrac- Gig economy tors, project-based or freelance need-based work) in the next decade. Coase we ray What does nontraditional employment look like? Often, a website or mobile app is _ primarily on non- used to assign work, and the worker sets his or her own schedule. Because these workers _ traditional employment do not work for a company, they do not have taxes withheld from their earnings, they do meet service and not have to receive minimum wage or overtime pay, and they are not eligible for worker's Pde demands compensation and unemployment insurance. Examples of companies that rely on the gig economy include transportation services Uber and Lyft and food-delivery services such as Caviar. Nontraditional employment has benefits and disadvantages for both individu- als and employers.‘ More workers in nontraditional employment relationships are choosing these arrange- ments. Nontraditional employment can benefit both individuals and employers. More and more individuals don’t want to be attached to any one company. They want the flex- ibility to work when and where they choose. They may want to work fewer hours to better balance work and family responsibilities. Also, individuals who have been downsized may choose nontraditional employment while they are seeking full-time employment. From the company perspective, it is easier to add temporary employees when they are needed and easier to terminate their employment when they are not needed. Part-time workers can be a valuable source of skills that current employees may not have and are needed for a specific project that has a set completion date. Part-time workers can be less expensive than permanent employees because they do not receive employer health ben- efits or participate in pension plans. Employing part-time workers such as interns allows the company to determine if the worker meets performance requirements and fits in with the company culture, and if so, the company may then decide to offer the employee a permanent position, For example, Ammacore’s workers install cabling and perform elec- tronic troubleshooting for the company’s clients. Ammacore uses a third-party vendor to screen and verify credentials of technicians it uses. A community manager communi- cates with the technicians before, during, and after a project to ensure they have the information they need. Using a service provided by the third-party vendor, the company rates the technicians’ timeliness, performance, and reliability. The technicians rate Ammacore on the timeliness of the payment for their services and communication during the project. Technicians who perform well receive small bonuses. Ammacore depends on receiving good ratings from technicians to attract talented technicians. Some technology companies such as Honeywell have relied on crowdsourcing using services such as ‘Topeoder and Amazon's Mechanical Turk to find scientists and software engineers who have the skills not found in the company’s employees to solve problems, create apps, or write code. Alphabet Inc., the parent company of Google, has equal numbers of full-time and temporary and contract workers who test self-driving cars, manage projects, review legal documents, and do other jobs. Nontraditional employment also has potential disad- vantages. These include concerns about work quality, inability to maintain the company culture or team environment, and legal liability.”28 CHAPTER1 Human Resource Management: Gaining a Competitive Advantage Provide Flexibility to Help Employees Meet Work and Life Demands. The globaliza- tion of the world economy and the development of e-commerce have made the notion of a 40-hour work week obsolete. Survey results show that 46% of employees work more than 45 hours per week.7! As a result, companies need to be staffed 24 hours a day, seven days a week. Employees in manufacturing environments and service call centers are being asked to move from 8- to 12-hour days or to work afternoon or midnight shifts. Similarly, professional employees face long hours and work demands that spill over into their personal lives. Notebook computers, smartphones, and smartwatches bombard employees with information and work demands. In the car, on vacation, on planes, and even in the bathroom, employees can be interrupted by work demands. More demanding work results in greater employee stress, less satisfied employees, loss of productivity, and higher turnover—all of which are costly for companies. One study found that because of work demands 75% of employees report not having enough time for their children, and 61% report not having enough time for their hus- bands or wives. However, only half of employees in the United States strongly agree that they have the flexibility they need to successfully manage their work and personal or family lives.” Many companies are recognizing the benefits that can be gained by both the company and employees through providing flexible work schedules, allowing work- at-home arrangements, protecting employees’ free time, and more productively using ‘employees’ work time.” The benefits include the ability to have an advantage in attract- ing and retaining talented employees, reduced stress resulting in healthier employees, and a rested workforce that can maximize the use of their skills. It is estimated that 24% of all workers do some or all of their work at home, "# Some 23 million workers worked at home on an average day in 2016. Employees in managerial, business, and financial operations and professional occupations are most likely to do some or all of their work at home. KPMG offers employees the option of working part time while keeping their benefits yet not ruining their chances for promotion. Almost all KPMG employees have used ‘the company’s work/life benefits, which also include job sharing, working at home, and paid leaves for parents and unpaid leaves for a career break at some point. Employees are encouraged to discuss their use of work/life benefits with their managers and team members to ensure that their personal needs as well as the client’s needs are met. The World Wildlife Fund (WWF) gives its 6,200 employees every other Friday off but requires them to work 70 hours over nine days. Despite this requirement, employees like the benefit and it matches WWF's conservation mission by reducing employee commuting and the use of electricity in the office. Diebold was able to attract top executives who didn’t want to relocate to Ohio by allowing them to work remotely.” They spend at least a few days a month in Ohio, but otherwise they work from their home offices and travel to meet with their staffs and customers. Phone calls, e-mails, and teleconferences every Monday are used to ensure that the executives stay up to date on current company issues. ‘The use of nontraditional work employment and work-at-home has resulted in the development of co-working sites or shared offices where diverse workers such as design- ers, artists, freelancers, consultants, and other independent contractors pay a daily or monthly fee for a guaranteed work space.” Co-working sites are equipped with desks, Internet, and conferences rooms, and some even provide couches for relaxing and free coffee and beer. Co-working sites help independent contractors and employees who work at home, travel, or telecommute and who have feelings of isolation, enabling them to col- laborate and interact, providing a more professional working atmosphere than coffee shops, and helping to decrease traffic and pollution.