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CHAPTER 1 HUMAN RESOURCE MANAGEMENT: GAINING A COMPETITIVE ADVANTAGE

Chapter Summary
This chapter discusses the role of the Human Resource Management (HRM) function in the corporate effort to gain a competitive advantage. The chapter first discusses three current, competitive challenges: the global challenge, the challenge to meet stakeholders needs, and the high performance work system challenge. The chapter then moves to a discussion of specific HRM practices that play critical roles in determining companies success in meeting the challenges presented. The economic value of such practices is noted. Finally, the chapter closes with a discussion of the major topics to be covered in the rest of the text.

Learning Objectives
After studying this chapter, the student should be able to: 1. 2. 3. 4. 5. 6. 7. Discuss the roles and activities of a companys human resource function. Discuss the competitive challenges influencing U.S companies. Discuss how human resource practices affect a companys balanced scorecard. Discuss what companies should do to be competitive in the global marketplace. Identify the characteristics of the workforce and how they influence human resource management practices. Discuss human resource practices that support high performance work systems. Provide a brief description of human resource management practices.

Extended Chapter Outline


Note: Key terms are boldface and are listed in the Chapter Vocabulary section.

Opening Vignette: Texas Instruments


Texas Instruments (TI) HR function has been recognized as leading-edge in the HR field. Recently, TIs HR function has started to take a leadership position on issues that affect the strategic direction of the business. Through improving employee development, employee recruitment, and addressing diversity and ethics, TIs HRM contributes dramatically to the business strategy. I. IntroductionHRMs Role in U.S. Business Competitiveness A. Competitiveness refers to the companys ability to maintain and gain market share in its industry. A competitive advantage is reached when a company successfully moves ahead of its primary competitors, either U.S. or international. 1. 2. Competitiveness is related to effectivenesswhich is dependent on the satisfaction of corporate stakeholders. Human Resource management (HRM) refers to policies, practices and systems that influence employees behaviors, attitudes and performance.

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Effective HRM practices have been shown to relate to company performance by contributing to employee and customer satisfaction, innovation, productivity, and development of a favorable reputation in the community in which the firm is located. The HRM contribution has only recently been recognized.

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What activities do HR departments perform? 1. 2. 3. 4. Activities that the HR department is solely responsible for include outplacement, Labor Law Compliance, recruiting, compensation, and health and safety. The HR function is in transition from an administrative function to a strategic business partner. Advances in technology like the intranet has allowed less face-to-face HR services. Self-service is the process of giving employees control of HR transactions. This allows employees to take greater responsibility for their own careers. Outsourcing refers to the practice of having another company provide services.

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What skills do HR professionals need? Figure 1-2 shows the competencies that are needed by HR professionals. 1. 2. 3. 4. 5. Developing new HR practices and partnering with managers to align these practices with the business strategy. HR managers should be able to manage change within an organization. Representing employees concerns to senior management. Increasing employee contributions to the company through training. Identifying technologies and designing processes to increase efficiencies and lower costs.

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Competitive Challenges Influencing Human Resource Management (See Figure 1.3 in the text and TM 1.3) A. The Global ChallengeIn order to survive, U.S. companies must improve HRM practices, expand into new markets and, therefore must prepare employees for international assignments. 1. Opportunities for U.S. businesses exist in Eastern Europe and Asia, in China because of the enormous population, and in other areas as well. Many U.S. companies have well-established international operations. The United States has experienced a relative decline in the world economy, reflecting the faster economic growth of other countries. European countries are taking steps to strengthen their competitive position by developing a single currency, the euro. To compete in the world economy, U.S companies need to put greater effort into effective HRM practices. U.S. companies must do a better job of preparing employees and their families for international assignments, especially given the current high failure rate.

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Competing through Globalization: Successfully Brewing Global Operations Starbucks Coffee International has ventured into Beijing China to open new franchises. Starbucks entered China through a joint venture with Mei Da Coffee Company. Starbucks is in search of employees that have had managerial experience with other American-style restaurants such as Hard Rock Caf and TGIF. Starbucks is spending a considerable amount of time and money training managers to be successful by sending new recruits to Tacoma, Washington to learn the corporate culture of Starbucks.

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The Challenge of Meeting Stakeholders NeedsStakeholders include stockholders, customers, employees, and the community. 1. The balanced scorecard gives managers the opportunity to look at the company from the perspective of internal and external customers, employees and shareholders. The balanced scorecard should be used to: a. b. Link human resource management activities to the companys business strategy. Evaluate the extent to which the human resource function is helping the companys meet its strategic objectives.

Measures of human resource practices primarily relate to productivity, people, and process. 2. Total Quality Management can be defined as a cooperative form of doing business that relies on the talents and capabilities of both labor and management to continually improve quality and productivity using work teams. This is one strategy companies are currently using.

Competing through Meeting Stakeholders Needs: Flexibility Builds Employee, Customer, and Shareholder Satisfaction. Owens-Corning was experiencing a problem with employee morale which stemmed from poor sales, low cash flow, and litigations for products that contained asbestos. Other problems included compensation and benefits to employees, but above all, Owens-Corning needed new core values. A new compensation and development plan known as Rewards and Resources was created to increase customer satisfaction, individual dignity, and meet sales goals. The new program was a success and many other companies are looking to model their plans after the Rewards and Resources program.

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The TQM movement has alerted management to the key role HRM plays in the achievement of quality. (See TM 1.5 and Table 1.6 in the text for HRM practices TQM companies use.) The Malcolm Baldrige National Quality Award and ISO 9000 have been established to recognize firms with high quality. The Malcolm Baldrige National Quality Award was established by President Reagan to publicize successful quality strategies. (See Table 1.7 for the award criteria.) Example: Xerox Corporation received the Malcolm Baldrige Award in 1989 after changing its policies (1) to satisfy the customer and (2) to make quality improvement the job of every employee.

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Composition of the Labor ForceThe U.S. labor force is changing and will be older, more culturally diverse, and smaller than at any time in the last 40 years. The youth labor force (aged 16-24) is expected to grow more rapidly than the overall labor force for the first time in twenty-five years. The fastestgrowing segments are women, Hispanics, blacks, and Asians (see text Figure 1.4 and TM 1.6). Immigration is playing a more important role by increasing diversity, as well. Immigrants may account for as many as 1 million additional persons in the work force through 2005. The structure of the economy is changing, with the manufacturing sector shrinking. However, job growth is expected. Professional specialty occupation are expected to grow the fastest. (See Table 1.8 for the fastest-growing and fastest-declining occupations.) Skill DeficienciesProjections show that the supply of entry level labor will not have the education and skills to meet job demands. The current labor force contains individuals with low skills as well, literacy skills being a particularly weak area. A major research project identified six types of skills besides academic skills (reading, writing, arithmetic) that U.S employers say are basic to success in the workplace. These skills include influence and interpersonal skills, communications skills, adaptability, personal management skills, and knowing how to learn. Changes in the Employment Contract and Place of WorkThe contingent work force of temporary, part-time, and self-employed workers is growing. The traditional lifetime career job is no longer a prevalent arrangementjob security is much less than in previous periods. Contingent work gives companies flexibility and lower labor costs, but management of human resource planning is now more critical. Contingent work may fill employees needs for flexibility as well. Work done outside the traditional work site is called distributed work and obviously brings new HRM challenges with it. Employee ValuesBecause the work force is increasing in diversity, the values will be diverse as well. Some changes, like an emphasis on the quality of nonwork and family life, are already having an impact on company policy. Shared values generally include work as self-fulfillment, fair policies, greater responsibility, and a trustworthy manager. Companies face a number of challenges in managing diversity, including maintaining equitable treatment and legal compliance. Managing cultural diversity may take many forms, including auditing HRM practices for bias and actively creating a culture that values diversity. Table 1.9 presents ways that managing diversity can provide a competitive advantage. Example: The Seattle Times Company, a newspaper publisher, has taken a unique approach to assure that the content of its papers does not reflect racial stereotypes. A committee made up of reporters, editors, and photographers regularly meets to review, critique, and discuss the papers contents. The company also conducts audits of the frequency of the appearance of women and minorities in its photographs.

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10. Legislation and LitigationFive main areas in the legal environment have influenced HRM practice: equal opportunity legislation, safety and health legislation, pay and benefits legislation, employee privacy, and job security. Most recently, the Americans with Disabilities Act regulations require employers to accommodate mental and physical limitations of otherwise qualified individuals, unless undue expense would be incurred. 11. Ethical ConsiderationsEthical criteria should be used in company and employee interactions. Ethical principles include the emphasis of mutual benefits, employees assuming responsibility for company actions, a meaningful corporate vision for employees, and fairness. Example: At many TI locations subject experts are available to speak directly with employees concerning ethical issues involving safety or an environmental issue. TI is in the process of developing a web site devoted exclusively to policies and procedures that deal with ethics. Employees are also able to directly access a toll-free hotline number for answers to questions. C. The High-Performance Work System ChallengeTo gain competitive advantage with foreign competitors, U.S. companies must learn to integrate technology and structure into high-performance work systems.
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Additionally, advances in telecommunications, microprocessors, etc., are having a major impact on necessary to job success. 1. Change in Employees Work Roles and Skill RequirementsNew technology often requires new basic skills. For example, computer-integrated manufacturing requires employees to monitor equipment and troubleshoot problems with sophisticated equipment. More organizations want employees cross-trained in multiple jobs. Interpersonal skills are increasingly important as teams are used. Increase in the Use of Teams to Perform WorkEmployees are now expected to make decisions at point of sale to improve customer service. Work teams form one method of increasing both employee responsibility and control. These teams frequently assume managerial activities. Quality control may be integrated into the teams functions. Cost savings may be realized by the use of teams. Changes in the Nature of Managerial WorkManagers are moving away from the control model and towards facilitation. Decision making is more decentralized. Empowerment means giving employees the responsibility and authority to make decisions regarding all aspects of product development or customer service. Employees then share in the rewards or failures that result. Managers must help with linking roles and coordination between internal and external units. Changes in Company StructureMany companies have recognized the need to move to an adaptive, high-involvement form of organizational structure. In this type of structure, employees are in a constant state of learning and performance improvement. Traditional boundaries are abolished and employees interact freely with all areas of the organization and with customers and vendors as well. Competing through High Performance Work Practices: Grade Material and Work Systems Mean World Class Excellence. Top-

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GE Fanuc Automation has a reputation of excellence in automation control, research and development, and manufacturing facilities. The companys commitment to excellence has earned them the recognition of becoming the first US companies to become a certified ISO 9000 manufacturer. The central idea to GEs award winning practices is the fact that the employees closest to the work have the best ideas for improvement. Teams are also extensively used at GE Fanuc Automation as well as hours of training. This combination has led to excellence.

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Increased Availability of Information Bases Related to the Companys Human ResourcesA human resource information system may contain large amounts of data regarding the companys employees. An HRIS may be used to support strategic decision making and ensure legal compliance, as well as to evaluate programs and policies or support daily operating concerns. Example: Northern Telecom has facilities in 90 countries and has created a central database of employee records worldwide. Headcount, salary, and recruiting data are updated regularly. This system has improved Northern Telecoms ability to meet customer needs and address global staffing issues.

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Competitiveness in High-Performance Work SystemsIn order for new technologies or new structures to support organizational improvement, the integration of these two factors must be carefully examined. Human resource practices that support high-performance work systems are listed in Table 1.10. These practices are designed to provide employees with skills, incentives, knowledge, and autonomy. Owens Corning Fiberglass introduced new technology (plant automation and glassmaking) and integrated it with HRM practices (self-managed work teams) successfully.
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III.

Meeting the Competitive Challenges through HRM Practices (Figure 1.6 and TM 1.8 provide examples). HRM practices that help companies respond to the four competitive challenges can be grouped into the following five dimensions (see Figure 1.6): A. Managing the Human Resource EnvironmentHRM practices should be linked to strategy, legal compliance must be assured, and work should be designed to maximize employee effectiveness and motivation. B. Acquiring and Preparing Human ResourcesHuman resource planning must occur, employees must be recruited and placed in appropriate jobs, methods of employee selection must be determined, and ensuring employees have skills to perform particular jobs. Assessment and Development of Human ResourcesThis area of HRM deals with measuring employee performance, preparing employees for future work roles, identifying and responding to employee interests, and creating a beneficial and effective work environment.

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D. Compensating Human ResourcesAppropriate pay systems must be developed, employee contributions must be rewarded, and employees must be provided with benefits. E. IV. Special IssuesLabor unions create an additional HRM challenge.

The final paragraph and Table 1.11 present the overall organization of the text.

Chapter Vocabulary
These terms are defined in the Extended Chapter Outline section. Competitiveness Competitive Advantage Self-service Outsourcing Euro Total Quality Management (TQM) Balanced Scorecard Internal Labor Force External Labor Force Malcolm Baldrige National Quality Award Distributed Work Empowerment

Discussion Questions
1. Traditional human resource management practices were developed and administered by the companys human resource department. Line managers are now playing a major role in developing and implementing HR practices. Why do you think non-HR managers are becoming more involved in developing and implementing HRM practices? As the relationship between various HRM practices and the productivity and performance of employees has been recognized, line managers have strong reasons to become involved in the development and implementation of HRM practices. The information from line managers is critical to determining needed and appropriate policies and practices that will reinforce the strategic and operational needs of the organization. For instance, if quality needs improvement, then it is critical that incentive/compensation practices be developed to reward quality improvement, rather than volume production.
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Staffing, training, compensation, and performance management are important HRM functions. How can each of these functions help companies deal with high-performance work systems challenges? Meeting stakeholders needs? Global challenges? The work systems challenge necessitates that employees adjust to working in team structures (training and selection), that they receive higher-level and basic skills training, and once again that compensation and performance management systems are used to motivate and reinforce appropriate behaviors. In terms of meeting stakeholders needs challenge, students might comment that the selection of employees with appropriate skills would help meet the organizations needs. Training may improve deficient skills, performance appraisal techniques may emphasize and measure quality improvement, and compensation practices may be used to reinforce needed change. Diverse work force, low skill levels of entry-level workers could be helped by training and performance management techniques. Obviously, using selection processes that are fair and nondiscriminatory while selecting the best employees is important. And again, compensation systems that reward the acquisition of needed skills could help here. Finally, the global challenge may produce the organizational need for employees who speak multiple languages, who are trained to adjust to new cultures and who are sensitive to cultural differences. Employees with the flexibility and skills needed to work in various cultures or with individuals of diverse backgrounds may be selected or developed through training. Appropriate rewards will maintain these valuable employees.

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This book covers four human resource management practices: managing the human resource environment, acquiring and preparing human resources, assessment and development of human resources, and compensating human resources. Which area do you believe contributes most to helping a company gain a competitive advantage? Which area do you believe contributes the least? Why? Each students answer will vary to this question based on opinion. An example can be: Acquiring and preparing human resources is the most important HRM practice because well trained employees are the most important aspect of a business. On the other hand, compensating human resources is not at all important because money is not what drives all employees. However, contradictory arguments can be made for each of these points as well.

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What is the balanced scorecard? Identify the four perspectives included in the balanced scorecard. How can HRM practices influence the four perspectives? The balanced scorecard gives managers an indication of the performance of a company based on the degree to which stakeholders needs are satisfied. This gives managers the opportunity to look at the company from the perspective of internal, external, employees, and shareholders. Communicating the scorecard to employees gives them a framework that helps them see the goals and strategies of the company, how these goals are measured, and how they influence the critical indicators.

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Is HRM becoming more strategic? Explain your answer. Technology is allowing the typical HRM to steer away from everyday tasks to focus more on the strategic side. Self-service, empowerment, and outsourcing is also increasing strategic roles. There is an increase in managers in charge of human resource function being included on high-level committees that are shaping the strategic direction of the company.

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Explain the implications of each of the following labor force trends for HRM: aging workforce? diverse workforce? skill deficiencies? The aging workforce means that employees will increasingly face issues such as career paltering, retirement planning, and retraining to avoid skill obsolescence. High healthcare costs will also be a struggle with the aging employees. The diverse composition of the workforce challenges HRM to ensure that the talents and skills of all employees are fully utilized for the good of the organization. Immigration is an important factor contributing to the changing workforce. HRM need to be aware of the positive and negative aspects of immigration. Projections show that the supply of entry level labor will not have the education and skills to meet basic job demands. Individuals will have low reading, writing, and impersonal skills.

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What role do HRM practices play in a business decision to expand internationally?

With opportunities opening up in many emerging markets, it is important that a company creates a multinational culture that is characteristic of the culture in which it operates in. Successful companies realize that the most important asset to a business is its employees. This translates into HRM playing a big role in international expansion. 8. Is business emphasis on quality a fad? Why or why not? What might a quality goal and high performance work system have in common in terms of HRM practices? Business emphasis on quality has proven to be more than just a fad. The idea of quality has allowed companies to gain a competitive advantage. In terms of HRM practices, a quality goal and high performance work systems has a lot in common. Both require increased use of teams, empowering employees and changing employee roles and company structure. A quality goal is central to the high performance work systems. 9. What disadvantages might result from outsourcing HRM practices? From employee self-service? From increased manager involvement in designing and using HR practices? The primary disadvantage of outsourcing HRM practices includes the loss of strategic ties in the organization because someone else is handling the companys HR practices. It also may have a potential negative impact on employee behavior and attitudes. The disadvantages of employee self-service include possible derailment of their careers. The possible disadvantage from increased managerial involvement might be too much structure and authoritative HR practices. It would also go against the quality and high performance work system principles.

End-of-Chapter Case
Daimler Has to Steer the Chrysler Merger Summary. This case presents the description of the merger of Chrysler Corp. and Daimler Benz. The new company, Daimler Chrysler, will endure massive challenges that occur as a result of international mergers. The students challenge is to provide HRM issues that Chrysler Corp. and Daimler Benz will have to resolve and how to resolve them to become successful.

Questions
1. One way to expand business globally is to merge with another company to create a powerful international corporation. The challenge is to unite two different companies with distinct business processes, strategies, and cultures. Mergers are even more challenging when they involve companies from different countries (such as the Chrysler-Daimler Benz merger). Executives need to review operational, financial and people processes to develop a common set of rules, practices, and procedures for the new company. What HRM issues do Chrysler Corporation and Daimler Benz have to resolve to make the merger successful? HRM issues that Chrysler-Daimler Benz has to resolve to make the merger successful include: preparing employees for international assignments, composition of the workforce, compensation and layoffs of employees, and employee values 2. How might Chrysler and Daimler Benz decide which HRM practices to adopt company-wide (globally)? When the merger occurs, the new company should prepare employees for the change that is about to happen. The new company should pay close attention to the diversity of the workforce and involve employees as much as possible in company-wide decisions. The balanced scorecard would give managers the opportunity to look at the company from the perspective of internal and external customers, as well as employees and shareholders. This would allow managers to have a complete overview of the HRM practices to adopt.

Additional Activities
Teaching Suggestions The use of outside or additional assignments early in the term provides an opportunity for students to illustrate for themselves how HRM is an important function within the organization. Following are several additional reading assignments, extra discussion questions for the Competing through boxes in the text, as well as a suggestion for an
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outside speaker. Getting students to provide examples of organizations that have effectively used HRM practices to help respond to competitive challenges sells them on the importance of the rest of the course! Activities 1. This chapter contains references to many current issues in business and HRM. One assignment that could help students see the relevance of what they will be studying is to ask them to read The Wall Street Journal, Business Week, or other resources and to bring in an article that discusses any of the topics covered in the chapter. In groups or in class, they could share their example and discuss the implications. Alternatively, this could serve as a written assignment if they were asked to write a summary of the article and to point out the implications for HRM. Assign students to read The Wall Street Journal article Bob Stadler Has Lived All the Business Trends of the Past 50 Years, July 11, 1996, p. 1. a. Ask them to discuss the changes in employee expectations regarding work. b. How must employers respond to some of these changes? 3. Questions for Competing through Globalization a. Why was Starbucks such an attractive employer in Beijing? b. What did Starbucks do to ensure new recruits would be successful? 4. Questions for Competing by Meeting Stakeholders Needs a. Owens-Corning adopted a new compensation and development plan in order to deal with bleak ongoing problems. What was the new program? b. What would have to be done in order to increase the morale of employees at Owens-Corning? 5. Outside Speaker: In the first week or two of class, it is frequently useful to invite a CEO of a small firm or an HRM vice-president of a larger firm to talk with the class about the role of human resources in the success of the company. Very often, such speakers have good examples of how the knowledge of HRM has helped the company to deal effectively with competitive pressures and environmental change.

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