Planning for Organizations, Jobs, and People

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PART 2 Planning for Organizations, Jobs, and People 2 Strategic Human Resource Management 3 Human Resource Planning 4 Job Analysis: Concepts, Procedures, and Choices 9781111071592, Human Resource Management, Fisher, Schoenfeldt & Shaw - © Cengage Learning

Transcript of Planning for Organizations, Jobs, and People

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P A R T 2

Planning forOrganizations,Jobs, and People

2 Strategic Human ResourceManagement

3 Human Resource Planning

4 Job Analysis: Concepts, Procedures,and Choices

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C H A P T E R 2

Strategic Human ResourceManagement● Why Is Managing Human Resources So Important?

● What Is Strategic Human Resource Management (SHRM)?

● Transforming HR Staff and Structure

● Enhancing Administrative Efficiency

● Integrating HR into Strategic Planning

● Fitting HR Practices to Business Strategy and to OneAnother

● Partnership

● Measuring HRM

● Is Strategic HRM Really Worth All the Trouble?

HR ChallengeIn 2003 Xilinx was one of the fastest growing companies in the semicon-ductor industry. Xilinx is a publicly traded company headquartered in SanJose, California, with a work force of approximately 2,600 employees. Xil-inx was a pioneer in the development of the field programmable array(FPGA), and in 2003 Xilinx filled more than 50 percent of the worldwidedemand for this product. FPGAs are computer logic chips that can be pro-duced as a standard product then customized by clients to meet theclient’s particular needs. This is in contrast to the earlier approach of chipshaving to be manufactured to customized specifications. In addition toFPGAs, Xilinx designs, manufactures, and markets computer hardware andsoftware products used in a broad range of digital electronic products. In2003 Xilinx had more than 7,500 customers worldwide including suchglobal leaders as Cisco Systems, Ericsson, Fujitsu, Hewlett-Packard, IBM, Lu-cent Technologies, Nokia, Samsung, Siemens, and Toshiba. A 2003 marketresearch report by Gartner Dataquest ranked Xilinx as the fourth largestASIC (application specific integrated circuit) company in the world, upfrom being fifth the previous year.

Thanks to these performance figures, in 2003 Xilinx was ranked seven-teenth among Business Week’s fifty best-performing companies in theStandard & Poors 500 and was also named as one of the 400 best big com-

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panies by Forbes magazine. Two of its customers, Cisco Systems and Lucent Tech-nologies, named Xilinx their supplier of the year. In addition to this very positive fi-nancial and customer performance, Xilinx was also noted as one of the best firms towork for in the United States. It was ranked fourth among Fortune magazine’s “Best100 Companies to Work For” and the San Francisco Chronicle named Xilinx amongits top fifty companies to work for in the Silicon Valley.

So, with financial and human resource performance like this, why is Xilinx beingpresented as an “HR Challenge?” The answer—in 2001 Xilinx faced a far less positivefinancial outlook and needed to make some very difficult business and HR decisions.Market demand for Xilinx’s products plummeted. For the quarter ending June 30,sales were down 21 percent with operating profits of $30.3 million, down from$121.3 million the year before. In the next quarter of 2001, sales were down 48.6percent compared to the year before, and the previous year’s $147.1 million operat-ing profit was replaced by an operating loss of $115 million. This negative financialperformance was made more problematic because it came after a period of exten-sive growth in sales revenue, profits, and the size of Xilinx’s work force.

Xilinx had been proud of its ability to recruit the very best employees. In an arti-cle published in Design News in 2003, CEO Wim Roelandts noted that a major prob-lem he faced in 2001 was that much of the labor force at Xilinx was made up of in-telligent, motivated, and well-educated engineers. Much of the intellectual propertyand know-how in the company was found in the heads of these employees. If theywere lost, so was valuable company and product knowledge. This intellectuallygifted and innovative human resource had, since the company’s founding, proven tobe a significant element in Xilinx’s competitive success.1

How did Xilinx deal with this difficult situation? What information was critical inhelping Mr. Roelandts and his executive team make the right decisions? Whathuman resource initiatives were taken to protect the financial viability of Xilinx dur-ing tough economic times, yet protect the firm’s long-term competitive position?This was truly an HR challenge!2

The problems faced by Xilinx are not unlike those faced by many firms that haveundergone major changes in the nature of their business environments. The

idea that constant change is a fact of organizational life has become widely ac-cepted among practicing managers, organizational consultants, and business acad-emics. Since September 11, 2001, managers worldwide have had to recognize that,in addition to “normal” changes in business conditions, their market environmentsmay shift dramatically and with a suddenness unheard of only a short time before.In these new worldwide business conditions, a common theme is the importantrole that human resource management plays in the success or failure of firms. Xil-inx’s business challenge in 2001 was, to a large extent, focused around the need toprotect their human capital under tough market conditions. The view that humanresource managers are simply “paper pushers” is rapidly disappearing, to be re-placed by the notion that they play a key role in determining the competitive suc-cess of firms in a dynamic and unpredictable business world.

In a generic sense, the new view of human resource management has been re-ferred to as strategic human resource management (SHRM). This chaptertakes a look at this concept. Specifically, the business factors that contribute to theincreased importance of human resources as a source of a firm’s strategic competi-

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tive advantage are discussed. Several theoretical perspectives on what strategichuman resource management actually involves are described. Then the key ele-ments needed to develop strategic human resource management practices withinan organization are discussed in detail. Examples are given of how these aspectsof SHRM have been operationalized by firms that have undergone or are currentlyundergoing the transformation from a traditional to a more strategic view ofhuman resource management. The chapter also examines the question of whetherstrategic HRM practices actually enhance firm performance. Is the move from tra-ditional to strategic HRM really worth all the effort required? Evidence supportingthe value-adding effects of strategic HR practices is discussed.

This chapter plays a critical role in establishing the context for all subsequentchapters. Following Chapter 2, the text explores a variety of HR functional areasand issues and introduces a large number of sophisticated HR techniques. Somebelieve that practicing good HRM requires a firm to use the most advanced andsophisticated HR methodologies. As shown in this chapter, however, simply usingthe most advanced techniques may not necessarily add the greatest value to afirm’s operations or ensure its long-term success. Within the framework of strate-gic human resource management, effectively managing human assets in a firm re-quires a far broader view of what is good or bad, efficient or inefficient. What is re-quired is an understanding of the complex interactions among the uniquecharacteristics of the firm, its customers, the business environment in which it op-erates, its products or services, and the nature of its employees. This chapter pro-vides a broader, more strategic and complex view of managing human resourcesfor long-term competitive success. It is from this expanded perspective that thereader must view the methodologies and techniques discussed throughout the re-mainder of the text.

●WHY IS MANAGING HUMAN RESOURCES SO IMPORTANT?

In the past decade, increasing attention has been paid to the importance of humanresource management in determining a firm’s competitive advantage. WayneBrockbank suggests that an increasing attention to strategic HR issues is evi-denced in several ways.3 First, in an increasing number of firms, the chief HR ex-ecutive reports directly to the organization’s CEO, indicating higher HR statuswithin the organization. Second, CEOs in major companies such as Sears, GeneralElectric, Ford, and Allied Signal are encouraging a greater focus on HR issues aspart of programs to enhance competitive advantage. Finally, HR contributions areincreasingly given credit for playing a critical role in improving the performance ofmajor firms (e.g., Baxter International, Harley Davidson, Quantum, Unilever,Arco).

Why is this so? What factors have caused businesses to focus increased atten-tion on HRM? Randall Schuler identifies several changes in the basic business envi-ronment that place increased importance on human resources. Among these are:

• Rapid change• High levels of uncertainty about basic business conditions• Rising costs• Rapid technological change

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• Changing demographics• More limited supplies of highly trained labor• Rapidly changing government legislation and regulations• Increased globalization of industries4

Recent analyses of future trends in HRM support the importance of these fac-tors, with particular emphasis on the HR implications of an aging work force inmany developed countries and advances in technology that will result in an in-creased use of Web-based HR systems and the interaction of employees within a“virtual office.”5

In his 1997 book, Human Resource Champions, Dave Ulrich argued that thesefactors place additional pressure on firms to be innovative and to create new waysof doing business with new technologies, new products, and new services to meetan increasingly diverse and demanding customer base.6 The enhanced value of in-novation in determining competitive advantage requires firms to attract, train, andretain employees of the highest quality. Firms have to move from a situationwhere financial capital was the key to strategic success to an era where human tal-ent and adaptability determine strategic goal achievement.7 From this realizationhas come the approach to managing human resources referred to as SHRM.

●WHAT IS STRATEGIC HUMAN RESOURCE MANAGEMENT?

Before one can understand what strategic human resource management (SHRM)is, it is essential to have a clear picture of the “traditional” view of HR because it isstill the prevalent form of HR activity in many organizations. Traditional HR activi-ties include the following:

• Human resource planning• Recruitment• Job analysis• Establishing performance review systems• Wage, salary, and benefits administration• Employee training• Personnel record keeping• Legislative compliance (affirmative action, EEO, etc.)• Labor relations

Much of the time of HR units within firms is still focused on these traditionalactivities as compared to more strategic “business partner” functions. In 2000 HRleaders in more than 100 large firms indicated that they spent 80 percent of theirtime on traditional HR activities such as (a) collecting, tracking, and maintainingdata on employees; (b) ensuring compliance with internal operational proce-dures, legal and other external regulations, and union requirements; (c) assistingwith the implementation and administration of traditional HR practices; and (d)developing new HR systems and practices. The HR leaders reported that only 20percent of their time was spent as a “strategic business partner,” involved in exec-utive management team activities related to strategic planning, organizational de-

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sign, and strategic change. A good example of this was found in another survey of447 senior HR executives. Only 20 percent of them indicated that they were partof the pre-deal phase of mergers and acquisitions, a major strategic action takenby any firm.8

The traditional personnel department still exists in many firms and is oftenboth physically and psychologically separated from the “real work” of the organi-zation. A visual representation of the traditional role of the personnel departmentin organizations is shown in Figure 2.1a. The key points represented in Figure2.1a are that the traditional personnel orientation involves a limited number offunctional tasks and that personnel activities and staff are relatively isolated fromthe “profit-making heart” of the organization.

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● F I G U R E 2 . 1

Traditional and StrategicViews of HRM

• Staffing • Pay • Training

Personnel

The Organization

Research andDevelopment Finance

Production Marketing

(a) Personnel—The traditional view

(b) HRM—The strategic view

Human ResourceManagement

ProductionMarketing

Research andDevelopment

Finance

StrategicGoals

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Strategic HRM: Some Theoretical Perspectives

In the strategic view of HRM, the functional duties described earlier remain impor-tant. Certainly hiring, training, and providing pay and benefits to employees areessential tasks that must be accomplished in any organization. However, given thechanges in the business environment discussed earlier, many organizations aredeveloping new structural and cultural patterns to meet the competitive demandsof their dynamic and international marketplace, and the role of HR in these organi-zations has had to change to meet these challenges as well.

As a result, a new strategic view of HR has tended to emerge (see Figure 2.1b). Inthese firms, HR is integrated fully and plays a central role in helping the organizationreach its strategic objectives, interacting with other functional areas within the firm.

The new role of HR can be described most simply as one of helping managersmaximize the contribution of employees in achieving competitive advantage.Strategic HRM is “concerned with the promotion of efficiency and profitability. . . .Strategic HRM centers on how organizations can improve their competitive per-formance by considering and utilizing their human resources more effectively.”9

These definitions seem straightforward, but there is considerable debate aboutwhat “helping managers maximize the contribution of employees” or “utilizingtheir human resources more effectively” really involves. A number of theoreticalmodels have been developed to explain exactly what SHRM requires in an organi-zation and the processes by which SHRM contributes to the bottom-line success ofa firm. A summary of these theoretical perspectives is given in Table 2.1.

In his book, The Human Equation, Jeffrey Pfeffer notes strong evidence for aset of HR practices that have a positive effect on organizational performance, re-gardless of a firm’s particular business environment and strategy.10 This set of HRpractices include the following:

• High levels of employment security• Selective hiring practices• A focus on teams and decentralized decision making

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● TA B L E 2 . 1

Theoretical Perspectives on SHRM

Perspective Description

Universalistic There is one best way to manage human resources. Strategic HRM is the process of transforming traditional HR practicesinto a limited set of “correct” HR procedures and policies.

Strategic best-fit Strategic HRM involves matching specific HR practices to the firm’s overall business strategy.

Configurational Various configurations, or “bundles,” of HR practices go together and, collectively, can improve business performance.Certain bundles are effective in certain industries or in certainbusiness conditions; other bundles should be used in otherindustries or under different business circumstances.

Resource-based SHRM engenders organizational success by enhancing a firm’s ability to acquire, develop, utilize, and retain employeeswith high competence levels relevant to firm activities.

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• High pay levels• Extensive employee training• Practices that reduce status distinctions among employees• High levels of information sharing

The basic assumptions behind this universalistic approach to SHRM is thatthese best practices are universally applicable and are directly related to firm per-formance, which can be measured in financial terms.11

Contrary to the universalistic view, the best-fit perspective of SHRM suggeststhat “firm performance will be enhanced to the degree that firms adopt human re-source management practices that complement and support both other HR policiesand practices and the other elements of the organization’s strategic plan.”12 Al-though Pfeffer’s practices fit with one another, they may or may not fit an organiza-tion’s strategic approach. There are actually three aspects of “fit” within this best-fitapproach to SHRM. Horizontal fit refers to the consistency among various HR prac-tices within a firm. Thus, if a firm’s selection procedures seek to hire highly innova-tive, risk-taking employees, the firm’s performance appraisal and reward systemsalso should assess and reward innovation and risk taking. Vertical fit is the degreeto which HR practices are consistent with the firm’s overall business strategy. Forexample, suppose that a firm has decided to enhance its competitive standing rela-tive to other firms in its industry by becoming highly “customer focused.” HR train-ing programs that help employees develop better customer relations skills wouldbe consistent with this overall business philosophy. If training programs in the firmconcentrated solely on upgrading technical skills unrelated to employee–customerinteractions, the training system would be inconsistent with the customer-orientedbusiness strategy. External fit refers to how well HR practices align with specific as-pects of the external environment. For example, in the United States and Australia,demographic changes are occurring, creating a work force that is far more multi-cultural in nature. Diversity management training, remedial language training, ornew approaches to selection of employees from nonmajority cultures may be re-quired as part of the overall HR system to fit this new external environment and en-hance the competitive value of employees.

The configurational approach to SHRM proposes that the strategic effective-ness of HRM depends on a set, or bundle, of HR practices rather than on any sin-gle HR program or policy. The idea here is “that employment practices often com-plement each other, so that the adoption of one employment practice is onlyeffective when it is adopted in combination with one or more supporting workpractices.”13 Over the years, programs such as “quality circles” have been her-alded as a cure-all for many organizational ills. Few of these single-program ap-proaches have resulted in the kind of improvements in organizational perfor-mance that were promised by their proponents. The configurational view of HRfocuses on implementing HR bundles rather than single, “magic bullet” pro-grams. The configurational approach to SHRM is consistent with the long-heldview that employee performance is determined by a number of factors, such asmotivation and ability. Thus, to increase employee performance, HR programs areneeded that enhance both motivation (e.g., reward systems) and ability (e.g., hir-ing or training systems). One could argue that the configurational view is simplyan extension of the universalistic approach described previously; that is, that somesingle bundle of HR practices have universally positive effects on employee perfor-mance. However, recent research on HR practices in Germany, Italy, the United

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States, and Japan found that although bundles of HR practices had a greater posi-tive effect on organizational performance than did single practices alone, the na-ture of those bundles varied from one country to the next.14 So the universalisticand configurational views are not the same after all. One of the major contributionsof the configurational approach is that research associated with it has identified anumber of different “bundles” of HR practices that contain individual HR elementsthat are internally consistent with one another. Some of these different types ofHR systems are described in Table 2.2.

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● TA B L E 2 . 2

Types of HR Systems

Source Types of HR Systems

Dyer and Reeves Control systems: Commitment (1995) • Centralization of systems:

decision making • Decentralized • Low employee decision making

involvement • High employee • Tight controls through involvement

rules, policies, appraisal • High levels of autonomy and empowerment

Snell and Youndt Behavior control Output control Input control (1995) systems: systems: systems:

• Standardized • Mutually set • Rigorous selection responsibilities set performance and training; by management targets ensuring of

• Employee accounta- • Results-based requisite skillsbility for actions appraisals • Systems to ensure regardless of results • Monetary rewards that employees

• Supervisor-conducted for achieving understand and behavior-based results internalize firm’s appraisals values

• Use of feedback to fix problems

Delery and Doty Market-type systems: Internal systems:(1996) • Hiring from outside • Internal labor

• Little training market• Evaluation of perfor- • Extensive socializa-

mance through the use tion and trainingof results measures • Performance

• Little employment assessment security through behavior

• Little voice • Appraisal feedback • Narrowly defined jobs for developmental

purposes• High degree of

employment security

• Great deal of voice• Employees as

excellent sources of information

• Broadly defined jobs

(continued)

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In a 1995 article Jay Barney discussed a resource-based model of strategicHRM. This model is based on the idea that organizations gain competitive advan-tage when they possess resources that are valuable, rare, difficult for competitorsto imitate, and organized in such a way as to maximize their overall value to thefirm.15 Subsequent work on this perspective concluded that strategic HRM in-volves HR managers solving four basic questions about human resources. Thesefour questions are:16

1. How can the HR function aid in either decreasing costs or increasing revenuesin the firm; that is, adding value?

2. How can the HR function identify and take advantage of the rare skills andcharacteristics of employees?

3. How can the HR function help create a labor force that is very difficult forother competitors to imitate?

4. How can the HR function help structure the firm so that it can best exploit itshuman capital advantage?

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● TA B L E 2 . 2

Continued

Source Types of HR Systems

Lepak and Snell Developing human Acquiring human Contracting human Creating human (1999) capital: capital: capital: capital:

Commitment system Market-based system • Compliance • Collaborative • Internal development • Acquisition of system system• Loosely defined jobs human capital • Contract with • Use of both • Training to develop from the market external suppliers internal and

unique skills • Development of • Development of external • Career development symbiotic relation- transactional selection

and mentoring systems ship between firm relationship • Development of • Development appraisal and employees between firm and partnership • Extensive information • Selection for skills employees relationship

sharing with immediate use • Focus on terms between firm • Not a lot of training and conditions of and employees• Externally equitable employment to • Encouragement

wages ensure compliance of and reward • Lots of rules and cooperation

procedures • Lots of infor-• Reliance on good mation sharing

selection • Little trainingprocedures • Possible use of

• Little training exchange pro-grams and job rotation

Sources: Adapted from information in Lee Dyer and Todd Reeves, “Human Resource Strategies and Firm Performance: What Do We Know and Where Do We Need to Go?” TheInternational Journal of Human Resource Management, Vol. 6 (3), 1995, pp. 656–670; Scott Snell and Mark Youndt, “Human Resource Management and Firm Performance: Test-ing a Contingency Model of Executive Controls,” Journal of Management, Vol. 21 (4), 1995, pp. 711–737; John Delery and Harold Doty, “Modes of Theorizing in Strategic HumanResource Management: Tests of Universalistic, Contingency, and Configurational Performance Predictions,” Academy of Management Journal, Vol. 39 (4), 1996, pp. 802–835;David Lepak and Scott Snell, “The Human Resource Architecture: Toward a Theory of Human Capital Allocation and Development,” Academy of Management Review, Vol. 24 (1),1999, pp. 31–48.

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A recent analysis of research on the resource-based view identified three majorimplications of this SHRM perspective about which there is significant consensus.17

First, HR managers must focus on the human capital pool within their firm, whichconsists of the skills, abilities, and knowledge that exist among employees at any oneparticular time. To gain competitive advantage, HR managers must (a) help the orga-nization develop a human capital pool that has a higher overall level of skills, abilities,and knowledge than competitors; and (b) ensure that the skills, abilities, and knowl-edge within the human capital pool are more closely aligned with the strategic objec-tives of the firm than is typical among competitors. The resource-based approach toSHRM also requires constant monitoring of the characteristics of the human capitalpool within the firm because the nature of this pool will change over time.

Experts point out that “employee behavior is an important independent compo-nent of SHRM. . . . employee behavior recognizes individuals as cognitive and emo-tional beings who possess free will. . . . Firms may have access to valuable humancapital, but either through the poor design of work or the mismanagement of people,may not adequately deploy it to achieve strategic impact.”18 HR managers must de-velop systems within the firm to ensure that employees’ discretionary behavior is ac-tually directed toward activities that are strategically beneficial to the firm.

Finally, the resource-based view encourages HR managers to focus on the de-velopment of multiple rather than single practices to affect employees. This aspectof the resource-based view is similar to that of the configurational approach to HR.However, the resource-based view suggests that these systems of multiple prac-tices need not be made up solely of traditional HR activities (e.g., recruiting, selec-tion, performance appraisal) but must extend to activities related to the develop-ment of organizational culture, leadership, and other strategically critical aspectsof the organization’s life.

There are many examples of how firms have attempted to enhance their humancapital pool.19 Federal Express increased revenues by using employee attitude sur-veys to identify managers with poor employee relations skills. FedEx then used thesurvey information to improve managerial skills through training and performancemanagement systems, which eventually led to improved customer service by em-ployees. FedEx improved the overall competitive level of the skills, knowledge, andabilities of managers within its human capital pool. Southwest Airlines’ extensive se-lection procedures identify flight attendants who contribute to the “fun” atmosphereof the airline. Top management empowers employees to “be inconsistent” and createnew, fun, and interesting ways to satisfy customers. These selection and empower-ment systems engender employee behavior that is highly consistent with the firm’soverall business strategy. Importantly, these systems are also difficult for other firmsto imitate. Nordstrom uses selection and compensation systems that select highlycustomer-oriented employees and then reward excellent customer service behavior.Through these systems, Nordstrom ensures that its highly capable employees actu-ally contribute their discretionary effort to enhance firm performance. For all threeof these firms, multiple HR practices have been used to enhance the firms’ humancapital advantage, which is consistent with the resource-based perspective.

Theoretical Perspectives: Conclusions About SHRM

As is often the case with theories about human behavior in organizations, thequestion for HR practitioners is this: “Which theoretical approach is correct, andfrom a practical perspective, what does it suggest are the important aspects for

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creating a strategically oriented HR function?” Unfortunately, the answer to thisquestion is not simple. Like many other theories about organizations, none is com-pletely correct. Rather than being right or wrong, each approach points to differentaspects of the process needed for developing an effective strategic HR function.Taken collectively, the research conducted to test these different perspectives iden-tifies six key elements required in developing SHRM within a firm:

1. Internally transforming HR staff and structure2. Enhancing administrative efficiency3. Integrating HR into the strategic planning process4. Linking HR practices to the business strategy and to one another5. Developing a partnership with line management6. Focusing on the value of the human capital pool within the firm so as to have a

direct business impact (and being able to measure that impact in a meaningfulway)

Although these essential processes are listed as if they were independent ofone another, there is obvious overlap among the concepts as there are overlapsamong the theoretical perspectives from which they are derived.

Because traditional HR remains a dominant perspective in many organizations,creating a SHRM perspective requires the internal transformation of existing staffwho perform HR duties and the structure within which they operate. It is these in-dividuals who must champion and enact the change to SHRM. New skills are usu-ally needed, as are new perspectives about the structure and processes of HRM.Within an SHRM perspective, traditional administrative tasks remain important.Employees must receive their pay and benefits, safety programs must be developedand administered, and EEO laws must be obeyed. However, the focus becomesone of performing these administrative tasks in as efficient and cost-effective amanner as possible.

In terms of the remaining elements of SHRM, the integration of HR into thestrategic planning process is critical. Only by being part of the strategic planningprocess can HR practitioners link business strategy and HR practices to one an-other. Borrowing concepts from the configurational perspective, the focus ofSHRM is not on linking single HR programs to business strategy. Rather, to en-hance a firm’s strategic effectiveness, SHRM must develop bundles of internallyconsistent HR activities that contribute to the achievement of the firm’s strategicgoals and objectives. This can only be accomplished once an effective partnershipbetween line managers and HR staff is established. Otherwise, HR’s ability to con-tribute to strategic planning and to develop useful bundles of HR practices will belimited. Finally, all theoretical perspectives of SHRM point to the need for a directbusiness impact of HR practices. The competitive business environment that mostfirms face today precludes the luxury of engaging in HR practices that simply “feelgood” or “look good” or happen to be the latest HR fad. Human resource manage-ment activities must add value to the firm. In the following pages, each of these el-ements of SHRM is discussed, along with examples of how firms have operational-ized them in their own transformation to a strategic approach to human resourcemanagement. However, before moving to a detailed discussion of the six elementsfor HR transformation, a brief discussion of a critical “pretransformation” activityis needed.

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One key barrier to effective HR transformation is the attitude of many seniorexecutives who still see HR as primarily an administrative function. For example,the results of a survey on how Chief Financial Officers (CFOs) in firms viewed HRshowed that only 39 percent of CFOs viewed HR as mainly or somewhat as astrategic partner, while 33 percent viewed HR as an equal combination of “costcenter” and strategic partner, and 28 percent viewed HR as somewhat or mainly acost center. Thus, before any true transformation of HR can occur, top manage-ment must be brought “on board.”20 A number of authors have examined thisissue, and several consistent themes have developed about how best to achievetop management “buy-in” to an HR transformation.21

First, the leader of any HR change effort must be a highly competent and cred-ible leader within the organization. Second, a compelling business reason forchange must be built with which the top managers can easily identify. To create acompelling business case, HR managers must “create an awareness of potential‘gain or pain’ for a specific business. Human resource initiatives are successfulwhen they resolve an issue—they make the issue ‘go away.’ Without clearly de-fined issues, human resource strategies are rhetoric and action plans lose connec-tion with purpose.”22 For maximum impact, HR initiatives should be backed bycompelling data and should focus on a few critical issues rather than on a hugerange of problems.23 Third, those leading the HR change process must be able toarticulate a clearly defined “end-state vision” for HR and the major steps that willbe needed to achieve that vision. This should involve an interactive process be-tween HR and other top managers who help HR define that end state. The involve-ment of top managers will help ensure their commitment to the HR changeprocess. Finally, measures must be developed to monitor the progress of thechanges. These measures should be focused on the value added by HR. Such mea-sures will not only help get the CEO and top management team “on board” the HRtransformation train but will help keep them on board as the train weaves throughwhat will likely be a difficult, challenging landscape.

●TRANSFORMING HR STAFF AND STRUCTURE

To create a strategic HRM philosophy within a firm, attention must be paid to thetransformation of HR staff and the organizational structure in which these peoplecarry out their HR activities. There are two aspects of this transformation: (1)transforming the people and (2) transforming the structure.

Transforming HR People

There are significant differences in the skills needed by HR staff to function effec-tively in a strategic versus traditional HR role. A traditional HR role required astaff member to be a highly skilled specialist in a particular HR functional area,such as training or recruitment interviewing. Traditional HR staff, including thesenior HR manager, needed relatively little financial or marketing skills. Theywere not particularly concerned with global or cross-cultural factors that could af-fect HR practices. Traditional HR staff members “stayed within their box” and in-teracted only rarely and in a fairly limited way with line managers and top execu-tives of the firm.

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Contrast this with the information in Table 2.3, which summarizes the charac-teristics of HR leaders found in a survey of 490 HR leaders and 2,463 other individ-uals (mostly middle managers) who were the direct clients of those HR leaders.24

The skills, abilities, knowledge, and behavioral capabilities required of a strategicHRM staff member are clearly much greater and more far reaching than those re-quired by the traditional HR function.

The information in Table 2.3 presents a “universalistic view” of HR skills; thatis, all HR staff will need these skills to enhance HR’s strategic role in the organiza-tion. This may not be the case. In her 1997 article on “Training HR Pros to Fit YourCulture,” Connie Freeman suggests that the competencies HR professionals needwill vary (as for other employees) depending on the strategy of the firm.25 Free-man’s view represents a strategic-fit approach to the specific issue of HR compe-tencies. For example, Freeman suggests that in firms whose strategy is focused ondelivering highly reliable, low-cost products and services, HR professionals needparticular skill in procedural knowledge, self-control, and attention to detail. Onthe other hand, for HR professionals in customer service-oriented firms, criticalcompetencies include service orientation, team building, achieving consensus,and communication. However, regardless of whether strategic HR competenciesare universal in nature or require a strategic best-fit approach, most HR units willface a significant transformation when adopting a new strategic view.

The processes by which firms have attempted to transform HR staff from tradi-tional specialists to strategic generalists are quite varied. The University of Ne-braska Medical Center (UNMC) went to extremes to transform its HR function.26

Following a series of focus groups, along with surveys of 300 managers, the nine-member HR redesign team identified a number of aspects of HR practices and HRstaff that were in need of transformation. In a somewhat radical move, UNMC es-sentially “fired” all current HR staff and then allowed them to reapply for their po-sitions. Behavioral interviews were conducted on these “reapplicants,” with eachbeing assessed against a new set of strategic HR skills criteria.

Extensive groundwork must occur prior to establishing programs for trans-forming the skills and abilities of HR staff within a firm. A good example of the ef-forts required can be found in a program to identify, coach, develop, and fosterhigh-level professional skills in AT&T’s HR staff.27 The objective of the programwas to enhance the skills of HR professionals so that they could contribute tostrategic business success. The process began with extensive research conductedon what line managers needed from HR, using surveys and focus groups to collectthe data.

Literature reviews were done, and a survey of 150 HR people was conducted tozero in on the behavioral skills that helped differentiate the top-performing HRstaff members in AT&T from more average performers. The skills and behaviorsidentified from this process are presented in Table 2.4. Once the new HR skillsand behaviors were identified, a program for marketing the vision of HR Profes-sionalism was implemented using videos, brochures, and a talk by the CEO. In ad-dition, a Professional Development Profile (PDP) procedure was developed. In thePDP process, HR staff self-assessed against the new professional standards. Theneach HR professional was asked to distribute an assessment survey to five of hisor her customers. The customers assessed the individual against the new profes-sional standards, and an individual feedback report comparing the manager’s self-assessment with that of his or her customers was provided. This feedback wasbacked up by Professional Development Workshops to help individuals close any

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gaps between the new professional standards and their self-assessed or customer-rated performance. The final step in the development of AT&T’s HR Professional-ism program involved a one-day meeting of HR leaders, followed by half-day train-ing sessions to ensure that HR leaders could use the PDP process in their ownlocations.

The AT&T program for transforming HR is by no means the only effective ap-proach. A more recent example of how United Technologies Corporation (UTC)went about transforming the skills of its HR staff can be found in the Partnershipsfor Strategic Success box.

What AT&T’s and UTC’s efforts indicate, however, is the complexity of trans-forming HR skills within a large organization. Time, effort, money, and patienceare needed. Although the large size of AT&T’s and UTC’s HR staffs increase theoverall magnitude of the transformation process, some essential elements of theirprocesses are applicable to medium-sized and small firms. First, an HR transfor-mation should be part of and directly linked to the strategic orientation of the or-ganization involved. This helps to enhance motivation, provide direction, and givea real sense of importance to the transformation process. Second, active participa-tion of HR personnel in the transformation must occur, and individuals must takeon the role of “champion” of the program’s objectives. Third, critical emphasismust be placed on getting line managers involved in defining the skills and behav-iors needed in HR staff. Fourth, the transformation must be viewed as a majorchange effort. In the case of UNMC, rather drastic action (forcing everyone toreapply for their positions) was taken to overcome the resistance and inertia asso-ciated with the change effort. Finally, UTC’s ongoing process of grooming HRstaff through job rotations and extensive personal development and training indi-cates the patience needed in bringing about a true transformation of HR.

Transforming HR Structure

In conducting the transformation of traditional personnel to SHRM, it is quite com-mon for the structure of the HR unit to be transformed as well. At Northern Tele-com, all HR staff members were consolidated into a single corporate unit under a

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● TA B L E 2 . 4

Skills and Behaviors of Top-Performing HR Staff at AT&T

Accountability for Business Results Self-Image Managing Interpersonal Relationships

Is results oriented Sees self as catalyst for change Builds information networks

Engages in strategic thinking Sees self as member of a Is effective at influencing othersleadership team

Develops a business partnership Demonstrates self-confidence Exhibits interpersonal flexibilitywith line managers

Is customer-focused Is effective at building and managing teams

Uses HR expertise Energizes and empowers others

Source: Adapted from information in Jill Conner and Jeana Wirtenberg, “Managing the Transformation of Human Resources Work,” Human Resource Planning, Vol. 16 (2), 1993,pp. 17–34.

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senior vice president of HR. At Benetton in Italy, various recruiting and develop-ment activities were centralized. In the case of Siemens Rolm, a team-based struc-ture was implemented.28

As with many other forms of organizational restructuring, a key issue in design-ing a new strategic HRM unit is to determine which activities should be centralizedand which should be decentralized or outsourced. During the 1990s, new roleswere created around partnering approaches for HR. Companies such as Warner-Lambert, Motorola, Coca-Cola, and Whirlpool have created new HR-organizationstructures to realign roles to separate transaction fulfillment work (administrativerole) and consultative, business-partnering work (strategic role). These and othercompanies have reported significant improvements in delivering strategic resultswhen traditional roles are replaced with more consultative organization-effectivenessroles, supported by small centralized staffs of HR experts. These companies havealso directly assigned HR partners to front-line business units while aggressivelyconsolidating delivery of employee services.29 If we look at how firms have gone

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United Technologies Corporation (UTC)is a $25 billion global, high-tech com-pany, which includes business groupssuch as Otis Elevator, Pratt & Whitney,Sikorsky Aircraft, and Carrier. To make a

difference within the organization, UTC understandsthat its HR employees need new skills to effectivelylink HR practices to business objectives.

Each year the senior HR executives from the busi-ness units meet and review the HR talent within theiroperations. They use this information to develop jobrotations and targeted job assignments for high-talentHR staff. Over time, these high-potential individualsare typically moved among two or three businesses aswell as into international assignments. HR staff arealso moved into line positions, and some line staff aremoved into HR. All of these movements of personnelare integrated within the annual HR strategic plan.

In addition to these rotations and targeted job as-signments, there are a wide range of developmentalopportunities for HR professionals. All HR staff mustestablish a personal development plan as part of acompany-wide process. Among training programs pro-vided by UTC to help HR staff develop their talent are:

• Scholars Program: Encourages employees to takecoursework leading to a degree. UTC reimburses

the cost of courses and rewards the employee with200 shares of stock upon successful completion ofthe degree.

• Company-sponsored workshops: These focus onfunctional knowledge updates, internal consultingskills, and various current HR topics.

• Human Resource Business School: HR leaders andcandidates for HR leadership positions attend aweek-long program focusing on capabilities neededto meet the needs of the changing role of HR. Theprogram focuses on UTC’s own business strategiesand the role that HR must play in achieving busi-ness objectives. The participants are introduced to“best practice” methods in formulating HR strate-gies, leading change, and measuring the businessimpact of HR initiatives. The program also providesparticipants with feedback from multiple sources asto their own capabilities and skills. The program in-cludes time for participants to examine their per-sonal development plans and provides guidance andsupport for that process.

Source: Information taken from statements made by Lee Dailey, Di-rector, Education and Development of United Technologies Corpora-tion, in James Walker and William Stopper, “Developing Human Re-source Leaders,” Human Resource Planning, Vol. 23 (1), 2000, pp.38–44, at 41.

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about restructuring HR, three common structures often result. These are (a) cen-tralized centers of expertise, (b) business partner teams assigned to specificbusiness units (and sometimes regional or country-specific units), and (c) centraladministrative service units. The basic functions of these three HR structuresare listed in Table 2.5. The task of a centralized center of expertise is effective strat-egy formulation and provision of highly specialized technical expertise. Businesspartner teams provide effective and efficient strategy implementation at the business-unit (or regional/country) level, although they may occasionally also have to for-mulate HR strategies specifically for their own business units. The task of a centraladministrative service unit is efficient delivery of administrative transactions suchas payroll, responses to benefit inquiries, and so forth.30

Obviously, the appropriate structure for the HR function will depend on the na-ture of the firm’s business activity, its size, and its overall business strategy. Insome organizations, a more centralized structure for HRM may be appropriate toensure quality of HR products and gain economies of scale in their developmentand delivery. In other situations, highly decentralized HR units may be necessary.

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● TA B L E 2 . 5

Three Roles in the New HR Organization

Centers of Expertise Business Partner Teams Central Administrative Service Center

• Work with top management on • Work with line managers to • Meet all current service obligationspolicy and strategy issues deliver business objectives • Manage all “transactional” support

• Create regional policies, • Incorporate HR elements into processesprocesses, and products unit business plans • Manage rules and exceptions to

• Provide expert technical advice • Help develop business unit rulesto HR business partners within and individual capabilities • Drive the consolidation of activities specific units • Manage client expectations to increase productivity

• Ensure global or regional about HR activities • Manage specific projects to consistency where needed • Develop people strategies for eliminate unnecessary work

• Search for new thinking and their operating units—with • Enable work force access to best practice line leaders information

• Manage specific development • Become decentralized, bus- • Apply information systems to projects iness unit-aligned “generalists” automate all necessary services

• Benchmark HR practices against • Tailor and implement new • Consult in systems design and best practice practices/programs to fit information requirements

• Develop HR competencies in HR business unit needs

and non-HR staff • Identify new applications for

• Assure alignment of total HR current programs

system with company strategy • Manage specific client projects

• Support rollout of programs: • Ensure linkage between • Teach others how business units issues and

• Support external consultants problems with people issues

with “best practices”

• Exchange best practices throughout the firm

Source: Adapted from Gregory Kesler, “Four Steps to Building an HR Agenda for Growth: HR Strategy Revisited,” Human Resource Planning, Vol. 23 (3), 2000, p. 35; and NeilMcEwen, “Transforming HR: The Practitioner’s Perspective,” HR Review, Vol. 2 (1) 2002, pp. 18–23.

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Regardless of which particular structure is used, the key element in successfullytransforming traditional HR functions into SHRM units is to find a structure thatmeets the pressing needs of the business strategy of the organization and allowsthe HR unit to provide services designed to help the firm achieve strategic objec-tives. The newly acquired strategic focus of HR does not mean that the functioncan afford to relegate administrative efficiency to the background. On the con-trary, given the focus on cost savings in today’s competitive environment, there isincreasing pressure on HR to become even more efficient. The next section dealswith this issue.

●ENHANCING ADMINISTRATIVE EFFICIENCY

Dave Ulrich has suggested that one of the key roles of HR staff is to be “adminis-trative experts.” As administrative experts, HR staff members must take an activerole in reengineering administrative and other processes within the firm and infinding ways to share services more effectively throughout the organization.31 Theobjectives here are to increase HR service efficiency and to save money. For exam-ple, a survey to identify characteristics of “best” versus “typical” HR units foundthat the average cost per employee of HR services in the best firms was around$800, whereas the per-employee cost in typical firms was $1,675. One possible fac-tor contributing to the lower HR costs in the best firms was that their HR adminis-trative services (payroll, benefits, etc.) tended to be highly integrated and shared,whereas these services were more often rather fragmented and duplicated in typi-cal firms.32

Several processes are needed to enhance the administrative expertise of HRunits. One of these is to focus on improving administrative efficiency by target-ing current processes for improvement. The role of the HR unit is to examine thegaps between the “as is” process and what the system “should be.” Once thesegaps are identified, programs can be developed to close them. This could involvedropping a traditional HR program. For example, Alcatel Network Systems inRichardson, Texas, got rid of its managerial performance appraisal system becausethere was clear evidence that the system did not improve managerial perfor-mance.33 In implementing new programs, the HR unit must measure whether effi-ciency has indeed been enhanced. For example, Air France USA made consider-able use of search firms in its recruiting efforts. In 2002 the company moved to anInternet-based approach, using such Web-based recruitment sites as Monster.com.The company found that it could reach a larger number of applicants in a shorteramount of time using the Internet. The costs were substantially lower than moretraditional recruiting methods, and the Internet approach was also found to havesome unexpected advantages.34

Administrative efficiency can also be enhanced through the development ofcentralized HR services that are shared throughout an organization. For exam-ple, University of Nebraska Medical Center (UNMC) developed a “one-stopshop” for all its payroll, benefits, and other HR administrative services.35 Anotherprocess involved HR staff members’ becoming “administrative experts,” com-pletely rethinking how they create value for the firm through their administrativeactivities. The HR unit must create programs that give value as perceived by thecustomers of the program, not as perceived by the provider of the program (HR).

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For example, the tasks performed by HR units often involve maintaining informa-tion about employees, such as benefits and home addresses. Many organizationshave developed a “self-service” concept to HR in which employees become respon-sible for their own information input and retrieval. The HR unit at Colwell Indus-tries Inc. (Minneapolis) found it difficult to deliver a variety of HR services tomany Colwell employees because three-fourths of the employees worked on rotat-ing shifts. The HR unit implemented a self-service HR information system withPCs located on the factory floor so that employees without PCs at home could usethe system. The new system was greeted favorably by employees, particularly asthose who participated in the system were entered into a drawing for cash prizes.Significant cost savings have been realized through the reduction in the number ofemployee handbooks and other policy materials that have to be printed.36

As both the Air France and Colwell Industries examples suggest, anothermeans of enhancing HR administrative efficiency is through the use of informationtechnology systems including Web-based technology. A survey of more than 200executives in 2001 revealed that almost two-thirds of the companies represented inthe survey were planning to either increase or accelerate investments in HR re-lated technologies in the immediate future. In a 2002 survey on Web-based HRself-service systems, more than 90 percent of salaried employees at the companiessurveyed had access to their organization’s HR intranet. Access was not limited toprofessional and managerial personnel, with 72 percent of hourly employees hav-ing such access. Hourly employee intranet access was even higher in the healthcare and financial services industries, with access at 94 percent and 86 percent, re-spectively. A 2002 survey of 649 firms discovered that nearly every organization inthe survey had made significant investments in HR technology including Enter-prise Resource Planning (ERP) systems, high-tech HR service centers, InteractiveVoice Response (IVR) or Voice Recognition Systems (VRS) systems, and variousWeb-based HR applications. These high-tech systems have substantial benefits tothe firms involved. Seventy-four percent of the firms that had implemented Web-based employee self-service HR systems reported significant improvement in thedata accuracy, and 80 percent of the firms indicated improvement in the timelinessof HR data. Sixty percent of the firms indicated an overall reduction in the work-load of their HR units. A workload reduction of 30 percent was not uncommon inthose areas where self-service systems had been implemented.37

A final method for enhancing HR efficiency is through outsourcing. Outsourc-ing involves firms contracting various HR administrative duties to external firms.There are a variety of operational and strategic reasons firms have decided to out-source some of their HR functions. Among the operational reasons are the needfor specialized HR expertise, the demands of increasingly complicated HR technol-ogy, time pressures and workloads that in-house HR units have difficulty meeting,and the reduction of liability and risk in some areas of HR. Perhaps the most im-portant strategic reason for HR outsourcing is to provide in-house HR units withadditional time to focus on strategic rather than purely operational issues.38 Re-gardless of the initial reasons for outsourcing, companies have found that HR out-sourcing can have significant efficiency and cost benefits. A 2002 survey in theU.K. indicated that over the previous five years 28 percent of the organizations hadincreased their use of HR outsourcing. In 2002 American Express expanded its HRoutsourcing contracts to Mellon HR Solutions. HR administration and recordkeeping, learning services administration, compensation planning, and payroll op-erations for 50,000 U.S.-based and 30,000 overseas employees were provided via

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Mellon’s Web-based HR systems.39 Some firms have become engaged in “end-to-end” outsourcing. British Petroleum contracted its entire global human resourcesfunction to Exult for £430,000,000. Another British firm, BAE, entered a joint ven-ture agreement with Xchanging worth more than £1 billion to manage procure-ment and a variety of administrative functions including HR.40 Although some re-ports indicate that as many as 90 percent of firms surveyed indicate that they aresatisfied with their outsourcing experiences, other outsourcing ventures (includ-ing the one between BP and Exult) have met with more limited success. Neverthe-less, the use of HR outsourcing for at least some HR functions is a widely usedmethod of reducing HR costs, increasing HR efficiency, and allowing HR profes-sionals to concentrate more of their time on strategic rather than purely adminis-trative aspects of managing human resources.41

●INTEGRATING HR INTO STRATEGIC PLANNING

Strategic integration of HR requires (1) that a strategic planning process occur inthe organization and (2) that HR managers play an important role in that process.The requirement that a strategic planning process occurs before strategic HRMcan develop is often not met in small and medium-sized firms. In an HRM coursetaught at Bond University in Australia, students are required to analyze several dif-ferent aspects of HR activities within a local firm. The students try to determinewhether the firm is engaged in strategic HRM and then make suggestions as tohow the firm can become more strategic in its HR approach. The first part of thisassignment asks students to describe the strategic plan of the firm, including itsmission, values, and strategic objectives. In the majority of cases, students findthat the firms they have chosen to analyze have no written strategic plan and havea mission and set of strategic objectives that state simply “to make money and notgo bankrupt.” The next section of this chapter presents a brief description of thestrategic planning process. Following that, examples of how HR, specifically, canbe integrated into the strategic planning process are provided.

The Strategic Planning Process

The development of a strategic plan typically involves top management, some-times with the aid of outside consultants, sitting down to analyze the current andfuture state of the organization. The process involves answering basic questionssuch as “Where do we want to be as an organization in the next five years? Whatare our strengths and weaknesses? What opportunities exist in the business envi-ronment? and What challenges are we likely to face?”

● Mission, Goals, and Values Statements The mission statement delineatesthe organization’s reason for existing. It is important to operationalize a missionand ensure buy-in if a mission statement is not to degenerate into mere rhetoric.The leadership center of General Electric, for example, trained its managers to op-erationalize a mission or an initiative by frequent use of visualization, backwardimaging, and “starting with the end in mind.” Managers were asked to imaginethemselves at a party six months or a year hence, the purpose of which is to cele-brate the achievement of some mission or corporate initiative. They were then

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asked to describe, in very specific terms, how their leaders’, peers’, and subordi-nates’ behavior had changed—what they were actually doing more of and less of—in the future compared to in the present. This process was used to ensure thatGE’s vision and mission statements were operational rather than being merelysweet words or numerical.42

In terms of General Electric’s most current mission statement, the GE Website states that “GE does not have a mission statement, per se, but its operatingphilosophy and business objectives are clearly articulated each year in the Letterto Stakeholders in the GE Annual Report.”43 If one examines the Letter to Stakehold-ers, the essential nature of GE’s mission can be readily identified. The essential el-ements of this “mission statement” are shown in Figure 2.2 From Figure 2.2 wecan gain an understanding of the basic approach that GE takes to running its busi-ness through a focus on diverse business enterprises, operating efficiency andquality, and its employees and organizational culture. In its “strategies for growth,”GE describes the methods it uses to maintain a competitive advantage over otherfirms.

Also in GE’s 2002 Annual Report there is a statement about the overriding val-ues of the firm. GE is a place where “people are committed to the greater good ofthe company, to our customers’ success and to each other.” (p. 14) These are re-flected in the “Our Commitment” section of Figure 2.2 There are at least two bene-fits to be gained from the articulation of a values statement. First, a statement offundamental beliefs can guide strategic change. Second, just as individual behav-ior is shaped by a personal value system, organizational behavior and success areinfluenced by employee perceptions of corporate beliefs. The degree to which val-ues create desired organizational outcomes is a function of the extent to whichsuch beliefs are clearly articulated, successfully communicated, and integratedinto the way of doing business.44

● Environmental Threats and Opportunities Another integral step in the devel-opment of a strategic plan is the analysis of environmental factors that influenceorganizational objectives. Environmental threats are features of the external sur-roundings that may prevent the organization from achieving its strategic goals.For example, it is obvious from reading the HR Challenge that Xilinx faced newthreats from worldwide terrorism and its impact on the global economy. Environ-mental opportunities are aspects of the surroundings that may help the organi-zation to achieve its goals. Xilinx’s base of large and successful customers world-wide provided it with a strong foundation on which to rebuild its financial successafter the economic downturn of 2001. For any firm preparing a strategic plan, anenvironmental scan should include an analysis of technology, economic factors,the legal/political environment, international markets, competitors, the labor sup-ply, and its customers. Some features of the environment will have more influence onthe organization than others. In any case, a strategic planning process should help man-agers develop as complete an understanding as possible of all the features of the organi-zation’s environment and how they come together to affect the enterprise.

● Organizational Strengths and Weaknesses Organizational strengths are posi-tive internal characteristics on which an organization can draw to achieve itsstrategic goals. Organizational weaknesses are characteristics that may stand in theway of particular accomplishments. The analysis of strengths and weaknesses typ-ically focuses on specific functions such as marketing, finance, production, and re-

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● F I G U R E 2 . 2

Excerpts from GeneralElectric’s 2002 AnnualReport and Web SiteSource: Direct quotes are initalics and taken from theGeneral Electric 2002 AnnualReport, “Letter toStakeholders,” February 14,2003, pp. 5–15. Available at:http://www.ge.com/ar2002/editorial/ltr5.jsp (accessedOctober 28, 2003); Informationfor “Our Commitment” sectionwas obtained from http://www.ge.com/en/commitment/(accessed October 28, 2003).

Overall Mission:As managers, it is our principal job tomake and sell great products and ser-vices that people need and thereby in-crease earnings. (p. 6)

Our Goal:To grow earnings 10%-plus annually with20%-plus return on total capital . . . reli-ably, sustainably, through the cycles. (p. 6)

The GE Business Model:A Diverse Set of Leading BusinessesDriving Performance:GE has great businesses, most of whichwe’ve been in for decades, some for 80years or more. In addition to leading intheir markets, these businesses havemany traits in common: an unparalleledtechnical foundation; direct customer inter-faces; multiple ways to make moneythrough products, services and financing;global scale; and low capital intensity. (p. 6)

Operating Rigor with a Focus on Cash Generation:Strong processes are the foundation of ouroperating rigor. We are in the ninth year ofSix Sigma at GE, and it has become a per-manent initiative . . . focused primarily inthree areas:working with our customers ontheir issues; improving our internal pro-cesses to improve our customer interfacesand generate cash; and improving the flowof high-technology products and servicesto the marketplace. (p. 8)

People and Culture:The CEO of GE outlined a number of im-portant people issues including:

• to attract and keep talented and loyalpeople who work together as a team.

• to build a culture based on perfor-mance, compliance and teamwork.

• to enhance a culture of Imagination atWork with a daily rallying cry of “whatwe imagine, we can make happen.”

• to make GE a meritocracy, where the best-performing people get the best rewards.But everyone must operate in a systemwhere the company comes first. (p. 9)

Our Strategy for Growth:• Technical Leadership that expands mar-

gins and grows the installed base.• Services Acceleration that improves re-

turns, competitiveness and customersatisfaction.

• Enduring Customer Relationships thatare unbreakable because we win to-gether over the long term.

• Globalization as a way to grow fasterand be more competitive.

• Resource Reallocation to build positionsin new markets where we can achievesuperior growth and returns. (p. 9)

Our Commitment:GE is committed to serve the communitieswhere we do business, to provide our cus-tomers with innovative, high-quality prod-ucts and services and to protect the healthof our workers and our environment.

IntegrityWe are a company of integrity. We are acompany of standards. Our worldwidereputation for honest and reliable busi-ness conduct, built by so many peopleover so many years, is tested and provenin each business transaction we make.We invite you to read our company’s in-tegrity policy that all employees sign uponjoining the company.

Corporate GovernanceThe changes in our corporate governanceare designed to strengthen the board of di-rectors’ oversight of management and toserve the long-term interests of shareown-ers, employees and other stakeholders.

Social PerformanceDemonstrating corporate responsibility formore than 100 years, we are proud of theGE team and its dedication. Just as GEbusiness operations are managed for thelong-term, our commitment to social per-formance is lived and improved on everyday.Environment, Health and Safety

We are committed to keeping workerssafe on the job, ensuring that we aregood neighbors to the communities inwhich we do business by complying withenvironmental laws and regulations; ad-dressing historical contamination issuescooperatively and completely; and incor-porating this commitment into ourprocesses and products.

QualityGE success with Six Sigma has exceededour most optimistic predictions. Across theCompany, GE associates embrace SixSigma’s customer-focused, data-drivenphilosophy and apply it to everything we do.

InnovationThe company’s limitless future is seen in anarray of innovative, technically advancedproducts and services developed by itsbusinesses—after extensive interviews withcustomers—to meet Six Sigma standardsof invariable quality and performance.

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search and development (R&D). Management philosophy and human resourcesare areas that also may be considered in an analysis. Returning to our HR Chal-lenge example, Xilinx has several notable strengths, including its innovative tech-nology and dominant market position in field programmable arrays, an excellentrelationship with its customers, and its human resources (highly educated andcommitted employees). Xilinx’s most notable weakness was market vulnerabilityto dramatic international events such as the terrorist attack on September 11,2001, and to general downturns in the world economy.

● Goals and Objectives After an organization has defined its mission and ana-lyzed both external opportunities and threats and internal strengths and weak-nesses, it can realistically establish goals and objectives that will further its mis-sion. As seen in Figure 2.2, one of GE’s major goals is to “grow earnings 10%-plusannually with 20%-plus return on total capital . . . reliably, sustainably, through thecycles.” General goals such as this have specific implications for all aspects ofhuman resources as these goals are translated into actions that individual workunits and employees must take. The definition of goals has several important ben-efits to an organization and its employees. First, goals are a source of motivation.They describe the purpose of the organization to all involved. Second, goals alsoprovide the basis for decisions. Managers and employees must make many deci-sions in their day-to-day activities. Knowing the goals, they can make decisionswith the desired outcome in mind. Finally, goals become the basis for perfor-mance measurement. Comparing performance and goals helps managers guidetheir future actions.

● Formulation of Strategies Only after the mission has been defined, environ-mental threats and opportunities analyzed, organizational strengths and weak-nesses considered, and goals established can management undertake strategyformulation. In Figure 2.2, GE’s “strategies for growth” represent such a formu-lation. For any organization, the task is to select the most effective game plan orcourse of action to achieve the organization’s goals and objectives. Strategy maybe formulated and implemented at the corporate level and for individual businessunits and functions. Regardless, the HRM function will likely be a critical elementin the overall success of any strategy formulation and implementation process. Toensure the success of the overall strategic planning process, HRM will have to becompletely integrated and a full partner in the strategic planning team.

How to Strategically Integrate HRM:Some Ideas and Examples

Integration does not simply mean that HR managers are allowed to provide HR-related information to those making strategic decisions. To achieve full integra-tion, HR managers must have the ability to influence the development and selec-tion of information used in making a decision, as well as the ability to make orstrongly influence the decision itself. The process of integrating HR into the strate-gic decision-making process can occur through a variety of actions.

For example, IBM incorporated human resource issues into all of its businessplanning processes by including HR functional staff on management decision-making teams throughout the organization. The Vice President for Talent servedas a member on the top management team that was in charge of all strategic busi-

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ness planning. A similar approach was taken by Marriott International, which inte-grated human resource issues into their strategic planning processes at both thecorporate and operational levels in the firm. Two HR executives were placed onthe CEO’s senior executive team. Their role was to ensure that human resource is-sues were taken into account in all discussions of the firm’s strategic plan. At theoperational level, managers were required to incorporate HR implementation is-sues in all proposals for business expansion, thus ensuring that HR issues were in-tegrated into the strategic planning processes throughout the firm.45 Getting HRmanagers on strategic planning teams is a good first step in HR strategic integra-tion, but a number of other things are required. First, there must be strong CEOsupport for the new role of HR in the strategic planning process. Second, as notedearlier, HR personnel placed on strategic planning teams must have the skillsneeded to function as strategic business partners with other managers. Finally,when placed in a strategic planning role, HR personnel must be able to bring tothe decision-making process information and data that is important and com-pelling to managers from other functional areas.46

●FITTING HR PRACTICES TO BUSINESS STRATEGY AND TO ONE ANOTHER

The issue of fitting HR practices to business strategy has become increasingly rel-evant in modern business and is perhaps the most important HR issue for HR staffand line managers.47 HR fit involves making sure HR activities “make sense” andhelp the organization achieve its goals and objectives. As noted earlier in this chap-ter, there are three aspects of HR fit. The first aspect, vertical fit, concerns thematch between HR practices and overall business strategy. The second aspect,horizontal fit, relates to the interrelationship among HR activities; that is, the ex-tent to which they are mutually consistent. Consistency ensures that HR practicesreinforce one another. HR consistency means that all programs send a commonmessage to all employees, which makes it easy for workers to understand what be-haviors are required of them. There are also technical advantages of HR practiceconsistency; for example, a firm that invests heavily in training programs willlikely benefit from also having a good selection system that reduces the likelihoodof employee turnover.48 The third aspect is external fit, which concerns how wellHR activities match the demands of the external environment. If vertical fit occurs,then horizontal fit should follow. However, it seems useful to think of these two as-pects of fit separately to ensure that both are managed effectively within the orga-nization. To achieve external, horizontal, and vertical fit, HR staff members, work-ing closely with line managers, must make correct choices about the nature andspecific types of HR programs used in an organization.

Human Resource Practice Choices

The process of ensuring external, vertical, and horizontal fit requires that HR sys-tems adapt to an often highly dynamic external business environment by imple-menting HR practices that mutually reinforce behaviors needed to achieve bothshort- and long-term organizational objectives. This can often prove very difficultto do. The situation faced by Xilinx in the HR Challenge presented HR managers

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with a set of very difficult choices. Both the external environment and short-termfinancial goals of the firm were placing pressure on HR to enact rather drastic HRmeasures, including mass layoffs. Balancing that pressure was the knowledge thatlong-term strategic success rested heavily on the skills, knowledge, and abilities ofthe research and product development staff at Xilinx. Difficult HR choices had tobe made. As shown in Figure 2.2, General Electric’s globalization focus as part ofits “strategies for growth” requires the development of a wide range of HR initia-tives to ensure that employees can effectively manage, market, and produce in anincreasingly complex, multicultural business environment. As with Xilinx, manycritical HR choices must be made to succeed. So what are the common “choices”HR staff face?

Figure 2.3 organizes HR practice choices into six categories and defines op-posite ends of each practice continuum, such as promoting entirely from withinversus filling all openings from the external labor market. Clearly, an intermediatechoice is also possible for most practices. Furthermore, for large organizations dif-ferent units could use different practices, or the practices might vary by level orjob category.49 The challenge is to develop internally consistent configurations ofHR practice choices that help implement the organization’s strategy and advanceits competitiveness. To accomplish this successfully, a clear understanding of thenature of the HR choices available is needed.

● Staffing Many staffing decisions have implications for strategy implementa-tion. Perhaps one of the most basic choices is whether the firm hires from exter-nal sources or relies primarily on promoting people from within the organizationto fill vacant positions. A related issue is whether recruitment and career decisionswill be open or closed. In some organizations, notices of job opportunities areposted, resulting in an extremely open process. In others, decisions are made by arelatively small group of upper-level managers and are simply announced.

● Appraising Performance appraisal is a linchpin in strategic management.Once strategic goals are established, it is important that the performance ap-praisal system be adjusted to evaluate the behaviors needed to achieve these ob-jectives. Methods of appraisal should vary with the organization’s strategy. For ex-ample, firms following an “operational excellence” strategy (low-cost producer)should have performance measures focused on such things as total cost of produc-tion, errors, waste, net sales, and so forth. On the other hand, firms following a“customer-intimacy” strategy (unique solutions and high levels of product cus-tomization) will need to assess performance in terms of things like customer re-tention rates and number of referrals from current customers.50

● Compensating Perhaps more than any other area of human resource man-agement, the reward structure communicates the overall philosophy and strategyof the organization. Furthermore, choices with respect to rewards overlap manyother areas of human resource management. As with performance appraisal sys-tems, different reward systems are needed for different strategies. For example,some experts suggest that operational-excellence firms should focus on team pro-ductivity, profit sharing, and skills-based pay to enhance the ability and motivationof employees to increase efficiency. On the other hand, customer-intimacy firmsshould focus on individual rewards, nonfinancial rewards, and service award pro-grams to focus them on better face-to-face, highly personal customer service.51

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● F I G U R E 2 . 3

HR Practice Choices

Internal sourcesNarrow pathsSingle ladder

Explicit criteriaLimited socialization

Closed procedures

External sourcesBroad pathsMultiple laddersImplicit criteriaExtensive socializationOpen procedures

Low-base salariesInternal equity

Few perksStandard, fixed package

Low participationNo incentives

Short-term incentivesNo employment security

Hierarchical

High-base salariesExternal equityMany perksFlexible packageHigh participationMany incentivesLong-term incentivesHigh employment securityHigh participation

Short termNarrow application

Emphasis on productivitySpontaneous, unplanned

Individual orientationLow participation

Long termBroad application Emphasis on quality Planned, systematicGroup orientationHigh participation

Behavioral criteriaLow employee participation

Short-term criteriaIndividual criteria

Results criteria High employee participationLong-term criteriaGroup criteria

STAFFING CHOICES

APPRAISING CHOICES

COMPENSATING CHOICES

TRAINING ANDDEVELOPMENT

Job simplificationExplicit job analysis

Individual orientationNarrowly defined jobsDirective management

Specialized jobsClose supervision

Job enrichmentImplicit job analysisTeam orientationBroadly defined jobsParticipative managementRotation among jobsPeer- or self-supervision

Collective bargainingFormal due processNo employee input

No employee ownershipEmployee compliance

Individual bargainingInformal (or no) due processBroad employee participation Partial or complete employee ownershipEmployee empowerment

EMPLOYEE INFLUENCE

WORK SYSTEMS

Choices with low-cost, efficiency-oriented strategyReorientation of choices to achieve a quality strategy

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● Training and Development Some organizations do not train and developtheir work force but instead seek to hire skilled employees from the outside. Attimes, as a result of either fast growth or rapidly changing technology, this is theonly way to acquire the needed expertise. Other organizations prefer to developexpertise in-house, although training and developing employees is both costlyand time consuming. To be effective, training and development must be tied tothe overall strategic objectives of the organization and to other HR systems. Forexample, due to tight labor-market conditions and the need to keep its costs lowas part of a cost-leadership strategy, an organization may need to develop its non-managerial workers for managerial jobs. One step toward this goal would be tohave them work with and learn from current managers. However, if existing man-agers are not rewarded for helping to develop others, they probably will devotelittle time and energy to the task. In addition, development efforts will be counter-productive unless promotional opportunities are available for those who completethe program. If employees cannot use what they have learned in-house or are notrewarded for doing so, the best of them will tend to depart for opportunities inother organizations.

● Employee Influence The concept of employee influence has evolved from su-perficial participation (e.g., suggestion systems) to responsibility for direct inputinto the decision process, accountability for outcomes, and sharing in the wealthcreated by these outcomes. As a result, one of the HR practice issues that contin-ues to be prominent is the amount of influence accorded to employees in suchmatters as organizational goals, rewards, working conditions, and the work itself.Organizations are finding that empowered employees are more able to have a“line-of-sight”—that is, see the link between their own behavior and organizationalsuccess. Employee line-of-sight contributes to the overall strategic success of thefirm via employee motivation.52

● Work Systems Another factor in individual productivity and organizationaleffectiveness is the design of work. Research over many years has shown that jobshave greater motivational value when they give individuals greater responsibilityand control of their work as opposed to being simplified or overspecialized. Theuse of work systems to influence productivity has also been manifested in an em-phasis on teams. The team approach is consistent with delayering—that is, thetrend for fewer management levels and fewer managers. As a result, more author-ity and responsibility are delegated to self-managed teams or autonomous workgroups to plan, organize, supervise, and evaluate their own work.53

● Changes in Strategy, Changes in Choices Figure 2.3 presents graphically howthe HR choices that a firm makes can change as a result of a shift in firm strategy.The example in Figure 2.3 represents a change from a low-cost, efficiency-drivenstrategy to one focused more on the quality of the firm’s products. As can be seenin Figure 2.3, some HR practices remain essentially the same under the two busi-ness strategies (e.g., both strategies rely on internal staffing) whereas other HRpractices are at almost opposite ends of the continuum (e.g., employee complianceversus employee empowerment).

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HR Practices and Strategic Fit: Putting It All Together

One of the times when organizations have an opportunity to successfully achievevertical, horizontal, and external fit in their human resource practices occurswhen the organization is brand new. A good example of this is Agilent Technolo-gies,54 which was created as the result of a split-up of Hewlett-Packard (HP). Inlate 1999 CEO Ned Barnholt set out to transform a former part of HP into an inde-pendent, dynamic, and successful company with its own cultural identity. The cul-ture that Barnholt set out to establish contained values leftover from the HP days(innovation and contribution, trust and respect for the individual and team, and in-tegrity) as well as new values focused on speed, customer-focus, and accountabil-ity. Barnholt realized that much of this cultural transformation depended on thedevelopment of HR practices that supported the new business identity. To do this,a program called “Vantage” was developed to transform HR practices within Agi-lent. Stage 1 of the Vantage process involved selecting seventy-five critical thoughtleaders within the new organization to help identify those aspects of HR thatneeded changing to support the new culture—and to suggest what those changesshould be and how to implement them.

From these seventy-five thought leaders came suggestions for a variety of newand highly integrated HR systems. A reward philosophy was developed that fo-cused on (1) an employee’s track record over time, (2) the extent to which the em-ployee exhibited key Agilent values, (3) the potential the employee had for devel-opment and growth within the firm, and (4) how critical the skills were that theemployee possessed in the attainment of Agilent’s business goals. A new perfor-mance measurement system was developed around these four performance crite-ria. In addition, the base pay of Agilent employees was benchmarked against ex-ternal competitors. The position of an employee within the base pay systemdepended not only on the nature of their job but was also linked directly to the per-formance measurement system. A variety of pay-for-performance systems wereimplemented including a bonus system linked to overall firm and divisional perfor-mance. Employee stock option programs were implemented along with othermeans of recognizing high performance.

To complement the development of these new HR systems, an intense programto increase communication channels from management to employees and from em-ployees to management was constructed. Of particular importance to the transfor-mation of the Agilent culture was the development of leadership training programsto help line managers understand and implement the HR programs and related as-pects of the new Agilent culture. Perhaps the most important aspect of Agilent’s HRtransformation was the fact that all of the programs developed—performance mea-surement, pay systems, communication programs, and leadership development sys-tems—were designed around the six core concepts of the new Agilent culture. Fromthe actions taken by Agilent Technologies, it is obvious that horizontal, vertical, andexternal fit of HR practices requires a step-by-step analysis of the overall mission,goals, and objectives of the organization. This must be done with the involvement ofkey line managers who help identify ways to link HR practices directly to critical or-ganizational goals and values. Building a partnership between HR and line manage-ment to develop strategically relevant HR practices is very important and will bediscussed later in the chapter. However, before we turn to the discussion of “HR part-nership,” one final issue associated with strategic fit must be discussed—the appar-ent conflict between strategic fit and strategic flexibility in HR practices.

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HR Practices: Strategic Fit versus Strategic Flexibility

So far in this chapter, strategic fit has been portrayed as a highly desirable endstate for HR managers to achieve in their organizations. However, as with manythings in life, too much of a good thing might have bad consequences. It is widelyrecognized that organizational environments are dynamic, and when vertical, hori-zontal, and external fit become extremely “tight,” problems may occur. HR sys-tems that are highly intermeshed with one another and embedded within organi-zational strategies and structures become increasingly difficult to change.55 Thereis a danger of HR systems becoming too well “fitted” to a particular business envi-ronment and strategy. An organization could become like the wooly mammoth: afantastic, successful creature until the weather changed and—boom!—it died.

Several researchers point out that both fit and flexibility are needed for long-term competitive advantage.56 Patrick Wright and Scott Snell argue that fit andflexibility are independent concepts, with HR managers needing to pay close atten-tion to both.57 They describe fit as a temporary state in an organization. Fit mayexist at time 1, but not at time 2. On the other hand, flexibility is a characteristic ofan organization related to its ability to meet the demands of a dynamic environ-ment. Wright and Snell distinguish between two types of flexibility. Resourceflexibility is the extent to which an organization can apply its resources to a vari-ety of uses and purposes. Resource flexibility also involves the cost, difficulty, andtime needed to switch resources from one use to another. For example, an organi-zation hires employees who possess a particular skill needed for their currentbusiness strategy. There is a good fit between the skills of employees hired andcurrent strategy. At the same time, the organization includes in its selectionprocess measures of “trainability” or “ability to learn” to select employees who canmore easily develop new skills if they are needed. In this case the organization hasboth resource fit and resource flexibility.

Coordination flexibility concerns the extent to which an organization hasdecision-making and other systems that enable it to quickly move resources fromone use to another. For example, AT&T’s Resource Link is a database of employeeskills to which line managers have ready access. This database provides informa-tion about the skills of current employees in other areas of the firm. If “new skills”are needed in one area of AT&T, Resource Link increases the likelihood that theseskills can be quickly obtained from areas where they already exist. Resource Linkprovides enhanced coordination flexibility within AT&T.58 As with the develop-ment of strategic fit, the establishment of HR practices that provide both fit andflexibility is something that HR managers cannot do alone. They can accomplishthis difficult task only by developing a strong partnership with line managers.

PARTNERSHIP

To become a business partner, the HR manager must (1) learn as much about thefirm’s business as possible, (2) be more responsive to and more aware of the orga-nization’s needs and direction, (3) shift away from traditional HR functions, (4) be-come more involved in supportive, collaborative relationships with managersthroughout the organization, and (5) demonstrate how critical HR is to the suc-cess of the business.59

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A good example of this partnership role can be found at First Tennessee Na-tional Corporation (FTNC), a financial services company that has a history of pro-gressive HR practices. First Tennessee has been named nine times as one of the100 best companies for working mothers by Working Mother magazine. The Amer-ican Association of Retired Persons named First Tennessee as one of only twenty-five “best employers” for workers over fifty years of age.60

Back in 1998, the new director of HR, Sarah Meyerrose, was given the task oflinking HR issues with bottom-line business profits. She not only had to help im-prove company profits through HR activities but also had to do so in a way thatcould be made obvious to company investors. Meyerrose began her task by collab-orating closely with the firm’s Chief Financial Director (CFD). Together theybegan a study of how the firm’s HR systems linked with its business strategy. Theyexamined data on the firm’s market share, profits, perceived customer value, andcustomer loyalty. One of their findings was that employee turnover rates were in-versely related to business unit financial performance. Units with a more stablegroup of employees showed better financial performance levels. The tenure of em-ployees was linked to the availability of career paths within the firm. One of thespecific actions that resulted from the study was to increase the use of lateral ca-reer moves for good employees when vertical moves were unavailable. Later stud-ies found that these lateral moves were effective in reducing employee turnoverbecause employees understood that these moves were intended to develop theirskills—and thus increase their ability to move up vertically in the organizationwhen opportunities arose to do so. Working together, the CFD and director of HRwere able to identify financial problems that were directly linked to HR issues andthen develop HR programs to increase financial performance.61

Lucent Technologies provides another example of a major firm’s focus on thepartnership between HR and line management.62 Lucent developed a model of HRservices that focused on three client service levels—individual employees, super-visors, and senior leaders. The critical role for value creation in Lucent’s new HRapproach was that of “HR Business Partner”; that is, HR leaders who work directlywith top line managers to implement the organization’s strategy. All levels of clientservices were measured against strict client-service standards. However, the over-riding goal of HR Business Partners was to have senior executives view HR ashelping them solve their problems in their businesses for their clients and, at theend of the year, for the executives to say that “We were very successful and couldn’thave done it without HR.”63 Examples of how HR at Lucent Technologies wentabout transforming itself into a true business partner include the following:

• HR staff attended staff meetings to better understand the nature of the business.• A cadre of fifty-eight HR staff was developed whose job it was to find and re-

move HR practices that did not add value.• Top executives from other areas of the firm were brought in to discuss their

areas with HR staff and help identify ways for HR to help grow those areas.• A new competency model for HR staff was developed to identify the skills they

needed to be more effective business partners.

The First Tennessee and Lucent Technologies examples relate clearly to thefive points made at the beginning of this section about what it means for HR to be-come a business partner. As evidenced in the First Tennessee example, the abilityof HR to measure its contribution to the organization’s bottom line or other rele-

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vant measures of firm effectiveness is an essential ingredient in the developmentof a lasting, meaningful partnership between HR and other functional managers.Measurement of HR’s contribution to the organization underlies all aspects ofSHRM. Strategic HRM is really about HR practices adding value to the organiza-tion. The next section looks closely at the issue of measuring HR’s contribution toorganizational competitiveness and success.

●MEASURING HRM

In The HR Scorecard: Linking People, Strategy, and Performance, the authors re-port the results of a survey of 968 firms. Among these firms, less than 10 percenthad formal measures of the efficiency and effectiveness of HR systems.64 HR de-partments have long been criticized for not providing bottom-line results for theorganization. Although some have argued that such criticism is unwarranted andthat measuring HR’s impact is often unnecessary and sometimes detrimental (seeA Different Point of View box), there has been increasing focus on how HR de-partments should evaluate their contribution to the organization.65

Inward Versus Outward HR Function Focus

A number of authors have suggested typologies of HR measurement systems, andliterally dozens of individual indices have been developed to measure HR effective-ness.66 For example, one scholar distinguished between measures that had an “in-ward HR function focus” and those that had an “outward focus.”67

● Inward HR Function Measures Inward HR function measures assess the ef-ficiency and quality of activities within the HR function itself. Operational mea-sures usually assess the quantity, quality/accuracy, cost, and speed or cycle timesassociated with various HR practices. Examples include average cost of filling a va-cant management position, cost per training hour, amount of time required to time tofill vacant positions, or cost to process an administrative transaction. These types ofmeasures are typically assessed relative to some standard (e.g., compared to similarmeasures from competitors or “best practice” firms) or examined in terms of im-provement over time (e.g., lower costs to hire a manager this year than last). Ser-vice quality measures assess the performance of HR systems as perceived by theprimary users of those systems. Service quality measures are evaluated in terms ofimprovement over time, to external standards, or against the preprogram expecta-tion of the users involved. A variety of service quality dimensions can be assessed.

In How to Measure Human Resources Management, Jac Fitz-enz identified sixmeasures of HR service delivery satisfaction.68 These factors, which are presentedin Table 2.6, are applicable to any form of customer service, be it HR services orservices one might receive in a hotel. The factors deal with basic issues relating tothe quality and speed of service as well as the ability of service providers to antici-pate (not simply react to) the needs of those they serve.

● Outward Focused HR Measures Outward focused HR measures assessthe impact of HR practices on aspects outside the HR function itself. Results mea-sures focus on assessment of aspects such as the extent to which the firm:

• Recruits employees with critical skills• Retains key employees

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In a 1997 article in Human ResourceManagement, Jeffrey Pfeffer challengesthe idea that HR managers must justifyHR practices using “bottom-line,” cost-versus-benefit measures. Pfeffer asks:

When was the last time you, the reader, saw the cor-porate General Counsel’s office justify its use of re-sources—not whether or not it was less expensivethan using outside counsel, but whether the total ex-penditure on legal bills was reasonable? Legal feesare seen as something necessary and inexorable . . .Ask your friends in management consulting who dostrategy work the last time a corporation’s strategyformulation process and associated expenses weremeasured in a way comparable to the measurementof human resources. (p. 359)

Pfeffer uses practices in two highly successful or-ganizations to support his point. He notes that Singa-pore International Airlines (SIA) spends about$80,000,000 a year on training. Among the thirty-twoparticipants in one of SIA’s most expensive senior-levelmanagement training programs are six or seven pilots.These pilots have limited managerial responsibility.When asked why the pilots were included in this high-level managerial training class, the SIA people saidthat it was important to make pilots feel a part of theorganization and to understand how it worked—there-fore they were included. There was no “bottom-line”answer to the question of how SIA could justify spend-ing managerial training resources on the pilots. SIA re-ally did not care. Including the pilots in the program“made sense,” and so they were included.

At AES Corporation, a firm that develops and oper-ates power plants around the world, there is no formalHR staff at all. Money is spent on HR-related issueswhen employees, working in teams, deem it necessary.While AES measures aggregate results (e.g., profit), itdoes not have highly complex processes for approvingHR expenditures, nor does it invest time and energymicro-measuring the cost-benefit ratio of HR activi-ties. Pfeffer points out that one of the major problemswith the current focus on measuring HR is that “unfor-tunately, in almost all aspects of organizational opera-tions, what is most easily measured and what is impor-tant are often loosely related” (p. 360).

HR managers, due to cost pressures, cannot afford tospend money developing good measures of what is im-portant. Instead they often use measures produced bythe firm’s accounting systems (e.g., cost of operating anHR system) or measures of the level of HR activity (e.g.,number of people hired, transactions processed). Why?Because they are easy to get and to track over time.

Pfeffer identifies a number of problems with themeasures that are typically used to assess HR effec-tiveness. Among these problems are the following:

• They don’t tell us if the money is spent wisely, (e.g.,whether a training budget is spent on the most crit-ical training needs).

• They are easy to manipulate and play games with.• They tend to encourage a drive for efficiency, which

ends up as a drive for shrinkage.• There is an assumption that somehow “less” equals

“better” (e.g., Volvo is more efficient than Toyotabecause it employs fewer people).

• Such measures don’t take into account exactly whatis being done with the resources.

• The time horizon of many of these measures is ex-tremely short term.

• They measure specific “parts” of the organizationbut do not help us understand the organization as acomplete system.

• They tend to measure too many things to be effec-tive in influencing individual behavior.

• They often measure things that HR cannot really in-fluence (e.g., in the auto industry how much train-ing is done in a particular plant is heavily deter-mined by the nature of the technology of theproduction process in that plant).

Pfeffer (1997) argues that firms like SIA and AESare more likely to show high levels of economic perfor-mance than those that chase the precision of cost-benefit analysis at the expense of understanding whatis really important. To Pfeffer, efforts directed towardmicro-measuring the impact of HR programs in an orga-nization are futile because “To measure everything is, atthe end, equivalent to measuring nothing” (p. 362).Source: Jeffrey Pfeffer, “Pitfalls on the Road to Measurement: TheDangerous Liaison of Human Resources with the Ideas of Account-ing and Finance,” Human Resource Management, Vol. 36 (3), 1997,pp. 357–365.

A D I F F E R E N T P O I N T O F V I E W

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• Develops employee skills, abilities, and knowledge• Aligns individual and organizational objectives• Shares knowledge across business units• Enhances team performance• Creates a positive social climate between management and workers• Enhances employee satisfaction, motivation, loyalty, trust, and commitment

and promotes working relationships across both internal and external bound-aries69

Logically, improvement in these results measures should have an overall posi-tive effect on business performance. Business impact measures can includelevel of improvement in the quality of the firm’s products or services, cost avoid-ance or reduction, production efficiency indices, amount of time to produce andget a product to market, number of new products introduced, revenue and salesgrowth, market share, customer satisfaction and retention rates, indices of prof-itability, and share price.

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● TA B L E 2 . 6

Six Measures of HR Service Delivery

Measure Definition

Reliability The dependable and accurate performance of activities related to the HR activity; for example, making sure medical claimsrelated to worker injuries on the job are filed using properprocedures with all information in the file being accurate.

Responsiveness Indicate a willingness to help and provide prompt service; for example, providing training on interviewing techniques to anew manager when that individual is suddenly faced withrecruiting new staff.

Assurance Display skills and knowledge that generate trust and confidence within the customer; for example, an HR staffperson who is expert in equal employment opportunity lawshares this information with managers who are recruitingnew staff.

Empathy Provide caring, individual attention; that is, add the personal touch to service and through specific actions indicate tocustomers that you care about them and their problems orissues.

Tangibles Appearance of facilities and staff and the appearance and usefulness of the published materials; for example, havingclean, comfortable, well-equipped training rooms.

Anticipation Anticipating customer needs; for example, communicate regularly with potential customers to find out what ishappening in their work environment and then try to helpthem identify potential problems and prevent the problemfrom actually occurring.

Source: Adapted from lecture materials presented by Jac Fitz-enz at the 1996 HR Benchmarking Conference in Sydney, Australia, orga-nized by HRM Consulting of Brisbane. Reprinted by permission of HRM Consulting.

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The HR Balanced Scorecard

Increasingly, firms are incorporating into their HR assessment the balancedscorecard approach originally described by Robert Kaplan and David Norton in1992. The Balanced Scorecard provides a strategic framework for assessing the ef-fectiveness of an organization.70 A recent survey of 1,300 firms found that 27 per-cent indicated they had incorporated a balanced scorecard approach to their as-sessment of HR activities.71 The scorecard assesses organizational performancefrom four perspectives:

Financial: What is the firm’s strategy for satisfying shareholders?Customer: What does the customer want, and how must the firm be perceived

by the customer to achieve its strategic objectives?Internal, operational: What are the critical aspects of the firm’s business

processes, and how must they operate to be consistent with its customer ob-jectives?

Strategic and organization learning: To achieve the firm’s long-term goals, howmust the organization learn and improve?

Verizon Communications, formed by the merger of GTE and Bell Atlantic, isone of the world’s leading providers of wireline and wireless communicationsproducts. Verizon uses the balanced scorecard approach to assess the strategic ef-fectiveness of its HR function.72 Verizon HR faced five major strategic challenges.First was the imperative to enhance the talent pool within the firm. Second, leader-ship within Verizon had to be developed to cope with the increasingly dynamicbusiness environment. Third, there was a need to enhance customer service andsupport. Fourth, Verizon needed to improve its “organizational integration” interms of enhancing the flow of knowledge throughout the firm and to improve theorganization’s relationship with its unions. Finally, Verizon’s HR unit needed to in-crease its internal capabilities to meet its own functional challenges.

Verizon’s HR scorecard focused on the four basic scorecard perspectives.From a strategic perspective, Verizon HR developed measures of success forachieving the major strategic thrusts described previously. From the operationsperspective, measures were developed of HR success in staffing, technology uti-lization, and HR administrative processes and transactions. As part of the HRscorecard, Verizon HR also developed measures of how it was viewed by its keycustomers. Finally, from the financial perspective, measures of how HR adds mea-surable financial value to the organization, including return-on-investment mea-sures for training, staffing, technology, risk management, cost of service deliverywere devised.

To ensure that HR strategy was aligned with business strategy, Verizon HR hadto first define what the strategic goals of the business were. Then it had to clearlyunderstand what HR needed to deliver to enable the business to achieve thosegoals. Thirdly, it had to identify strategies and actions that would enable HR to de-liver the critical business requirements. Finally, it had to develop specific mea-sures of the success of HR’s strategies and actions in delivering those require-ments that would be acceptable to HR’s stakeholders within the firm. To achievethis, HR put together a document outlining what the firm’s business strategy wasand held discussions within the HR unit to come up with a list of what outcomesHR needed to produce. Following that, they conducted a line management surveyto get another view of HR outcomes required. From the HR-generated and line

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management-generated lists, Verizon HR came up with a final list of enterprise andbusiness unit measures to assess HR in each of the four scorecard areas (seeTable 2.7). This list provided HR with a strategically linked, broad-based approachto assessing its effectiveness as a unit within the overall business.

Dollar Value of HR Programs

Another issue in assessing HR practices relates to the monetary costs and benefitsof HR activities—the dollar value of HR programs. Dollar-value indices used toassess HR are include measures such as these:

• Cost of benefits as a percentage of total compensation• Labor contract costs

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● TA B L E 2 . 7

Verizon HR Balanced Scorecard Measures*

Scorecard Enterprise Measures

Financial:• Maximize shareholder value • Total shareholder return• Maximize human capital performance • Revenue per employee• Minimize HR costs • HR Return on Investment (ROI)

• Total HR cost per employee• Budget variance

Customer:• Business partner • Rating on corporate service agreement• World class standards • Ranking of HR practice• Responsive quality service • Employee satisfaction survey• Low cost provider • Benefit center satisfaction percent

• HR cost factor indices

Internal Operations:• Align HR planning with business • % strategic HR plans implemented

priorities • % HR customized recommendations implemented• Provide quality consultative advice • % productivity improvement goals established• Ensure a strategy focused work force • % compensation schemes aligned with strategy• Develop and enhance world class • benchmarking ranking

programs • % programs executed• Optimize HR services through • cost per delivery channel

alternative delivery channels • Cycle time to fill• Cost per transaction

Strategic:• Capability: build strategic competencies • Leadership Development participation • Performance based culture/climate • Voluntary separation rate/cost• Organizational integration: information • Rating on viewpoints survey

for decision-making leadership • Organizational health index• Reporting % accurate first request• Turnaround time for ad hoc request• Leadership bench strength • Diversity• Executive coaching

*Similar ideas were developed for business unit-level measures.Source: Adapted from Garret Walker & Randall MacDonald, “Designing and Implementing an HR Scorecard,” Human Resource Management, Vol. 40 (4), 2001, pp. 365–377.

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• Return on HR investment (HR operating expense/total operating expenses)• Cost per hire• Sales revenue per employee• HR cost per sales dollar• Cost per employee training hour73

Wayne Cascio describes more direct ways to assess HR cost-benefit ratios.74

The first step, obviously, is to figure out how much some undesirable HR-relatedsituation in the organization is costing. For example, Cascio suggests that thecost of employee absenteeism can be assigned a dollar value using the followingformula:

Cost of absenteeism = [hours lost to absenteeism × (average of wage perhour per absent employee + average of benefits per hour per absent em-ployee)] + (total supervisory hours lost due to absenteeism × average hourlywage of supervisors) + all other incidental costs resulting from absenteeism(such as extra wages paid to hire temporary workers to replace the absentemployee or wages paid in overtime to employees who have to work extratime because of the absent employee)

Using formulas similar to Cascio’s, some analyses suggest that for employeesearning $30,000 per year, the average cost of absenteeism per employee-day wouldbe around $415.75 Suppose that a firm has a 3 percent absenteeism rate, whichmeans that each employee is absent about 7.8 days per year. If there are fifty em-ployees earning $30,000, then the firm can expect these employees to have a totalof about 390 days of absenteeism per year. At $415 per day, this level of absen-teeism would cost the firm $161,850!

Once the firm knows what absenteeism is costing, the next step is estimat-ing the costs of the HR program developed to fix the problem. Suppose, for ex-ample, that the firm decides to implement an incentive program to reduceabsenteeism. Workers who have a perfect attendance record each week havetheir names placed into a “lotto draw” in which one person wins $50 each week.At the end of the year, each employee is given one lotto ticket for each week ofperfect attendance. Three tickets are drawn, with the first person receiving$1,000, the second $500, and the third $250. The costs of this program would in-clude the following:

• 52 weeks × $50 weekly prizes = $2,600• Materials used in the drawings such as tickets, drum, and so forth = $250• Administrative time associated with running the program; for example, one

person earning $100 per day (wage + benefits) working the equivalent of twodays each month × 12 months = $2,400

• Other overhead costs estimated at 30 percent of the program administrator’ssalary = $720

The total cost of the program would be $5,970. If this program resulted in a 20 per-cent decrease in absenteeism, the benefit gained from the program would be 20percent × $161,850 = $32,370. Subtracting the cost of running the incentive pro-gram would result in total savings to the firm of $26,400!

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The preceding absenteeism example seems relatively simple and straight-forward. Unfortunately, assessing the dollar costs and benefits of HR practices isnot always so easy. Despite the difficulty, the pressures of a more competitivebusiness environment will increasingly place HR practitioners in the position ofhaving to justify the bottom-line impact of their practices on the organization.We will not go into great detail on costing HR programs here; rather, most chap-ters will include a section that describes some of the methods and formulas thatmay be used to assess the costs and benefits of HR programs discussed in thatparticular chapter.

Combining Customer Reaction, HR Impact,and Dollar Value: An Eastman Kodak Example

Eastman Kodak provides an excellent example of a firm that assesses HR using avariety of measures. Kodak developed three clusters of measures for use in as-sessing the impact and value of HR programs:76

Cluster 1: Internal operational measures (how well HR does what it does)• Cycle time of HR practices (how long it takes to develop and run pro-

grams)• Quality and cost of practices• Result measures, such as acceptances versus offers in hiring• HR client satisfaction measures• Measures such as the ratio of HR expenses to total operating expenses of

the companyCluster 2: Internal strategic measures (how well HR practices serve strategically

important initiatives in the organization)• Leadership diversity in terms of race, gender, and so forth• 360-degree measures of leadership competency• Percentage of employees with documented development plans• Number of hours devoted to development by employees• Results of development activities assessed using four levels of training

evaluation • Clarity of performance expectations related to strategically important be-

haviors and adequacy of performance feedbackCluster 3: External strategic measures (to assess how well HR practices satisfy cus-

tomers and shareholders)• Incremental sales and earnings• Changes in customer satisfaction and commitment

The two critical elements of the Kodak system are that (1) it uses a variety ofmeasures of customer reactions, HR impact, and dollar value and (2) it approachesthe measurement of HR effectiveness from different strategic perspectives.

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Benchmarking HR Practices

Another aspect of measuring the effectiveness of HR programs is through HRbenchmarking. Benchmarking is important because to determine the true compe-titive advantage of HR, an organization must assess HR practices not only againstsome internal standard but also against the HR practices of key competitors andfirms that exemplify HR excellence. Benchmarking is a generic term that can bedefined as “a comparison with selected performance indicators from different or-ganizations, typically in the same industry, or with comparable organizations thatare considered to be ‘best in class.’”77 Benchmarking has been conducted on awide variety of organizational practices, often relating to production methods ortechnology, but for the remainder of this section we use the term only as it appliesto the comparison and evaluation of HR practices.

There are several different types of benchmarking.78 Internal benchmarkingoccurs when a firm compares practices in one part of the organization against thosein other internal units. For example, work and safety practices in a firm’s operationsin the southwestern United States might be compared with those in its New Englandoperations. Competitive benchmarking is conducted against external competitorsin the same markets. Firm A might compare itself with four of its competitors in termsof its employee turnover rate, ratio of HR staff to production employees, and percent-age of total operating budget spent on employee training. Generic HR benchmark-ing involves the comparison of HR processes that are the same, regardless ofindustry. Sheraton Hotels could compare aspects of its HR practices with the HR prac-tices at Ford Motor Company, IBM, Lucent Technologies, and Harvard University.

Regardless of which type of benchmarking is conducted, the process is essen-tially the same. The firm must first understand its own performance by developingmeasures of customer reactions, HR impact, or dollar value. The firm must thendecide exactly what to benchmark, because more aspects of HR performance maybe measurable than need to be benchmarked. Measures that are obtainable in thecomparison firms or business units should be identified and then prioritized rela-tive to their overall strategic importance to the role of HR in the company. An over-all plan for the program should be developed, including the allocation of sufficientresources for the project and the establishment of a clear project calendar. Thenext step is to identify firms (or in the case of internal benchmarking, parts of thefirm) that will be in the study, persuade them to participate, and then collect data.Analyzing the data collected involves looking for “gaps” between your firm’s(unit’s) practices and those of other firms (units) in the study. Recommendationson how to close these gaps should be made and then implemented.

The number of different indices of HR performance that can be benchmarkedis almost limitless. Which benchmark indices should be used will depend on thespecific strategy and circumstances of the firm involved. A wide variety of re-sources on the Internet provide firms with systems for benchmarking their HRactivities. For example, the Saratoga Institute has played a large part in the devel-opment of modern HR benchmarking techniques. Its Workforce Diagnostic Sys-tem is a comprehensive approach to benchmarking HR processes. Using this sys-tem, companies can benchmark and monitor a variety of HR indices including thecost of recruiting, hiring, and turnover of employees, as well as measures of thereturn on investment of several HR practices. Table 2.8 provides a brief outline ofthe types of benchmark measures included in the Workforce Diagnostic System.79

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● TA B L E 2 . 8

Brief Summary of the Saratoga Workforce Diagnostic System

Aspect of HR Being Benchmarked HR Indices

HR Staff and Structure HR Headcount Ratios

HR Investment Factors by HR Functional Area

HR Employee Cost Factor

HR Outsourcing and Consulting Costs

HR Staff Breakdowns

HRIT Investment Factor

Training Investment Factor

Training Staff Ratio

Compensation and Benefits Employee Cost Factor

Compensation as a Percentage of Revenue

Sales Revenue and Operating Expense

Workers Compensation Claim Factor

Benefit Factor

Healthcare Factor

Benefit Plan Breakdown Costs

Staffing and Hiring Accession Rates

Cost per Hire by Job Level and Source

Requisition Rates

Time to Fill and Time to Start

Relocation Program Cost Factor

Separation Rates Separation Rates

Voluntary and Involuntary Separation Rates

Voluntary Separation Rates by Length of Service

Planned Separation Rate

Unplanned Separation Rate

Separation Rate by Reason

Organization and Operations Revenue, Expense, and Income Factors

Earnings Factor

Sales Revenue Factor

Human Capital ROI (Return on Investment)

Human Economic Value Added

Average Tenure

Source: This outline of the Workforce Diagnostic System is found on the Saratoga Institute’s Web site. The information for each of theHR aspects indicated in Table 2.8 is found at http://www.pwcservices.com/saratoga-institute/hr_staff_structure.htm; http://www.pwcservices.com/saratoga-institute/compensation_benefits.htm; http://www.pwcservices.com/saratoga-institute/staffing_hiring.htm;http://www.pwcservices.com/saratoga-institute/retention_separation.htm; http://www.pwcservices.com/saratoga-institute/operations.htm. (accessed 17 November 2003)

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●IS STRATEGIC HRM REALLY WORTH ALL THE TROUBLE?

Because of the magnitude of the differences between the traditional personnelperspective and strategic HRM, it is not surprising that many organizations haveyet to make the leap into SHRM. The transformation from traditional HRM toSHRM is not made for a variety of reasons. The adoption of SHRM requires ahighly competent and persistent SHRM leader as well as committed and support-ive top management. Many firms simply do not have this type of HR leader or topmanagement support. Political forces within the organization, accompanied bycompeting coalitions with different self-interests, may preclude the adoption ofmany SHRM practices. For example, HR systems that could help achieve particu-lar organizational objectives may not be supported by unions. Also, firms that arenot labor-intensive may be less likely to make the effort to move to a strategic HRorientation because human resources are perceived to make up a relatively smallportion of the organization’s potential competitive advantage.

Firms experiencing very stressful business conditions (either rapid expansionor sudden decline) often feel that they are “up to their ears in alligators” and donot have the time or resources to invest in an HRM transformation. Unfortunately,for many of these firms the lack of attention to HR issues may be one of the pri-mary factors contributing to their business stress. For example, firms undergoingdownsizing often cut HR staff because they are viewed as nonessential to the corebusiness. However, after downsizing, employees often need extensive training tomanage expanded jobs, and the selection of any new staff becomes particularlycritical. Thus, at a time when HR services are most needed, they are often re-duced. Additionally, highly decentralized organizations made up of autonomousbusiness units may view the move to a corporate-wide, relatively unitary model ofSRHM as both unfeasible and potentially undesirable.

The traditional role that HR has played in many organizations often makes thetransition to SHRM extremely difficult. Unless HR managers are involved directlyin the process of strategy formulation, any attempt by senior management to linkHR activities with business strategy simply creates a cycle in which HR cannot im-plement the HR components of the strategy effectively, which causes HR to losecredibility with non-HR managers. This further isolates HR from the strategicplanning process, making it increasingly difficult to implement strategy and soforth.

Transforming traditional HR into strategic HRM is a complex and time-consuming process. Top managers and HR practitioners are right in questioningthe overall value of the SHRM transformation process. Just as we can evaluate theeffectiveness of a single HR practice, we also must examine the issue of whetherstrategic HRM is really “worth all the trouble.” There is evidence that HR prac-tices do have a variety of positive outcomes and a direct bottom-line effect on orga-nizational profitability.

A significant amount of recent research examines whether strategic HR prac-tices affect a firm’s overall performance as well as the processes by which this oc-curs. One model of how HR practices affect firm performance is presented in Fig-ure 2.4. According to this model, how an organization goes about its HR activitieswill directly affect a variety of “HR outcomes,” including employee satisfaction,motivation, perceived work climate, and commitment. These HR outcomes, in

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turn, affect bottom-line aspects of firm performance such as profitability, marketshare, and sales levels.80

A number of studies have found support for the impact of HR practices on a va-riety of outcomes. For example, one study found that “progressive” HR practicesfostered a more positive work climate in a network of bank branches. Another ex-amined the link between “innovative” HR practices and organizational commit-ment in 422 managers. The study found a significant link between the perceptionof managers that innovative HR practices had been implemented in their firms andtheir level of organizational commitment.81

In a landmark 1997 study, Mark Huselid and his colleagues assessed the levelof HR “technical” and “strategic” effectiveness in 293 U.S. firms. Firm perfor-mance also was measured based on share price, net sales per employee, and grossrate of return on assets. The results of the study indicated that an increase of onestandard deviation in overall HR effectiveness was associated with a 5.2 percent in-crease in per-employee sales volume valued at $44,380, a 16.3 percent increase incash flow valued at $9,673 per employee, and a 6 percent increase in market valuevalued at $8,882 per employee.82 Other findings in a variety of geographic loca-tions support Huselid’s contention that improved HR practices resulting from atransformation to a strategic HR perspective can have a bottom-line impact. For ex-ample, Sears found that for every 5 percent improvement in employee attitudes(resulting from various HR initiatives), customer retention rates increased by 1.3

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percent and profits by 0.4 percent. A 2003 study of manufacturing plants in Ger-many, Italy, Japan, and the United States found a significant link between the useof “high performance work practices” and various measures of organizational per-formance such as unit costs and quality. Productivity measured in terms of salesper employee was related to the use of high involvement HR systems in a sampleof 165 firms in New Zealand. Research on the use of high performance HR sys-tems in Western firms operating in China found a significant correlation betweenthe use of such HR systems and firm profitability and overall performance as ratedby managers in the sample. Another study found a link between HR practices andrated overall firm performance in a Russian sample, and a study of Danish firmsreported that “innovation performance” was predicted by the extent to which thefirms had HR practices such as decentralized decision making, use of teams, en-hanced training programs, and programs that increased information sharingthroughout the firm.83

Although these studies vary considerably in terms of what HR practices weremeasured and how firm performance was operationalized, taken collectively thereseems to be a strong case for promoting the improvement of HR activities as ameans of affecting the financial results and other positive outcomes in many orga-nizations. The business environment that has caused organizations to focus onhuman resources as a potentially enduring source of competitive advantage islikely to continue for many years. To the extent that HR practitioners becomemore adept at measuring aspects of customer reactions, HR program impact, thedollar value of HR practices, and comparing their own HR practices with those oftheir best competitors, the importance of strategic human resource managementis likely to continue to grow. Is strategic human resource management reallyworth all the trouble? The answer is almost certainly yes.

CHAPTER 2 Strategic Human Resource Management 85

SUMMARY OF KEY POINTS

This chapter discussed the process of how an orga-nization can move from a traditional personnel man-agement perspective to a strategic HRM approach.This move is necessitated by a modern businessenvironment that is constantly changing, wheretechnology, finance, and products can be imitatedeasily by competitors. Human resources are one ofthe few enduring sources of competitive advantagethat remain for many firms. The traditional view ofHR is that of an isolated, record-keeping functionwithin the organization. Although strategic humanresource management can be considered simply asthe process of helping an organization achieve com-petitive advantage through its people, there aremany different perspectives on this seemingly sim-ple definition.

Some believe that a universal set of HR prac-tices will always contribute to a firm’s success, re-gardless of the business environment or the com-

pany’s strategy. The role of strategic human re-source managers is one of incorporating these uni-versally effective HR practices into their firm. Oth-ers believe that SHRM involves a process ofmatching specific HR practices to particular aspectsof the firm’s strategy. Here the HR practitioner’srole is to ensure a fit between HR practices andbusiness strategy. Also, HR practices must fit withthe external environment and one another. OtherSHRM specialists believe that SHRM involves aprocess of putting together configurations of HRpractices that are logically consistent with one an-other and are appropriate for the particular type ofindustry or business environment in which a firmoperates. A final view of SHRM is as a means ofgaining competitive advantage by putting togethera unique group of human skills and abilities thatother firms are unable to imitate and that give thefirm special capabilities relative to its competitors.

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Each of these perspectives adds to an overallview of SHRM. Taken collectively, these theoreticalperspectives suggest that SHRM is a process thatinvolves (1) internally transforming HR staff andstructure, (2) enhancing HR administrative effi-ciency, (3) integrating HR into the strategic plan-ning process, (4) linking HR practices to businessstrategy and to one another, (5) developing a part-nership with line management so that HR programsmeet real business needs, and (6) measuring thebottom-line impact of HR activities. Although eachof these parts of the SHRM process is complex,time consuming, and difficult, research indicatesthat real financial benefits result from more pro-gressive, strategic, and efficient use of human re-sources within modern organizations.

THE MANAGER’S VOCABULARY

administrative efficiencybalanced scorecard approachbenchmarkingbest-fit perspectivebottom-line impactbusiness impact measuresbusiness partner teamscentral administrative service unitscentralized centers of expertisecentralized HR servicescompelling business casecompetitive advantagecompetitive benchmarkingconfigurational approachcoordination flexibilitydelayeringdollar value of HR programsempowered employeesenvironmental opportunitiesenvironmental threatsexternal fitgeneric HR benchmarkinghorizontal fitHR bundlesHR practice choiceshuman capital advantagehuman capital poolintegrationinternal benchmarkinginward HR function measures

mission statement“one-stop shop”operational measuresoutsourcingoutward focused HR measurespartnershipresource-based modelresource flexibilityresults measuresservice quality measuresstrategic human resource management

(SHRM)strategy formulationuniversalistic approachvalues statementvertical fitwork systems

QUESTIONS FOR DISCUSSION

1. Defend this statement: “The business environ-ment increasingly forces firms to make humanresources a critical source of competitive ad-vantage.”

2. Discuss the environmental changes faced byXilinx as described in the HR Challenge. Whatapproach would you take to deal with the im-mediate and long-term HR implications of thechange in Xilinx’s financial performance?

3. Compare and contrast the universalistic, con-figurational, and resource-based approaches tostrategic human resource management.

4. Pick a specific large organization with whichmost people are familiar. As best you can, de-termine what business strategy the organiza-tion is following. What implications does thisstrategy have for human resource manage-ment? What HR practice choices might makethe most sense for this firm?

5. Discuss an organization you have worked for.In what ways did its HR practices facilitate orinhibit meeting the organization’s goals?

6. What typical aspects of the structure of the HRfunction are changed when firms move toSHRM?

7. How are the skills needed by staff in a strate-gic HRM environment different from thoseneeded by staff in a more traditional personnel/HR environment?

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8. What is meant by the statement “Integration isa key part of the process of developing aSHRM perspective”? How would you go aboutintegrating HR into the strategic planningprocess of a firm?

9. What do the terms “vertical fit,” “horizontalfit,” and “external fit” mean?

10. Describe how some organizations have goneabout building a partnership between HR andline managers.

11. What are the differences between inward HRfunction measures and outward-focused HRmeasures? Give some examples of each.

12. Defend this statement: “Developing a tightfit between HR practices and a firm’s busi-ness strategy and external environmentcan be detrimental to a firm’s long-termsuccess.”

13. Does a move to SHRM really have a positiveimpact on firm performance? Defend your re-sponse, and be sure to explain how HR prac-tices affect the financial and other aspects offirm performance.

Case 2.1Jumbuck Enterprises

You are the vice president of HR at Jumbuck Enter-prises. The new CEO of Jumbuck, Harry (alsoknown as “Chainsaw”) Price has called you into hisoffice one fine Monday morning. Harry says to you:“[Your name], times are tough here at Jumbuck En-terprises. Things have got to change, and change ina big way. All this warm-and-fuzzy human resourcemanagement stuff is great—as long as you have theprofits to spend on it. When you don’t, well, then Ireckon I can save the firm quite a bit of money bysacking the whole HR Department. After all, a coupleof decent clerks can handle the payroll.”

You gape at Chainsaw with a look of total disbe-lief in your eyes. You catch your breath and say,“But Chain . . . , I mean Harry, the HR Departmentis one of the most critical groups in the firm. Howcan Jumbuck Enterprises be productive and suc-cessful without a motivated, highly trained, and tal-ented work force? Every year the efforts of the HRDepartment result in hundreds of thousands of dol-lars in added profit for the firm.”

Harry raises his eyes up toward the ceiling,gives a little laugh, and says, “Oh yeah, well proveit. You’ve got until Friday at noon to show me howthe HR Department affects the bottom-line profitsof this organization. I want a ten-minute presenta-tion from you about HR’s great value to this firm. Itbetter be good. Otherwise, by Friday at five o’clockyou’ll all have received your last paychecks fromJumbuck Enterprises.”

You hurry back to your office and rummagethrough a stack of reports one of your assistantshas just prepared for you from a benchmarkingstudy. In these data your firm is compared with 200firms in all industries in the local area. Of these 200firms, twenty were in your industry. Given the datathat follow, justify your existence as an HR unitwithin Jumbuck Enterprises. How have you in-creased profits either directly or indirectly? Howhave you added value?

Some Hints: Average cost of an operative leav-ing the firm is estimated at one-half to one timesthe operative’s annual salary. Average cost of amanager leaving the firm is estimated as one to twotimes the manager’s annual salary. Average cost ofa day’s absence by an employee earning $30,000per year is $415 per day.

HR Expense Factor (HR operating expenses/totalorganization operating expenses)

Jumbuck All YourIndustry Industry

2002 2003 2004 Median Median

1.1% .98% .94% 1.3% 1.1%

HR Staffing Factor (Total number of full-time em-ployees/number of full-time HR employees)

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Jumbuck All YourIndustry Industry

2002 2003 2004 Median Median

54 56 55.26 55 58

Operative Absence (Total days absence/total workdays)

Jumbuck All YourIndustry Industry

2002 2003 2004 Median Median

3.2% 3% 2.9% 3.77% 3.19%

Average Position Tenure in Years The average num-ber of years an employee has been in current posi-tion.

Jumbuck All YourIndustry Industry

2002 2003 2004 Median Median

Managerial 8 4 3 3.5 3.8Operative 12 10 9 11 10

Labor Turnover Rate

Jumbuck All YourIndustry Industry

2002 2003 2004 Median Median

Managerial 18% 14% 12% 14% 13%Operative 22% 18% 14% 15% 16%

Managerial and Professional Start Time Time fromjob becoming vacant to job being filled. (Time tostart in days/number of recruits)

Jumbuck All YourIndustry Industry

2002 2003 2004 Median Median

65 52 45 65.24 57

Managerial and Professional Hiring Costs Averagecost of hiring managerial and professional staff.(Cost in dollars of hires/number of hires)

Jumbuck All YourIndustry Industry

2002 2003 2004 Median Median

$1,530 $1,335 $1,275 $1,800 $1,500

Recruitment Source Ratio Ratio of positions filled fromwithin the firm to positions filled by external recruits.

Jumbuck All YourIndustry Industry

2002 2003 2004 Median Median

1:5 1:4 1:2 1:3 1:4

Managerial and Professional Career Path Ratio Forexample, in 2002, for every one promotion, therewere twelve horizontal transfers within the firm formanagerial and professional staff. (Promotions/horizontal transfers)

Jumbuck All YourIndustry Industry

2002 2003 2004 Median Median

1:12 1:8 1:5 1:6 1:8

Average Cost of Sick Leave Days Due to Accidents onthe Job Includes employee absences from workplus medical costs associated with the accident.

Jumbuck All YourIndustry Industry

2002 2003 2004 Median Median

$2,775 $2,595 $2,280 $2,215 $2,325

Company Operating Expenses = $121,500,000 Thishas been the same for the last three years, alongwith the following:

Total employees 1,000Total operative employees 800Total management employees 200Average operative salary $30,000Average management salary $60,000Average HR salary $38,000Revenue per employee $129,000Gross profit per employee $7,500Number of management hires 16

Source: Adapted from a case prepared by Pat Foley and Peter Howes and presentedat the 1996 Benchmarking Conference, HRM Consulting, Ltd., Sydney, Australia,1996. Reprinted by permission of HRM Consulting.

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Exercise 2.1HR Strategy: E-Commerce Comes to Bojangles’ Book and Music Company

You are the HR director for Bojangles’ Book andMusic Company (BBMC) in Springhill, Louisiana.Bojangles has been a family-owned business since1925. It has been very successful over the years, pro-viding a wide range of books and music to its cus-tomers. Bojangles prides itself on its very high levelof customer service and an ability to fully live up to itsmotto of “You Want It , We Got—Or We Can Get ItFast.” Bojangles’ operations have spread from its sin-gle store in Springhill to a total of thirty stores inLouisiana, Mississippi, Alabama, and Georgia. Bo-jangles locates its stores in medium-sized towns be-cause it found competition in the larger cities was toogreat. It has a highly efficient distribution system toensure that all stores can live up to the BBMC motto.

BBMC’s work force is hired from the local storeareas. Stores provide part-time work for local highschool students, and full-time employees tend torange in age from the mid-twenties to the late thir-ties. BBMC provides a profit-sharing scheme to allof its full-time employees. Turnover among thesestaff members is relatively low, with most stayingwith BBMC for several years.

Over the past couple of years, BBMC’s profitshave been dropping. Market research conductedby a professor from Western Central Louisiana Uni-versity has indicated that much of Bojangles’ loss inrevenue can be attributed to book and music sellers

operating on the Internet. After much soul search-ing, Beauregard B. Goree, Bojangles’ current CEO,has decided “to take Bojangles’ Book and MusicCompany onto the World Wide Web!”

Initially, BBMC will run all of its e-commerceoperations from its home site in Springhill and useits existing distribution center. As to what this moveto e-commerce means for BBMC’s existing store-front operations, Beauregard B. Goree will only say,“Well, we’ll just have to wait and see about that!”

1. Outline BBMC’s strengths and weaknesses re-lated to this change in mode of operation.

2. Outline the opportunities and threats associatedwith this change in business strategy.

3. Outline the HR practice implications for staff ofsuch a change in operations. Specifically,a. what changes, if any, would be needed in how

people are hired and what kinds of skills andqualifications they would need to have?

b. how would you appraise the performance ofstaff in the new e-commerce operations, andhow would that differ from staff in the store-front sites?

c. what changes would be required in how youpaid staff?

d. what new training and development pro-grams would be required?

Exercise 2.2Changes in the Business Environment, Changes in HR: A Group Project

Students work in groups of four to five. Each groupis to identify an organization that has faced a majorchange in the business environment in which it op-erates—for example, AT&T during its breakup andderegulation of the telecommunications industry orairline companies after the post-9/11 downturn inthe world travel economy. Students may also focuson any local firm that has undergone some majorshift in its business environment.

The task of each group (this may be done in oroutside class) is to do the following:

• Outline the basic nature of the old business en-vironment in which the firm operated, and de-scribe the likely changes the new environmentmay have on the business strategy of the firm.

• Identify the human resource implications ofthese environmental and strategy shifts interms of the selection, training, performanceappraisal, and compensation of employees.

• Identify the major problems the firm has or willlikely experience in implementing these newHR activities.

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• Prepare a report for presentation to the class.For example, an airline facing the reduction in

worldwide air travel following the terrorist attack ofSeptember 11, 2001, could choose to either heavilyreduce its costs, service routes, and flight frequen-cies, or it might decide to become a “luxury airline”focusing on a high level of quality for business trav-elers (with business travel less affected by recentworld events than typical tourist travel). Employeeswould need to be more quality and customer-servicefocused and have better interpersonal and commu-nication skills when dealing with business travel-ers. This would have an impact on both selectionand training activities as well as on performance ap-praisal, for which quality and customer relations be-

haviors would become more important. Pay and in-centive systems would need to reflect these newpriorities. One major problem that is likely to faceHR managers is the need to terminate employeeswho are unable to develop new and necessaryskills. Pay and incentive systems to motivate perfor-mance may be difficult to implement if the firm ishighly unionized or has low profit levels that makeincreased incentives not feasible.

In their reports, students should stress the fitbetween HR activities and the firm’s new strategy,business environment and type of customers, aswell as the horizontal fit among the various HR ac-tivities to show that they are consistent with oneanother.

Exercise 2.3Benchmarking Resources on the Web

Your company is thinking about beginning a bench-marking program in human resource management.Use the Internet to locate data and articles aboutbenchmarking human resource management. Pre-pare a report to your manager on what you have

learned about the advantages and disadvantages ofbenchmarking, how to select comparison organiza-tions, and whether you should obtain the servicesof any of the benchmarking organizations or con-sultants you encounter on the Web.

NOTES AND REFERENCES

1. Information for this HR Challenge was ob-tained from the “Corporate Backgrounder” sectionof the Xilinx Web site http://www.xilinx.com/company/press/grounder.htm (accessed on Octo-ber 14, 2003; Earnings Report: Xilinx Inc. Comput-ergram Weekly, July 20, 2001, p. N; Earnings Re-port: Xilinx Inc., Network Briefing Daily, October10, 2001, p. 4; and Willem P. Roelandts, “WhateverYou Do, Hang on to Your Engineers: They’re YourBest Asset,” Design News, Vol. 58 (10), 2003, p. 20.

2. To find out what Xilinx actually did to deal withthe situation, see Thomas De Long and ChristinaDarwall, Xilinx, Inc. (A), Harvard Business SchoolCases, No. N-403-136, January 12, 2003; Roelandts,“Whatever You Do, Hang on to Your Engineers”;and see the interview of Peg Wynn, Vice Presidentof Human Resources at Xilinx, in “HR Heroes: HRin High Tech—Small Companies,” HR Heroes:What It Means to Be a Strategic HR Leader in the

21st Century, DVD produced by the SHRM Foun-dation, Society for Human Resource Management(Available at: http://www.shrm.org) 2003.3. Wayne Brockbank, “If HR Were Really Strategi-

cally Proactive: Present and Future Directions inHR’s Contribution to Competitive Advantage,”Human Resource Management, Vol. 38 (4), 1999,pp. 337–352.4. Randall S. Schuler, “Repositioning the Human

Resource Function: Transformation or Demise,” inHRM Reality: Putting Competence in Context, eds.P. J. Frost, V. F. Mitchell, and W. R. Nord (Cincin-nati: Southwestern, 1992), pp. 8–21.5. Steven W. Hays and Richard C. Kearney, “An-

ticipated Changes in Human Resource Manage-ment: Views from the Field,” Public AdministrationReview, Vol. 61 (5), 2001, pp. 585–597; Jacek Lipiec,“Human Resources Management Perspective at theTurn of the Century,” Public Personnel Manage-

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ment, Vol. 30 (2), 2001, pp. 137–146; and AlfredWalker (Ed.), Web-Based Human Resources: TheTechnologies and Trends That Are Transforming HR(New York: McGraw-Hill, 2001).6. Dave Ulrich, Human Resource Champions

(Cambridge, Mass.: Harvard Business SchoolPress, 1997).7. Bartlett & Ghoshal (2002), “Building Competi-

tive Advantage Through People” MIT Sloan Man-agement Review, Vol. 43 (2), 2002, pp. 34-41.8. Edward E. Lawler III and Susan A. Mohrman,

“Beyond the Vision: What Makes HR Effective?”Human Resource Planning, Vol. 23 (4), 2000, pp.11–20; SHRM/Towers Perrin survey results re-ported in Wayne Cascio, “HR Heroes: What ItMeans to Be a Strategic HR Leader in the 21st Cen-tury: Discussion Guide” (Alexandria, Va.: SHRMFoundation, 2003), p. 4).

9. James Walker, Human Resource Strategy (Syd-ney: McGraw-Hill International Editions, 1992);and Ian Clark, “HRM: Prescription, Descriptionand Concept,” Personnel Review, Vol. 22 (4), 1993,pp. 20, 23.10. Jeffrey Pfeffer, The Human Equation: BuildingProfits by Putting People First (Boston, Mass: Har-vard Business School Press, 1998).11. Paul Boselie, Jaap Paauwe, and Paul Jansen,“Human Resource Management and Performance:Lessons from the Netherlands, International Jour-nal of Human Resource Management, Vol. 12 (7),2001, pp. 1107–1125.12. John Delery, “Issues of Fit in Strategic HumanResource Management: Implications for Research,”Human Resource Management Review, Vol. 8 (3),1998, pp. 289–309; and Patrick M. Wright, “Strat-egy—HR Fit: Does It Really Matter?” Human Re-source Planning, Vol. 21 (4), 1998, pp. 56–57.13. Casey Ichinowski and Kathryn Shaw, “The Ef-fects of Human Resource Management Systems onEconomic Performance: An International Compari-son of U.S. and Japanese Plants,” Management Sci-ence, Vol. 45 (5), 1999, pp. 704–721, at 705.14. Sohel Ahmad and Roger G. Schroeder, “TheImpact of Human Resource Management Practiceson Operational Performance: Recognizing Countryand Industry Differences,” Journal of OperationsManagement, Vol. 21 (1), 2003, pp. 19–43.15. Jay Barney, “Looking Inside for CompetitiveAdvantage,” Academy of Management Executive,Vol. 9 (4), 1995, pp. 49–61.

16. Jay Barney and Patrick Wright, “On Becominga Strategic Partner: The Role of Human Resourcesin Gaining Competitive Advantage,” Human Re-source Management, Vol. 37 (1), 1998, pp. 31–46.17. Patrick M. Wright; Benjamin B. Dunford, andScott A. Snell, “Human Resources and the Re-source Based View of the Firm,” Journal of Man-agement, Vol. 27 (6), 2001, pp. 701–721.18. Ibid., p. 704.19. Barney and Wright, “On Becoming a StrategicPartner.”20. Michael Beer, “The Transformation of theHuman Resource Function: Resolving the TensionBetween a Traditional Administrative and a NewStrategic Role,” Human Resource Management, Vol.36 (1), 1997, pp. 49–56; and Steve Bates, “BusinessPartners,” HR Magazine, Vol. 48 (9), 2003, pp. 45–49.21. Beer. “The Transformation of the Human Re-source Function”; Wayne Brockbank, “If HR WereReally Strategically Proactive: Present and FutureDirections in HR’s Contribution to Competitive Ad-vantage,” Human Resource Management, Vol. 38(4), 1999, pp. 337–352; and Timothy Galpin andPatrick Murray, “Connect Human Resource Strat-egy to the Business Plan,” HR Magazine, Vol. 42(3), 1997, pp. 99–104.22. James Walker, “Perspectives: Is Your BusinessCase Compelling?” Human Resource Planning, Vol.25 (1), 2002, p. 12.23. Ibid., pp. 12–14.24. James W. Walker and William E. Reif, “HumanResource Leaders: Capability Strengths and Gaps,”Human Resource Planning, Vol. 22 (4), 1999, pp.21–32.25. Connie Freeman, “Training HR Pros to Fit YourCulture,” HR Focus, Vol. 74 (5), 1997, pp. 9–10.26. David Jones, “Repositioning Human Resources:A Case Study,” Human Resource Planning, Vol. 19(1), 1996, pp. 51–53.27. Jill Conner and Jeana Wirtenberg, “Managingthe Transformation of Human Resources Work,”Human Resource Planning, Vol. 16 (2), 1993,pp. 17–34.28. Information concerning Tampella Power fromArja Ropo, “Towards Strategic Human ResourceManagement: A Pilot Study in a Finnish Power In-dustry Company,” Personnel Review, Vol. 22 (4),1993, pp. 35–53; information about Northern Tele-com from James Kochanski and Phillip Randall,“Rearchitecting the Human Resources Function at

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Northern Telecom,” Human Resource Manage-ment, Vol. 33 (2), 1994, pp. 299–315; information onBenetton from Arnaldo Camuffo and Giovanni Cos-tra, “Strategic Human Resource Management—Italian Style,” Sloan Management Review, Vol. 34(2), 1993, pp. 59–67; information about SiemensRolm from Gillian Flynn, “On Track to a Come-back: Siemens Rolm Models Reengineering DoneRight,” Personnel Journal, Vol. 75 (2), 1996,pp. 58–69.29. Gregory Kesler, “Four Steps to Building an HRAgenda for Growth: HR Strategy Revisited,”Human Resource Planning, Vol. 23 (3), 2000, p.24–37.30. Ibid.; and Neil McEwen, “Transforming HR:The Practitioner’s Perspective,” HR Review, Vol. 2(1) 2002, pp. 18–23.31. Ulrich, Human Resource Champions.32. Cited in “Going First Class,” HR Focus, Vol. 73(7), 1996, p. 11.33. Described in Beer, “The Transformation of theHuman Resource Function.”34. Institute of Management and Administration,Human Resource Department Management Report,Issue 03-04, April 2003, pp. 1, 7, 11–14.35. Jones, “Repositioning Human Resources.”36. Institute of Management and Administration,“HRIS Managers’ Forum,” Managing Human Re-sources Information Systems, Vol. 2002 (5), 2002,p. 15. 37. Towers Perrin, “Web-Based Self-Service: TheCurrent State of the Art” ”at http://www.towers.com/towers/webcache/towers/United_States/publications/Reports/TP_Track_WebBasedSelfSer/TP_Track_WebBasedSelfSe.pdf, 2001 (accessedOctober 27, 2003); Towers Perrin, “Use of the Webfor HR Service Delivery Growing Steadily,” atwww.towers.com/towers/, September 1, 2002 (ac-cessed 27 October 2003); Watson Wyatt Worldwide,“eHR: Getting Results Along the Journey,” athttp://www.watsonwyatt.com/research/printable.asp?id=W-524, 2002 (accessed October 27, 2003);Towers Perrin, “Companies Report Big PayoffsFrom Web-Based HR Services,” at www.towers.com/towers/, October 1, 2003 (accessed October 27,2003).38. Charles Greer, Stuart Youngblood, and DavidGray, “Human Resource Management Outsourc-ing: The Decision to Make or Buy,” Academy ofManagement Executive, Vol. 13 (3), 1999, pp. 85–96.

39. Craig Gunsauley, “Employers Embrace Multi-service HR Outsourcing,” Employee Benefit News,Vol. 16 (8), 2002, pp. 17–18; Reed Executive PLC,“More Organizations Decide to Outsource,” Person-nel Today, September 3, 2002, p. 63; and Craig Gun-sauley, “Mellon Goes Global,” Employee BenefitNews, Vol. 16 (8), 2002, pp. 17–18.40. From a report by Reed Business InformationServices described in “End-to-End Outsourcing,”Personnel Today, March 25, 2003, pp. 24–25.41. Steve Bates, “HR Outsourcing Is Not All AboutMoney,” HR Magazine, Vol. 48 (4), 2003, p. 14; andDominique Hammond, “Firms Resist HR Outsourc-ing,” People Management, Vol. 8 (12), 2002, p. 8.42. Stephen Kerr, “Organizational Rewards: Practi-cal, Cost Neutral Alternatives That You May Know,But Don’t Practice,” Organizational Dynamics, Vol.28 (1), 1999, pp. 61–70.43. General Electric Web site, Investor FAQs,“What is GE’s mission statement?” at http://www.ge.com/en/company/investor/faqs.htm#faq12 (accessed October 28, 2003).44. Richard L. Osborne, “Core Value Statements:The Corporate Compass,” Business Horizons, Sep-tember–October 1991, pp. 28–34.45. IBM and Marriott examples described on pp.8–9 of the United States General Accounting Office,Human Capital: Key Principles from Nine PrivateSector Organizations, General Government Divi-sion, Report Number GAO/GGD-00-28, January2000.46. Brian Becker and Mark Huselid, “Overview:Strategic Human Resources Management in FiveLeading Firms,” Human Resource Management, Vol.38 (4), 1999, pp. 287–301; Walker and Reif, “HumanResource Leaders”; ”James Walker, “Perspectives:Is Your Business Case Compelling?” Human Re-source Planning, Vol. 25 (1), 2002, pp. 12–14.47. Melody Jones, “Four Trends to Reckon With,”HR Focus, Vol. 73 (7), 1996, pp. 22–23.48. James Baron and David Kreps, “ConsistentHuman Resource Practices,” California Manage-ment Review, Vol. 41 (3), 1999, pp. 29–53.49. P. Boxall, “Strategic HRM: Beginning a NewTheoretical Direction,” Human Resource Manage-ment, Vol. 2 (3), 1992, pp. 61–79.50. Richard Beatty and Craig Schneier, “New HRRoles to Impact Organizational Performance: From‘Partners’ to ‘Players,’” Human Resource Manage-ment, Vol. 36 (1), 1997, pp. 29–37.

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51. Ibid.52. Wendy Boswell and John Boudreau, “HowLeading Companies Create, Measure and AchieveStrategic Results Through ‘Line of Sight,’” Manage-ment Decision, Vol. 39 (10), 2001, pp. 851–859.53. R. Guzzo,“Introduction: At the Intersection ofTeam Effectiveness and Decision Making,” inTeam Eeffectiveness and Decision Making in Orga-nizations, eds. R. Guzzo, E. Salas, and Associates(San Francisco: Jossey-Bass, 1995), pp. 1–8.54. Information about the Agilent HR transforma-tion was summarized from information in GraceYokoi and Charles O’Reilly III, “Building the Cul-ture at Agilent Technologies: Back to the Future,”Graduate School of Business, Stanford University,Case Number HR-20, September 2001.55. C. Chadwick and P. Cappelli, “Alternatives toGeneric Strategy Typologies in Strategic HumanResource Management,” in Research in Personneland Human Resource Management, Supplement 4,Strategic Human Resources Management in the 21stCentury, eds. P. Wright, L. Dyer, J. Boudreau, andG. Milkovich (Greenwich, Conn.: JAI Press, 1999),pp. 11–29; and Gerald Ferris, Wayne Hochwarter,Ronald Buckley, Gloria Harnell-Cook, and DwightFink, “Human Resources Management: Some NewDirections,” Journal of Management, Vol. 25 (3),1999, pp. 385–415.56. Chadwick and Cappelli, “Alternatives toGeneric Strategy Typologies in Strategic HumanResource Management”; Ferris et al., “Human Re-sources Management”; and J. Milliman, M. Von Gli-now, and M. Nathan, “Organizational Life Cyclesand Strategic International Human Resource Man-agement in Multinational Companies: Implicationsfor Congruence Theory,” Academy of ManagementReview, Vol. 16, 1991, pp. 318–339.57. Patrick Wright and Scott Snell, “Toward aUnifying Framework for Exploring Fit and Flexibil-ity in Strategic Human Resource Management,”Academy of Management Review, Vol. 23 (4), 1998,pp. 756–772.58. Ibid.59. Janice Tomlinson, “Human Resources—Partnersin Change,” Human Resource Management, Vol. 32(4), 1993, pp. 545–554.60. ClariNews: Hot News, “First Tennessee Na-tional Corp. Makes Lists of Best Employers forWorking Mothers and People Over 50,” available athttp://quickstart.clari.net/qs_se/webnews/wed/

bp/Btn-first-tennessee.RFMG_DSN.html, Septem-ber 23, 2003. (accessed October 30, 2003)61. Steve Bates, “Business Partners,” HR Maga-zine, Vol. 48 (9), 2003, pp. 45–49.62. Brian Becker and Mark Huselid, “Overview:Strategic Human Resource Management in FiveLeading Firms,” Human Resource Management,Vol. 38 (4), 1999, pp. 287–301.63. Ibid.64. Brian Becker, Mark Huselid, and Dave Ulrich,The HR Scorecard: Linking People, Strategy, andPerformance (Boston: Harvard Business SchoolPress, 2001).65. Jeffrey Pfeffer, “Pitfalls on the Road to Measure-ment: The Dangerous Liaison of Human Resourceswith the Ideas of Accounting and Finance,” HumanResource Management, Vol. 36, (3), 1997, pp. 357–365.66. Elizabeth Cabrera and Angel Cabrera, “Evalua-tion of Human Resource Practices in SpanishBanks,” International Journal of Management, Vol.18 (3), 2001, pp. 337–344: Wayne F. Cascio, CostingHuman Resources: The Financial Impact of Behav-ior on Organizations (Mason, Ohio: South-Western,1999); Wayne F. Cascio, Costing Human Resources,(Mason, Ohio: South-Western, 2000); Jac Fitz-enz,How to Measure Human Resources Management(New York: McGraw-Hill, 2002); Nancy Kaylor,Susan McLane, and Susan Schechter, “Ideas andTrends in Personnel,” Human Resources Manage-ment, Vol. 408, June 1997, pp. 87–97; Tom Lawsonand Regina Hepp, “Measuring the Performance Im-pact of Human Resource Initiatives,” Human Re-source Planning, Vol. 24 (2), 2001, pp. 36–44; SunilRamlall, “Measuring Human Resource Manage-ment’s Effectiveness in Improving Performance,”Human Resource Planning, Vol. 26 (1), 2003, p. 51;Edward Rogers and Patrick Wright, “MeasuringOrganizational Performance in Strategic HumanResource Management: Problems, Prospects, andPerformance Information Markets,” Human Re-source Management Review, Vol. 8 (3), 1998, pp.311–331; and Ulrich, Human Resource Champions.67. James Walker, “Are We Using the RightHuman Resource Measures?” Human ResourcePlanning, Vol. 21 (2), 1998, pp. 7–8.68. Fitz-enz, How to Measure Human ResourcesManagement.69. Boselie, Paauwe, and Jansen, “Human ResourceManagement and Performance”; and Walker, “AreWe Using the Right Human Resource Measures?”

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70. Richard Beatty, Mark Huselid, and CraigSchneider, “New HR Metrics: Scoring on the Busi-ness Scorecard,” Organizational Dynamics, Vol. 32(2), 2003, pp. 107–121; and Robert S. Kaplan andDavid P. Norton, “The Balanced Scorecard—Measures That Drive Performance,” Harvard Busi-ness Review, Vol. 70 (1), 1992, pp. 71–79.71. SHRM and BSC survey cited in Institute ofManagement and Administration, “The BalancedScorecard: One Approach to HR Metrics, HRFocus, Vol. 80 (10), 2003, p. S2.72. Garret Walker and Randall MacDonald, “Design-ing and Implementing an HR Scorecard,” Human Re-source Management, Vol. 40 (4), 2001, pp. 365–377.73. Nancy Kaylor, Susan McLane, and SusanSchechter, “Ideas and Trends in Personnel,”Human Resources Management, Vol. 408, June1997, pp. 87–97.74. Wayne Cascio, Costing Human Resources: TheFinancial Impact of Behavior in Organizations, 4thed. (Cincinnati, Ohio: South-Western College, 2000).75. Lyle Spencer, Calculating Human ResourceCosts and Benefits: Cutting Costs and Improving Pro-ductivity (Brisbane, Australia: Wiley, 1986).76. Arthur Yeung and Bob Berman, “Adding ValueThrough Human Resources: Reorienting HumanResource Measurement to Drive Business Perfor-mance,” Human Resource Management, Vol. 36 (3),1997, pp. 321–335.77. Jean Hiltrop and Charles Despres, “Bench-marking the Performance of Human ResourceManagement,” Long Range Planning, Vol. 27 (6),1994, p. 47.78. Taken from lecture materials provided by PeterHowes of HRM Consulting, Inc., of Brisbane at theHR Benchmarking Conference in Sydney, Aus-tralia, 1996.79. Information on the Saratoga Institute can befound at http://www.pwcservices.com/saratoga-institute. (accessed November 17, 2003)

80. Boselie, Paauwe, and Jansen, “Human ResourceManagement and Performance.”81. Tanuja Agarwala, “Innovative Human ResourcePractices and Organizational Commitment: An Em-pirical Investigation,” International Journal ofHuman Resource Management, Vol. 14 (2), 2003,pp. 174–197; and Garry A. Gelade and Mark Ivery,“The Impact of Human Resource Management andWork Climate on Organizational Performance,”Personnel Psychology, Vol. 56 (2), 2003, pp. 383–404.82. Mark Huselid, Susan Jackson, and RandallSchuler, “Technical and Strategic Human ResourceManagement Effectiveness as Determinants ofFirm Performance,” Academy of Management Jour-nal, Vol. 40 (1), 1997, pp. 171–188.83. Sohel Ahmad and Roger G. Schroeder, “TheImpact of Human Resource Management Practiceson Operational Performance: Recognizing Countryand Industry Differences,” Journal of OperationsManagement, Vol. 21 (1), 2003, pp. 19–43; IngmarBjorkman and Fan Xiucheng, “Human ResourceManagement and the Performance of WesternFirms in China,” International Journal of HumanResource Management, Vol. 13 (6), 2002, pp. 853–864;Carl Fey, Ingmar Bjorkman, and AntoninaPavlovskaya, “The Effect of Human Resource Man-agement Practices on Firm Performance in Rus-sia,” International Journal of Human Resource Man-agement, Vol. 11 (1), 2000, pp. 1–18; James Guthrie,Chester Spell, and Robert Nyamori, “Correlatesand Consequences of High Involvement WorkPractices: The Role of Competitive Strategy,” Inter-national Journal of Human Resource Management,Vol. 13 (1), 2002, pp. 183–197; and Keld Laurssenand Nicolai Foss, “New Human Resource Manage-ment Practices, Complementarities and the Impacton Innovation Performance,” Cambridge Journal ofEconomics, Vol. 27, 2003, pp. 243–263; and Yeungand Berman, “Adding Value Through HumanResources.”

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