CHAPTER 1:

AN INVESTMENT
PERSPECTIVE OF
HUMAN
RESOURCE
MANAGEMENT

Copyright © 2005 South-Western. All rights reserved.

 The
The Strategic
Strategic View
View of
of Human
Human Resources
Resources

•• Employees
Employees are
are human
human assets
assets
–– Increase
Increaseininvalue
valuetotoorganization
organizationand
andmarketplace
marketplacewhen
when
investments
investmentsofofappropriate
appropriatepolicies
policies&&programs
programsare
areapplied
applied
•• Effective
Effective organizations
organizations recognize
recognize that
that employees
employees
have
have value
value
–– Much
Muchas
asorganization’s
organization’sphysical
physical&&capital
capitalassets
assetshave
havevalue
value
•• Employees
Employees are
are valuable
valuable source
source of
of sustainable
sustainable
competitive
competitive advantage
advantage

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 Exhibit
Exhibit1-1
1-1
Sources
Sources of
of Employee
Employee Value
Value

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 Sources
Sources of
of Employee
Employee Value
Value

•• Technical
Technical Knowledge
Knowledge
–– Markets,
Markets,processes,
processes,customers,
customers,environment
environment
•• Ability
Ability to
to Learn
Learn and
and Grow
Grow
–– Openness
Opennesstotonewnewideas
ideas
–– Acquisition
Acquisitionofofknowledge
knowledge&&skills
skills
•• Decision
Decision Making
Making Capabilities
Capabilities
•• Motivation
Motivation
•• Commitment
Commitment
•• Teamwork
Teamwork
–– Interpersonal
Interpersonalskills,
skills,leadership
leadershipability
ability
Copyright © 2005 South-Western. All rights reserved. 1–4
 Adopting
Adopting an
an Investment
Investment Perspective
Perspective

•• Determines
Determines how
how to
to best
best invest
invest in
in people
people
•• Costs
Costs
–– Out-of-pocket
Out-of-pocket
–– Opportunity
Opportunity
•• Human
Human assets
assets become
become competitive
competitive advantage
advantage
•• Required
Required skills
skills become
become less
less manual,
manual, more
more
knowledge-based
knowledge-based
•• Appropriate,
Appropriate, integrated,
integrated, strategy-consistent
strategy-consistent
approach
approach isis needed
needed

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 AA Dilemma
Dilemma

•• Failure
Failure to
to invest
invest in
in employees
employees causes
causes
–– Inefficiency
Inefficiency
–– Weakening
Weakening ofof organization’s
organization’s competitive
competitive
position
position
•• Human
Human assets
assets are
are risky
risky investment
investment
•• Require
Require extra
extra effort
effort to
to ensure
ensure that
that they
they
are
are not
not lost
lost

Copyright © 2005 South-Western. All rights reserved. 1–6

 Exhibit
Exhibit1-2
1-2
Types
Types of
of Organizational
Organizational Assets/Capital
Assets/Capital

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 Research
Research Findings
Findings

•• Huselid
Huselid inin the
the Mid
Mid 1990s
1990s found
found that
that that
that HR
HR
practices
practices directly
directly related
related to
to profitability
profitability & & market
market
value.
value.
•• Primary
Primary reason
reason for
for profitability:
profitability:
–– Effective
Effectivemanagement
managementofofhuman
humancapital
capital
•• Integrated
Integrated management
management of of human
human capital
capital can
can result
result
in
in 47%
47% increase
increase inin market
market value
value
•• Top
Top 10%
10% of
of organizations
organizations studied
studied experienced
experienced
391%
391% return
return on
on investment
investment inin management
management ofof
human
human capital
capital
Copyright © 2005 South-Western. All rights reserved. 1–8
 Exhibit
Exhibit1-3
1-3
HR
HR Value
Value Chain
Chain

Copyright © 2005 South-Western. All rights reserved. 1–9

 HR
HR Metrics
Metrics Are
Are Complex
Complex

•• 90%
90% of
of Fortune
Fortune 500
500 organizations
organizations evaluate
evaluate
HR
HR operations
operations on
on basis
basis of
of three
three metrics:
metrics:
–– Employee
Employeeretention
retentionand
andturnover
turnover
–– Corporate
Corporatemorale
morale
–– Employee
Employeesatisfaction
satisfaction
•• These
These metrics
metrics do
do not
not necessarily
necessarily illustrate
illustrate
how
how HR
HR impacts
impacts
–– Profits
Profits
–– Shareholder
Shareholdervalue
value
Copyright © 2005 South-Western. All rights reserved. 1–10
 Mercer
Mercer Model
Model of
of Measuring
Measuring HR
HR Impact
Impact

•• Identify
Identify problem
problemHR HR can
can impact
impact
•• Calculate
Calculate actual
actual cost
cost of
of problem
problem
•• Choose
Choose HR HR solution
solution that
that addresses
addresses problem
problem
•• Calculate
Calculate cost
cost of
of solution
solution
•• Calculate
Calculate value
value of
of improvement
improvement 66 to to 24
24 months
months
after
after implementation
implementation
•• Calculate
Calculate specific
specific return
return on
on investment
investment
•• ROI
ROI inin human
human assets
assets often
often not
not realized
realized until
until some
some
time
time inin future
future

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Copyright © 2005 South-Western. All rights reserved. 1–12
 Exhibit
Exhibit1-4
1-4
Factors
Factors Influencing
Influencing Investment
Investment
Orientation
Orientation

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 Investment-Oriented
Investment-Oriented Organization
Organization

•• Sees
Sees people
people as
as central
central to
to mission
mission & & strategy
strategy
•• Mission
Mission statement
statement & & strategic
strategic objectives
objectives
espouse
espouse value
value ofof human
human assets
assets inin achieving
achieving
goals
goals
•• Management
Management philosophy
philosophy encouraging
encouraging
development
development & & retention
retention ofof human
human assets
assets
•• Does
Does not
not treat
treat human
human assets
assets in in same
same ways
ways
as
as physical
physical assets
assets

Copyright © 2005 South-Western. All rights reserved. 1–14

 Investment
Investment Orientation
Orientation Factors
Factors

•• Senior
Senior Management
Management Values
Values &
& Actions
Actions
–– Managers
Managersneed
need“investment
“investmentorientation”
orientation”toward
toward
people
people
•• Attitude
Attitude Toward
Toward Risk
Risk
–– Investment
Investmentininhuman
humanresources
resourcesinherently
inherentlyriskier
riskier
–– Human
Humanassets
assetsnever
neverabsolutely
absolutely“owned”
“owned”
•• Nature
Nature of
of Skills
Skills Needed
Needed by
by Employees
Employees
–– The
Themore
moremarketable
marketableemployee
employeeskills,
skills,the
theriskier
riskierthe
the
firm’s
firm’sinvestment
investmentininskill
skilldevelopment
development
Copyright © 2005 South-Western. All rights reserved. 1–15
 Investment
Investment Orientation
Orientation Factors
Factors

•• Utilitarian
Utilitarian (“Bottom
(“Bottom Line”)
Line”) Mentality
Mentality
–– Attempt
Attemptmade
madetotoquantify
quantifyemployee
employeeworth
worththrough
through
cost-benefit
cost-benefitanalysis
analysis
–– ““Soft”
Soft”benefits
benefitsofofHR
HRprograms
programsdifficult
difficulttotoobjectively
objectively
quantify
quantify
•• Availability
Availability of
of Outsourcing
Outsourcing
–– Given
Givenavailability
availabilityofofcost-effective
cost-effectiveoutsourcing,
outsourcing,
investments
investmentsininHRHRshould producehighest
shouldproduce highestreturns
returns&&
sustainable
sustainablecompetitive
competitiveadvantages
advantages..

Copyright © 2005 South-Western. All rights reserved. 1–16

 Reading
Reading1.1:
1.1:The
TheHidden
HiddenLeverage
Leverageof
ofHuman
HumanCapital
Capital
Model
Model for
for Management
Management Success
Success
•• Strengthen
Strengthen key
key •• Leverage
Leverage
relationships
relationships downtime
downtime
–– Customers
Customers –– Use
Usevariable-pay
variable-pay
–– Employees –– Address
Addressneglected
neglected
Employees
areas:
areas:
–– Shareholders
Shareholders •• Infrastructure
Infrastructure
•• Marketing
Marketing
•• Operations
Operations

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 Reading
Reading1.1
1.1
Model
Model for
for Management
Management Success
Success
•• Refocusing
Refocusing staff on •• Building
staff on Building return
return on
on
what’s
what’s important
important compensation
compensation
–– Performance
Performance –– Link
Linkbase-pay
base-pay
management
managementas as progression
progressiontoto
disciplined,
disciplined,strategic,
strategic, competency
competency
value-added
value-addedprocess
process achievement
achievement
–– Clearly
Clearlydefine,
define, –– Link
Linkincentive
incentivepay
paytoto
differentiate
differentiate&&balance
balance annual,
annual,semiannual,
semiannual,oror
between
betweencore
core quarterly
quarterlyresults
results
competencies
competencies&&results
results

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 Reading
Reading1.2
1.2
Seven
Seven Common
Common Misconceptions
Misconceptions
1.
1. Conscientiousness
Conscientiousness isis aa better
better predictor
predictor ofof
performance
performance than than intelligence.
intelligence.
2.
2. Companies
Companies that that screen
screen job
job applicants
applicants for
for values
values
have
have higher
higher performance
performancethan than those
those that
that screen
screen
for
for intelligence.
intelligence.
3.
3. Integrity
Integrity tests
tests don’t
don’t work
work well
well in
in practice
practice
because
because so so many
many people
people lie
lie on
on them.
them.
4.
4. Integrity
Integrity tests
tests have
have adverse
adverse impact
impact onon racial
racial
minorities.
minorities.

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 Reading
Reading1.2
1.2
Seven
Seven Common
Common Misconceptions
Misconceptions
5.
5. Encouraging
Encouraging employee
employee participation
participation isis more
more
effective
effective for
for improving
improving organizational
organizational
performance
performance thanthan setting
setting performance
performance goals.
goals.
6.
6. Most
Most errors
errors in
in performance
performance appraisal
appraisal can
can bebe
eliminated
eliminated byby providing
providing training
training to
to managers
managers on on
how
how toto avoid
avoid them.
them.
7.
7. IfIf employees
employees areare asked
asked how
how important
important paypay isis to
to
them,
them, they
they are
are likely
likely to
to overestimate
overestimate itsits true
true
importance.
importance.

Copyright © 2005 South-Western. All rights reserved. 1–20

 Reading
Reading1.2
1.2
Seven
Seven Common
Common Misconceptions:
Misconceptions: Implications
Implications

1.
1. Select
Select new
new employees
employees on on both
both intelligence
intelligence andand
conscientiousness.
conscientiousness.
2.
2. Assess
Assess intelligence
intelligence andand conscientiousness
conscientiousness beforebefore
values.
values.
3.
3. Define
Define the
the values
values that
that are
are important
important and and assess
assess
them
them through
through carefully
carefully developed,
developed, valid
valid
procedures.
procedures.
4.
4. Use
Use integrity
integrity tests
tests with
with ability
ability tests
tests for
for high
high
predictability.
predictability.

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 Reading
Reading1.2
1.2
Seven
Seven Common
Common Misconceptions:
Misconceptions: Implications
Implications

5.
5. Develop
Develop compelling
compelling goals;
goals; enlist
enlist participation
participation
and
and support
support itit through
through rewards.
rewards.
6.
6. Training
Training andand feedback
feedback are are important,
important, but
but errors
errors
are
are difficult
difficult to
to eliminate.
eliminate. Top
Top managers
managers should
should
serve
serve as
as role
role models
models in in quality
quality ofof performance
performance
reviews.
reviews.
7.
7. Attitude
Attitude surveys
surveys are are subject
subject toto biases;
biases; study
study
behaviors
behaviors as as well
well as as attitudes.
attitudes.

Copyright © 2005 South-Western. All rights reserved. 1–22

 Reading
Reading1.3
1.3
Effective
Effective HRM
HRM Practices
Practices
•• Employment
EmploymentSecurity
Security •• Training
Training& &Development
Development
•• Selectivity
Selectivityin
inRecruiting
Recruiting •• Cross-Utilization
Cross-Utilization& &
•• High
HighWages
Wages Cross-Training
Cross-Training
•• Incentive •• Symbolic
SymbolicEgalitarianism
Incentivepay
pay Egalitarianism
•• Employee •• Wage
WageCompression
EmployeeOwnership
Ownership Compression
•• Information •• Promotion
PromotionFrom
FromWithin
InformationSharing
Sharing Within
•• Participation •• Taking
Takingthe
theLong
LongView
Participation&& View
Ownership
Ownership •• Measurement
Measurementof ofPractice
Practice
•• Self-Managed
Self-ManagedTeams
Teams •• Overall
OverallPhilosophy
Philosophy

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 Reading
Reading1.3
1.3
Effective
Effective HRM
HRM Practices
Practices
•• Very
Very few
few firms
firms will
will engage
engage inin all
all practices
practices
•• While
While these
these practices
practices are
are important
important for
for
success,
success, there
there are
are other
other determinants
determinants as as
well
well
•• Downsides
Downsides exist
exist
–– Requires
Requiresmore
moreinvolvement
involvementand
andresponsibility
responsibilitythan
than
some
someemployees
employeeswant
want
–– Managers
Managers&&others
othersmay
mayresist
resistthem
themasaswell
well
–– Turnover
Turnovermay
mayresult
result
Copyright © 2005 South-Western. All rights reserved. 1–24