Human Resource Strategy: How HR Drives Performance Patrick M. Wright William J. Conaty/GE Professor of Strategic HR  Leade...
HR Strategy EPG: Origins <ul><li>Effective Practice Guidelines: Reports summarizing the academic research on a specific ar...
What is the Impact of HR Strategy? A Story <ul><li>In order to understand how HR drives performance, our story begins in t...
Core Competence Profits Costs Revenues Outstanding Customer  Service Valued Customer Outcome Skilled, Experienced, Committ...
Our Story…continued <ul><li>Faced by a war in the Middle East, rising fuel prices, and an economic recession (sound famili...
Profits Costs Revenues Competitive (Low) Cost Travel Valued Customer Outcome Commodity Workforce: Contingent Temporary Low...
What were the outcomes? <ul><li>By 1994, Delta was making record profits. </li></ul><ul><li>Their costs had gone from 10.1...
Profits Costs Revenues Competitive (Low) Cost Travel Valued Customer Outcome Commodity Workforce: Contingent Temporary Low...
What is the moral of the story? <ul><li>How companies treat employees, particularly through the HR practices they use, can...
IBM STRATEGY Innovation Business Value Global Integration On Demand Infrastructure Focus on Enterprises that Value Innovat...
HR Strategy <ul><li>“ HR Strategy is the system of human resource practices for a particular job or collection of jobs aim...
Key Terms Strategic HRM Human Capital Organization or business level Designed jointly between line and HR Get right people...
HR Strategy Approaches <ul><li>High Road/Commitment/ HR as an Asset </li></ul><ul><ul><ul><li>High Pay </li></ul></ul></ul...
Another Conceptualization: AMO <ul><li>Ability </li></ul><ul><ul><li>Selection tests, selectivity, structured interviews, ...
Sam’s Club vs. Costco Source: Cascio, W. The high cost of low wages. Harvard Business Review Profit per employee $11,615 $...
HR Strategy Recruitment Selection Training Development Performance Management Rewards Communication What Employees  Have S...
HR and Performance: What does the research say? <ul><li>There are over 100 studies now on the relationship between HR prac...
HR and Performance: What does the research say? <ul><li>Employees </li></ul><ul><ul><li>Feel – Engagement/Commitment </li>...
Caveats to the Research <ul><li>Causal Direction </li></ul><ul><li>Measuring HR Practices </li></ul><ul><ul><li>Which HR P...
HR Impact: Sysco Foods <ul><li>Sysco Corporation exemplifies how they have attempted to implement HR strategies to drive b...
HR and Employee Engagement Note: In order to disguise the date, the mean has been subtracted from the numbers on the Y-axis.
HR Practices and Operating Expense Note: In order to disguise the date, the mean has been subtracted from the numbers on t...
HR Practices and Pre-Tax Profits at Sysco Note: In order to disguise the date, the mean has been subtracted from the numbe...
HR Strategy Recruitment Selection Training Development Performance Management Rewards Communication What Employees  Have S...
Now, how do you develop an HR Strategy? <ul><li>Before getting to the details, we need to recognize a caveat </li></ul><ul...
Now, how do you develop an HR Strategy? How about Dell? <ul><li>Step 1: Analyze the industry to determine what pressures e...
Supply Chain/ Inventory Distribution Manufacturing Service <ul><li>Processes </li></ul><ul><li>Processes </li></ul><ul><li...
How to build an HR Strategy <ul><li>Step 3: Determine the key job groups to focus on </li></ul><ul><ul><li>Could be based ...
<ul><li>Innovative  </li></ul><ul><li>Product  </li></ul><ul><li>Designers </li></ul>Supply Chain/ Inventory Distribution ...
How to build an HR Strategy <ul><li>Step 4: Determine the key HR practices necessary to build a workforce that has the rig...
<ul><li>Innovative  </li></ul><ul><li>Product  </li></ul><ul><li>Designers </li></ul>Supply Chain/ Inventory Distribution ...
Conclusion <ul><li>The relationship between HR practices and performance (employee, customer, operational, and financial) ...
Patrick M. Wright Cornell University ILR School 397 ILR Library Building Ithaca, New York 14853 t. 607.255.3429 f. 607.255...
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  1. 1. Human Resource Strategy: How HR Drives Performance Patrick M. Wright William J. Conaty/GE Professor of Strategic HR Leadership School of ILR Cornell University www.ilr.cornell.edu
  2. 2. HR Strategy EPG: Origins <ul><li>Effective Practice Guidelines: Reports summarizing the academic research on a specific area, i.e., research-based best practice </li></ul><ul><li>Asked by SHRM Foundation to review research on the relationship between HR Practices and Performance </li></ul>
  3. 3. What is the Impact of HR Strategy? A Story <ul><li>In order to understand how HR drives performance, our story begins in the early 1990’s as Delta Airlines, a company that had been known for its outstanding customer service, faced a difficulty strategic decision. </li></ul><ul><li>Up until this time, what did their HR strategy look like? </li></ul>
  4. 4. Core Competence Profits Costs Revenues Outstanding Customer Service Valued Customer Outcome Skilled, Experienced, Committed Employees Delivered by? Internal Promotion Extensive Training High Pay Non-Union Flexible work rules Family Culture Driven by? Figure 1: Delta Air Lines Pre 1994 Business Model:
  5. 5. Our Story…continued <ul><li>Faced by a war in the Middle East, rising fuel prices, and an economic recession (sound familiar?), Delta was losing $400-500 million ($10 per share). </li></ul><ul><li>They unveiled a new business strategy (Leadership 7.5) with its accompanying HR strategy </li></ul>
  6. 6. Profits Costs Revenues Competitive (Low) Cost Travel Valued Customer Outcome Commodity Workforce: Contingent Temporary Low Tenure Delivered by? Layoffs Low Wage Low Training Contractors Driven by? Post 1994 Business Model (Leadership 7.5):
  7. 7. What were the outcomes? <ul><li>By 1994, Delta was making record profits. </li></ul><ul><li>Their costs had gone from 10.1 cent/ASM, to 9.8, and the costs rose at a CAGR of 2% through 1998 </li></ul><ul><li>Their revenues were flat, rising at CAGR of 3%. </li></ul><ul><li>By 1998, the CAGR was 13% for the industry </li></ul><ul><li>Why? </li></ul>“ There are morale problems…so be it” CEO Ron Allen
  8. 8. Profits Costs Revenues Competitive (Low) Cost Travel Valued Customer Outcome Commodity Workforce: Contingent Temporary Low Tenure Delivered by? Layoffs Low Wage Low Training Contractors Driven by? Post 1994 Business Model (Leadership 7.5): Unintended Consequences : Unions Customer Service Baggage Handling Safety
  9. 9. What is the moral of the story? <ul><li>How companies treat employees, particularly through the HR practices they use, can ultimately impact firm performance, either positively or negatively </li></ul><ul><li>But, what is HR strategy? </li></ul>
  10. 10. IBM STRATEGY Innovation Business Value Global Integration On Demand Infrastructure Focus on Enterprises that Value Innovation IBM Differentiators: The Employee Experience Human Resources Focus Areas Diverse, Talented People Leadership Performance-Based Opportunities Values-based Climate Anticipate and Build Skills Lead the Transformation Grow IBM Flexibility An inspiring climate in which employees flourish by creating value for our clients and the world Figure 2: How The IBM HR Strategy Supports and Enables the Business Strategy
  11. 11. HR Strategy <ul><li>“ HR Strategy is the system of human resource practices for a particular job or collection of jobs aimed at the best employee performance possible to meet the firm’s ultimate goals” </li></ul><ul><ul><li>System of practices </li></ul></ul><ul><ul><li>Job or collection of jobs </li></ul></ul><ul><ul><li>Performance oriented (have, feel, do) </li></ul></ul>
  12. 12. Key Terms Strategic HRM Human Capital Organization or business level Designed jointly between line and HR Get right people in right place in the business to maximize business success HR Strategy Human Resource Practice System Job Level Designed mostly by HR Get people to have (skills), feel (attitudes) and do (behaviors) things that lead to job and business success HR Best Practices Single HR Practice Job Level Designed entirely by HR Get people to have (skills), feel (attitudes) or do (behaviors) something that leads to job success Focus Level of Interest Responsibility Goal or Objective
  13. 13. HR Strategy Approaches <ul><li>High Road/Commitment/ HR as an Asset </li></ul><ul><ul><ul><li>High Pay </li></ul></ul></ul><ul><ul><ul><li>Selective Hiring </li></ul></ul></ul><ul><ul><ul><li>Importance of Retention </li></ul></ul></ul><ul><ul><ul><li>Intensive Training </li></ul></ul></ul><ul><ul><ul><li>Broad Work Design </li></ul></ul></ul><ul><ul><ul><li>Opportunities for Participation </li></ul></ul></ul><ul><ul><ul><li>Information Sharing </li></ul></ul></ul><ul><li>Low Road/Control/HR as a Cost or Commodity </li></ul><ul><ul><ul><li>Low Pay </li></ul></ul></ul><ul><ul><ul><li>Hire anyone </li></ul></ul></ul><ul><ul><ul><li>High turnover </li></ul></ul></ul><ul><ul><ul><li>Low Training </li></ul></ul></ul><ul><ul><ul><li>Narrow Work Design </li></ul></ul></ul><ul><ul><ul><li>Autocratic Decision Making </li></ul></ul></ul><ul><ul><ul><li>Little Information Shared </li></ul></ul></ul>
  14. 14. Another Conceptualization: AMO <ul><li>Ability </li></ul><ul><ul><li>Selection tests, selectivity, structured interviews, training more than 20 hours/year </li></ul></ul><ul><li>Motivation </li></ul><ul><ul><li>Pay for performance, merit pay, individual incentives, performance feedback, performance management </li></ul></ul><ul><li>Opportunity </li></ul><ul><ul><li>Quality circles, suggestion systems, information sharing, participation in decisions, grievance procedures </li></ul></ul>
  15. 15. Sam’s Club vs. Costco Source: Cascio, W. The high cost of low wages. Harvard Business Review Profit per employee $11,615 $21,805 Average Hourly Wage $9.86 $17.00 Percent with Health Care <50% 82% Percent of Health Care Premiums Paid 33% 8% Turnover 44% 17% Turnover cost per employee $5,274 $3,628
  16. 16. HR Strategy Recruitment Selection Training Development Performance Management Rewards Communication What Employees Have Skills, Abilities, Competencies What Employees Feel Motivation Commitment Engagement What Employees Do Task, Discretionary, Counterproductive Behavior, Attendance, Turnover Customer Outcomes Satisfaction Retention Operational Outcomes Productivity Quality Shrinkage Accidents Financial Outcomes Expenses Revenues Profits HR Strategy and Performance
  17. 17. HR and Performance: What does the research say? <ul><li>There are over 100 studies now on the relationship between HR practices and performance, and in the aggregate, they suggest a positive relationship </li></ul>
  18. 18. HR and Performance: What does the research say? <ul><li>Employees </li></ul><ul><ul><li>Feel – Engagement/Commitment </li></ul></ul><ul><ul><li>Do - Behavior </li></ul></ul><ul><ul><li>Have - Skill? </li></ul></ul><ul><li>Customers - consistent </li></ul><ul><li>Operations – pretty consistent </li></ul><ul><li>Financials – strong and consistent </li></ul>
  19. 19. Caveats to the Research <ul><li>Causal Direction </li></ul><ul><li>Measuring HR Practices </li></ul><ul><ul><li>Which HR Practices </li></ul></ul><ul><ul><li>Single respondents </li></ul></ul><ul><li>Fit to Strategy </li></ul><ul><ul><li>Has not been demonstrated </li></ul></ul><ul><ul><li>Due to measuring principles, not practices </li></ul></ul>
  20. 20. HR Impact: Sysco Foods <ul><li>Sysco Corporation exemplifies how they have attempted to implement HR strategies to drive business performance </li></ul><ul><li>Decentralized structure with earned autonomy principle provides lattitude in how businesses manage people </li></ul><ul><li>They wanted to test how these people management practices impacted performance </li></ul>
  21. 21. HR and Employee Engagement Note: In order to disguise the date, the mean has been subtracted from the numbers on the Y-axis.
  22. 22. HR Practices and Operating Expense Note: In order to disguise the date, the mean has been subtracted from the numbers on the Y-axis.
  23. 23. HR Practices and Pre-Tax Profits at Sysco Note: In order to disguise the date, the mean has been subtracted from the numbers on the Y-axis.
  24. 24. HR Strategy Recruitment Selection Training Development Performance Management Rewards Communication What Employees Have Skills, Abilities, Competencies What Employees Feel Motivation Commitment Engagement What Employees Do Task, Discretionary, Counterproductive Behavior, Attendance, Turnover Customer Outcomes Satisfaction Retention Operational Outcomes Productivity Quality Shrinkage Accidents Financial Outcomes Expenses Revenues Profits HR Strategy and Performance: Sysco Findings
  25. 25. Now, how do you develop an HR Strategy? <ul><li>Before getting to the details, we need to recognize a caveat </li></ul><ul><li>While it is important to treat everyone well, in a world of limited resources, we must prioritize where to devote our resources </li></ul><ul><li>This prioritization entails determining the key job groups that will leverage firm success </li></ul>
  26. 26. Now, how do you develop an HR Strategy? How about Dell? <ul><li>Step 1: Analyze the industry to determine what pressures exist </li></ul><ul><ul><li>Innovation pressures? </li></ul></ul><ul><ul><li>Cost pressures? </li></ul></ul><ul><ul><li>Customer pressures? </li></ul></ul><ul><li>Step 2: Analyze your value chain to determine how/where you create value </li></ul>
  27. 27. Supply Chain/ Inventory Distribution Manufacturing Service <ul><li>Processes </li></ul><ul><li>Processes </li></ul><ul><li>Processes </li></ul>VALUE <ul><li>Processes </li></ul>Dell’s Value Chain Design <ul><li>Processes </li></ul>strong strong Weak Weak Weak with consumers
  28. 28. How to build an HR Strategy <ul><li>Step 3: Determine the key job groups to focus on </li></ul><ul><ul><li>Could be based on most critical to strategy </li></ul></ul><ul><ul><li>Could be based on most critical to the strategic change </li></ul></ul>
  29. 29. <ul><li>Innovative </li></ul><ul><li>Product </li></ul><ul><li>Designers </li></ul>Supply Chain/ Inventory Distribution Manufacturing Service <ul><li>Processes </li></ul><ul><li>Processes </li></ul><ul><li>Processes </li></ul>VALUE <ul><li>Processes </li></ul> Dell’s people needs Design <ul><li>Processes </li></ul><ul><li>Sales to Retailers </li></ul><ul><li>Consumer </li></ul><ul><li>Service Tech’s </li></ul>
  30. 30. How to build an HR Strategy <ul><li>Step 4: Determine the key HR practices necessary to build a workforce that has the right competencies, feels the right level of commitment, and does the right things </li></ul>
  31. 31. <ul><li>Innovative </li></ul><ul><li>Product </li></ul><ul><li>Designers </li></ul>Supply Chain/ Inventory Distribution Manufacturing Service VALUE Dell’s HR Strategy Design <ul><li>Processes </li></ul>Recruitment: Where to find these people? Selection: What skills do they need and how to assess those skills Rewards: What is the market pay rate and what types of incentives will attract and motivate them? Training and Development What skills do they need trained? How do we orient them to Dell? Performance Management: What competencies and outcomes should be evaluated? Information/Participation: What information should be shared with them and in what areas should they participate? HR Strategy
  32. 32. Conclusion <ul><li>The relationship between HR practices and performance (employee, customer, operational, and financial) is well documented </li></ul><ul><li>While there are some caveats, we can be pretty certain that all else equal, firms are better off implementing progressive HR practices rather than not doing so </li></ul>
  33. 33. Patrick M. Wright Cornell University ILR School 397 ILR Library Building Ithaca, New York 14853 t. 607.255.3429 f. 607.255.1836 [email_address] www.ilr.cornell.edu

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