Class 2 Strategic Hrm


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MS International Management, Organization Class 8338
Class 2: Strategic HRM

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  • Class 2 Strategic Hrm

    1. 1. Organization 8338 Strategic HRM Professor James C. Hayton, PhD
    2. 2. Some Relevant Evidence from Employees <ul><li>In recent surveys (Mercer consulting, 2006) </li></ul><ul><ul><li>30% of employees (europe) believe that their organization does a good job of retaining talent </li></ul></ul><ul><ul><li>28% feel that promotions go to the most qualified </li></ul></ul><ul><ul><li>25% do not believe that the PA system differentiates well </li></ul></ul><ul><ul><li>45% do not have an annual PA </li></ul></ul><ul><ul><li>39% feel they are paid fairly relative to their contributions </li></ul></ul><ul><ul><li>25% believe that pay is adequately matched to </li></ul></ul><ul><ul><li>performance. </li></ul></ul>
    3. 3. Some Relevant Evidence from Employers <ul><li>The Big Issues for Employers (Mercer consulting, 2006) </li></ul><ul><ul><li>Attracting and retaining talent (83% very important; 15% somewhat important) </li></ul></ul><ul><ul><li>Differentiating high performers (65% v.i., 32%, s.i.) </li></ul></ul><ul><ul><li>Aligning reward system with strategy (64% v.i., 33%, s.i.) </li></ul></ul><ul><ul><li>Ensuring pay-for-performance (63% v.i., 35%, s.i.) </li></ul></ul>
    4. 4. HR Architecture <ul><li>HR Function: </li></ul><ul><li>HR Leader? </li></ul><ul><li>HR Dept? </li></ul><ul><li>HR Competencies </li></ul><ul><li>Policies & </li></ul><ul><li>Practices </li></ul><ul><li>Workforce: </li></ul><ul><li>Human capital </li></ul><ul><li>Commitment </li></ul><ul><li>Energy </li></ul><ul><li>Fit </li></ul><ul><li>Culture: </li></ul><ul><li>Norms </li></ul><ul><li>Beliefs </li></ul><ul><li>Cohesion </li></ul><ul><li>Harmony/ </li></ul><ul><li>Conflict </li></ul>
    5. 5. Multiple Roles of HR Function Strategic Partner Change Agent Employee Advocate Administrative Expert System People FOCUS Long Term TIME FRAME Day-to-day
    6. 6. The Steel Story <ul><li>Do people management practices matter in a highly capital intensive industry? </li></ul><ul><li>A study of 36 steel production lines in 17 companies </li></ul><ul><li>Steel manufacture is a continuous process </li></ul><ul><ul><li>The key outcome is ‘tonnage per month’ ( Q ) </li></ul></ul><ul><li>How can HR practices impact Q? </li></ul><ul><ul><li>Through the maximization of uptime </li></ul></ul>
    7. 7. The Steel Story <ul><li>Which HR practices? </li></ul><ul><ul><ul><li>1. Incentive pay (Profit sharing, Line incentives) </li></ul></ul></ul><ul><ul><ul><li>2. Recruiting and selection (High screening) </li></ul></ul></ul><ul><ul><ul><li>3. Teamwork (High participation, Multiple teams, Formal team practices) </li></ul></ul></ul><ul><ul><ul><li>4. Employment security </li></ul></ul></ul><ul><ul><ul><li>5. Flexible job assignment (Job rotation) </li></ul></ul></ul><ul><ul><ul><li>6. Skills training </li></ul></ul></ul><ul><ul><ul><li>7. Communication (Information sharing, Meet workers, Meet union) </li></ul></ul></ul><ul><ul><ul><li>8. Labor relations (Unions, Low grievance filing rate) </li></ul></ul></ul>
    8. 8. <ul><li>Researchers found four different different ‘bundles’ of practices in the industry. </li></ul>System 1: careful selection, training, compensation, involvement, flexible job designs (rotation), and implicit promise of job security. <ul><li>System 4: </li></ul><ul><li>Traditional - no </li></ul><ul><li>Innovative HR practices; </li></ul><ul><li>Adversarial labor-management </li></ul><ul><li>Relationships; inflexible work </li></ul><ul><li>Practices. </li></ul>Note: all S1 adopters were new lines, no new lines adopted less innovative systems <ul><li>System 2: </li></ul><ul><li>Information sharing; </li></ul><ul><li>teamwork; </li></ul><ul><li>Extensive skills training; </li></ul><ul><li>Worker involvement </li></ul><ul><li>System 3: </li></ul><ul><li>traditional but with </li></ul><ul><li>introduction of team </li></ul><ul><li>organization; </li></ul><ul><li>greater labor-management </li></ul><ul><li>communications </li></ul>
    9. 9. The Steel Story <ul><li>How do these four systems relate to Q? </li></ul><ul><ul><li>systematic gains from increased innovativeness in HRM clusters. </li></ul></ul><ul><ul><li>System 1 has highest productivity, and System 3 has lowest productivity even after controlling for the differences in technology across lines. </li></ul></ul><ul><li>What is the Practical Significance? </li></ul><ul><ul><li>A conservative estimate of the productivity differential for HRM system 1 is 6.7 percent. </li></ul></ul><ul><ul><li>A conservative estimate of a 1 percent increase in uptime is $27,900/month. </li></ul></ul><ul><ul><li>An estimated a benefit of $10 million over 10 years for a change to system 4 HRM practices </li></ul></ul><ul><li>Effect on quality? </li></ul><ul><ul><li>System 1 lines have superior quality as well as quantity </li></ul></ul>
    10. 10. The Steel Story <ul><li>Why don’t all lines have high productivity HRM systems? </li></ul><ul><li>There are significant internal barriers to adoption: </li></ul><ul><ul><li>all greenfield lines adopted these practices indicates that transition costs are significant </li></ul></ul><ul><li>Not all managers are equally successful at championing the new practices </li></ul><ul><ul><li>In some lines, managers are successful at championing new practices and overcoming impediments to change </li></ul></ul><ul><ul><li>In other cases, managers are able to use the threat of plant closure to motivate others to change. </li></ul></ul><ul><li>Conclusion: the source of advantage here comes from: </li></ul><ul><ul><li>Finding HR practices that, together, support the objectives of the organization (reduce breakdowns, maximize quality, learning) </li></ul></ul><ul><ul><li>Successfully leading change in the HR system </li></ul></ul>
    11. 11. The Auto Story Work systems decentralization of quality related tasks; problem solving groups; employee suggestions; job rotation; work teams. <ul><li>HRM policies </li></ul><ul><ul><li>Emphasis on training of new </li></ul></ul><ul><ul><li>and experienced employees; </li></ul></ul><ul><ul><li>Use of contingent compensation; </li></ul></ul><ul><ul><li>Avoidance of status differentiation; </li></ul></ul><ul><ul><li>Emphasis on recruiting and hiring practices, </li></ul></ul><ul><li>Flexible production requires: </li></ul><ul><ul><li>High levels of conceptual and technical skills among all employees; </li></ul></ul><ul><ul><li>Decentralization of important responsibilities from specialists to shop floor teams; </li></ul></ul><ul><ul><ul><li>Increased &quot;off-line&quot; problem solving activities; </li></ul></ul></ul><ul><ul><li>The development of human capabilities also supports continuous learning (kaizen). </li></ul></ul><ul><li>Highest levels of productivity observed in plants that used: </li></ul><ul><ul><li>‘ high performance’ work systems, </li></ul></ul><ul><ul><li>supported by high performance HRM practices, </li></ul></ul><ul><ul><li>WHEN they also pursued a strategy of Flexible manufacturing </li></ul></ul>
    12. 12. <ul><ul><li>Staffing </li></ul></ul><ul><ul><li>Careful emphasis on </li></ul></ul><ul><ul><li>recruiting & selection </li></ul></ul><ul><ul><li>Focus on fit </li></ul></ul><ul><ul><li>with the organization </li></ul></ul><ul><ul><li>Work organization </li></ul></ul><ul><ul><li>Organization of work that </li></ul></ul><ul><ul><li>Decentralizes decision making; </li></ul></ul><ul><ul><li>Often uses team-based production; </li></ul></ul><ul><ul><li>Work is typically </li></ul></ul><ul><ul><li>enlarged and enriched </li></ul></ul><ul><ul><li>Democracy and </li></ul></ul><ul><ul><li>participation </li></ul></ul><ul><ul><li>Sharing of information </li></ul></ul><ul><ul><li>to support </li></ul></ul><ul><ul><li>decentralization </li></ul></ul><ul><ul><li>Training </li></ul></ul><ul><ul><li>Emphasis on training for job skills, </li></ul></ul><ul><ul><li>basic skills, business skills, </li></ul></ul><ul><ul><li>and interpersonal skills; </li></ul></ul><ul><ul><li>Training that also builds strong culture - </li></ul></ul><ul><ul><li>through orientation and </li></ul></ul><ul><ul><li>socialization programs; </li></ul></ul><ul><ul><li>Job rotation </li></ul></ul><ul><ul><li>Pay systems </li></ul></ul><ul><ul><li>The use of incentive pay </li></ul></ul><ul><ul><li>frequently at group, unit </li></ul></ul><ul><ul><li>and organizational levels; </li></ul></ul><ul><ul><li>Efficiency wages - </li></ul></ul><ul><ul><li>pay above the market rates </li></ul></ul><ul><ul><li>Security </li></ul></ul><ul><ul><li>Formal or informal </li></ul></ul><ul><ul><li>employment guarantees </li></ul></ul><ul><ul><li>Internal labor markets </li></ul></ul>HPWS
    13. 13. Across Industries <ul><li>There was a 40 % decrease in turnover related to the HPWS between the 3 standard deviations (SD) above and 3 SD below the mean. </li></ul><ul><ul><li>For every one SD increase in the HPWS there was a reduction of 7.05% relative to the mean (controlling for all other factors including compensation expenses). </li></ul></ul><ul><li>Productivity: The practical impact of a 1 SD increase in scores on the motivation factor is an average of $27,044 per employee in a single period ( </li></ul><ul><ul><li>16% increase on mean sales per employee of $171, 099). </li></ul></ul><ul><ul><li>When extended out by 5 years, with an 8% discount rate the impact grows to $197, 979 per employee. </li></ul></ul><ul><li>Financial performance: </li></ul><ul><ul><li>the effect per employee of a 1sd increase in HPWS was $18,641 in market value relative to the book value. </li></ul></ul><ul><ul><li>The effect on return on capital employed is estimated at $3,814 per employee per year. </li></ul></ul>
    14. 14. Competing Theories for HR Strategies <ul><li>Universalism </li></ul><ul><ul><li>High performance work systems </li></ul></ul><ul><ul><ul><li>E.g., careful selection, emphasis on training and internal development, formal appraisals, profit sharing, employee voice and participation, employment security </li></ul></ul></ul><ul><ul><li>Hypothesis: The ‘more’ of this kind of HR the better </li></ul></ul><ul><ul><li>Evidence: A lot of support in US </li></ul></ul><ul><li>Contingency theory </li></ul><ul><ul><li>Hypothesis 1: HR choices must fit internally </li></ul></ul><ul><ul><li>Hypothesis 2: HR choices must fit with strategy and other factors </li></ul></ul><ul><ul><li>Evidence: Strong support for internal fit argument </li></ul></ul><ul><ul><li>Evidence: Some support for external congruence </li></ul></ul>
    15. 15. The Contingency Perspective The First Rule of Strategic Human Resource Management <ul><li>EXTERNAL CONGRUENCE with the business strategy. </li></ul><ul><li>Does the strategy require HIGH QUALITY HUMAN RESOURCES or not? </li></ul><ul><li>Does the strategy require a cohesive workforce with a strong shared IDENTITY? </li></ul><ul><li>Does the strategy require DISCRETIONARY inputs (cooperation, helping, knowledge sharing)? </li></ul>
    16. 16. The Contingency Perspective The Second Rule of Strategic Human Resource Management <ul><li>INTERNAL CONSISTENCY of HR Practices and Policies </li></ul><ul><li>INTERNAL CONSISTENCY CREATES SYNERGY </li></ul><ul><li>While each HR practice (selection, compensation etc) can have its own positive effect, when they are used in combination the whole is greater than the sum of the parts. </li></ul>
    17. 17. A Simplistic Illustration of EXTERNAL CONGRUENCE of HR System with the business strategy. Weak HRM Innovation Strategy Not supported HRM supports business strategy Overinvest In HRM Does not support Low Cost strategy HRM supports business strategy Low High Cost of HR System Innovation Generic Strategy Low Cost
    18. 18. What is the Goal of your Organization?
    19. 19. What are the goals of these organizations? (Take 5 mins - discuss with your neighbors) <ul><li>Google </li></ul><ul><li>Apple </li></ul><ul><li>Starbucks </li></ul><ul><li>Ryan Air </li></ul><ul><li>Zara </li></ul><ul><li>McKinsey </li></ul>
    20. 20. Porter’s Cost Leadership Strategy   <ul><li>The overall cost leadership strategy is aimed at gaining a competitive advantage through lower costs. </li></ul><ul><li>Cost leadership requires efficient plant facilities, close supervision of labor, continuous pursuit of cost reductions, and tight control of distribution costs and overhead. </li></ul>
    21. 21. Porter’s Cost Leadership Strategy HR Implications  <ul><li>Efficiency orientation to production </li></ul><ul><ul><li>Minimize waste </li></ul></ul><ul><ul><li>Maximize productivity of resources </li></ul></ul><ul><li>HR Strategy </li></ul><ul><ul><li>Detailed work planning </li></ul></ul><ul><ul><li>Explicit job descriptions </li></ul></ul><ul><ul><li>Emphasis on matching people to job </li></ul></ul><ul><ul><li>Emphasis on job-specific training </li></ul></ul><ul><ul><li>Performance appraisal emphasizes outcomes </li></ul></ul><ul><ul><li>Emphasis on job-based pay </li></ul></ul><ul><ul><li>Focus is efficient use of human capital </li></ul></ul>
    22. 22. Porter’s Differentiation Strategy <ul><li>A differentiation business strategy attempts to achieve a competitive advantage by creating a product or service that is perceived as unique. </li></ul><ul><li>Approaches to differentiation can take may forms, among them: design or brand image; technology; features; customer service; and dealer networks. </li></ul>
    23. 23. Porter’s Differentiation Strategy HR Implications <ul><li>Effectiveness orientation </li></ul><ul><ul><li>Maximize responsiveness to environmental change </li></ul></ul><ul><ul><li>Maximize innovation and creativity </li></ul></ul><ul><li>HR Strategy </li></ul><ul><ul><li>Broad planning, strong mission and culture </li></ul></ul><ul><ul><li>Broad job descriptions </li></ul></ul><ul><ul><li>Emphasis on matching people to organization </li></ul></ul><ul><ul><li>Emphasis on career development </li></ul></ul><ul><ul><li>Work in teams </li></ul></ul><ul><ul><li>Performance appraisal emphasizes inputs </li></ul></ul><ul><ul><li>Pay based on inputs and organizational performance </li></ul></ul><ul><ul><li>Tends to be a high cost approach to managing people </li></ul></ul>
    24. 24. Metrics: HR’s Feedback Mechanism
    25. 25. The Third Rule of Strategic Human Resource Management <ul><li>If SHRM involves a system… </li></ul><ul><li>And this system is complex, and open to its environment… </li></ul><ul><li>Then, it requires a FEEDBACK MECHANISM </li></ul><ul><li>Human Capital Metrics are used to assess the link between the system and the performance of the firm. </li></ul><ul><ul><li>To be useful, metrics must be leading indicators </li></ul></ul><ul><ul><li>For any given firm, metrics will be unique to their strategy and context </li></ul></ul>
    26. 26. THE SEARS EXAMPLE Copyright James Hayton 2008
    27. 27. A Truncated version of the Sears Map (Total Performance Indicator Model) Job Attitudes Org Attitudes Employee Behaviors Employee Retention Perceived Service Helpfulness Perceived Merchandize Value Customer Impression Customer Recommend Customer Retention ROA Margins Rev. growth
    28. 28. THE SYSCO CASE Copyright SDA Bocconi 2008
    29. 29. Sysco Case <ul><li>What is Sysco’s strategy? </li></ul><ul><li>What are the strategic drivers here? (e.g., what are the essential processes at Sysco?) </li></ul><ul><li>What are the key HR strategic drivers? </li></ul><ul><li>What are the HR enablers at Sysco? </li></ul>
    30. 31. SYSCO - A Model for Success Keys to SYSCO’s Past & Future Success: <ul><li>Autonomous, entrepreneurial management structure </li></ul><ul><li>Vast army of Marketing Associates </li></ul><ul><li>Innovative quality products </li></ul><ul><li>Industry-leading development and use of technology </li></ul><ul><li>Commitment to employees, customers, suppliers & shareholders </li></ul>
    31. 32. Human Capital Metrics <ul><li>1. Work Climate/Employee Satisfaction </li></ul><ul><li>2. Productivity </li></ul><ul><li>3. Retention </li></ul>
    32. 33. Sysco’s Work-Climate Survey <ul><li>Leadership support </li></ul><ul><li>Front-line supervisor </li></ul><ul><li>Rewards </li></ul><ul><li>Quality of life </li></ul><ul><li>Engagement </li></ul><ul><li>Diversity </li></ul><ul><li>Customer focus </li></ul>
    33. 34. Predictors of Positive Work Climate What drives Employee Satisfaction? (FLS)   My supervisor removes obstacles so I can do my job better (LS)  The leadership of our operating company spends a good amount of time talking with employees (R)  Doing my job well leads to monetary rewards (FLS)   My supervisor cares about me as a person (FLS)   I have received constructive feedback on my performance within the last 6 months
    34. 35. Long-Term Profitability & Growth Execution Innovation (2) (1) Leveraging the Value-Profit-Chain…At SYSCO SYSCO Practices: <ul><li>Leadership Support </li></ul><ul><li>Front-Line Supervisor </li></ul><ul><li>Rewards </li></ul><ul><li>Quality of Life </li></ul><ul><li>Diversity/Engagement </li></ul><ul><li>Customer Focus </li></ul>Drives Effective Management Practices Drives Employee Satisfaction Drives Customer Satisfaction
    35. 36. 0 1% 2% 3% 4% 5% 6% 7% Correlation between Key Metrics and Growth
    36. 37. Wrap-up <ul><li>HR Architecture decisions impact top and bottom line performance </li></ul><ul><li>Greater investments in HRM can produce higher levels of performance </li></ul><ul><li>Match investment decisions to strategy </li></ul><ul><ul><li>Know why you need to build capabilities through people </li></ul></ul><ul><li>Monitor investments to test hypotheses about organizational performance </li></ul>