CHAPTER 1 Changing Nature of Human Resource Management After you have read this chapter, you should be able to: ● Identify four major HR challenges currently facing organizations and managers. ● List and define each of the seven major categories of HR activities. ● Identify the three different roles of HR management. ● Discuss the three dimensions associated with HR management as a strategic business contributor. ● Explain why HR professionals and operating managers must view HR management as an interface. ● Discuss why ethical issues and professionalism affect HR management as a career field. 3 HR TRANSITIONS HR Management Contributes to Organizational Success More effective management of human resources (HR) increasingly is being seen as positively affecting perfor- mance in organizations, both large and small. A joint venture between General Electric and a Japanese company, GE Fanuc is a manufacturer of factory automation and control products. Headquartered in Virginia with 1,500 employees, the HR department pri- marily performed administrative sup- port activities. But when Donald Borwhat, Jr., took over as Senior Vice President of Human Resources, he and his staff began by restructuring and decentralizing the HR entity so that each functional area of the com- pany has an HR manager assigned to it. The HR managers were expected to be key contributors to their areas by becoming knowledgeable about the business issues faced by their busi- ness functional units. Today, HR managers participate in developing business strategies and ensure that human resource dimensions are con- sidered. For instance, the HR manager for manufacturing has HR responsibili- ties for 600 employees. In that role she contributes to workflow, produc- tion, scheduling, and other manufac- turing decisions. It also means that she is more accessible to and has more credibility with manufacturing workers, most of whom are hourly workers. Making the transition in HR management required going from seven to three levels of management, greatly expanding the use of cross- functional work teams, and signifi- cantly increasing training. To ease employee and managerial anxieties about the changes, GE Fanuc promised that no employees would lose their jobs. Managers and supervi- sors affected by the elimination of lev- els were offered promotions, transfers to other jobs in GE Fanuc, or early retirement buyouts. Additionally, employees were promised profit shar- ing, which has resulted in up to three weeks additional pay in profit sharing bonuses in some years. The test of the change is in the results. GE Fanuc’s revenue is up almost 18%. Over 40 work teams meet regularly to discuss work goals, track their performance against estab- lished measures, and discuss prob- lems and issues. Employee turnover is also extremely low in most areas. Transitions in HR management are also paying off in the Bank of Mon- treal, based in Montreal, Quebec. Emphasizing human resources has involved 35,000 employees in organi- zational success. This recognition meant focusing greater attention on the talents of diverse employees work- ing at the bank. Specific efforts were made to expand opportunities for women employees, who composed about three-fourths of the bank’s workers. As a result, several years later about one-fourth of all managers and executives are women. Similar atten- tion also was focused on other diverse groups of employees. So that all employees were given opportunities to grow and learn, the Bank of Montreal’s Institute of Learning was established at a cost exceeding $50 million. The goal of providing five days of training and education to every employee each year has been met for several years. To focus on performance, each department and every employee have performance targets and measures on such factors as customer service, return on equity, and profitability. Yearly, the scores from all measures are computed as indices, and then compiled into one figure to measure overall bank performance. Executives believe that their emphasis on HR activities has contributed significantly to the Bank of Montreal’s achieving period profits for seven years in a row. In summary, it is evident that the transition of HR management at GE Fanuc and at Bank of Montreal has enhanced organizational competitive- ness and success. 1 HR managers participate in developing strategies and ensure that human resource dimensions are considered. 4 Section 1 HR Management — Strategies and Environment “ HR should be defined not by what it does, but by what it delivers. ” D AVID U LRICH As human resources have become viewed as more critical to organizational suc- cess, many organizations have realized that it is the people in an organization that can provide a competitive advantage. 2 Throughout the book it will be empha- sized that the people as human resources contribute to and affect the competitive success of the organization. Human Resource (HR) management deals with the design of formal systems in an organization to ensure the effective and effi- cient use of human talent to accomplish organizational goals. In an organization, the management of human resources means that they must be recruited, com- pensated, trained, and developed. HR Management Challenges The environment faced by HR management is a challenging one; changes are oc- curring rapidly across a wide range of issues. A study by the Hudson Institute, en- titled Workforce 2020, has highlighted some of the most important workforce issues. 3 From that and other sources, it appears that the most prevalent challenges facing HR management are as follows: ● Economic and technological change ● Workforce availability and quality concerns ● Demographics and diversity issues ● Organizational restructuring Economic and Technological Change Several economic changes have occurred that have altered employment and oc- cupational patterns in the United States. A major change is the shift of jobs from manufacturing and agriculture to service industries and telecommunications. This shift has meant that some organizations have had to reduce the number of employees, while others have had to attract and retain employees with different capabilities than previously were needed. Additionally, pressures from global competitors have forced many U.S. firms to close facilities, adapt their manage- ment practices, and increase productivity and decrease labor costs in order to be- come more competitive. Finally, the explosive growth of information technology, particularly that linked to the Internet, has forced many changes throughout organizations of all types. OCCUPATIONAL SHIFTS Projections of the growth and decline in jobs illustrates the economic and employment shifts currently occurring. Figure 1 — 1 indicates the occupations with the largest percentage growth anticipated between 1996 and 2006. It is interesting to note that in Figure 1 — 1 most of the fastest-growing occupations percentagewise are related to information technology or health care. The increase in the technology jobs is due to the rapid increase in the use of in- formation technology, such as databases, system design and analysis, and desktop publishing. The health care jobs are growing as a result of the aging of the U.S. population and workforce, a factor discussed later. Human Resource (HR) management The design of formal systems in an organization to ensure the effective and efficient use of human talent to accomplish the organizational goals. GLOBAL COMPETITION One major factor affecting these shifts is the globalization of economic forces. As seen the past few years, the collapse of Asian economies had significant effects on U.S based organizations. One estimate by U.S. govern- ment statisticians is that over 25% of all U.S. manufacturing workers hold jobs dependent on exporting goods to other countries. This is particularly true with more highly skilled, technical jobs in technology-driven industries. As a result, these export-driven jobs pay wages averaging 25% higher than most other man- ufacturing jobs. 4 On the other hand, the less-skilled manufacturing assembly jobs have been shifting from the higher-wage, developed economies in the United States and Western Europe to developing countries in Eastern Europe, China, Thailand, Mexico, and the Phillippines. Due to the increase in information technology, global linkages are now more ex- tensive and production and transportation can be coordinated worldwide. There- fore, the loss of manufacturing jobs in the United States has been replaced with jobs in information technology, financial services, health care, and retail services. In summary, the U.S. economy has become a service economy, and that shift is expected to continue. Over 80% of U.S. jobs are in service industries, and most new jobs created by the year 2006 also will be in services. It is estimated that manufacturing jobs will represent only 12% to 15% of all U.S. jobs by that date. Workforce Availability and Quality In many parts of the United States today, significant workforce shortages exist due to an inadequate supply of workers with the skills needed to perform the jobs be- ing added. In the last several years news reports have regularly described tight labor markets with unemployment rates in some locales below 3%. Also, contin- uously there are reports by industries and companies facing shortages of qualified, 5 Chapter 1 Changing Nature of Human Resource Management FIGURE 1 — 1 The 10 Occupations with the Fastest Employment Growth, 1996 — 2006 Numbers in Thousands of Jobs Occupation Employment Change, 1996 — 2006 1996 2006 Number Percent Database administrators, computer 212 461 249 118 support specialists, and all other computer scientists Computer engineers 216 451 235 109 Systems analysts 506 1,025 520 103 Personal and home care aides 202 374 171 85 Physical and corrective therapy 84 151 66 79 assistants and aides Home health aides 495 873 378 76 Medical assistants 225 391 166 74 Desktop publishing specialists 30 53 22 74 Physical therapists 115 196 81 71 Occupational therapy assistants 16 26 11 69 and aides SOURCE: U.S. Department of Labor, Bureau of Labor Statistics, http://stats.bls.gov/ecopro.table6.htm experienced workers. Jobs with extreme supply shortages for several years have included specialized information systems technicians, physical therapists, plumbers, air conditioning repair technicians, and many others. Consequently, HR professionals have faced greater pressures to recruit and train workers. WORKFORCE QUALITY DEFICIT Many occupational groups and industries will re- quire more educated workers in the coming years. The number of jobs requiring advanced knowledge is expected to grow at a much more rapid rate than the number of other jobs. This growth means that people without high school diplo- mas or appropriate college degrees increasingly will be at a disadvantage, as their employment opportunities are confined to the lowest-paying service jobs. In short, there is a growing gap between the knowledge and skills required by many jobs and those possessed by employees and applicants. Several different studies and projections all point to the likelihood that employers in many industries will have difficulties obtaining sufficiently educated and trained workers. Estimates are that about half of the U.S. workforce (about 50 million workers) needs or will need new or enhanced workplace training to adapt to the myriad job and technological changes that are occurring. At the same time, many indi- viduals who are obtaining higher education degrees are doing so in nontechnical or nonscientific fields rather than engineering or computer sciences, where the greatest gap between job growth and worker supply exists. On the lower end, far too many students graduating from U.S. high schools lack the basic mathemati- cal, reasoning, and writing skills needed for many jobs. Unless major efforts are made to improve educational systems, especially those serving minorities, employers will be unable to find enough qualified workers for the growing number of “knowledge jobs.” A number of employers are addressing the deficiencies that many employees have in basic literacy and mathematical skills by administering basic skills assessments to employees. Then they conduct basic mathematics and English skills training classes at workplace sites for em- ployees with deficiencies. Some employers also sponsor programs for employees and their family members to aid them in obtaining general equivalency diplo- mas. To address the skills deficiencies, HR management must do the following: ● Assess more accurately the knowledge and skills of existing employees, as well as the knowledge and skills needed for specific jobs. ● Make training for future jobs and skills available for employees at all levels, not just managers and professionals. ● Increase the usage of new training methods, such as interactive videos, indi- vidualized computer training, and via the Internet. ● Become active partners with public school systems to aid in upgrading the knowledge and skills of high school graduates. GROWTH IN CONTINGENT WORKFORCE In the past, temporary workers were used for vacation relief, maternity leave, or workload peaks. Today “contingent work- ers” (temporary workers, independent contractors, leased employees, and part- timers) represent over 20% of the workforce. Many employers operate with a core group of regular employees with critical skills and then expand and contract the workforce through the use of contingent workers. This practice requires determining staffing needs and deciding in advance which employees or positions should form the “core” and which should be more fluid. At one large firm, about 10% of the workforce is contingent now. The com- 6 Section 1 HR Management — Strategies and Environment LOGGING ON . . . Workforce Composition Data on workforce compo- sition and trends from the U.S. Department of Labor, Bureau of Labor Statistics are available at this site. http://stats.bls.gov./ sahome.html pany sees using contingent employees as a way to stabilize the workforce. Instead of hiring regular workers when work piles up and then firing them when the work is finished, the company relies more on temporary workers and independent con- tractors. Productivity is measured in output per hour. Thus, if employees are paid only when they are working (as contingents are), overall productivity increases. Another reason for the growth in contingent workers is the reduced legal liabil- ity faced by employers. As more and more employment-related lawsuits have been filed, some employers have become more wary about adding employees. Instead, by using contract workers supplied by others, they face fewer employment legal is- sues regarding selection, discrimination, benefits, discipline, and termination. Demographics and Diversity The U.S. workforce has been changing dramatically. It is more diverse racially, women are in the labor force in much greater numbers than ever before, and the average age of the workforce is now considerably older than before. As a result of these demographic shifts, HR management in organizations has had to adapt to a more varied labor force both externally and internally. The three most promi- nent dimensions of the demographic shifts affecting organizations are high- lighted next. RACIAL/ETHNIC DIVERSITY Projections by the U.S. Bureau of Labor Statistics are that the racial/ethnic mix of the U.S. workforce will continue to shift. The white labor force is expected to decline from 80% of the workforce in 1986 to about 73% by 2006. As Figure 1 — 2 indicates, the Asian and Hispanic labor forces 7 Chapter 1 Changing Nature of Human Resource Management BNA Using Contingent Workers 445.10 Review the types of contin- gent workers and the legal issues associated with their use. 0 10 20 30 40 50 60 70 80 1996 11.3 11.6 4.3 5.4 9.5 11.7 75.3 72.7 African–American Percentage of Workforce Asian Hispanic White 2006 Projected FIGURE 1 — 2 Racial/Ethnic Shifts in U.S. Labor Force, 1996 — 2006 SOURCE: U.S. Department of Labor, Bureau of Labor Statistics, Employment Projections 1996 — 2006. are expected to increase faster than the African-American labor force. This in- crease means that non-whites will compose about 28% of the U.S. labor force by 2006. Also, with 36% of all children under age 18 being non-white, the de- mographic shifts to greater racial/ethnic diversity are likely to continue. In ad- dition, immigration of individuals into the United States is heavily weighted toward non-whites. The importance of all these shifts is that HR professionals must ensure that di- verse groups are managed and treated equitably in organizations. Also, HR pro- fessionals will have to develop diversity-oriented training so that all employees, regardless of background and heritage, can succeed in workplaces free from dis- crimination and inappropriate behaviors. It also means that more attention will have to be given to recruiting, staffing, and promoting individuals without regard to their racial/ethnic heritage, so that equal employment results for all. 5 AGING OF THE WORKFORCE Most of the developed countries are experiencing an aging of their populations — including Australia, Japan, most European coun- tries, and the United States. In the United States, the median age will continue to increase from about 31 years in 1986 to over 40 by 2006. This increase is due in part to people living longer and in part to a decrease in the number of younger people, particularly in the 16 — 24 age bracket. Figure 1 — 3 illustrates the percentage shifts in the U.S. workforce, with those over age 45 showing the greatest increase. In fact, it is projected that by 2020 about 20% of the U.S. pop- ulation will be 65 or older, and that there will be as many people over 65 as there will be ages 20 — 35. 6 8 Section 1 HR Management — Strategies and Environment 0 10 5 30 25 20 15 1996 5.8 6.0 16–19 yrs 10.0 10.4 20–24 yrs 25.3 20.7 25–34 yrs 27.3 23.8 35–44 yrs 19.7 23.6 45–54 yrs 9.1 12.6 55–64 yrs 2.9 2.8 65–over yrs. Percentage of Workforce 2006 FIGURE 1 — 3 Age Distribution of U.S. Civilian Labor Force, 1996 — 2006 SOURCE: U.S. Department of Labor, Bureau of Labor Statistics, Employment Projections 1996 — 2006. The aging of the population also is reflected in the occupational shifts noted previously. The growth in medically related jobs will be due primarily to provid- ing care to older persons who will live longer and need greater medical care. Taken together, this aging issue means that HR professionals will continue to face significant staffing difficulties. Efforts to attract older workers through the use of part-time and flexible staffing will increase. 7 Also, as more older workers with a lifetime of experience and skills retire, HR will face significant challenges in re- placing them with workers having the capabilities and work ethic that charac- terize many older workers. For HR management, elder care will grow as a major HR issue. More workers will have primary care responsibilities for aging, elderly relatives, with over 22 million U.S. households having elder-care responsibilities. One estimate is that lost productivity due to workers having elder care responsibilities is at least $11 billion per year. 8 Even group benefit programs are changing, with long-term care insurance being added by an increasing number of employers. In these programs workers can allocate some of their “benefit dollars” to buy long-term care insur- ance at lower group rates. BALANCING WORK AND FAMILY For many workers in the United States, balancing the demands of family and work is a significant challenge. While this balancing has always been a concern, the growth in the number of working women and dual-career couples has resulted in greater tensions for many workers. According to data from the U.S. Census Bureau, families and households today can be de- scribed as follows: ● The “traditional family” represents only 10% or less of today’s U.S. house- holds. ● The number of households of married couples with no children living at home is growing and represents more households than those of married couples with children. ● Dual-career couples compose about 60% of all married couples, representing 30.3 million couples. ● Households headed by a single parent make up almost 30% of all families, with women heading most of these households. ● Single-parent households are less prevalent among whites than among other racial/ethnic groups. ● Seventy percent of all women with children under age six are in the workforce, and 60% of all women with children under age three are working. ● Both men and women are marrying at later ages, with the median age of first marriage for men about 27 and for women about 24. ● A majority of both men and women aged 18 to 24 still live with their parents or are considered dependents. The decline of the traditional family and the increasing numbers of dual- career couples and working single parents place more stress on employees to balance family and work. For instance, many employees are less willing than in the past to accept relocations and transfers if it means sacrificing family or leisure time. Organizations that do get employees to relocate often must offer employment assistance for spouses. Such assistance can include contacting other employers, providing counseling and assistance in resume development, and hiring employment search firms to assist the relocated spouse. Addition- ally, balancing work and family concerns has particular career implications for 9 Chapter 1 Changing Nature of Human Resource Management LOGGING ON . . . ElderCare Web Contains reference materi- als and resources on elder care issues. http://www.ice.net/ ~kstevens/ELDERWEB.HTM women, because women more than men tend to interrupt careers for child rearing. To respond to these concerns employers are facing growing pressures to pro- vide “family-friendly” policies and benefits. The assistance given by employers ranges from maintaining references on child-care providers to establishing on- site child-care and elder-care facilities. Also, employers must have HR policies that comply with legislation requiring many employers with at least 50 workers to provide up to 12 weeks of unpaid parental/family leave, as noted in the Fam- ily and Medical Leave Act. Organizational Restructuring Many organizations have restructured in the past few years in order to become more competitive. Also, mergers and acquisitions of firms in the same industries have been made to ensure global competitiveness. The “mega-mergers” in the banking, petroleum, and telecommunications industries have been very visible, but mergers and acquisitions of firms in many other industries have increased in recent years. As part of the organizational changes, many organizations have “rightsized” either by (1) eliminating layers of managers, (2) closing facilities, (3) merging with other organizations, or (4) outplacing workers. A common transformation has been to flatten organizations by removing several layers of management and to improve productivity, quality, and service while also reducing costs. As a re- sult, jobs are redesigned and people affected. One of the challenges that HR management faces with organizational restructuring is dealing with the human consequences of change. The human cost associated with downsizing has been much discussed in the popular press: a survivor’s mentality for those who re- main, unfulfilled cost savings estimates, loss of loyalty, and many people look- ing for new jobs. Whereas many large firms have cut jobs by reducing their workforces, many smaller firms have continued to create jobs. This is particularly true in high- technology industries, such as software development. These entrepreneurial firms are faced with growth, while trying to attract sufficient workers with flexible ca- pabilities and to conserve financial resources. More discussion on HR’s role in organizational restructurings is found in Chapter 2, focusing on strategic HR planning. Consequently, in both large and small organizations the management of HR activities is crucial. HR Management Activities The central focus for HR management must be on contributing to organizational success. As Figure 1 — 4 depicts, key to enhancing organizational performance is ensuring that human resources activities support organizational efforts focusing on productivity, service, and quality. ● Productivity: As measured by the amount of output per employee, continuous improvement of productivity has become even more important as global com- petition has increased. The productivity of the human resources in an organi- zation is affected significantly by management efforts, programs, and systems. ● Quality: The quality of products and services delivered significantly affects organizational success over the long term. If an organization gains a reputa- 10 Section 1 HR Management — Strategies and Environment tion for providing poor-quality products and services, it reduces its organiza- tional growth and performance. An emphasis on quality requires continuous changes aimed at improving work processes. That need opens the door for reengineering the organizational work done by people. Customer value re- ceived and satisfaction become the bases for judging success, along with more traditional HR measures of performance and efficiency. ● Service: Because people frequently produce the products or services of- fered by an organization, HR management considerations must be included when identifying service blockages and redesigning operational processes. Involving all employees, not just managers, in problem solving often re- quires changes in corporate culture, leadership styles, and HR policies and practices. 11 Chapter 1 Changing Nature of Human Resource Management GOALS • Productivity • Quality • Service HR Planning and Analysis • HR Planning • Job Analysis • HR Information and Assessment Systems Equal Employment Opportunity • Compliance • Diversity • Affirmative Action Employee and Labor/Management Relations • HR Policies • Employee Rights and Privacy • Union/Management Relations Health, Safety, and Security • Health and Wellness • Safety • Security Staffing • Job Analysis • Recruiting • Selection Compensation and Benefits • Wage/Salary Administration • Incentives • Benefits HR Development • Orientation • Training • Employee Development • Career Planning • Performance Management Environment OrganizationHR Activities Goals M I S S I O N C U L T U R E S T R U C T U R E S I Z E O P E R A T I O N S O R G A N I Z A T I O N T E C H N O L O G I C A L G L O B A L E N V I R O N M E N T A L E C O N O M I C L E G A L S O C I A L P O L I T I C A L C U L T U R A L / G E O G R A P H I C FIGURE 1 — 4 Management Activities [...]... Opportunity,” Human Resource Executive, June 5, 1998, 36—38 16 Dave Ulrich, Human Resource Champions (Boston: Harvard Business School Press, 1997) 17 Louis R Forbringer and Carol Oeth, Human Resources at Mercantile Bancorporation, Inc.,” Human Resource Management, Summer 1998, 177—189 18 “The Missing M & A Link,” The Wall Street Journal, October 7, 1997, A1 19 Dave Ulrich, “A New Mandate for Human Resources,”... PERSPECTIVE SHRM Code of Ethics As a member of the Society for Human Resource Management (SHRM), I pledge myself to: q q q q q q Maintain the highest standards of professional and personal conduct Strive for personal growth in the field of human resource management Support the Society’s goals and objectives for developing the human resource management profession Encourage my employer to make the fair... the role of human resource management This Code of Ethics for members of the Society for Human Resource Management has been adopted to promote and maintain the highest standards of personal conduct and professional standards among its members Adherence to this code is required for membership in the Society and serves to assure public confidence in the integrity and service of human resource management. .. organizational contributor, and not just a cost center Expanding Human Capital Human capital The total value of human resources to the organization Another goal for those focusing on HR management, as well as operating executives and managers, is to enhance the human capital of the organization Human capital is the total value of human resources to the organization Also sometimes referred to as intellectual... Ethics Pressure,” Bulletin to Management, February 12, 1998, 41 40 The Business Ethics Survey (Alexandria, VA: Society for Human Resources Management, 1998) 41 Andrew R McIlvane, “Work Ethics,” Human Resource Executive, August 1998, 30—34 42 Stephen C Schoonover, HR Competencies for the Year 2000 (Alexandria, VA: SHRM Foundation, 1998) Chapter 1 Changing Nature of Human Resource Management 43 Kevin Barksdale,... News, July/August 1998, 30—35 26 “Administrative Woes,” Human Resource Executive, January 1998, 82 27 “Global Competition Encourages Partnership Between HR and Line Management, Study Says,” HR Policies & Practices Update, April 18, 1998 4 28 Mindy W Toran, “Rolling with the Changes,” Human Resource Executive, June 5, 1998, 39—41 29 HR 21: Human Resources for the Next Century (Washington, DC: Watson,... For HR generalists, the largest organization is the Society for Human Resource Management (SHRM) Public-sector HR professionals tend to be concentrated in the International Personal Management Association (IPMA) Other major functional specialty HR organizations exist, such as the International Association for Human Resource Information Management (IHRIM), the American Compensation Association (ACA),... financial accountability for results Expanding human capital requires HR management to develop means to attract and retain human resources, develop their capabilities, and identify and reward performance Decentralization and outsourcing are being utilized more frequently in the management of HR units than they were in past years Ethical behavior is crucial in HR management, and a number of HR ethical issues... must be HR managers.” 6 What do you see as the most interesting part of HR as a career field? Terms to Know HR generalist 27 HR specialist 27 human capital 18 Human Resource (HR) management 4 interfaces 22 Chapter 1 Changing Nature of Human Resource Management Using the Internet Outsourcing Assume that you are the HR Manager for a large company Department managers are requesting information on outsourcing... providing growth opportunities for them 20 Section 1 HR Management Strategies and Environment DEVELOPING HUMAN RESOURCE CAPABILITIES The human capital in organizations is valuable because of the capabilities that the people have As part of the strategic role, HR managers are often seen as responsible for expanding the capabilities of the human resources in an organization Currently, considerable emphasis . re- named human resource departments. But more than the name has changed as HR management continues to be the “people” focus in organizations. 13 Chapter 1 Changing Nature of Human Resource Management HR. it will be empha- sized that the people as human resources contribute to and affect the competitive success of the organization. Human Resource (HR) management deals with the design of formal. use of human talent to accomplish organizational goals. In an organization, the management of human resources means that they must be recruited, com- pensated, trained, and developed. HR Management