Chapter One: Introduction to Human Resource Management

Introduction

Addis Ababa University is an organization. An organization consists of people with formally

assigned roles who work together to achieve the organization’s goals. A manager is the person
responsible for accomplishing the organization’s goals, who does so by managing the efforts of
the organization’s people.

Most experts agree that managing involves five functions: planning, organizing, staffing,
leading, and controlling. In total, these functions represent the management process. Some of the
specific activities involved in each function include:

Planning: Establishing goals and standards; developing rules and procedures; developing plans
and forecasting.
Organizing; Giving each subordinate a specific task; establishing departments; delegating
authority to subordinates; establishing channels of authority and communication; coordinating
subordinates’ work.
Staffing: Determining what type of people you should hire; recruiting prospective employees;
selecting employees; training and developing employees; setting performance standards;
evaluating performance; counseling employees; compensating employees.
Leading: Getting others to get the job done; maintaining morale; motivating subordinates.
Controlling: Setting standards such as sales quotas, quality standards, or production levels;
checking to see how actual performance compares with these standards; taking corrective action,
as needed.

What is Human Resource Management?

Managing people in changing organizations is part of what is currently being done by

supervisors, managers, and executives. People as human assets are the “glue” that holds all the
other assets, such as financial and physical ones, together and guides their use to better achieve
results. Certainly, the cashiers, supervisors, and other employees in a department store or the
doctors, nurses, receptionists, technical professionals, and other employees at a hospital allow all
the other assets of their organization to be used to provide customer or patient services. How
effectively people at all levels contribute to organizational results is part of the challenge.

Managing people as human resources is essential in organizations of all sizes and types. As a
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field, human resource management is undergoing significant transformation. Human resource
(HR) management is designing management systems to ensure that human talent is used
effectively and efficiently to accomplish organizational goals. Whether employees are in a big
company with thousands of jobs or a small nonprofit agency, managing people in an
organization is about more than simply administering a pay program, designing training, or
avoiding lawsuits. If human resources are to be an important part of successfully competing in
the marketplace, a different level of thinking about HR management is necessary. Productive,
creative people working in flexible, effective organizations that provide rewarding work for
individuals is important for all managers, not just those in HR departments. People in
organizations can be a core competency.

Human resource management (HRM) is the effective management of people at work. HRM
examines what can or should be done to make working people more productive and satisfied.
When an organization is really concerned about people, its philosophy, culture, and tone will
reflect this belief. HRM is specifically charged with programs concerned with people—the
employees.

Human resource management is the function performed in organizations that facilitates the most
effective use of people (employees) to achieve organizational and individual goals. Whether a
Human Resource Management function or department even exists in a firm, every manager must
be concerned with people.

Human resource management is the process of planning, organizing, leading, and controlling the
acquisition, training, developing, appraising, compensating, integrating, maintaining, and
separating of employees effectively and efficiently with the end to achieve individual, group,
organizational, and societal goals.
Terms such as personnel, human resource management, industrial relations, and employee
development are used by different individuals to describe the unit, department, or group
concerned about people. The term human resource management is now widely used, though
some people still refer to a personnel management. Human resource management reflects the
increased concern both society and organizations have for people.

Today, employees demand more of their jobs and respond favorably to management activities
that give them greater control of their lives. HRM consists of numerous activities, including

 Equal employment opportunity (EEO) compliance.

 Job analysis.

 Human resource planning.

 Employee recruitment, selection, motivation, and orientation.

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  Performance evaluation and compensation.

 Training and development.

 Labor relations.

 Safety, health, and wellness

History of Human Resource Management

The history of HRM can be traced to England, where masons, carpenters, leather workers, and
other craftspeople organized themselves into guilds. They used their unity to improve their work
conditions. These guilds became the forerunners of trade unions.

The field further developed with the arrival of the Industrial Revolution in the latter part of the
18th century, which laid the basis for a new and complex industrial society. The Industrial
Revolution began with the substitution of steam power and machinery for time-consuming, hand
labor. Working conditions, social patterns, and the division of labor were significantly altered. A
new kind of employee (i.e., a boss) became a power broker in the new factory system. With these
changes also came a widening gap between workers and owners.

Scientific management and welfare work represent two concurrent approaches that began in the
19th century and, along with industrial psychology, merged during the era of the world wars.
Scientific management represented an effort to deal with inefficiencies in labor and management
primarily through work methods, time and motion study, and specialization. Industrial
psychology represented the application of psychological principles toward increasing the ability
of workers to perform efficiently and effectively.
The renowned father of scientific management was Frederick W. Taylor. An engineer at Midvale
Steel Works in Philadelphia from 1878 to 1890, he studied worker efficiency and attempted to
discover the “one best way” and the one fastest way to do a job. He summarized scientific
management as: (1) science, not rules of thumb; (2) harmony, not discords; (3) cooperation, not
individualism; and (4) maximum output, not restricted output.
Whereas scientific management focused on the job and efficiencies, industrial psychology
focused on the worker and individual differences. The maximum wellbeing of the worker was
the focus of industrial psychology.

The drastic changes in technology, the growth of organizations, the rise of unions, and
government concern and intervention concerning working people resulted in the development of
personnel departments. There is no specific date assigned to the appearance of the first personnel
department, but around the 1920s more and more organizations seemed to take note of and do
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something about the conflict between employees and management. Early personnel
administrators were called welfare secretaries. Their job was to bridge the gap between
management and operator (worker); in other words, they were to speak to workers in their own
language and then recommend to management what had to be done to get the best results from
employees.

Another early contributor to HRM was called the human relations movement. Two Harvard
researchers, Elton Mayo and Fritz Roelthisberger, incorporated human factors into work. This
movement began as a result of a series of studies conducted at the Hawthorn facility of the
Western Electric in Chicago between 1924 and 1933. The purpose of the studies was to
determine the effects of illumination on workers and their output. The studies pointed out the
importance of the social interaction and work group on output and satisfaction. The human
relations movement eventually (around the mid-1960s) became a branch of and a contributor to
the field of organizational behavior.

The early history of personnel still obscures the importance of the HRM to management. Until
the 1960s, the personnel function was considered to be concerned only with blue-collar or
operating employees. It was viewed as a record-keeping unit that handed out 25-year tenure pins
and coordinated the annual company picnic. Peter Drucker, a respected management scholar and
consultant, made a statement about personnel management that reflected its blue-collar
orientation. Drucker stated that the job of personnel was “partly a file clerk’s job, partly a
housekeeping job, partly a social worker’s job, and partly firefighting, heading off union trouble.

Strategic Importance of Human Resource Management

Is Human Resource Management Important to All Managers?

These concepts and techniques important to all managers for several reasons. First, having a
command of this knowledge will help you avoid the sorts of personnel mistakes you don’t want
to make while managing. For example, no manager wants to:
* Hire the wrong person for the job
* Experience high turnover
* Have your people not doing their best
* Waste time with useless interviews
* Have your company taken to court because of your discriminatory actions
* Have your company cited under government occupational safety laws for unsafe practices
* Have some employees think their salaries are unfair relative to others in the organization
* Allow a lack of training to undermine your departments effectiveness
* Commit any unfair labor practices

Effective human resource management can help ensure that you get results through people.

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Remember that you can do everything else right as a manager lay brilliant plans, draw clear
organization charts, set up world-class assembly lines, and use sophisticated accounting controls
but still fail by hiring the wrong people or by not motivating subordinates. On the other hand,
many managers, presidents, generals, governors, supervisors have been successful even with
inadequate plans, organizations, or controls. They were successful because they had the knack of
hiring the right people for the right jobs and motivating, appraising, and developing them.
Remember that getting results is the bottom line of managing, and that, as a manager, you will
have to get those results through people. As one company president summed up: For many years,
it has been said that capital is the bottleneck for a developing industry. I don’t think this any
longer holds true. I think it’s the work force and the company’s inability to recruit and maintain a
good work force that does constitute the bottleneck for production. I don’t know of any major
project backed by good ideas, vigor, and enthusiasm that has been stopped by a shortage of cash.
I do know of industries whose growth has been partly stopped or hampered because they can’t
maintain an efficient and enthusiastic labor force, and I think this will hold true even more in the
future.
The HRM function today is concerned with much more than simple filing, housekeeping, and
record-keeping. When HRM strategies are integrated within the organization, HRM plays a
major role in clarifying the firm’s human resource problems and develops solutions to them. It is
oriented toward action, the individual, worldwide interdependence, and the future. Today it
would be difficult to imagine any organization achieving and sustaining effectiveness without
efficient HRM programs and activities.

The strategic importance of HRM means that a number of key concepts must be applied. Some
of these concepts are

 Analyzing and solving problems from a profit-oriented, not just a service- oriented, point
of view.
 Assessing and interpreting costs or benefits of such HRM issues as productivity, salaries
and bernefitd, recruitment, training, absenteeism, overseas relocation, layoffs, meetings,
and attitude surveys.

 Using planning models that include realistic, challenging, specific, and meaningful goals.

 Preparing reports on HRM solutions to problems encountered by the firm.

 Training the HR staff and emphasizing the strategic importance of HRM and the
importance of contributing to the firm’s profits.

The increased strategic importance of HRM means that HR specialists must show that they
contribute to the goals and mission of the firm. The actions, language, and performance of the
HRM function must be measured, precisely communicated, and evaluated. The new strategic
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positioning of HRM means that accountability must be taken seriously.
The era of accountability for HRM has resulted from concerns about productivity, from
widespread downsizing and redesigning of organizations, from the need to effectively manage an
increasingly diverse workforce, and from the need to effectively use all the resources of an
organization to compete in an increasingly complex and competitive world.

The HRM function today is much more integrated and strategically involved. The importance of
recruiting, selection, training, developing, rewarding, compensating, and motivating the
workforce is recognized by managers in every unit and functional area of an organization. HRM
and every other function must work together to achieve the level of organizational effectiveness
required to compete locally and internationally. If the HRM function is to be successful,
managers in other functions must be knowledgeable and involved. Managers play a major role in
setting the direction, tone, and effectiveness of the relationship between the employee, the firm,
and the work performed. Managers must understand that carrying out HRM activities and
programs is strategically vital. Without managerial participation, there is likely to be major
human resource problems.

An increasing number of firms recognize that the HR department has a responsibility to be a

proactive, integral component of management and the strategic planning process. This new
emphasis does not replace the competence required in counseling, consulting, industrial
relations, or managerial control systems. Instead, it is an orientation that states that an HR
department must do more than simply sit and listen when strategic management plans are
nurtured and developed. The department must determine a strategic direction for its own
activities that will make it a proactive arm of the management team. To accomplish this new
role, HRM must ascertain specific organizational needs for the use of its competence, evaluate
the use and satisfaction among other departments, and educate management and employees
about the availability and use of HRM services. The long-range goal of any HRM strategic plan
must be to build on the firm’s strengths.
The theoretical work in business strategy has given a boost to the importance of HRM in creating
a firm’s sustained competitive advantage. Organizations can develop a competitive advantage
over other firms only by creating value in a way that is rare and difficult to imitate. Unlike
capital investments, patents, or technology, a properly functioning HRM system is an invisible
asset that creates value when it is so embedded in the firm’s operational systems that it enhances
the organization’s capabilities. The compensation system, training opportunities, diversity
management programs, and other programs planned, implemented, and evaluated by HRM must
become so important and so effective that any unit within the firm knows they are needed for the
firm to be successful. This is what is meant by HRM’s competitive advantage.
As HRM executives play an increasingly dominant role at the organization’s strategic planning
table, they must continually educate the members of other departments or units about the human

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resource implications of various decisions. Thus, the HR executive must be familiar with other
aspects of the organization, such as, investments, advertising, marketing, production control,
computer utilization, research, and development. It is crucial to know the business.

Objectives of Human Resource Management

The contributions HRM makes to organizational effectiveness include helping the organization
reach its goals; employing the skills and abilities of the workforce efficiently; providing the
organization with well-trained and well-motivated employees; increasing to the fullest the
employee’s job satisfaction and self-actualization; developing and maintaining a quality of work
life that makes employment in the organization desirable; communicating HRM policies to all
employees; helping to maintain ethical policies and socially responsible behavior; and managing
change to the mutual advantage of individuals, groups, the enterprise, and the public.

Human Resources as Organizational Core Competency

The development and implementation of specific organizational strategies must be based on the
areas of strength in an organization. Referred to as core competencies, those strengths are the
foundation for creating a competitive advantage for an organization. A core competency is a
unique capability that creates high value and differentiates an organization from its competition.

Figure 1 shows some possible areas where human resources may become part of core
competencies. Certainly, many organizations have identified that having their human resources
as core competencies differentiates them from their competitors and is a key determinant of
competitive advantages.

Figure 1: Core Competencies in Possible HR Areas

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Human Capital and HR
Human capital is not solely the people in organizations—it is what those people bring and
contribute to organizational success. Human capital is the collective value of the capabilities,
knowledge, skills, life experiences, and motivation of an organizational workforce.

Sometimes human capital is called intellectual capital to reflect the thinking, knowledge,
creativity, and decision making that people in organizations contribute. For example, firms with
high intellectual capital may have technical and research employees who create new biomedical
devices, formulate products that can be patented, or develop new software for specialized uses.
All these organizational contributions illustrate the potential value of human capital. A few years
ago, a Nobel prize-winning economist, Gary Becker, expanded the view of human capital by
emphasizing that countries managing human capital better are more likely to have better
economic results.
The importance of human capital in organizations can be seen in various ways. One is sheer
costs. In some industries, such as the restaurant industry, employee-related expenditures may
exceed 60% of total operating costs. With such significant levels comes an increasing need to
measure the value of human capital and how it is changing through HR metrics.

Who Performs Human Resource Activities

Delegation of HRM duties has changed over time. In most organizations two groups perform
HRM activities: HR manager-specialists and operating managers. Operating managers
(supervisors, department heads, and vice presidents) are involved in HRM activities because they
are responsible for effective utilization of all the resources at their disposal. The human resource
is a very special kind of resource. If it is improperly managed, effectiveness declines more
quickly than with other resources. And, the investment in people has more effect on
organizational effectiveness than resources such as money, materials, and equipment.
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Therefore, operating managers spend considerable time managing people. Just as an operating
manager is personally responsible if a machine breaks down and production drops, he or she
must see to the training, performance, and satisfaction of employees. Research indicates that a
large part of an operating manager’s day is spent in unscheduled and scheduled meetings,
telephone conversations, and solving problems that have a direct impact on people. The manager,
through constant contact with many different people, attempts to solve problems, reach
decisions, and prevent future difficulties.
Smaller organizations usually have no HR unit, so the operating managers have many HRM
responsibilities, such as scheduling work, recruitment and selection, and compensating people.
As the organization increases in size, the operating manager’s work is divided up, and some of it
becomes specialized. HRM is one such specialized function. Usually the manager of a unit first
assigns an assistant to coordinate certain HRM matters.
Outsourcing, or contracting with a vendor to perform on a recruiting basis a HRM activity
previously performed by a firm, is growing in popularity. The drivers of increased outsourcing
include downsizing, rapid growth or decline of business, globalization, increased competition,
and restructuring. Some executives assume that outsourcing some HRM activities is a
competitive advantage because it may reduce costs, improve flexibility, and permit the hiring of
specialized expertise.

The New Human Resource Managers

Trends like these mean changes in human resource management practices, and in what
employers expect from their human resource managers. We will look at some specifics.

Human Resource Management Yesterday and Today

For much of the twentieth century, personnel/HR managers focused on day-to-day transactional
types of activities. For example, in the earliest firms, they first took over hiring and firing from
supervisors, ran the payroll department, and administered benefits plans. As expertise in areas
like testing began to appear, the personnel department began to play an expanded role in
employee selection and training.
Today, we have seen that trends like globalization, indebtedness, and technology confront
employers with new challenges, such as squeezing more profits from operations. Employers
expect their human resource managers to have what it takes to address these challenges. We can
list 10 characteristics of today’s human resource professionals.

1. They Focus More on Strategic, Big Picture Issues

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Today’s human resource managers are more involved in longer term, strategic big picture issues.
Strategic human resource management means formulating and executing human resource
policies and practices that produce the employee competencies and behaviors the company needs
to achieve its strategic aims. Today’s employers want their HR managers to put in place practices
that will help the company achieve its strategic aims. Employers want them to be the firm’s
internal consultants, by identifying and institutionalizing changes that help employees better
contribute to the company’s success, and by helping top management formulate and execute its
long-term plans. HR managers no longer just do every day transactional things like signing on
new employees or changing their benefits plans.

2. They Use New Ways to Provide Transactional Services

But then, how do employers perform these day-to-day transactional tasks? The answer is that
today’s human resource managers must be skilled at offering these transactional HR services in
innovative ways. For example, they outsource more benefits administration and safety training to
outside vendors. They use technology, for instance, company portals that allow employees to
self-administer benefits plans, Facebook recruiting to recruit job applicants, online testing to
prescreen job applicants, and centralized call centers to answer HR-related inquiries from
supervisors.

As another example, more employers are installing their own internal social networking sites.
This internal social networking site lets its employees share experiences, suggestions, and advice
without exposing their comments to the wider world (as would posting them on Facebook). IBM
calls its internal social network site w3. IBMs employees around the world use w3 to create
personal profiles similar to those on LinkedIn, bookmark web sites and news stories of interest,
comment on company blogs, contribute to wikis, share files, and gain knowledge from white
papers, videos, and podcasts.

3. They Take an Integrated, Talent Management Approach to Managing Human

Resources

Next, with employers competing for talent, no one wants to lose any high-potential employees,
or to fail to attract or fully utilize top-caliber ones. One survey of human resource executives
found that talent management issues were among the most pressing ones they faced. Human
resource managers are therefore emphasizing talent management.

Talent management is the goal-oriented and integrated process of planning, recruiting,

developing, managing, and compensating employees. It involves instituting a coordinated
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process for identifying, recruiting, hiring, and developing high-potential employees. What does
this mean in practice? For one thing, talent management means being more focused in how you
manage your company’s talent. For example, IBM segmented its employees into three groups.
Now it can fine-tune the way it serves the employees in each segment. As another example,
many employers are segmenting out their most mission-critical employees, and managing their
development and rewards separately from the firm’s other employees.

4. They Manage Ethics

Ethics means the standards someone uses to decide what his or her conduct should be. Every
human resource manager (and line manager) needs to understand the ethical implications of his
or her employee-related decisions.

5. They Manage Employee Engagement

In today’s challenging environment, no employer can afford to have its employees physically
present but checked out mentally. The Institute for Corporate Productivity defines engaged
employees as those who are mentally and emotionally invested in their work and in contributing
to an employer’s success. Today’s human resource managers need the skills to foster and
manage employee engagement.

6. They Measure HR Performance and Results

In today’s performance-based environment, employers expect their human resource managers to

take action based on measurable performance-based criteria. For example, IBMs Randall
MacDonald needed $100 million from IBM to reorganize its HR operations. He told top
management, I am going to deliver talent to you that is skilled and on time and ready to be
deployed. I will be able to measure the skills, tell you what skills we have, what [skills] we don’t
have [and] then show you how to fill the gaps or enhance our training.

To make claims like these, human resource managers need performance measures (or metrics).
For example, median HR expenses as a proportion of companies total operating costs average
just under 1%. There tends to be between 0.9 and 1.0 human resource staff persons per 100
employees. To see how they are doing compared to others, employers obtain customized

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benchmark comparisons from services such as the Society for Human Resource Managements
Human Capital Benchmarking Service.

7. They Use Evidence-Based Human Resource Management

Basing decisions on the evidence, as practiced by IBMs Randall MacDonald (I will tell you what
skills we have...) is the heart of evidence-based human resource management. This is the use of
data, facts, analytics, scientific rigor, critical evaluation, and critically evaluated research/case
studies to support human resource management proposals, decisions, practices, and conclusions.
Put simply, evidence-based human resource management is the deliberate use of the best
available evidence in making decisions about the human resource management practices you are
focusing on. The evidence may come from actual measurements you make (such as, how did the
trainees like this program?). It may come from existing data (such as, what happened to company
profits after we installed this training program?). Or, it may come from published critically
evaluated research studies (such as, what does the research literature conclude about the best way
to ensure that trainees remember what they learn?).

8. They Add Value

This focus on performance, measurement, and evidence reflects another characteristic of today’s
human resource managers. From top managements point of view, it’s not sufficient that HR
management just oversee activities such as recruiting and benefits. It must add value, particularly
by boosting profitability and performance in measurable ways. Professors Dave Ulrich and
Wayne Brockbank explain this in terms of what they call The HR Value Proposition. They say
the human resource managers’ programs (such as screening tests and training tools) are just a
means to an end. His or her ultimate aim must be to add value. Adding value means helping the
firm and its employees gain in a measurable way from the human resource managers actions.
HR management adds value in different ways and improve organizational profitability and
performance. For example, studies of personnel testing’s effectiveness conclude that screening
applicants with personnel tests can produce employees who perform better. Similarly, well-
trained employees perform better than untrained ones, and safe workplaces produce fewer lost-
time accidents and accident costs than do unsafe ones.

Putting in place a high-performance work system is one way to add value. Such a system is a set
of human resource management practices that together produce superior employee performance.

9. Have New Competencies

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Adding value, strategizing, and using technology all require that human resource managers have
new competencies. They still need proficiencies in human resource management functional areas
such as selection, training, and compensation. But they also require broader business
competencies. For example, human resource managers must speak the CFOs language by
proposing and explaining human resource plans in measurable terms (such as return on
investment), and be able to measure HRs impact. To assist top management in formulating
strategies, the human resource manager must understand strategic planning, marketing,
production, and finance. With companies grappling to adjust to competition, the human resource
manager must be skilled at formulating and implementing large-scale organizational changes,
designing organizational structures and work processes, and at understanding what it takes for
the company to compete in and succeed in the marketplace.

The Human Resource Managers Competencies

The accompanying figure below provides one view of the competencies todays HR managers
need. Professor Dave Ulrich and his colleagues say that today's human resource managers need
the knowledge, skills, and competencies to be:

* Talent Managers/Organization Designers, with a mastery of traditional human resource

management tasks such as acquiring, training, and compensating employees.
* Culture and Change Stewards, able to create human resource practices that support the firm’s
cultural values.
* Strategy Architects, with the skills to help establish the company’s overall strategic plan, and
to put in place the human resource practices required to support accomplishing that plan.
* Operational Executors, able to anticipate, draft, and implement the human resource practices
(for instance in testing and appraising) the company needs to implement its strategy.
* Business Allies, competent to apply business knowledge (for instance in finance, sales, and
production) that enable them to help functional and general managers to achieve their
departmental goals.
* Credible Activists, with the leadership and other competencies that make them both credible
(respected, admired, listened to) and active (offers a point of view, takes a position, challenges
assumptions.)

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FIGURE: The Human Resource Managers Competencies

Organizational Ethics and HR Management

Closely linked with the strategic role of HR is the way managers and HR professionals influence
the ethics of people in organizations. How those ethics affect work and lives for individuals may
aid in producing more positive work outcomes. As the next figure indicates, stablishing HR
ethical areas can lead to organizational and individual consequences.

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F I G U R E: Business Ethics and HR Management Consequences

The need for great attention to ethics has grown in the past few years, as evidenced by the
corporate scandals at numerous financial and investment firms in the US and globally. These
scandals illustrate that ethical lapses are not just symbolic; they affect numerous firms and
employees.

The expansion of the Internet has led to more publicity about ethical issues, including ethics
electronic job boards and postings.

Ethical Behavior and Organizational Culture

Numerous writers on business ethics consistently stress that the primary determinant of ethical
behavior is organizational culture, which is the shared values and beliefs in an organization
mentioned earlier. Every organization has a culture, and that culture influences how executives,
managers, and employees act in making organizational decisions. For example, if meeting
objectives and financial targets is stressed, then it should not be a surprise when executives and
managers fudge numbers or falsify cost records. However, a positive ethical culture exists in
many organizations. When the following four elements of ethics programs exist, ethical behavior

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is more likely to occur:
• A written code of ethics and standards of conduct
• Training on ethical behavior for all executives, managers, and employees
• Advice to employees on ethical situations they face, often made by HR
• Systems for confidential reporting of ethical misconduct or questionable behavior

An ethical business culture is based first on organizational mission and values. Other related
factors can include shareholders, long-term perspectives, process integrity, and leadership
effectiveness. The roles of boards, CEOs, other executives, and HR leaders are vital in setting the
culture for ethics globally as well as locally. Training of employees is crucial, and how they
respond to situations may be linked to their expectations, motivations, and other factors. As the
HR Best Practices indicates, Cisco has emphasized ethics using creative and effective means
throughout its global business world.

Ethics and Global Differences

Differences in legal, political, and cultural values and practices in different countries often raise
ethical issues for global employers who must comply with both their home-country laws and the
laws of other countries. With the changes in the global economy in the past few years, a France-
based entity, the Organization for Economic Cooperation (OECD), has emphasized the effects of
ethics. The OECD has recommended that global multinational firms establish and implement
stricter ethical standards to aid business development.

The different legal, political, and cultural factors in other countries can lead to ethical and legal
conflicts for global managers. Some global firms have established guidelines and policies to
reduce the payments of bribes, but even those efforts do not provide detailed guidance on
handling the situations that can arise.

HR’s Role in Organizational Ethics

Organizations that are seen as ethical in the way they operate have longer-term success. Because
people in organizations are making ethical decisions on a daily basis, HR management plays a
key role as the “keeper and voice” of organizational ethics. All managers, including HR
managers, must deal with ethical issues and be sensitive to how they interplay with HR activities.
Instead of relying just on HR policies or laws, people must be guided by values and personal
behavior “codes,” including these two questions:
• Does the behavior or result meet all applicable laws, regulations, and government codes?
• Does the behavior or result meet both organizational standards and professional standards of
ethical behavior?

There are a number of different views about the importance of HR in ensuring that ethical
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practices, justice, and fairness are present throughout HR practices. The following figure
identifies some of the most frequent areas of ethical misconduct involving HR activities. Ethical
issues pose fundamental questions about fairness, justice, truthfulness, and social responsibility.
Just complying with a wider range of requirements, laws, and regulations cannot cover every
ethical situation that executives, managers, HR professionals, and employees will face. Yet,
having all the elements of an ethics program may not prevent individual managers or executives
from engaging in or failing to report unethical behavior. Even HR staff members may be
reluctant to report ethics concerns, primarily because of fears that doing so may affect their
current and future employment.
Critical for guiding ethical decisions and behavior is training. Firms such as Best Buy,
Caterpillar, and others have training for all employees via the Internet or in person. How to
address difficult and conflicting situations is part of effective HR management training efforts.
To help HR professionals deal with ethical issues, the Society for Human Resource Management
has developed a code of ethics for its members and provides information on handling ethical
issues and policies.

F I G U R E: Examples of HR-Related Ethical Misconduct Activities

Managing HR in Organizations

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In a real sense, every manager in an organization is an HR manager. Sales managers, head
nurses, drafting supervisors, college deans, and accounting supervisors all engage in HR
management, and their effectiveness depends in part on the success of organizational HR
systems. However, it is unrealistic to expect a nursing supervisor or an engineering manager to
know about the nuances of equal employment regulations or how to design and administer a
compensation and benefits system. For that reason, many organizations have people in an HR
department who specialize in these activities, but HR in smaller organizations may be somewhat
different.

Smaller Organizations and HR Management

Worldwide, small businesses employ more than 50% of all private-sector employees and
generate new jobs each year. In surveys over several years by the U.S. Small Business
Association (SBA), the issues identified as significant concerns in small organizations were
consistent: having sufficient numbers of qualified workers, the rapidly increasing costs of
benefits, rising taxes, and compliance with government regulations. Notice these concerns have
an HR focus, especially when governmental compliance with wage/hour, safety, equal
employment, and other regulations are considered. HR efforts through recruiting, employee
empowerment, and training have been found to contribute positively to sales growth in various
small service industry firms. As a result, for many smaller organizations, HR issues are often
significant.

However, not every small organization is able to maintain an HR department. In a company with
an owner and only three employees, the owner usually takes care of HR issues. As an
organization grows, often a clerical employee is added to handle payroll, benefits, and required
HR recordkeeping.
If new employees are hired, supervisors and managers usually do the recruiting, selecting, and
training. These HR activities reduce the time that supervisors and managers have to focus on
operations, sales and marketing, accounting, and other business areas. Thus, for both small and
large employers, numerous HR activities are being outsourced to specialized vendors. Typically,
at 80 to 100 employees, an organization will need to designate a person to specialize in HR
management. Other HR jobs are added as the company gets larger and as HR technology
increasingly becomes available for small- and medium-sized organizations.

HR Cooperation with Operating and Line Managers

In departments such as accounting, network technology, operations, customer service, and
others, cooperation between line and operating managers, supervisors, executives, and HR staff
is necessary for HR efforts to succeed. In many cases, the HR professionals and staff members
design processes and systems that the operating managers must help implement. The exact
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division of labor between HR and other departments varies from organization to organization.

How HR Is Seen in Organizations

For a number of years, HR departments and individuals have been viewed in different ways, both
positive and negative. HR management is necessary, especially due to the huge number of
government regulations enacted over the past decades. However, the role of protecting corporate
assets against the many legal issues often puts HR management in an enforcement role that may
be seen as restrictive and administratively focused.

Negative Views of HR The legal compliance role and other administrative aspects of HR staff
can create conflicting views. The negative perception by some employees, managers, and
executives is that HR departments and personnel are too bureaucratic, too administratively
focused, too detail-oriented, too costly, and not effective change agents. Various authors have
referred to HR departments as “dinosaurs” or “gatekeepers” who build silos and resist changes.
These critics do not see HR as making significant organizational contributions. Unfortunately,
these views are accurate in some HR departments. Those HR departments concern themselves
with the “administrivia” of personnel policies and practices—which companies are increasingly
outsourcing to contractors who can do these tasks more cheaply and efficiently.

Frequently, HR managers are seen as being more concerned about activities than results, and HR
efforts as too seldom linking to employee, managerial, and business performance organizational
metrics. As would be expected, numerous HR professionals have criticized these views as being
too negative and not what HR is actually doing in many organizations.

Positive, Contributing Views of HR Despite many criticisms, HR can be respected if done well
and truly brought into the realm of business strategy. HR can and should be a special part of any
organization, which means viewing the people and their talents as an opportunity for creating
greater organizational competitive advantages. That is why HR in many organizations has
recognized the need to change even more to overcome the negative images.

Economic, global, workforce, and other aspects are increasingly creating challenging practices
for HR professionals. Key for a more positive view is for HR to expand as a business
contributor, as will be highlighted in the following sections. One leader in creating this view,
among others, has been Dave Ulrich. He and other advocates have emphasized that HR needs to
become more of a change agent and shift positively how HR impacts organizations.

HR Management Roles

Several roles can be fulfilled by HR management. The nature and extent of these roles depend on
pg. 19
both what upper management wants HR management to do and what competencies the HR staff
have demonstrated. Three roles are typically identified for HR. The focus of each of them, as
shown in the following figure:
• Administrative: Focusing on clerical administration and recordkeeping, including essential
legal paperwork and policy implementation.
• Operational and employee advocate: Managing most HR activities in line with the strategies
and operations that have been identified by management and serving as employee “champion”
for employee issues and concerns.
• Strategic: Helping to define the strategy relative to human capital and its contribution to
organizational results.

The administrative role traditionally has been the dominant role for HR. However, as the figure
indicates, a broader transformation in HR is needed so that significantly less HR time and fewer
HR staff are used just for clerical administration.

F I G U R E: Roles of HR Management

The emphasis on the operational and employee advocate role is growing in most organizations.
The greatest challenge is for more strategic HR management. The biggest barriers to HR
becoming more strategic, according to one study, are transaction of administrative tasks (42%),
lack of strategic HR involvement (31%), and insufficient HR budgets (22%). A closer look
at each of the HR roles and how these roles are being transformed follows.

Administrative Role of HR
The administrative role of HR management has been heavily oriented to processing and
recordkeeping. This role has given HR management in some organizations the reputation of
being staffed by paper shufflers who primarily tell managers and employees what cannot be
done. If limited to the administrative role, HR staff are seen primarily as clerical and lower-level
administrative aides to the organization. Two major shifts driving the transformation of the
administrative role are greater use of technology and outsourcing.

Technology Transforming HR To improve the administrative efficiency of HR and the

pg. 20
responsiveness of HR to employees and managers, more HR functions are becoming available
electronically or are being done on the Internet using Web-based technology. Technology is
being used in most HR activities, from employment applications and employee benefits
enrollments to e-learning using Internet-based resources.

Outsourcing of HR Increasingly, many HR administrative functions are being outsourced to

vendors. This outsourcing of HR administrative activities has grown dramatically in HR areas
such as employee assistance (counseling), retirement planning, benefits administration, payroll
services, and outplacement services. The primary reasons why HR functions are outsourced are
to save money on HR staffing, to take advantage of specialized vendor expertise and technology,
and to be able to focus on more strategic HR activities. Such contracting for HR services is an
evolving practice that continues to change the administrative HR functions for many employers.

Operational and Employee Advocate Role for HR

HR often has been viewed as the “employee advocate” in organizations. As the voice for
employee concerns, HR professionals traditionally may serve as “company morale officers,” but
they spend considerable time on HR “crisis management,” dealing with employee problems that
are both work-related and not work-related. Employee advocacy helps ensure fair and equitable
treatment for employees regardless of personal background or circumstances.

Sometimes the HR advocate role may create conflict with operating managers. However, without
the HR advocate role, employers could face even more lawsuits and regulatory complaints than
they do now. The operational role requires HR professionals to cooperate with various
departmental and operating managers and supervisors, to identify and implement needed
programs and policies in the organization. Operational activities are tactical in nature.
Compliance with equal employment opportunity and other laws is ensured, employment
applications are processed, current openings are filled through interviews, supervisors are
trained, safety problems are resolved, and wage and benefit questions are answered. These
efforts require matching HR activities with the strategies of the organization.

Strategic Role for HR

Differences between the operational and strategic roles exist in a number of HR areas. The
strategic HR role means that HR professionals are proactive in addressing business realities and
focusing on future business needs, such as strategic planning, compensation strategies, the
performance of HR, and measuring its results. However, HR often does not help formulate
strategies for the organization as a whole; instead it merely carries them out through HR
activities.
Many executives, managers, and HR professionals are increasingly seeing the need for HR
management to become a greater strategic contributor to the “business” success of organizations.
Even not-for-profit organizations, such as governmental and social service entities, must manage

pg. 21
their human resources in a business-oriented manner. In fact, it has been suggested that the HR
function should be managed as its own business. Therefore, a large number of senior HR
executives are selected from outside HR experience. Doing this means that these individuals
have a business focus, not just HR experience.

HR should be responsible for knowing what the true cost of human capital is for an employer.
For example, it may cost two times key employees’ annual salaries to replace them if they leave.
Turnover is something HR can help control, and if it is successful in saving the company money
with good retention and talent management strategies, those may be important contributions to
the bottom line of organizational performance.

“Contributing at the Table” The role of HR as a strategic business partner is often described as
“having a seat at the table,” and contributing to the strategic directions and success of the
organization. That means HR is involved in devising strategy in addition to implementing
strategy. Part of HR’s contribution is to have financial expertise and to produce financial results,
not just employee morale or administrative efficiencies. Therefore, a significant concern for chief
financial officers (CFOs) is whether HR executives are equipped to help plan and meet financial
requirements.
However, even though this strategic role of HR is recognized, many organizations still need to
make significant progress toward fulfilling it. Some examples of areas where strategic
contributions can be made by HR are:
• Evaluating mergers and acquisitions for organizational “compatibility,” structural changes, and
staffing needs
• Conducting workforce planning to anticipate the retirement of employees at all levels and
identify workforce expansion in organizational strategic plans
• Leading site selection efforts for new facilities or transferring operations to international
outsourcing locations based on workforce needs
• Instituting HR management systems to reduce administrative time, equipment, and staff by
using HR technology
• Working with executives to develop a revised sales compensation and incentives plan as new
products or services are rolled out to customers

HR Management Competencies and Careers

As HR management becomes more complex, greater demands are placed on individuals who
make HR their career specialty. Despite the HR criticism and concerns mentioned earlier, a
significant number of individuals have made HR their career field. Even readers of this book
who do not become HR managers and professionals will find it useful to know about the
competencies required for effective HR management.

HR Competencies
pg. 22
The transformation of HR toward being more strategic has implications for the competencies
needed by HR professionals. Views of HR have changed over the years as the needed
competencies and the results have differed. Research has indicated that HR professionals at all
levels need the following:
• Strategic knowledge and impact means
• Legal, administrative, and operational capabilities
• Technology knowledge and usage abilities

Senior HR leaders may need additional capabilities and competencies. According to an overview
from a SHRM study, senior HR leaders also need:
(a) more business, strategic, HR, and organizational knowledge; (b) ability to lead changes due
to credibility; and (c) ethical behavior and results orientation/performance.

For individuals with HR as their career, these competencies help establish their value as
professional resources. The changes in organizations and the workforce mean that HR as a career
field is being altered and will continue to require more efforts by HR professionals at all levels.

HR Management as a Career Field

A variety of jobs exists within the HR career field, ranging from executive to clerical. As an
employer grows large enough to need someone to focus primarily on HR activities, the role of
the HR generalist emerges—that is, a person who has responsibility for performing a variety of
HR activities. Further growth leads to the addition of HR specialists, or individuals who have in-
depth knowledge and expertise in limited areas of HR. The most common areas of HR specialty,
in order of frequency, are benefits, employment and recruitment, and compensation.

HR jobs can be found in corporate headquarters as well as in field and subsidiary operations. A
compensation analyst or HR director might be found at a corporate headquarters. An
employment manager for a manufacturing plant and a European HR manager for a global food
company are examples of field and subsidiary HR professionals. The two types of jobs have
different career appeals and challenges, which may affect the recruiting, selection, promotions,
and development of individuals.

HR Professionalism and Certification

Depending on the job, HR professionals may need considerable knowledge about employment
regulations, finance, tax law, statistics, and information systems. In most cases, they also need
extensive knowledge about specific HR activities. The broad range of issues faced by HR
professionals has made involvement in professional associations and organizations important.

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 Personnel
Management Association (IPMA). Two other prominent specialized HR organizations are the

pg. 23
World-at-Work Association and the American Society for Training and Development (ASTD).

One characteristic of a professional field is having a means to certify that members have the
knowledge and competence needed in the profession. The CPA for accountants and the CLU for
life insurance underwriters are examples. Certification can be valuable to individuals and useful
to employers as they select and promote certified individuals. The most well-known certification
programs for HR generalists are administered by the Human Resource Certification Institute
(HRCI), which is affiliated with SHRM. More than 100,000 professionals have an HRCI
certification.

HRCI Certification The most widely known HR certifications are the Professional in Human
Resources (PHR) and the Senior Professional in Human Resources (SPHR), both sponsored by
HRCI. Annually, thousands of individuals take the certification exams. HRCI also sponsors a
Global Professional in Human Resources (GPHR) certification. Eligibility requirements for
PHR, SPHR, and GPHR certifications have been updated. Additionally, eligible individuals must
pass the appropriate exam.

Certification from HRCI also exists for global HR professionals in the GPHR. Global
certification recognizes the growth in HR responsibilities in organizations throughout the world
and covers appropriate global HR subject areas noted through SHRM.

International HRM defined

International HRM is the process of managing people across international boundaries by

multinational companies. It involves the worldwide management of people, not just the
management of expatriates. Companies that function globally comprise international and
multinational firms. International firms are those where operations take place in subsidiaries
overseas which rely on the business expertise or manufacturing capacity of the parent company;
they may be highly centralized with tight controls. Multinational firms are ones in which a
number of businesses in different countries are managed as a whole from the center; the degree
of autonomy they have will vary.

Issues in international HRM

There are a number of issues that specifically affect the practice of international as distinct from
domestic HRM. These issues comprise the impact of globalization, the influence of
environmental and cultural differences, the extent to which HRM policy and practice should vary
in different countries (convergence or divergence), and the approaches used to employ and
manage expatriates.

1. Globalization
pg. 24
Globalization is the process of international economic integration in worldwide markets. It
involves the development of single international markets for goods or services accompanied by
an accelerated growth in world trade.

Any company that has economic interests or activities extending across a number of international
boundaries is a global company. This involves a number of issues not present when the activities
of the firm are confined to one country. Globalization requires organizations to move people,
ideas, products and information around the world to meet local needs.

2. Environmental differences

Environmental differences between countries have to be taken into account in managing

globally. These include differences in the centrality of markets, institutions, regulation, collective
bargaining and labor-force characteristics.

The following HR areas may be affected by national culture:

 decisions of what makes an effective manager;

 giving face-to-face feedback;

 readiness to accept international assignments;

 pay systems and different concepts of social justice;

 approaches to organizational structuring and strategic dynamics.

3. Convergence and divergence

Effectiveness of global HRM depends on ‘the ability to judge the extent to which an organization
should implement similar practices across the world (convergence) or adapt them to suit local
conditions (divergence)’. The dilemma facing all multinational corporations is that of achieving
a balance between international consistency and local autonomy. Thy have to decide on the
extent to which their HR policies should either ‘converge’ worldwide to be basically the same in
each location, or ‘diverge’ to be differentiated in response to local requirements.

4. Global staffing

The term global staffing can be defined as the critical issues faced by multinational corporations

pg. 25
when filing key positions in their headquarters and subsidiary operations. The choice is from
parent company nationals, host country nationals (employees from the subsidiary location) and
third country nationals (employees from a country other than the home or host country). They go
on to say that an appropriate mix of these can impact significantly on the multinational
enterprise’s ability to achieve learning, innovation and corporate integration.

The research conducted by Brewster et al (2005) identified three processes that constitute global
HRM: talent management/employee branding, international assignments management, and
managing an international workforce. Thy found that organizations such as Rolls Royce had set
up centers of excellence operating on a global basis. Thy observed that global HR professionals
are acting as the guardians of culture, operating global values and systems. While global HR
policies in such areas as talent management, performance management and reward may be
developed, communicated and supported by centers of excellence, often through global
networking, a fair degree of freedom has frequently been allowed to local management to adopt
their own practices in accordance with the local context as long as in principle these are
consistent with global policies.

5. Managing expatriates

Expatriates are people working overseas on long-or short-term contracts, who can be nationals of
the parent company or ‘third country nationals’ (TCNs).
The management of expatriates is a major factor determining success or failure in an
international business. Expatriates are expensive; they can cost three or four times as much as the
employment of the same individual at home. Thy can be difficult to manage because of the
problems associated with adapting to and working in unfamiliar environments, concerns about
their development and careers, difficulties encountered when they re-enter their parent company
after an overseas assignment, and how they should be remunerated.

Chapter Two: Human Resource Management Environment

2.1 A Diagnostic Approach to Human Resource Management

The diagnostic approach includes four specific steps to be taken by managers: (1) diagnosis, (2)
prescription, (3) implementation, and (4) evaluation. Managers typically diagnose a work
situation by observing and identifying the key factors. For example, why are some employees
always late for work? Using a diagnostic approach to answer the question will show how the four
steps are applied. Over a period of time, these employees have acquired a reputation for being
pg. 26
late. Being late would, of course, be observed; the crucial question is why. There may be
personal reasons, job-related reasons, or some other kinds of explanation. Various management
and HR theories may help the manager diagnose employees’ tardiness and other HRM problems
or issues. Also many observational techniques such as interviews, surveys, or group meetings
can be used to diagnose such HRM issues.

Suppose that the diagnosis indicated that an employee called Almaz is dissatisfied with her job.
Therefore, a solution might be to find Almaz a more suitable job. If, however, it was determined
that Almaz had a substance abuse problem, then a different prescription would be needed to
correct the behavior. Most HR problems have no single correct prescriptions, because of the
complexity of behaviors, emotions, and attitudes. Solutions to a problem may range from
changing the design of a job to altering the performance of evaluation system providing training
to changing the compensation system for the job. Familiarity with a full range of ways to address
a problem is a valuable contribution that HRM experts can make. There are many different HRM
programs and techniques for managers to consider in addressing a problem.
Implementing a solution is the next step in the diagnostic approach. Changing the way Almaz is
compensated may correct the problem. However, can a compensation system only for Almaz’s
use be implemented? Deciding when, how, and whether a solution can be implemented is a
complex set of considerations that managers face.

Finally, any solution that is implemented must be evaluated. Has Almaz’s problem been
corrected? Evaluation tells managers how and whether to improve the diagnosis, prescription,
and implementation steps.

2.2 External Environment of HRM

Any HRM program or activity in an organization is influenced by and influences the external
environment (outside the organization) and internal environment (inside the organization).
External environmental influences include government laws and regulations, union procedures
and requirements, economic conditions, a nation’s competitiveness, composition and diversity of
the labor force, and geographic location of the organization.
Government Law and Regulations
A powerful external environment influence is government law and regulations, which affect
organizations directly. Government regulations influence HRM activities, policies, and
programs. When an organization makes decisions about hiring, promotion, managing diversity,
performance evaluation, downsizing, and discipline, it must weigh the impact of government
regulations.
The government regulates and influences some aspects of HRM more directly than others. Major
areas of legislation and regulation include:
pg. 27
 1. Equal employment opportunity (EEO) and human rights legislation, which directly
affects recruiting, selection, evaluation, and promotion, and indirectly affects
employment planning, orientation, career planning, training, and development.
2. Discrimination based on sex, age, and disability.

3. Compensation regulation, which affects pay, hours of work, unemployment, and similar
conditions.

4. Benefits regulation, which affects pensions and retirement.

5. Workers’ compensation and safety laws, which affect health and safety.

6. Labor relations laws and regulations, which affect the conduct of collective bargaining.

7. Privacy laws.

In sum, almost no HRM decisions remain unaffected by government.

The Union
The presence of a union directly affects most aspects of HRM, including recruitment, selection,
performance evaluation, promotion, compensation, and benefits, among others.
A union is an organization that represents the interests of employees on such issues as working
conditions, wages and salaries, fringe benefits, employees’ rights, grievance processes, and work
hours.
Economic Conditions
Two aspects of economic conditions affect HRM programs: productivity and the work sector of
the organization.
Productivity: Productivity of employees is an important part of a nation’s general economic
condition. Managers are concerned with productivity because they feel it is a representative
indicator of the overall efficiency of an organization. Productivity is defined as output of goods
and services per unit of input of resources used in a production process. Inputs, as applied in the
measurement of productivity, are expressions of the physical or dollar amount of several
elements used in producing a good or a service, including labor, capital, materials, fuel, and
energy.

Before productivity can be effectively managed and improved, it must be measured. This can be
done by isolating the outputs—division by division, department by department, work team by
work team, individual by individual, product line by product line. Next, the costs that went into
producing the output must be determined, including labor (salaries, bonuses, and fringes),
heating, lighting, and capital. Then, using the previous year as a baseline period, the manager
must compare the current year’s figures with those of the previous year. Some period of

pg. 28
comparison is needed to make necessary adjustments. While improving productivity is a worthy
goal, managers should lay the groundwork for measuring and monitoring productivity before
they rush into changes.

Some suggested solutions for increasing productivity include reducing government controls,
developing more favorable income tax incentives to invest in new plants and equipment, and
reindustrializing the entire business-industrial complex (such as plants and equipment). On the
other hand, the managers can influence productivity by the sound application of HRM programs.
Specific activities and practices can improve individual performance and consequently
organizational productivity. Through diagnosis, prescription, implementation, and evaluation
managers can help employees achieve their optimum level of productivity. Also, recruitment
and selection techniques can be used to attract and hire the best performers. Motivational and
compensation techniques can be used to retain employees and improve job performance.
Training and development can improve job performance or rectify deficiencies in skill and
competency, in turn increasing performance. Productivity problems will not be solved without
utilizing HRM activities. Every HRM activity can affect productivity. Thus, productivity
pressure from the external environment directly and indirectly affects an organization’s HRM
programs.
The work sector of the organization: Professional HRM specialists work in private sector,
public sector, or the third sector. The private sector consists of businesses owned by individuals,
families, and stockholders. The public sector is that part of the economy owned and operated by
the government. Other institutions that are neither governmental nor profit-oriented constitute the
third sector. Examples of these institutions are museums, private schools and colleges, not-for-
profit hospitals, and voluntary organizations such as churches and social clubs.

HRM in the public sector is fundamentally different from HRM in the other two sectors because
it varies structurally. The public manager faces a different world; in fact, a manager who moves
from the private or third sector to the public sector will find the HRM role much more
complicated. HRM in the public sector generally is under much more direct outside pressure.
Politicians, the general public, pressure groups, and reporters influence the HR manager much
more in the public sector than in private business or the third sector.

Competitiveness
At the macroeconomic level, the term competitiveness is defined as the degree to which a nation
can, under free and fair market conditions, produce goods and services that meet the test of
international markets while simultaneously maintaining or expanding the real incomes of its
citizens.
At the organization level, competitiveness is an important issue. How effectively do the workers
produce the product? How good is the quality of the services or goods provided? Can employees
handle new technology and produce the product at lower costs? Does the firm have the human

pg. 29
resources needed to increase the size of the manufacturing facility to handle global demand? Will
the push to work harder and faster raise turnover, absenteeism, and the number of defects?

The way organizations implement and modify their HRM activities can provide them with
competitive advantages. A competitive advantage is defined as having a superior marketplace
position relative to competitors. Sustainable competitive advantage requires a firm to deal
effectively with employees, customers, suppliers, and all competitors. If a firm has a strong
culture noted for the fair, equitable, and productive treatment of human resources it will be less
susceptible to losing all or any of its competitive advantage. Certainly, a few HRM activities can
be copied, but the imitation of an entire culture and system of HRM is extremely difficult.

Composition and Diversity of the Labor Force

The composition of employees in terms of sex, age, ethnicity, race, and other diversity issues has
a direct and an indirect influence on HRM practices and programs of an organization.

Geographic Location of the Organization

The location of the organization influences the kinds of people it hires and the HRM activities it
conducts. A hospital, plant, university, or government bureau located in a rural area confronts
different conditions than one located in an urban area. For example, the workforce in a rural area
might be more willing to accept a bureaucratic organization style. Recruiting and selection in
rural areas will be different in that there may be fewer applicants. Yet the organization may find
a larger proportion of hirable workers ingrained with the work ethic.
An urban location might be advantageous for recruiting and holding professional workers. Urban
locations provide a bigger labor force but generally call for higher wages.
Geographic location, therefore, influences the kinds of workers available to staff the
organization. The location or setting is extremely significant for companies operating in other
countries. The employees may speak a different language, practice different religions, have
different attitudes toward work, and so on.

2.3 Internal Environment of HRM

The internal environmental influences involve characteristics and factors that are found within
the organization, including strategy, goals, organization culture, nature of task, work group, and
leader’s style and experience.
Strategy
A strategy indicates what an organization’s key executives hope to accomplish in the long run.
As a plan, a strategy takes the firm into the area of competition in the environment and into
alignment with the resources of the form. For example, Apple Computer’s early success was due
to high alignment of its strategy, structure, people, and management. People were “empowered

pg. 30
through Apple technology.” The Apple workforce believed that the company’s technology and
ideas were superior to all others. But then competitors and deviation from a high-end technology
strategy resulted in protest, discontent, and political infighting. Apple did not adapt, and it lost
profit margin and had to lay off large numbers of employees.

Goals
The goals of organizations differ within and among departments. All departments probably have
goals that include employee satisfaction, survival, and adaptability to change. The differences
arise in the importance the decision makers place on the different goals. In some organizations,
profit is of such major importance that other goals, such as increased employee satisfaction, are
not well developed. In these organizations where profits take precedence, HRM goals involving
the human resources are paid only minimal attention. The result of such negligence is typically
problems in the form of high absenteeism, performance decrements, high grievance rates, and so
on. In other organizations, HRM related goals are highly regarded by decision makers. Thus,
how much the HRM function is valued and how it is implemented are affected by these goals.

Organization Culture
Organization culture refers to a system of shared meaning held by members that distinguishes the
organization from other organizations. Organization culture represents the perceptions held by
the organization’s employees. Is there a sense of shared value? Is a common value system held
by employees? These are the kinds of questions asked to arrive at a picture of the firm’s culture.

Culture can have an impact on the behavior, productivity, and expectations of employees. It
provides a benchmark of the standards of performance among employees. For example, it can
provide clear guidelines on attendance, punctuality, concern about quality, and customer service.

Nature of the Task

Many experts believe that the task to be performed is one of the two most vital factors affecting
HRM. They describe HRM as the effective matching of the nature of the task (job) with the
nature of the employee performing the task.
There are perhaps unlimited similarities and differences among jobs that attract or repel workers
and influence the meaning of work for them. Some of the most significant are the following:
Degree of knowledge and ability to use information technology: Advantages in informational and
computer technology have resulted in a need for employees with the skill to use these
technologies. Instead of physical lifting and moving as requirements of a task, the use of
“knowledge skills” has become significant. “Knowledge workers” are now expected to plan,
decide, and solve problems using databases, computer programs, and other technology-driven
information sources (e.g., Internet and Intranet).

Degree of empowerment: Empowering employees to complete job tasks means that power or
authority to make relevant and meaningful decisions is delegated. In fact, the empowered worker

pg. 31
can complete his or her job task because he or she has information, knowledge, and power.

Degree of physical exertion required: Most people prefer work involving minimal physical
exertion. Some companies believe that working with the mind is better for curing productivity
problems than working with the back.
Degree of environmental unpleasantness: Contrast the environment of a coal miner with that of a
bank teller. People generally prefer physically pleasant and safe conditions.

Physical location of work: Some jobs require outside work; others, inside work. Some jobs
require the employee to stay in one place. Others permit moving about. Contrast the job of an
employee on an assembly line with that of a traveling sales representative. There are individual
differences in preference for physical location.

Time dimension of work: Some jobs require short periods of intense effort; others require long
hours of less taxing work.
Human interaction on the job: Some jobs require interaction with others.
Degree of variety in the task: The amount of freedom and responsibility a person has on the job
determines the degree of autonomy provided for in the work. Contrast the autonomy of a college
professor with that of an assembly-line worker.
Task identity: The degree of wholeness in a job—the feeling of completing a whole job as
opposed to contributing to only a portion of a job—is its task identity. Contrast the job of an auto
assembler with that of a tax accountant.

Task differences and job design: Because jobs are not created by nature engineers and specialists
can create jobs with varying attention to the characteristics described here.

How do these task factors affect HRM-type decisions? They obviously affect recruiting and
selection, since employees will probably be more satisfied and productive if their preferences are
met. Few jobs match all preferences exactly. With jobs that are difficult, dirty, or in smoky or hot
environments, the manager must provide additional incentives (more pay, shorter hours, or
priority in vacations) because few people prefer such jobs. Or the manager may try to find
employees who can handle the conditions better.

Work Group
Groups play a major role in the life of an individual. You probably belong to family, friendship,
and student groups. Once a person joins an organization, his or her experiences are largely
influenced by a work group.
A work group consists of two or more people who consider themselves a group, who are
interdependent with one another for the accomplishment of a purpose, and who communicate
and interact with one another on a more or less continuous basis.

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Work groups are directly related to the success of HRM activities. If a work group opposes HRM
programs, it can ruin them. Examples of programs that can be successes or failure depending on
the support or resistance they receive from work groups include incentive compensation, profit
sharing, safety, and labor relations. Operational and HR managers who desire success in such
programs should at least consider permitting work-group participation in designing and
implementing HRM.

Leader’s Style and Experience

The experience and leadership style of the operating manager or leader directly affect HRM
activities because many, if not most, programs must be implemented at the work-unit level.
Thus, the operating manager or leader is a crucial link in the HRM function.

Leaders must orchestrate the distinctive skills, experiences, personalities, and motives of
individuals. Leaders also must facilitate the interactions that occur within work groups. In his or
her role, a leader provides direction, encouragement, and authority to evoke desired behaviors. In
addition, leaders reinforce desirable behavior so that it it is sustained and enhanced. The leader is
an important source of knowledge about the tasks, the organization, and the HRM policies,
programs, and goals. The experience and operating style of a leader will influence which HRM
programs are communicated, implemented, and effective.

2.4 Strategic Challenges Facing HRM

There are a number of challenges facing the field of HRM today. Global competition
(globalization), technological advances, diversity of workforce, the nature of work, caliber of the
workforce, and organizational restructuring and downsizing are some of these challenges. In
order to address these challenges HRM practitioners are being asked to utilize the human assets
of the firm more effectively. Failure to do so will probably mean that the firm cannot compete in
the globally interconnected world.

Globalization: Globalization refers to the tendency of firms to extend their sales, ownership,
and/or manufacturing to new markets abroad. Globalization has strategic implications. Firms that
once competed only with local firms, now face foreign competitors. As on expert put it, “The
bottom line is that the growing integration of the world economy into a single, huge marketplace
is increasing the intensity of competition in a wide range of manufacturing and service
industries. Global competition has become so intense that HRM professionals are now being
asked by their firms to optimize the skills, talents, and creativity of every employee. More
globalization means more competition, and more competition means more pressure to improve—
to lower costs, to make employees more productive, and to find new ways to do things better and
less expensively.

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Technological advances: The much heralded “information age” has arrived swiftly. Its arrival
has impacted jobs, the way business is conducted, and the need for more knowledge workers.
The trends of the technology revolution are recognizable as the following:

1. Growth in knowledge needs: World trade is growing over three times faster in
knowledge-intensive goods and services such as biomedicine, robots, and engineering.
2. Shift in human competencies: Some predict that by 2015 almost all net employment
growth will be in knowledge workers.

3. Global market connection: Technology is dissolving borders and creating an

interconnected marketplace.

4. Business streamlining: Easy to use communication, electronic mail, electronic

conferencing, and databases are creating instantaneous dissemination of data to make
better decisions to geographically dispersed workers.

5. Rapid response: Technology permits quick communications, which allows faster decision
making.

6. Quicker innovation: Teams of marketing, engineering, and production personnel working

in parallel with computer provided files, data, and information develop products faster.
Every stage—product conception, design, development, and manufacturing—is
accredited through the use of electronic technology resources.

7. Quality improvement: The concept of building quality into the entire process of making,
marketing, and servicing is enhanced by computer monitoring systems and through
robotics.

8. Industrial revolution: Prior to the Industrial Revolution most people worked either close
to or in their homes. However, mass production technologies changed this and people
began to travel to work location or factories. Today, with increased computer technology,
there is a move for many to work from their homes, or engage in what is referred to as
telework or telecommuting. Telecommuting raises a number of HRM issues that need to
be answered, such as how will performance be monitored; how should telecommuters be
rewarded; how can telecommuters be made to feel like they are part of the team; and how
can telecommuters be mentored.

Workforce Diversity: The changing look, age, and needs of the workforce have resulted in
more concern about child care, elder care, and training in understanding diversity. Improved
understanding of diversity (differences and similarities) also seems to be an obvious need, yet

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most firms fail to invest the time, resources, and energy needed to become “diversity-friendly.”
Diversity-friendly strategies can have a significant impact on end results, such as being
considered socially responsible and earning a favorable return on the products and services
provided to consumers.

Workforce diversity is a reality that influences every HRM area and issue from strategic
planning to recruitment to training to health. There is a steadily growing body of empirical
evidence that managing diversity is becoming a necessary part of the job responsibilities of
managers. There is no one best way or best formula available with regard to managing the
increasing diversity of the workforce. However, there is likely to be increased demand to find
fair, ethical, and prompt ways to manage diversity.

Caliber of the workforce: Recruiting and developing skilled labor is important for any
company concerned about competitiveness, productivity, quality, and managing a diverse
workforce effectively. Since a growing number of jobs will require more education and higher
levels of language, math, and reasoning skills than current ones, HRM practitioners and
specialists will have to communicate this to educators, parents, and community leaders. A
shortage of skilled talent can damage any firm’s competitive position. Strategic HR planning
models will have to carefully weigh deficiencies in skills and shortages of skills.

The “skills gap” must be faced not only by HRM. In fact, the entire society will have to face the
consequences of not having the workforce needed to compete in the global economy. Strategic
planning to reduce the skills gap in a firm’s workforce, however, is a serious issue facing HRM.

Organizational restructuring and downsizing: Restructuring means changing the reporting

and authority relationships within a firm. In restructuring, a layer of a firm’s hierarchy may be
eliminated, reporting relationships may be changed, or a new subsidiary may be created to
conduct business in a new market location.

Downsizing is a term used to designate a reduction in a company’s workforce. Increased

competition, excessive costs, and interest in improving share value will mean that downsizing
will be a fact of life for thousands of firms and millions of workers every year.

Downsizing has a human face in that people are laid off, friends and colleagues are given new
job responsibilities, and feelings of trust and job security are threatened. The emotional impact of
being laid off or of having a colleague laid off can result in stress-related health problems. There
is a growing sense that job security is a thing of the past. Job security has declined as layoffs
spread from industry to industry.

Contingent workers: There are permanent or full-time employees and another category,
referred to as contingent workers. The category of contingent employees includes temporaries,
part-timers, contract or leased workers (outsources), and other individuals who are hired to

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handle extra job tasks or workloads. Contingent employees are becoming a widespread part of
the staffing mix of firms.

Part-timers put in fewer hours than full-time employees. The part-time employee usually
receives fewer fringe benefits and often has a flexible work schedule. A20-hour workweek or
less is often the regular schedule of a part-timer.

Outsourcing is the practice of hiring another firm to complete work that is important and must be
done efficiently. A growing number of firms are outsourcing HRM activities. The outsource firm
provides the employees to complete the job. This type of activity is also called employee leasing.
Outsourcing and employee leasing are options available to firms exploring the full-time, part-
time, and contract opportunities available in staffing jobs and meeting the needs of the company.

2.5 The Legal Aspects of Human Resource Management

2.5.1 Equal employment opportunity (EEO)

The impact of law on HRM is indicative of the development of all laws governing business and
societal activities. Today it is common for patients to sue doctors and consumers to sue
manufacturers of faulty products; children even sue parents for not being supportive and
nurturing. It is in the best interest of the organization for the HRM unit to develop policies and
procedures that comply with the law. The best way to begin studying the relationship between
HRM and the law is to devote time and attention to equal employment opportunity (EEO). No
other regulatory area has so thoroughly affected HRM. EEO has implications for almost every
activity in HRM: hiring, recruiting, training, terminating, compensating, evaluating, planning,
disciplining, and collective bargaining. EEO programs are implemented by employers to prevent
employment discrimination in the workplace or to take remedial action to offset employment
discrimination.
EEO cuts across every HRM activity, and this means that HR officials and managers in every
function of the organization are involved. Top managers must get involved in EEO issues and
programs to make sure that the organization complies with the law, avoids fines, and establishes
a discrimination-free workplace. Operating managers must assist by changing their attitudes
about protected category employees and by helping all employees adjust to the changes EEO
brings to the workplace.

Equal employment opportunity (EEO) is a broad concept holding that individuals should have
equal treatment in all employment-related actions. Individuals who are covered under equal
employment laws are protected from illegal discrimination, which occurs when individuals
having a common characteristic are discriminated against based on that characteristic. Various
laws have been passed to protect individuals who share certain characteristics, such as race, age,
or gender. Those having the designated characteristics are referred to as a protected class or as
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members of a protected group. A protected class is composed of individuals who fall within a
group identified for protection under equal employment laws and regulations. Many of the
protected classes historically have been subjected to illegal discrimination. The following bases
for protection have been identified by various federal laws of the USA:
 Race, ethnic origin, color
 Gender (women, including those who are pregnant)
 Age (individuals over 40)
 Individuals with disabilities (physical or mental)
 Military experience (Vietnam-era veterans)
 Religion (special beliefs and practices)

For instance, suppose a firm that is attempting to comply with EEO regulations has relatively
few Hispanic managers. To increase the number of Hispanics, the firm will take steps to recruit
and interview Hispanics who meet the minimum qualifications for the management jobs. Notice
that what the firm is providing is equal employment opportunity for qualified individuals to be
considered for employment. To remedy areas in which it appears that individuals in protected
classes have not had equal employment opportunities, some employers have developed
affirmative action policies.

How Did EEO Emerge?

The three main factors that led to the development of EEO were (1) changes in societal values;
(2) the economic status of women and minorities; and (3) the emerging role of government
regulation.

2.5.2 Discrimination in the Workplace

When Does Illegal Discrimination Occur?

Equal employment laws and regulations address concerns about discrimination in employment
practices. The word discrimination simply means that differences among items or people are
recognized. Thus, discrimination involves choosing among alternatives. For example, employers
must discriminate (choose) among applicants for a job on the basis of job requirements and
candidates’ qualifications. However, discrimination can be illegal in employment-related
situations in which either: (1) different standards are used to judge different individuals, or (2)
the same standard is used, but it is not related to the individuals’ jobs. When deciding if and
when illegal discrimination has occurred, courts and regulatory agencies have had to consider the
following issues:

 Disparate treatment
 Disparate impact
 Burden of proof
 Business necessity and job relatedness
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  Bona fide occupational qualification
 Retaliation

Disparate Treatment and Disparate Impact

It would seem that the motives or intentions of the employer might enter into the determination
of whether discrimination has occurred—but they do not. It is the outcome of the employer’s
actions, not the intent that will be considered by the regulatory agencies or courts when deciding
if illegal discrimination has occurred. Two concepts used to activate this principle are disparate
treatment and disparate impact.
Disparate treatment occurs when protected-class members are treated differently from others.
For example, if female applicants must take a special skills test not given to male applicants, then
disparate treatment may be occurring. If disparate treatment has occurred, the courts generally
have said that intentional discrimination exists. In other words, intentional discrimination labeled
as disparate treatment occurs when employers apply different standards treatment to different
groups of employees or applicants based upon a protected category.
To prove that intentional discrimination occurred, the person filing the suit (plaintiff) must first
establish a prima facie case proving the following four elements:
1. He or she belongs to a protected class;
2. He or she applied or was considered for a job for which he/she was qualified;
3. He/she suffered an adverse employment action (was not hired, etc.); and
4. The position remained open and the employer continued to seek applicants with
qualifications similar to those of the plaintiff.
Upon establishing a prima facie case, a presumption of employment discrimination is created.
The burden of proof then shifts to the employer (defendant) for rebuttal. The employer may
satisfy its burden of proof at this stage by articulating a legitimate nondiscriminatory reason for
its actions or by proving that the protected category is a “bona fide occupational qualification”
(BFOQ).

Bona Fide Occupational Qualification (BFOQ)

Employers may discriminate on the basis of sex, religion, or national origin if the characteristic
can be justified as a “bona fide occupational qualification reasonably necessary to the normal
operation of the particular business or enterprise.” Thus, a bona fide occupational qualification
(BFOQ) is a legitimate reason why an employer can exclude persons on otherwise illegal bases
of consideration. What constitutes a BFOQ has been subject to different interpretations in
various courts across a country.

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Disparate impact or unintentional discrimination occurs when a facially neutral employment
practice has the effect of disproportionately excluding a group based upon a protected category.
A disparate impact claim is established if the following conditions are met:
1. A complaining party demonstrates that a respondent uses a particular employment
practice that causes a disparate impact on the basis of race, color, religion, sex, or
national origin; and either
2. The respondent fails to demonstrate that the challenged practice is job related for the
position in question and consistent with business necessity; or
3. The respondent refuses to adopt an alternative employment practice.

To demonstrate disparate impact under condition (1) above, a plaintiff must identify a specific
employment practice when possible to separate the employer’s practices, and show that it results
in a significantly higher percentage of a protected group in the available population being
rejected for employment, placement, or promotion. One method of evaluating whether such a
disparity exists is called the four-fifths rule. This rule states that discrimination typically occurs if
the selection rate for one group is less than 80% of the selection rate for another group. Thus, to
avoid adverse impact, if 20 out of 100 majority (nonprotected class) were selected, at least 16
(4/5, or 80% of 20) minority (protected class) applicants should be selected.

Business Necessity and Job Relatedness

A business necessity is a practice necessary for safe and efficient organizational operations.
Business necessity has been the subject of numerous court decisions. Educational requirements
often are based on business necessity. However, an employer who requires a minimum level of
education, such as a high school diploma, must be able to defend the requirement as essential to
the performance of the job. For instance, equating a degree or diploma with the possession of
math or reading abilities is considered questionable. Having a general requirement for a degree
cannot always be justified on the basis of the need for a certain level of ability. All requirements
must be job related, or proven necessary for job performance. Determining and defending the job
relatedness of employment requirements through validation procedures is discussed later in this
chapter.

Burden of Proof
Another legal issue that arises when discrimination is alleged is the determination of which party
has the burden of proof. At issue is what individuals who are filing suit against employers must
prove in order to establish that illegal discrimination has occurred. Based on the evolution of
court decisions, current laws and regulations state that the plaintiff charging discrimination (1)
must be a protected-class member and (2) must prove that disparate impact or disparate treatment
existed. Once a court rules that a prima facie (preliminary) case has been made, the burden of
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proof shifts to the employer. The employer then must show that the bases for making
employment-related decisions were specifically job related and consistent with considerations of
business necessity.
Retaliation
Employers are prohibited by EEO laws from retaliating against individuals who file
discrimination charges. Retaliation occurs when employers take punitive actions against
individuals who exercise their legal rights. For example, an employer was ruled to have engaged
in retaliation when an employee who filed a discrimination charge was assigned undesirable
hours and his work schedule was changed frequently. Various laws, including Title VII of the
Civil Rights Act of 1964, protect individuals who have (1) made a charge, testified, assisted, or
participated in any investigation, proceeding, or hearing” or (2) “opposed any practice made
unlawful. To implement the provisions of the Civil Rights Act of 1964 and the interpretations of
it based on court decisions, the EEOC and other federal agencies developed their own
compliance guidelines and regulations, each agency having a slightly different set of rules and
expectations. Finally, in 1978, the major government agencies involved agreed on a set of
uniform guidelines.

2.5.3 Sexual Harassment in the Workplace

A variety of definitions of sexual harassment exist, but generally sexual harassment refers to
actions that are sexually directed, are unwanted, and subject the worker to adverse employment
conditions or create a hostile work environment. Sexual harassment can occur between a boss
and a subordinate, among coworkers, and when nonemployees have business contacts with
employees.
Because of the increased awareness of sexual harassment resulting from so many events,
employers and individuals affected by sexual harassment are less tolerant of it. However, as
more men and women work together, more voluntary relationships based on affection and
romance develop.

Types of Sexual Harassment

The victims of sexual harassment are more likely to bring charges and take legal actions against
employers and harassing individuals than they were in the past. According to EEOC statistics (in
USA), well over 90% of the sexual harassment charges filed have involved harassment of
women by men. However, some sexual harassment cases have been filed by men against women
managers and supervisors and for same-sex harassment. Two types of sexual harassment are
defined as follows.
Quid pro quo harassment occurs when an employer or supervisor links specific employment
outcomes to the individuals’ granting sexual favors. That means, quid pro quo harassment is the
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exchange of sexual favors for job benefits (e.g., the promise of a salary increase for a private
dinner date).
Employers are always liable for quid pro quo sexual harassment because a supervisor’s acts
involving tangible job detriments are viewed as acts of the employer. The following five
elements must exist for the plaintiff to successfully prove quid pro quo harassment:
1. Plaintiff is a member of a protected class;
2. Plaintiff was subjected to unwelcome sexual harassment in the form of sexual advances
or requests for sexual favors from a supervisor or individual with authority over the
plaintiff;
3. Harassment complained of was based on sex;
4. Submission to the unwelcome advances was an express or implied condition for receiving
some form of job benefits, or refusal to submit to sexual demands resulted in a tangible
job detriment; and
5. Employer knew or should have known of the harassment.

Hostile environment harassment occurs when the harassment has the effect of unreasonably
interfering with work performance or psychological well-being or when intimidating or offensive
working conditions are created. Hostile work environment is the creation of an offensive
working environment. Examples of hostile work environment may include such conducts as
making sexually oriented jokes or comments, displaying sexually oriented calendars or posters,
and touching of a sexual nature.
The distinction between hostile work environment and quid pro quo sexual harassment is
important for determining employer liability. Employers can be liable for hostile work
environment harassment caused by a supervisor, other employees, or by third parties (e.g.,
customers and vendors) if the employer knew or should have known of the harassing conduct
and failed to take appropriate corrective action. Generally, an employer may fulfill its duty to
prevent or remedy hostile work environment harassment by developing an anti-harassment
policy, promptly and thoroughly investigating harassment allegations, and properly disciplining
offenders.

2.5.4 Affirmative Action in Organizations

Affirmative action can be defined as “those actions appropriate to overcome the effects of past
or present practices, policies, or other barriers to equal employment opportunity.” Affirmative
action occurs when employers identify problem areas, set goals, and take positive steps to
guarantee equal employment opportunities for people in a protected class. Affirmative action

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focuses on hiring, training, and promoting of protected-class members where they are
underrepresented in an organization in relation to their availability in the labor markets from
which recruiting occurs. Sometimes employers have instituted affirmative action voluntarily, but
many times employers have been required to do so because of government laws and regulations.

Affirmative action and reverse discrimination When equal employment opportunity

regulations are discussed, probably the most volatile issues concern the view that affirmative
action leads to quotas, preferential selection, and reverse discrimination. At the heart of the
conflict is the employers’ role in selecting, training, and promoting protected-class members
when they are underrepresented in various jobs in an organization. Those who are not members
of any protected class have claimed that there is discrimination in reverse. This reverse
discrimination may exist when a person is denied an opportunity because of preferences given
to a member of a protected class who may be less qualified. Specifically, some critics charge that
“majority employees” such as males are at a disadvantage today, even though they traditionally
have held many of the better jobs. These critics say that the “majority employees” have to “pay
for the sins of their fathers.”
Along with the economic restructuring of many organizations has come a growing backlash
against affirmative action. Some see it as an unfair quota system rather than sound HR
management. Proponents of affirmative action maintain that it is a proactive way for employers
to ensure that protected class members have equal opportunity in all aspects of employment, and
that it is indeed sound management.

Therefore, the most controversial interpretation of affirmative action is that it grants special
treatment to some individuals to the detriment of others. The legality of special treatment
depends in part on whether the affirmative action is involuntary (mandated by law or court-
ordered) or voluntary.

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