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Human Resource
Management: Gaining
aCompetitive Advantage
1
C H A P T E R
LEARNING OBJECTIVES
After reading this chapter, you should be able to:
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Introduction
Competitiveness
A companys ability to
maintain and gain market share in its industry.
Mars Incorporated illustrates the key role that human resource management
(HRM) plays in determining the survival, effectiveness, and competitiveness of
U.S. businesses. Competitiveness refers to a companys ability to maintain and
gain market share in its industry. Mars human resource management practices
are helping support the companys business strategy and provide services the
customer values. The value of a product or service is determined by its quality
and how closely the product fits customer needs.
Competitiveness is related to company effectiveness, which is determined by whether the company satisfies the needs of stakeholders (groups
affected by business practices). Important stakeholders include stockholders,
who want a return on their investment; customers, who want a high-quality
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Employee
relations
Performance
management
Compensation
Training and
development
Selection
Recruiting
HR
planning
Analysis and
design of work
Strategic HRM
Company
Performance
product or service; and employees, who desire interesting work and reasonable compensation for their services. The community, which wants the company to contribute to activities and projects and minimize pollution of the
environment, is also an important stakeholder. Companies that do not meet
stakeholders needs are unlikely to have a competitive advantage over other
firms in their industry.
Human resource management (HRM) refers to the policies, practices, and systems that influence employees behavior, attitudes, and performance. Many companies refer to HRM as involving people practices. Figure1.1 emphasizes that
there are several important HRM practices. The strategy underlying these practices
needs to be considered to maximize their influence on company performance. As
the figure shows, HRM practices include analyzing and designing work, determining human resource needs (HR planning), attracting potential employees (recruiting), choosing employees (selection), teaching employees how to perform their
jobs and preparing them for the future (training and development), rewarding
employees (compensation), evaluating their performance (performance management), and creating a positive work environment (employee relations). The HRM
practices discussed in this chapters opening highlighted how effective HRM
practices support business goals and objectives. That is, effective HRM practices
are strategic! Effective HRM has been shown to enhance company performance by
contributing to employee and customer satisfaction, innovation, productivity, and
development of a favorable reputation in the firms community.1 The potential
role of HRM in company performance has only recently been recognized.
We begin by discussing the roles and skills that a human resource management department and/or managers need for any company to be competitive.
The second section of the chapter identifies the competitive challenges that U.S.
companies currently face, which influence their ability to meet the needs of
shareholders, customers, employees, and other stakeholders. We discuss how
these competitive challenges are influencing HRM. The chapter concludes by
highlighting the HRM practices covered in this book and the ways they help
companies compete.
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Human Resource
Management
(HRM)
Policies, practices,
and systems that
influence employees
behavior, attitudes,
and performance.
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Only recently have companies looked at HRM as a means to contribute to profitability, quality, and other business goals through enhancing and supporting
business operations.
Table 1.1 shows the responsibilities of human resource departments. How
many HR professionals should a company employ? High performing small
companies (fewer than 100 employees) have approximately 6 human resource
staffers per 100 employees, while in high performing large companies with
50,000 employees or more the ratio is 1 HR staffer per 100 employees.2
The HR department is solely responsible for outplacement, labor law compliance, record keeping, testing, unemployment compensation, and some aspects
of benefits administration. The HR department is most likely to collaborate with
other company functions on employment interviewing, performance management and discipline, and efforts to improve quality and productivity. Large
companies are more likely than small ones to employ HR specialists, with benefits specialists being the most prevalent. Other common specializations include
recruitment, compensation, and training and development.3
Many different roles and responsibilities can be performed by the HR department depending on the size of the company, the characteristics of the workforce, the industry, and the value system of company management. The HR
Table 1.1
Responsibilities of HR Departments
FUNCTION
RESPONSIBILITIES
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department may take full responsibility for human resource activities in some
companies, whereas in others it may share the roles and responsibilities with
managers of other departments such as finance, operations, or information technology. In some companies the HR department advises top-level management;
in others the HR department may make decisions regarding staffing, training,
and compensation after top managers have decided relevant business issues.
One way to think about the roles and responsibilities of HR departments
is to consider HR as a business within the company with three product lines.
Figure1.2 shows the three product lines of HR. The first product line, administrative services and transactions, is the traditional product that HR has historically
provided. The newer HR productsbusiness partner services and the strategic
partner roleare the HR functions that top managers want HR to deliver.
For example, at Move Inc., an online real estate company with around 1,000
employees, the chief financial officer and HR leaders work on annual business
plans and budgeting, including decisions about merit pay increases.4 HR used
data to make a business case for not having annual merit increases rather than
emphasizing that merit pay increases had to be given to employees because of
past practice. At Ingersoll Rand, a company with 25,000 employees and operations in more than 60 countries, HR was transformed from just doing traditional HR work such as recruitment, benefits, training, and compensation into
a team of consultants whose job was to work with managers to understand the
issues and problems they faced in managing the companys human capital.5 As
consultants, HR focuses on identifying gaps or barriers preventing employees
and managers from attaining business goals, finding ways to fill the gaps, and
developing and delivering talent management solutions that include drawing
from traditional HR responsibilities but in a problem-focused way. For example,
Ingersoll-Rands business strategy is to grow in emerging markets around the
world. To be successful requires highly talented managers. HR is contributing
to meeting the need for highly talented managers by using workforce planning to determine how many managers are needed and in what locations. HR
Figure 1.2
HR as a Business with Three Product Lines
Administrative Services and
Transactions:
Compensation, hiring,
and stafng
Emphasis: Resource efciency
and service quality
Strategic Partner:
Contributing to business
strategy based on
considerations of human
capital, business capabilities,
readiness, and developing
HR practices as strategic
differentiators
Emphasis: Knowledge of HR
and of the business,
competition, the market,
and business strategies
SOURCE: Adapted from Figure 1, HR Product Lines, in E. E. Lawler, From Human Resource Management to Organizational Effectiveness,
Human Resource Management 44 (2005), pp. 16569.
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Shared service
model
A way to organize
the HR function that
includes centers of
expertise, service
centers, and business
partners.
Self-service
Giving employees
online access to HR
information.
Outsourcing
The practice of having
another company provide services.
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The amount of time that the HRM function devotes to administrative tasks
is decreasing, and its roles as a strategic business partner, change agent, and
employee advocate are increasing.6 HR managers face two important challenges:
shifting their focus from current operations to strategies for the future7 and preparing non-HR managers to develop and implement human resource practices
(recall the role of HR in Mars success from the chapter-opening story). To ensure
that human resources contributes to the companys competitive advantage many
HR departments are organized on the basis of a shared service model. The shared
service model can help control costs and improve the business relevance and
timeliness of HR practices. A shared service model is a way to organize the HR
function that includes centers of expertise or excellence, service centers, and business partners.8 Centers of expertise or excellence include HR specialists in areas
such as staffing or training who provide their services companywide. Service centers are a central place for administrative and transactional tasks such as enrolling in training programs or changing benefits that employees and managers can
access online. Business partners are HR staff members who work with businessunit managers on strategic issues such as creating new compensation plans or
development programs for preparing high-level managers. We will discuss the
shared service model is more detail in Chapter 16.
The role of HRM in administration is decreasing as technology is used for
many administrative purposes, such as managing employee records and allowing employees to get information about and enroll in training, benefits, and
other programs. The availability of the Internet has decreased the HRM role
in maintaining records and providing self-service to employees.9 Self-service
refers to giving employees online access to, or apps which provide, information
about HR issues such as training, benefits, compensation, and contracts; enrolling online in programs and services; and completing online attitude surveys.
Companies that use the services of ADP can download a free mobile app that
enables employees to access their payroll and benefits information.10 Employees can use the app to fill out their time sheet or look up their retirement plan
contributions and balance. The app can also be used by companies to deliver
news to employees or offer a directory with contact information. Watson Pharmaceuticals has developed an app for its corporate university, allowing pharmaceutical representatives to access training videos and product knowledge
from their iPhones.11
Many companies are also contracting with human resource service providers to conduct important but administrative human resource functions such as
payroll processing, as well as to provide expertise in strategically important
practice areas such as recruiting. Outsourcing refers to the practice of having another company (a vendor, third party or consultant) provide services.
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Table 1.2
Questions to
Ask: Are Human
Resources Playing a
Strategic Role in the
Business?
1.
2.
3.
4.
5.
6.
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Evidence-Based HR
Demonstrating that
human resource
practices have a positive influence on the
companys bottom
line or key stakeholders (employees, customers, community,
shareholders).
HR or Workforce
Analytics
The practice of using
data from HR databases and other data
sources to make
evidence-based human
resource decisions.
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Table 1.3
Median Salaries for
HRM Positions
POSITION
SALARY
Top HR Executive
Management Development Manager
Health and Safety Manager
HR Manager
Employee Benefits Manager
Campus Recruiter
Entry-level HRIS Specialist
HR Generalist
Entry-level Employee Training Specialist
Compensation Analyst
Mid-level Labor Relations Specialist
$170,784
108,106
94,422
87,781
87,493
59,371
49,605
49,254
46,504
55,001
70,035
SOURCE: Based on data from Salary Wizard, www.salary.com, accessed March 26, 2013.
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fundamentals such as how the company makes money and who the competition
and customers are. This is necessary to build a business case for HR activities.
Professional certification in HRM is less common than membership in professional associations. A well-rounded educational background will likely serve a
person well in an HRM position. As one HR professional noted, One of the
biggest misconceptions is that it is all warm and fuzzy communications with the
workers. Or that it is creative and involved in making a more congenial atmosphere for people at work. Actually it is both of those some of the time, but most
of the time it is a big mountain of paperwork which calls on a myriad of skills
besides the people type. It is law, accounting, philosophy, and logic as well as
psychology, spirituality, tolerance, and humility.23
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Figure 1.3
Competencies and Example Behaviors for HR Professionals
Example behaviors:
Remains current on
relevant laws, legal
rulings, and regulations;
develops and
utilizes best practices
Example behaviors:
Demonstrates a capacity for
understanding the business operations
and functions within the organization,
understands organizational metrics
and their relationship to business
success.
Business Acumen
Ability to understand business
functions and metrics within
the organization and industry
Example behaviors:
Gathers critical information,
makes sound decisions
based on evaluation of
available information
Critical Evaluation
Skill in interpreting information
to determine return on
investment and organizational
impact in making recommendations
and business decisions
Human Resource
Technical Expertise
and Practice
The ability to apply the
principles of human
resource management
to contribute to the
success of the business
Competencies
for HR
Professionals
Ethical Practice
Integration of core values,
integrity, and accountability
throughout all organizational
and business practices
Example behaviors:
Maintains confidentiality,
acts with personal,
professional, and
behavioral integrity
Example behaviors:
Embraces inclusion,
works effectively with
diverse cultures and
populations
Example behaviors:
Provides customer service to
organizational stakeholders,
insures alignment within HR
when delivering services and
information to the organization
Relationship
Management
The ability to manage
interactions with and
between others with the
specific goal of providing
service and organizational
success
Consultation
Provide guidance to stakeholders
such as employees and leaders
seeking expert advice on a
variety of circumstances and
situations
Organizational Leadership
and Navigation
The ability to direct initiatives
and processes within the
organization and gain buy-in
from stakeholders
Communications
The ability to effectively
exchange and create a free
flow of information with and
among various stakeholders
at all levels of the organization
to produce meaningful outcomes
Example behaviors:
Serves as a workforce
and people management
expert, develops
consultative and
coaching skills
Example behaviors:
Fosters collaboration,
exhibits behaviors consistent
with and conforming to the
organization culture
Example behaviors:
Provides constructive feedback
effectively, helps managers
communicate not just on HR
issues
SOURCE: Based on SHRM Elements for HR Success, Society for Human Resource Management, 2012, accessed from www.shrm.org, March 21, 2013.
sharing among the entire group of team members. Google develops human
resources or key people operations staff through a year-long training program
that includes HR specialist training, a business curriculum, and development
of skills related to working with clients, communicating with senior executives,
and solving business problems. The training is designed for HR employees with
at least two years of experience and is taught by People Operations department employees. Google recruits top MBA program graduates, enticing them
to consider HR because the opportunity to influence change in the company
is greater than is common in other specialty areas and career advancement is
faster. Southwest Airlines was concerned that its HR function had become too
distant from the companys business units. To develop a stronger team of HR
generalists and get them to be valued partners and consultants to operations,
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managers, and other internal customers, Southwest Airlines retrained and relocated HR specialists into the field. Southwest recognizes that to deal with the
fast pace of change in the airline industry HR generalists need to have a continuous improvement philosophy, business savvy, and both interpersonal and
strategic skills.
The primary professional organization for HRM is the Society for Human
Resource Management (SHRM). SHRM is the worlds largest human resource
management association with more than 250,000 professional and student
members throughout the world. If you are interested in HR, you should join
SHRM! SHRM provides education and information services, conferences
and seminars, government and media representation, and online services
and publications (such as HR Magazine and free videos and reports from the
SHRM Foundation). You can visit SHRMs website to see their services at
www.shrm.org.
Competing through
Technology
Competing through
Globalization
Provide a return
to shareholders
Provide high-quality
products, services, and
work experience for
employees
Increased value placed
on intangible assets
and human capital
Social and environmental responsibility
Adapt to changing
characteristics and
expectations of the
labor force
Legal and ethical issues
Effectively use new
work arrangements
Expand into
foreign markets
Prepare employees
to work in foreign
locations
Change employees
and managers
work roles
Create high-performance
work systems through
integrating technology
and social systems
Development of
e-commerce and
e-HRM
Use of social networking
tools
Development of
HR dashboards and use
of HR analytics in
problem solving
Figure 1.4
Competitive
Challenges
Influencing U.S.
Companies
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Sustainability
A companys ability to
meet its needs without
sacrificing the ability of
future generations to
meet their needs.
Stakeholders
The various interest groups who have
relationships with, and
consequently, whose
interests are tied to
the organization (e.g.,
employees, suppliers,
customers, shareholders, community).
LO 1-2
Discuss the implications of the economy,
the makeup of the
labor force, and ethics for company
sustainability.
The Economy
The recession experienced in the United States between 2007 and the summer of 2009 was one of the worst ever with the unemployment rate reaching
over 10 percent in October 2009.29 Although many experts believe that falling
back into another recession is unlikely, the recovery of the U.S. economy since
the recession of 2009 can be characterized as slow and choppy. This is due
to several reasons. Positive signs for the economy include the unemployment
rate which, at around 7.7%, is at its lowest level in four years. The Dow Jones
Industrial Average reached a record in March 2013, and encouraging signs suggest growth in the gross domestic product (GDP), the total of all goods and
services produced.30 If GDP growth occurs it will be due to recovery in the
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housing market, increased consumer confidence, business investment in workers and capital such as plant, equipment, and technology, and expansion of
exports of U.S. goods to other countries.31 Less optimistic signs are that many
employers are delaying hiring, millions of Americans are still finding it difficult to get a job, and the long-term unemployment rate remains high. Many
workers including college graduates are underemployed, doing jobs that
require less than their level of education.32 The number of job openings has
increased to levels not seen since before the financial crisis but jobs are staying
unfilled longer than before prefinancial crisis levels. Some of this may be due
to the mismatch between the skills required by the jobs and skills held by the
unemployed but it also is due to employers waiting to fill job openings due
to uncertainties until there are higher levels of economic growth and agreement on federal fiscal policies.33 For example, in January 2013, 12.3 million U.S.
workers wanting a job could not find one. The rate of long-term employment,
around 3 percent, is still three times the 200107 average and for over 30 consecutive months more unemployed workers stopped looking for a job than
found one. Long-term unemployment might shrink if the economy grows and
the U.S. gets further out of the recession. Long-term unemployment is difficult
to predict even if new jobs are created because employers may have eliminated
some jobs during the recession through replacing workers with automation or
combining job responsibilities.
Unfortunately, the economic recovery will likely remains slow for some time
and could stop entirely if a solution is not found for the debt crisis in European
countries as well as the huge budget deficit in the United States.
There are several implications of this economic period for human resource
management. Despite the reduction in number of layoffs, hiring remains slow as
many companies are finding ways to increase productivity and efficiency without having to add new employees. Also, companies are waiting for product and
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service demand to improve and if and when it does they will first call back laidoff employees and restore pay cuts and benefits such as paid holidays before
hiring new employees. For example, Honeywell International, which makes
products for aviation, automobiles, and residential and commercial heat systems has only been hiring two employees for every four who leave the company.34 Honeywell plans to slow its hiring until the U.S. GDP grows from its
current rate to close to 3%. Like other large U.S. companies, profits have been
increasing faster than sales. Honeywell has increased profits through cutting
costs, charging higher prices for its products, or reducing employees. Also,
Honeywell plans to raise its profit margin through increasing sales from international markets such as the Middle East and China where growth rates are
higher. Since 2009 Honeywell has added 10,000 jobs globally while eliminating
2000 positions in the United States.
Many HR departments are helping companies recover from the recession
and preparing them to be well-positioned as business conditions improve. For
example, Capital One asks its managers to determine current workloads and
staffing needs.35 HR projects changes in the workforce based on this information. This has allowed Capital One to forecast labor needs with more precision,
helping the company avoid hiring new employees only to potentially have to
lay them off.
During the recession, Philips Electronics cut its training budget but continued
to offer its Inspire program for high-potential employees, emphasizing business strategy and personal leadership topics.36 Philips believes that investing
in leadership development will better position the company to retain top talent
and meet demands for managerial talent as business grows and the economy
recovers.
Also, companies are under pressure to increase employee productivity to
alleviate higher costs such as health care.37 To control costs and increase the
effectiveness of the U.S. health care system, President Obama signed the Patient
Protection and Affordable Care Act. However, provisions of this act are now just
being implemented. Companies are uncertain as to the implications of the act
for their health care costs, and continue to look for ways to cut costs, including
reducing employee and retiree health care benefits and pension contributions
and increasing the employee contribution to pay for these benefits. Employers
including Sears Holding Corporation and Darden Restaurants Inc., owner of
Olive Garden and Red Lobster restaurant chains, are giving employees a monetary allocation to use toward health benefits.38 This allows them to decide to
pay more monthly premiums for more expensive plans or choose cheaper ones
which have higher deductibles for certain services, requiring them to pay more
out-of-pocket fees. Many employees are willing to choose lower-priced plans
that require them to pay more out of their pockets for health care. We discuss
what companies are doing to offset health care and pension costs in Chapter 13,
Employee Benefits.
HR programs and the HR function are under pressure to relate to the business strategy and show a return on investment. Customer focus needs to be
included in all HRM practices. New technology means that administrative and
transactional HR activities will be delivered via technology, creating less need
for HR professionals to provide these activities. The aging workforce combined
with reduced immigration because of security concerns may lead employers to
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Table 1.5
Examples of the
Occupations with
the Largest Growth
in Jobs
EMPLOYMENT
CHANGE 20102020
NUMBER (IN
THOUSANDS)
PERCENT
MOST SIGNIFICANT
EDUCATION OR
TRAINING
607
71
OCCUPATION
706
69
Biomedical engineers
10
62
Bachelors degree
18
60
26
56
42
52
Associates degree
49
31
46
Associates degree
26
45
31
44
Bachelors degree
SOURCE: Based on C. Lockard and M. Wolf, Occupation Employment Projections to 2020, Monthly Labor
Review, January 2012, pp. 84108.
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Increased Value Placed on Intangible Assets and Human Capital. Today more
and more companies are interested in using intangible assets and human capital
as a way to gain an advantage over competitors. A companys value includes three
types of assets that are critical for the company to provide goods and services:
financial assets (cash and securities), physical assets (property, plant, equipment),
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22
Intangible Assets
A type of company
asset including human
capital, customer capital, social capital, and
intellectual capital.
Table 1.6
Examples of
Intangible Assets
Human capital
Tacit knowledge
Education
Work-related know-how
Work-related competence
Customer capital
Customer relationships
Brands
Customer loyalty
Distribution channels
Social capital
Corporate culture
Management philosophy
Management practices
Informal networking systems
Coaching/mentoring relationships
Intellectual capital
Patents
Copyrights
Trade secrets
Intellectual property
SOURCES: Based on L. Weatherly, Human Capital: The Elusive Asset (Alexandria, VA: 2003 SHRM Research Quarterly); E. Holton and S. Naquin, New Metrics for Employee Development, Performance Improvement Quarterly
17 (2004), pp. 5680; M. Huselid, B. Becker, and R. Beatty, The Workforce Scorecard (Boston: Harvard University
Press, 2005).
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a customer purchases and can help enhance Macys service reputation as customers share experiences on social network sites such as Twitter and Facebook.
Macys effort has paid off in strong sales growth.
Intangible assets have been shown to be related to a companys bottom line.
A study by the American Society for Training and Development of more than
500 publicly traded U.S.-based companies found that companies that invested
the most in training and development had a shareholder return 86% higher than
companies in the bottom half and 46% higher than the market average.49
One way companies try to increase intangible assets is through attracting, developing, and retaining knowledge workers. Knowledge workers are
employees who contribute to the company not through manual labor, but
through what they know about customers or a specialized body of knowledge.
Employees cannot simply be ordered to perform tasks; they must share knowledge and collaborate on solutions. Knowledge workers contribute specialized
knowledge that their managers may not have, such as information about customers. Managers depend on them to share information. Knowledge workers
have many job opportunities. If they choose, they can leave a company and take
their knowledge to a competitor. Knowledge workers are in demand because
companies need their skills and jobs requiring them are growing (see Table1.5).
Knowledge
Workers
Employees who own
the intellectual means
of producing a product
or service.
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Empowering
Giving employees
responsibility and
authority to make
decisions.
Learning
Organization
A culture of lifelong
learning in which
Employees are continually trying to learn new
things.
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develop interactive games including a simulation for building the perfect hamburger. Hands-on employee-driven learning is supported by managers observing employees and providing coaching and feedback to help them develop new
skills and reinforce their use in the workplace.
Social collaboration and social networking technology are also contributing to
the development of a learning organization.53 CareSource uses Wikis, websites
with content created by users, and discussion boards to encourage employees
to engage in critical thinking and learn from each other by sharing ideas about
how to apply skills that they have acquired in formal training programs. Coldwell Banker encourages its real estate professionals to develop and share videos
of best sales techniques using the companys video portal. Coldwell Banker also
uses communities of practice to encourage employees to share best practices
and provide insights on how to best approach specific types of job assignments.
inVentiv Health Inc. uses tools on Facebook to help sales employees share information and update lessons learned.
Change
The adoption of a new
idea or behavior by a
company.
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Need to Adapt to Change Change refers to the adoption of a new idea or behavior by a company. Technological advances, changes in the workforce or government regulations, globalization, and new competitors are among the many
factors that require companies to change. Change is inevitable in companies as
products, companies, and entire industries experience shorter life cycles.54 This
has played a major role in reshaping the employment relationship.55 New or
emergent business strategies that result from these changes cause companies to
merge, acquire new companies, grow, and in some cases downsize and restructure. This has resulted in changes in the employment relationship. Companies
demand excellent customer service and high productivity levels. Employees are
expected to take more responsibility for their own careers, from seeking training to balancing work and family. In exchange for top performance and working longer hours without job security, employees want companies to provide
flexible work schedules, comfortable working conditions, more autonomy in
accomplishing work, training and development opportunities, and financial
incentives based on how the company performs. Employees realize that companies cannot provide employment security, so they want employabilitythat is,
they want their company to provide training and job experiences to help ensure
that employees can find other employment opportunities. The human resource
management challenge is how to build a committed, productive workforce in
economic conditions that offer opportunity for financial success but can also
quickly turn sour, making every employee expendable.
Consider how the CEO of Extended Stay America is trying to facilitate change
to benefit the business.56 At Extended Stay America, the hotel chain, many
employees were fearful and stuck in survival mode after the company emerged
from bankruptcy. They avoided decisions that might cost the company money
such as repairing properties or giving an unhappy guest a free nights stay. To
change this culture, Jim Donald, the new CEO, created Get out of jail, free
cards and is handing them out to employees. Employees can use the card when
they take a large risk on behalf of the company. This encourages employees
to take risks in hopes that they will generate new ideas that lead to business
growth and innovations. For example, one manager turned in her card after she
cold-called a movie production company that was filming in the local area. They
ended up booking $250,000 worth of business at the hotel!
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Employee
Engagement
The degree to which
employees are fully
involved in their work
and the strength of
their job and company
commitment.
Table 1.7
Pride in employer
Satisfaction with employer
Satisfaction with the job
Opportunity to perform challenging work
Recognition and positive feedback from contributions
Personal support from manager
Effort above and beyond the minimum
Understanding the link between ones job and the companys mission
Prospects for future growth with the company
Intention to stay with the company
Common Themes
of Employee
Engagement
SOURCE: Based on R. Vance, Employee Engagement and Commitment (Alexandria, VA: Society for Human
Resource Management, 2006).
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Alternative Work
Arrangements
Independent contractors, on-call workers,
temporary workers,
and contract company
workers who are not
employed full-time by
the company.
Demanding Work, but with More Flexibility. The globalization of the world
economy and the development of e-commerce have made the notion of a
40-hour work week obsolete. As a result, companies need to be staffed 24 hours
a day, seven days a week. Employees in manufacturing environments and service call centers are being asked to move from 8- to 12-hour days or to work
afternoon or midnight shifts. Similarly, professional employees face long hours
and and work demands that spill over into their personal lives. Personal digital
assistants (PDAs), pagers, and iPhones bombard employees with information
and work demands. In the car, on vacation, on planes, and even in the bathroom, employees can be interrupted by work demands. More demanding work
results in greater employee stress, less satisfied employees, loss of productivity,
and higher turnoverall of which are costly for companies.
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One study found that because of work demands 75% of employees report
having not enough time for their children, and 61% report not having enough
time for their husbands and wives. However, only half of employees in the
United States strongly agree that they have the flexibility they need to successfully manage their work and personal or family lives.68 Many companies are recognizing the benefits that can be gained by both the company and
employees through providing flexible work schedules, allowing work-at-home
arrangements, protecting employees free time, and more productively using
employees work time.69 The benefits include the ability to have an advantage in attracting and retaining talented employees, reduced stress resulting
in healthier employees, and a rested workforce that can maximize the use of
their skills. Approximately 9.5% or 13.4million U.S. employees are working at
home at least one day a week.70 One in four home-based employees are in management, business, and finance, and half are self-employed. AmerisureMutual
Insurance in Farmington Hills, Michigan, built a work environment and provides flexible programs designed to increase employee retention and engagement.71 A new computer system makes it easier for employees to work at home
by giving them access to work files using their home computers. Employees
meet with their managers to discuss the feasibility of working off-site and how
their performance will be evaluated. Amerisure also allows employees to take
days off each year for volunteer work, and provides five paid days each year
for family commitments related to medical care such as ill grandparents and
immediate family members. The companys turnover rate has dropped from
18% to 10% and employee engagement survey scores have increased. Fenwick
& West LLP, a law firm in San Francisco, California, with 245 employees has created special positions known as workflow coordinators and balanced hour
advisors who regularly review attorneys hours to ensure that employees on
reduced assignments are not overworked or overlooked for key assignments.
KPMG uses Wellness Scorecards to determine if consultants are working too
much overtime or skipping vacations. Employees at Salesforce.com Inc. can
work from home and use Chatter, a Facebook-type application, to coordinate
projects.72 Managers can monitor whether employees working at home have
answered questions and finished reports.
The use of alternative work arrangements and work-at-home has resulted in
the development of co-working sites where diverse workers such as designers,
artists, freelancers, consultants, and other independent contractors pay a daily
or monthly fee for a guaranteed work space.73 The co-working site is equipped
with desks and wireless Internet and some provide access to copy machines,
faxes, and conference rooms. Co-working sites help facilitate independent contractors and, employees working at home, traveling, or telecommuting, who
have feelings of isolation, and give them the ability to collaborate and interact,
provide a more professional working atmosphere than coffee shops, and help
decrease traffic and pollution.
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Balanced Scorecard
A means of performance measurement
that gives managers a
chance to look at their
company from the
perspectives of internal
and external customers, employees, and
shareholders.
LO 1-3
Discuss how human
resource management
affects a companys
balanced scorecard.
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Table 1.8
The Balanced Scorecard
QUESTIONS
ANSWERED
EXAMPLES OF CRITICAL
BUSINESS INDICATORS
EXAMPLES OF CRITICAL HR
INDICATORS
Customer
How do customers
see us?
Internal
What must we
excel at?
Innovation
and learning
Can we continue
to improve and
create value?
Financial
How do we look to
shareholders?
PERSPECTIVE
Employee/skills competency
levels, engagement survey
results, change management
capability
Compensation and benefits
per employee, turnover costs,
profits per employee, revenues per employee
SOURCE: Based on B. Becker, M. Huselid, and D. Ulrich, The HR Scorecard: Linking People, Strategy, and Performance (Boston: Harvard Business
School Press, 2001).
EVIDENCE-BASED HR
Caesars Entertainment is trying to understand how employees use health care in
order to reduce costs yet provide effective treatment options for its employees.78
Caesars analyzes employees and their family members health insurance claim
data. The data includes how employees use medical services such as emergency
room visits and whether they choose generic or brand name drugs. Analysis of
the insurance claim data identified locations where employees tended to use
more expensive emergency room visits rather than relying on less expensive
and as effective urgent care facilities. HR communicated a reminder to employees of the high cost of emergency room services and provided a list of alternative urgent care facilities. Since Caesars began tracking and analyzing the data
the company has saved over $4 million by shifting employees with emergencies
to urgent care services!
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Total Quality
Management
(TQM)
A cooperative form of
doing business that
relies on the talents
and capabilities of
both labor and management to continually
improve quality and
productivity.
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One way that companies can improve the quality of their products or services is through competing for the Malcolm Baldrige National Quality Award
or gaining certification in the ISO 9000:2000 standards. The Baldrige award, created by public law, is the highest level of national recognition for quality that a
U.S. company can receive. To become eligible for the Baldrige, a company must
complete a detailed application that consists of basic information about the firm
as well as an in-depth presentation of how it addresses specific criteria related to
quality improvement.83 The categories and point values for the Baldrige Award
are found in Table1.9. The award is not given for specific products or services.
Organizations can compete for the Baldrige Award in one of several different
categories, including: manufacturing, service, small business, education, health
care and non-profit. The Baldrige Award is given annually in each of the categories with a total limit each year of 18 awards. All applicants for the Baldrige Award undergo a rigorous examination process that takes from 300 to 1,000
hours. Applications are reviewed by an independent board of about 400 examiners who come primarily from the private sector. One of the major benefits of
applying for the Baldrige Award is the feedback report from the examining team
noting the companys strengths and areas for improvement.84
Malcolm Baldrige
National Quality
Award
An award established
in 1987 to promote
quality awareness,
to recognize quality
achievements of U.S.
companies, and to
publicize successful
quality strategies.
ISO 9000:2000
Quality standards
adopted worldwide.
Table 1.9
Leadership
The way senior executives create and sustain vision, values, and mission;
promote legal and ethical behavior; create a sustainable company and
communicate with and engage the workforce.
Measurement, Analysis, and Knowledge Management
The way the company selects, gathers, analyzes, uses, manages, and
improves its data, information, and knowledge assets
Strategic Planning
The way the company sets strategic direction, how it determines action
plans, how it changes strategy and action plans if required, and how it
measures progress
Workforce Focus
Companys efforts to develop and utilize the workforce to achieve high
performance; how the company engages, manages, and develops the
potential of the workforce in alignment with company goals
Operations Focus
Design, management, and improvement of work systems and work
processes to deliver customer value and achieve company success and
sustainability
Results
Companys performance and improvement in key business areas (product, service, and supply quality; productivity; operational effectiveness
and related financial indicators; environmental, legal, and regulatory
compliance); ethically and socially responsible
Customer Focus
Companys knowledge of the customer, customer service systems,
current and potential customer concerns, customer satisfaction and
engagement
Total Points
120
90
Categories and
Point Values for the
Malcolm Baldrige
National Quality
Award Examination
85
85
85
450
85
1,000
SOURCE: Based on 20132014 Criteria for Performance Excellence from the website for the National Institute of
Standards and Technology, www.nist.gov/baldrige.
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make decisions, and establishing mutually beneficial relationships with suppliers. ISO 9001:2008 is the most comprehensive standard because it provides a
set of requirements for a quality management system for all organizations both
private and public. The ISO 9001:2008 has been implemented by over 1 million
organizations in 176 countries. ISO 9004 provides a guide for companies that
want to improve.
Why are standards useful? Customers may want to check that the product
they ordered from a supplier meets the purpose for which it is required. One
of the most efficient ways to do this is when the specifications of the product
have been defined in an International Standard. That way, both supplier and
customer are on the same wavelength, even if they are based in different countries, because they are both using the same references. Many products require
testing for conformance with specifications or compliance with safety or other
regulations before they can be put on many markets. In addition, national legislation may require such testing to be carried out by independent bodies, particularly when the products concerned have health or environmental implications.
One example of an ISO standard is on the back cover of this book and nearly
every other book. On the back cover is something called an ISBN. ISBN stands
for International Standard Book Number. Publishers and booksellers are very
familiar with ISBNs, because they are the method through which books are
ordered and bought. Try buying a book on the Internet, and you will soon learn
the value of the ISBNthere is a unique number for the book you want! And it
is based on an ISO standard.
In addition to competing for quality awards and seeking ISO certification, many companies are using the Six Sigma process and lean thinking. The
Six Sigma process refers to a process of measuring, analyzing, improving, and
then controlling processes once they have been brought within the narrow Six
Sigma quality tolerances or standards. The objective of Six Sigma is to create a
total business focus on serving the customer, that is, to deliver what customers
really want when they want it. For example, at General Electric introducing the
Six Sigma quality initiative meant going from approximately 35,000 defects per
million operationswhich is average for most companies, including GEto
fewer than four defects per million in every element of every process GE businesses performfrom manufacturing a locomotive part to servicing a credit
card account to processing a mortgage application to answering a phone.87
Training is an important component of quality programs because it teaches
employees statistical process control and how to engage in lean thinking. For
example, Six Sigma involves highly trained employees known as Champions,
Master Black Belts, Black Belts, and Green Belts who lead and teach teams that
are focusing on an ever-growing number of quality projects. The quality projects
focus on improving efficiency and reducing errors in products and services. The
Six Sigma quality initiative has produced more than $2 billion in benefits for
GE. Lean thinking is a way to do more with less effort, time, equipment, and
space, but still provide customers with what they need and want. Part of lean
thinking includes training workers in new skills or how to apply old skills in
new ways so they can quickly take over new responsibilities or use new skills to
help fill customer orders. In the past three years, Cardinal Fastener & Specialty
Co. Inc.s sales to wind turbine manufacturers have grown more than 900%.88
The growth of the Cleveland, Ohio, based company started over 10 years ago
when under the leadership of the companys founder and president, Cardinal
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Lean Thinking
A process used to
determine how to use
less effort, time, equipment, and space but
still meet customers
requirements.
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36
began using Lean Thinking, involving all employees in the process of what
they referred to as blowing up the company. The goal was to eliminate waste
from the entire operation including manufacturing, administration, and sales.
As a result, manufacturing lead times went from six weeks to five days, productivity improvement increased 50%, and half of all sales now come from orders
that are manufactured and shipped the same day the order is taken. Because of
the companys reputation for fast turnaround of specialty manufactured fasteners they received an order for a wind turbine project in Iowa. As a result of lean
thinking, machines were moved so that operators could make a bolt or fastener
complete from start to finish, resulting in a decrease in the time it takes to make
a finished product. Quality is near perfect, and inventory was reduced 54%.
In addition to developing products or providing services that meet customer
needs, one of the most important ways to improve customer satisfaction is to
improve the quality of employees work experiences. Research shows that satisfied employees are more likely to provide high-quality customer service. Customers who receive high-quality service are more likely to be repeat customers.
As Table1.10 shows, companies that are recognized as providing elite customer
service emphasize state-of-the-art human resource practices including rigorous
employee selection, employee loyalty, training, and keeping employees satisfied
by offering generous benefits.
Table 1.10
Examples of HR
Practices That
Enhance Customer
Service
Wegmans
Gives away $59 million in scholarships to 19,000 employees. Senior managers sit
side-by-side with employees listening in on phones in the companys call center.
Ritz Carlton
Despite having 20 service standards, front-line employees have flexibility to make
customers experiences more personal, unusual, and memorable.
Four Seasons Hotels
No employee gets a job before passing four interviews. Each employee receives
a free nights stay for himself or herself and a guest, along with free dinner at
employee orientation. The free stay helps employees, most of whom otherwise
could not afford to stay at the hotel, understand what being a customer feels like.
They grade the hotel services such as time for room service to arrive and number of
times a phone rings when calling the front desk.
Cadillac
Performance of repair technicians is carefully monitored to ensure they are not
repeating mistakes in repairs. Dealers who maintain good customer service ratings
based on customer surveys receive cash rewards.
Starbucks
Entry-level baristas get 24 hours of training that prepares them to stay calm and
courteous in busy times.
Publix Super Markets
Employees receive bonuses based on their units performance and share grants as
part of their incentive plans.
Cabela
Job candidates must pass a difficult 150-question test that measures their outdoor
sports expertise.
SOURCE: Based on J. McGregor, Customer Service Champs, BusinessWeek, March 5, 2007, pp. 5264.
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Internal Labor
Force
Labor force of current
employees.
External Labor
Market
Persons outside the
firm who are actively
seeking employment.
Aging of the Workforce. The labor force will continue to age and the number
of workers age 55 and older will grow from 19 to 25% by 2020. This is slightly
over two times the size of the 55 and older workforce in 1990.89 Figure1.5 compares the projected distribution of the age of the workforce in 2010 and 2020.
The labor force participation of those 55 years and older is expected to grow
because older individuals are leading healthier and longer lives than in the past,
providing the opportunity to work more years; the high cost of health insurance and decrease in health benefits causes many employees to keep working
to keep their employer-based insurance or to return to work after retirement to
obtain health insurance through their employer; and the trend toward pension
plans based on individuals contributions to them rather than years of service
provides an incentive for older employees to continue working. The aging labor
force means companies are likely to employ a growing share of older workers
many in their second or third career. Older people want to work and many say
they plan a working retirement. Despite myths to the contrary, worker performance and learning are not adversely affected by aging.90 Older employees are
willing and able to learn new technology. An emerging trend is for qualified
older workers to ask to work part-time or for only a few months at a time as
a means to transition to retirement. Employees and companies are redefining
the meaning of retirement to include second careers as well as part-time and
Figure 1.5
11%
67%
14%
64%
25%
19%
2010
16 to 24 years old
25 to 54 years old
55 years and older
Comparison of the
Age Distribution of
the 2010 and 2020
Labor Force
2020
SOURCE: Based on M. Toossi, Labor Force Projections to 2020: A More Slowly Growing Workforce, Monthly
Labor Review, January 2012, pp. 4364.
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Generational Differences. Because employees are working longer the workforce now has five generations, each one with unique characteristics and characteristics similar to the others. In Table1.11 the year born, nicknames, and ages
of each generation are shown. Consider some of the attributes that are believed
to characterize each generation.94 For example, Millennials grew up with access
to computers at home and school and access to the Internet. They grew up with
diversity in their schools and were coached, praised, and encouraged for participation rather than accomplishment by their Baby Boomer parents. Millennials are characterized as being optimistic, willing to work and learn, eager to
please, technology literate, globally aware and as valuing diversity. They are
also believed to have high levels of self-esteem and narcissism. Generation Xers
grew up during a time when the divorce rate doubled, the number of women
working outside the home increased, and the personal computer was invented.
They were often left to their own after school (latchkey kids). They value skepticism, informality, practicality, seek work/life balance, and dislike close supervision. They tend to be impatient and cynical. They have experienced change all
of their lives (in terms of parents, homes, and cities). Baby Boomers, the Me
generation, marched against the establishment for equal rights and an end to
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GENERATION
AGES
192545
Traditionalists
Silent Generation
Baby Boomers
Generation X
Millennials
Generation Y
Echo Boomers
Generation Z
Digital Natives
6888
194664
196580
198195
1996
Table 1.11
Generations in the
Workforce
4967
3348
1832
<18
the Vietnam War. They value social conscientiousness and independence. They
are competitive, hard working, and concerned with the fair treatment of all
employees. They are often considered to be workaholics and rigid in conforming to rules. Traditionalists grew up during the Great Depression and lived during World War II. They tend to value frugality, are patriotic and loyal, adhere to
rules, are loyal to employers, and take responsibility and sacrifice for the good
of the company.
Members of each generation may have misperceptions of each other causing
tensions and misunderstanding in the workplace.95 For example, Millennials may
think Generation X managers are bitter, jaded, abrasive, uninterested in them,
and poor delegators. In turn, their Generation X managers consider Millennials
too needy for attention, demanding, and overly self-confident. Millennials might
believe that Baby Boomers are too rigid and follow company rules too closely.
They believe employees in the older generations have been too slow in adopting
social media tools and overvalue tenure rather than knowledge and performance.
Traditionalists and Baby Boomers believe that Millennials dont have a strong
work ethic because they are too concerned with work-life balance. Also, members
of the younger generations may resent Baby Boomers and Traditionalists who are
working longer before retiring, blocking promotions and career moves.
It is important to note that although generational differences likely exist,
members of the same generation are no more alike than members of the same
gender or race. This means that you should be cautious in attributing differences in employee behaviors and attitudes to generational differences or expecting all employees of a generation to have similar values. Research suggests that
the generations of employees have similarities as well as differences.96 Although
differences in work ethic have been found among Baby Boomers, Generation
Xers, and Millennials, Millennial employees are more similar than different
from other generations in their work beliefs, job values, and gender beliefs.
Most employees view work as a means to more fully use their skills and abilities, meet their interests, and allow them to live a desirable lifestyle. They also
value work-life balance, meaning flexible work policies are necessary to allow
them to choose where and when work is performed.
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Figure 1.6
The U.S. Workforce,
2020
White
African American
Asian
Other groups
79%
6%
3%
12%
SOURCE: Based on M. Toossi, Labor Force Projections to 2020: A More Slowly Growing Workforce, Monthly
Labor Review, January 2012, pp. 4364.
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2. Employee
attraction
and retention
argument
3. Marketing
argument
4. Creativity
argument
5. Problem-solving
argument
6. System flexibility
argument
How Managing
Cultural Diversity
Can Provide
Competitive
Advantage
SOURCES: Academy of Management Executive, by T. H. Cox and S. Blake, 1991; N. Lockwood, Workplace Diversity: Leveraging the Power of Difference for Competitive Advantage (Alexandria, VA: Society for Human Resource
Management, 2005).
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42
Legal Issues
There will likely be development and debate of new employment laws and regulations, as well as increased emphasis on enforcing specific aspects of current
laws and regulations.105 An emphasis on eliminating discrimination in recruitment and hiring will continue. The focus will likely be on pre-employment tests,
criminal background screening, and online searches that might reveal the age of
job applicants. Also, greater attention will be given to eliminating discrimination based on disability, pay rates, job category, and harassment. There are likely
to be more challenges of sex and race discrimination because of lack of access
to training and development opportunities that are needed for promotions to
better paying jobs or higher level management positions. Eliminating discrimination against veterans and people with disabilities, especially among federal
contractors, is likely.
Workplace safety will get more attention as new regulations are considered,
requiring companies to identify workplace hazards and either fix them or provide employees with protection. Companies in industries that are considered to
be the most dangerous for employees will be asked to meet additional reporting
and inspection requirements.
Health care reform will drive compliance issues. Starting in 2015, employers
with 50 or more full-time employees who decide not to offer health care coverage
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will have to pay a penalty of $2,000 per employee. Companies will look to HR
for answers to whether it makes sense from a competitive perspective to offer
health insurance, which averages about $6,000 for an individual plan. The cost
savings from not offering health care may be offset by the companys inability
to attract and retain talented employees who expect company-sponsored health
care benefits which offer attractive options not likely found in federal government plans. HR professionals and managers will have to work with legal counsel and benefits experts to understand new health care regulations and the form
that health care will take, if they decide to provide it.
Scrutiny of companies who employ unlawful immigrants or abuse laborers
will continue to increase. Companies can face criminal charges if immigration
and customs officials can show that they knowingly employed undocumented
and illegal immigrants. The number of company audits conducted by the Immigration and Customs Enforcement (ICE) has increased over the past several
years, resulting in over $10 million in fines.
The publication of classified documents by WikiLeaks and Wall Street insider
trading probes have resulted in companies more carefully scrutinizing datasecurity practices and increased concerns about protecting intellectual property.
This will likely influence human resource practices related to performance management such as the use of electronic monitoring and surveillance of knowledge workers. We may see more litigation related to employee privacy rights
and intellectual property rights as a result of companies terminating employees
or taking disciplinary action against them for data-security breaches, discussing employment practices using social media, or sharing or stealing intellectual
property for personal gain.
Ethical Issues
Many decisions related to managing human resources are characterized by uncertainty. Ethics can be considered the fundamental principles of right and wrong
by which employees and companies interact.106 These principles should be considered in making business decisions and interacting with clients and customers. Ethical, successful companies can be characterized by four principles shown
in Figure1.7.107 First, in their relationships with customers, vendors, and clients,
these companies emphasize mutual benefits. Second, employees assume responsibility for the actions of the company. Third, such companies have a sense of
purpose or vision the employees value and use in their day-to-day work. Finally,
they emphasize fairness; that is, another persons interests count as much as their
own. HR and business decisions should be ethical but that is not always the case.
A recent survey of employees found that 45% had witnessed some form of unethical conduct at their workplace. This probably helps explain the results of a Gallup poll on honesty and ethics in 21 professions. The poll results showed that only
18% of Americans rated business executives high or very high on honesty and
ethical behavior and close to twice as many rated them low or very low.108 It is
important to note that ethics refers to behavior that is not clearly right or wrong.
Compliance means that the company is not violating legal regulations. But a company can be compliant and still have employees engaging in unethical practices.
The Sarbanes-Oxley Act of 2002 sets strict rules for corporate behavior
and sets heavy fines and prison terms for noncompliance: organizations are
spending millions of dollars each year to comply with regulations under the
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Ethics
The fundamental
principles of right
and wrong by which
employees and companies interact.
Sarbanes-Oxley
Act of 2002
A congressional act
passed in response to
illegal and unethical
behavior by managers
and executives. The
act sets stricter rules
for business especially
accounting practices
including requiring
more open and consistent disclosure of
financial data, CEOs
assurance that the data
is completely accurate,
and provisions that
affect the employee
employer relationship
(e.g., development
of a code of conduct
for senior financial
officers).
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Figure 1.7
Principles of Ethical
Companies
Emphasize mutual
benefits in customer,
vendor, client,
and community
relationships
A sense of purpose
or vision valued
and used by
employees
in their work
Employees take
responsibility
for company
actions
Emphasize fairness in
treatment of
employees,
customers, vendors,
and clients
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should develop codes of conduct that clearly define ethics and professional
responsibility. HR professionals along with other top-level managers usually
play a key role in helping conduct ethics audits, develop ethical codes of conduct,
and respond to ethical violations. Guidelines for disciplinary actions for employees guilty of unethical behavior and conduct need to be developed. Managers
and employees will need to be trained on ethics policies to ensure that business
processes and procedures are correctly followed. HR professionals will need to
document the fact that employees have received these policies and have attended
training to ensure their compliance with the act. Because of the potential liability
for retaliation in the context of discrimination and harassment, policies should
include assurances that an employee will not be retaliated against for making
a complaint or for serving as a witness. Executive compensation programs will
need to be monitored to ensure that the program is in compliance with the no
personal loans and no sales of pension funds during blackout period provisions.
Consider the policies and practices that companies are using to help ensure
an ethical workplace.114 Nationwide, an insurance provider located in Columbus, Ohio, developed and adopted a detailed Code of Conduct. The Code of
Conduct applies to all employees, it protects employees who report code violations from retaliation, and it guides employees decision making when the correct action is unclear. The Code of Conduct covers discrimination, conflicts of
interest, financial reporting, business records, honesty in business communications, handling company assets, and political activities including gifts to public
officials. Nationwide has established an Office of Ethics and code violations can
be reported to them using e-mail, fax, or telephone. Cisco Systems has taken
steps to make its ethics and compliance programs more engaging and interesting for employees. Cisco worked with a consulting firm to create a four-episode
training module based on the American Idol popular television show. The episodes involve decisions related to sharing proprietary information from former
employers, how to pick new vendors, entertaining potential customers, and
accepting gifts from vendors. Employees watch each of the contestants talk
about a different ethical situation and listen while the three judges each provide
their opinion. Employees are then asked to vote on which of the three judges
gave the best response to each situation and they can instantly see how their
response matched up to the responses of other Cisco employees who have participated in the ethics training. At the end of each episode Ciscos ethics office
provides the correct response to the situation based on the companys ethics and
compliance standards. The new training program helped increase the visibility
of Ciscos ethics office and raised employees awareness that the right answer to
each ethical dilemma they may encounter is not always obvious.
Human resource managers must satisfy three basic standards for their practices to be considered ethical.115 First, HRM practices must result in the greatest good for the largest number of people. Second, employment practices must
respect basic human rights of privacy, due process, consent, and free speech.
Third, managers must treat employees and customers equitably and fairly.
To call attention to the important role of ethics in the workplace, throughout
the book we include Integrity in Action boxes that highlight the good (and
bad) decisions, related to ethical HR practices made by company leaders and
managers. The Integrity in Action box shows how the CEO of Dynergy has
made changes to the company culture and used HR practices to try to revitalize
a failing company.
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I N TEGR I T Y I N AC T I O N
Leading a Turnaround Through People Practices
Many CEOs dont practice what
they preach, but that isnt the
case for Bob Flexon, CEO of
Dynergy, Inc. Flexon works out
of a cubicle similar to the ones
occupied by other employees
at the companys headquarters.
This is one of many changes
Flexon made in policies and
practices in hopes of revitalizing
the employees and growth of
the power generation company, which recently emerged
from bankruptcy. He cut costs
(saved $5 million) and increased
interactions between employees by moving the company
headquarters offices to a single
open floor. He also is visible at
the companys power plants,
banned employees from checking e-mail and phones during
meetings, and reinstated annual
performance reviews. The companys highest ranking managers participated in a two-day
offsite meeting including trust
building exercises. Managers
resisted attending the offsite
meeting and many did not want
Companies are finding that to survive they must compete in international markets as well as fend off foreign corporations attempts to gain ground in the
United States. To meet these challenges, U.S. businesses must develop global
markets, use their practices to improve global competitiveness, and better prepare employees for global assignments.
Every business must be prepared to deal with the global economy. Global
business expansion has been made easier by technology. The Internet allows
data and information to be instantly accessible and sent around the world. The
Internet, e-mail, social networking, and video conferencing enable business
deals to be completed between companies thousands of miles apart.
Globalization is not limited to any particular sector of the economy, product
market, or company size.116 Companies without international operations may
46
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buy or use goods that have been produced overseas, hire employees with diverse
backgrounds, or compete with foreign-owned companies operating within the
United States.
Businesses around the world are attempting to increase their competitiveness and value by increasing their global presence, often through mergers and
acquisitions.
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48
a manufacturer of office, hotel, school, and industrial furniture, reach its goal
of cutting costs and becoming more efficient by recommending computer
equipment and systems needed to increase production and exports to western
Europe. Another employee worked with a nonprofit organization that offers
services to disabled adults. Besides benefiting the companies, the employees
have also found that the experience has helped them understand cultural differences, improve their communication and teamwork skills, and gain insights
on global marketing and strategy. The Competing Through Globalization box
shows how frustrations with cultural differences, in this case France, can undermine global business expansion.
Reshoring
Moving jobs from overseas to the U.S.
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Offshoring refers to the exporting of jobs from developed countries, such as the
United States, to countries where labor and other costs are lower. India, Canada,
China, Russia, Ireland, Mexico, Brazil, and the Philippines are some of the destination countries for offshored jobs. Why are jobs offshored?122 The main reason is
labor costs. Workers in other countries earn a fraction of the wages of American
workers performing the same job. For example, Indian computer programmers
receive about $10 an hour compared to $60 per hour earned by U.S. programmers. Other reasons include the availability of a highly skilled and motivated
workforce. Both India and China have high numbers of engineering and science
graduates. China graduates about four times as many engineers as the United
States, although they are not all trained at the same level as U.S. engineers.123
Japan graduates twice as many engineers and South Korea graduates nearly
as many engineers as the United States. Each year, India graduates 2 million
English-speaking students with strong technical and quantitative skills.124 Also,
skilled technical workers often have difficulties obtaining work visas. Currently,
only 65,000 H-1B visas for persons in highly skilled and technical occupations
are available each year. Finally, cheap global telecommunications costs allow
companies with engineers 6,000 miles away to complete design work and interact with other engineers as if they were located in the office down the hall.
The largest number of H-1B visas are issued for computer-related occupations (43%). U.S.-based Microsoft and Cisco Systems are two of the top 10 companies using H-1B visas but most are used by Indian companies such as Infosys
Technologies and Wipro Ltd.125
Although companies may be attracted to offshoring because of potential
lower labor costs, reshoring is becoming more common. There are several reasons for this, including concerns about the level of service customers receive
from overseas operations, demoralizing effects on U.S. employees, potential
negative affects of offshoring on the companys public image, the need for
employees to be located close to business partners, and rising wages overseas
(e.g., China).126 For example, Dell opened a call center in Twin Falls, Idaho, after
closing one in India because of customer complaints. KNex Brands has moved
the production of its plastic building toys back to Hatfield, Pennsylvania, from
subcontractors in China.127 KNex believes that moving production closer to the
U.S. retail market can help it deliver popular toys quickly to the market and
provide greater control over quality and materials, which is an important safety
issue. Also, wages and transportation costs are increasing in China, reducing
cost advantages of producing there.
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50
Social Networking
LO 1-5
Identify how new technology, such as social
networking, is influencing human resource
management.
Social Networking
Websites and blogs
that facilitate interactions between people.
Table 1.13
Potential Uses of
Social Networking
Advances in sophisticated technology along with reduced costs for the technology are changing many aspects of human resource management. Technological advances in electronics and communications software have made possible
mobile technology such as personal digital assistants (PDAs), iPads, and iPods
and enhanced the Internet through developing enhanced capability for social
networking. Social networking refers to websites such as Facebook, Twitter,
and LinkedIn, Wikis, and blogs that facilitate interactions between people usually around shared interests. Table1.13 shows some of the potential issues that
can be addressed by using social networking.129 In general, social networking
facilitates communications, decentralized decision making, and collaboration.
Social networking can be useful for connecting to customers and valuable for
busy employees to share knowledge and ideas with their peers and managers
with whom they may not have much time to interact face-to-face on a daily basis.
Employees, especially young workers from the Millennial or Gen-Y generations
have learned to use social networking tools such as Facebook throughout their
lives and see them as valuable tools for both their work and nonwork lives. The
Competing through Technology box shows how companies are using social
networking for HR practices including recruiting, training and development,
scheduling, and measuring employee attitudes.
Despite its potential advantages, many companies are uncertain as to whether
they should embrace social networking.130 They fear that social networking will
result in employees wasting time or offending or harassing their co-workers.
Other companies believe that the benefits of using social networking for HR
ISSUES
USE
Reinforce learning
Employees need coaching and
mentoring
Need to identify and connect with
promising job candidates
SOURCES: Based on P. Brotherson, Social Networks Enhance Employee Learning, T1D, April 2011, pp. 1819;
T. Bingham and M. Connor, The New Social Learning (Alexandria, VA: American Society for Training &
Development, 2010); M. Derven, Social Networking: A Frame for Development, T1D, July 2009, pp. 5863;
M. Weinstein, Are You Linked In? Training, September/October, 2010, pp. 3033.
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Human Resource
Information System
(HRIS)
A system used to
acquire, store, manipulate, analyze, retrieve,
and distribute HR
information.
Cloud Computing
A computing system
that provides information technology
infrastructure over
a network in a selfservice, modifiable,
and on-demand model.
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HR Dashboard
HR metrics such as productivity and absenteeism that are accessible
by employees and
managers through the
company intranet or
human resource information system.
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High-Performance
Work Systems
Work systems that
maximize the fit
between the companys social system and
technical system.
LO 1-6
Discuss human
resource management
practices that support
high-performance work
systems.
Virtual Teams
Teams that are
separated by time,
geographic distance,
culture and/or organizational boundaries
and rely exclusively on
technology for interaction between team
members.
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SOURCES: Based on K. Birdi, C. Clegy, M. Patterson, A. Robinson, C. Stride, T. Wall, and S. Wood, The Impact of
Human Resource and Operational Management Practices on Company Productivity: A Longitudinal Study, Personnel Psychology 61(2008), pp. 467501; A. Zacharatos, J. Barling, and R. Iverson, High Performance Work Systems
and Occupational Safety, Journal of Applied Psychology 90 (2005), pp. 7793; S. Way, High Performance Work
Systems and Intermediate Indicators of Performance within the U.S. Small Business Sector, Journal of Management 28 (2002), pp. 76585; M. A. Huselid, The Impact of Human Resource Management Practices on Turnover,
Productivity, and Corporate Financial Performance, Academy of Management Journal 38 (1995), pp. 63572.
cooling holes in 3-inch long turbine blades for jet engines.148 Most of the holes in
each blade are thinner than a human hair! Employees are responsible for choosing who gets hired. They interview job candidates and observe them in games
that involve working in a team to build a helicopter from blocks. Employee
teams can adjust the line operation to remove bottlenecks and maximize productivity. For example, a team identified a way to increase the speed of washing
turbine blades. The plant leader allowed the team to buy equipment to wash the
blades based on their recommendations.
Consider how human resource management practices support the highperformance work system at the Global Engineering Manufacturing Alliance
(GEMA) plant in Dundee, Michigan.149 GEMA is a wholly owned subsidiary
of Chrysler LLC/Fiat. The plant is more automated and employs fewer workers than most engine plants, 275 compared with 600 to 2,000 employees at
other engine plants. The goal of the plant is to be the most productive engine
plant in the world. The UAW endorsed the high-performance workplace
because it recognized that the company needs to be competitive to avoid losing jobs. Chryler Group LLC will invest $179 million to launch production
of a fuel-efficient engine for the North American market that will be built at
GEMA. The implications of this work system for labor relations is discussed
in Chapter 14.
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56
The plants hourly employees rotate jobs and shifts, increasing the companys
flexibility. The plants culture emphasizes problem solving and that anyone can
do anything, anytime, anywhere. Everyone has the same title: team member or
team leader. By rotating jobs the plant wants to keep workers motivated in their
work and avoid injuries. Team leaders and engineers dont stay in their offices;
they are expected to work on the shop floor as part of six-person teams. Contractors are also seen as part of the team, working alongside assembly workers
and engineers and wearing the same uniforms. Most auto plants have a day
and night shift with senior workers usually choosing to work the day shift. At
GEMA, employees rotate shifts in crews of three, working 10 hours per day,
four days per week, alternating between days and nights. Every third week of
their rotation they get five days off in addition to any vacation time. Counseling
is available to help employees adjust to the rotating work schedule. The work
schedule allows the plant to be in operation 21 hours per day, 6 days per week,
294 days a year. But employees work only 196 days a year. The alternating shifts
also help employees to know and work with each other and salaried employees,
who work only during daytime.
To hire employees who could work in a team environment emphasizing
problem solving and flexibility, GEMA recruited using local newspapers within
70 miles of Dundee. GEMA worked with local civil rights organizations to
find diverse candidates. Nonexempt employees whose wages start at $21 and
increase to $30 within five years must have a two-year technical degree, a skilled
journeymans card, or five years experience in advanced machining.
Job candidates have to make it through a difficult screening process that
takes 12 hours. The process requires candidates to take tests, participate in team
activities in which they confront challenges facing the plant (e.g., process in the
plant is inefficient), and interviews with operations managers and team leaders.
When the plant is ahead of its production schedule employees receive training
in class and on the shop floor in topics such as how to assemble an engine to
math skills.
GEMA gives employees access to technology that helps them monitor productivity. Large electronic screens hanging from the plant ceiling provide
alerts of any machinery parts that are ending their life span and need to be
replaced before they malfunction. A performance management system available on personal computers, as well as a display board, alerts employees to
delays or breakdowns in productivity. This is different from most engine
plants where only managers have access to this information. The technology empowers all employees to fix problems, not just managers or engineers.
GEMA provides rewards and bonuses for employees who develop innovative
problem solutions.
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Figure 1.8
Global
Challenge
Sustainability
Challenge
Continuous learning
environment is created.
Knowledge is shared.
Discipline system is
progressive.
Work is performed by
teams.
Pay systems reward skills
and accomplishments.
Examples of How
HRM Practices Can
Help Companies
Meet Competitive
Challenges
Customer satisfaction
and quality are evaluated
in the performance
management system.
Skills and values of a
diverse workforce are
valued and used.
Selection system is
job-related and legal.
Flexibility in where and
when work is performed.
Employee engagement is
monitored.
Technology is used to
reduce the time for
administrative tasks and
to improve HR efciency
and effectiveness.
Technology
Challenge
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58
Figure 1.9
Major Dimensions
of HRM Practices
Contributing
to Company
Competitiveness
Acquiring
and preparing
human
resources
Competitiveness
HRM practices that help companies deal with the competitive challenges can
be grouped into the four dimensions shown in Figure 1.9. These dimensions
include the human resource environment, acquiring and preparing human
resources, assessment and development of human resources, and compensating
human resources. In addition, some companies have special issues related to
labormanagement relations, international human resource management, and
managing the human resource function.
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environment that supports employees work and nonwork activities. This area
of human resource management addresses
Measuring employees performance.
Preparing employees for future work roles and identifying employees work
interests, goals, values, and other career issues.
Creating an employment relationship and work environment that benefits
both the company and the employee.
Special Issues
In some companies, employees are represented by a labor union. Managing
human resources in a union environment requires knowledge of specific laws,
contract administration, and the collective bargaining process.
Many companies are globally expanding their business through joint ventures, mergers, acquisitions, and establishing new operations. Successful global
expansion depends on the extent to which HRM practices are aligned with cultural factors as well as management of employees sent to work in another country. Human resource management practices must contribute to organizational
effectiveness.
Human resource management practices of both managers and the human
resource function must be aligned and contribute to the companys strategic
goals. The final chapter of the book explains how to effectively integrate human
resource management practices.
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Table 1.15
Topics Covered in
This Book
A LOOK BACK
Mars is trying to preserve its company culture and improve product revenues
while keeping employees engaged.
QUESTIONS
1. What HR practices do you believe are critical for Mars Incorporated to maintain the culture and product quality and growth its known for?
2. Could Mars be successful without its current HR practices? Explain.
3. Do you think that Mars culture and HR practices can also help the bottom
line at companies in other industries such as health care, manufacturing, or
research and development? Explain why or why not.
4. Mars is a privately held company and a family-owned business. What advantages (or disadvantages) can this provide for developing effective HR practices compared to a public company owned by its shareholders?
SUMMARY
This chapter introduced the roles and activities of
a companys human resource management function and emphasized that effective management
of human resources can contribute to a companys
business strategy and competitive advantage. HR
can be viewed as having three product lines: administrative services, business partner services, and
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KEY TERMS
Competitiveness, 4
Human resource management
(HRM), 5
Shared service model, 8
Self-service, 8
Outsourcing, 8
Evidence-based HR, 11
HR or workforce analytics, 11
Sustainability, 16
Stakeholders, 16
Intangible assets, 22
Knowledge workers, 23
Empowering, 23
Learning organization, 23
Change, 24
Employee engagement, 25
Talent management, 26
Alternative work arrangements, 27
Balanced scorecard, 29
Total quality management
(TQM), 31
Malcolm Baldrige National
Quality Award, 33
ISO 9000:2000, 33
Six Sigma process, 35
Lean thinking, 35
Internal labor force, 37
External labor market, 37
Ethics, 43
Sarbanes-Oxley Act of 2002, 43
Offshoring, 48
Reshoring, 48
Social networking, 50
Human resource information
system (HRIS), 52
Cloud computing, 52
HR dashboard, 53
High-performance work
systems, 53
Virtual teams, 53
DISCUSSION QUESTIONS
1. Traditionally, human resource management practices were developed and administered by the companys human resource department. Managers are
now playing a major role in developing and implementing HRM practices. Why do you think non-HR
managers are becoming more involved in developing and implementing HRM practices?
2. Staffing, training, compensation, and performance
management are important HRM functions. How
can each of these functions help companies succeed in meeting the global challenge, the challenge
of using new technology, and the sustainability
challenge?
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3. What are intangible assets? How are they influenced by human resource management practices?
4. What is evidence-based HR? Why might an HR
department resist becoming evidence-based?
5. What types of workforce analytics would you collect and analyze to understand why an employer
was experiencing a high turnover rate?
6. Which HR practices can benefit by the use of social
collaboration tools like Twitter and Facebook? Identify the HR practices and explain the benefits gained.
7. Do you agree with the statement Employee engagement is something companies should be concerned
about only if they are making money? Explain.
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SELF-ASSESSMENT EXERCISE
Do You Have What It Takes to Work in HR?
Instructions: Read each statement and circle yes or no.
Yes
No
Yes
No
Yes
No
Yes
No
Yes
No
Yes
No
Yes
Yes
No
No
Yes
No
Yes
Yes
No
No
Yes
No
EXERCISING STRATEGY
Zappos Faces Competitive Challenges
Zappos, based in Las Vegas, is an online retailer with
the initial goal of trying to be the best website for buying shoes by offering a wide variety of brands, styles,
colors, sizes, and widths. The zappos.com brand has
grown to offer shoes, handbags, eyewear, watches,
and accessories for online purchase. Zappos vision is
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64
QUESTIONS
1. Zappos seems to be well-positioned to have a competitive advantage over other online retailers. What
challenges discussed in Chapter 1 pose the biggest
threat to Zappos ability to maintain and enhance
its competitive position? How can human resource
MANAGING PEOPLE
Yahoo says Nope to Working at Home
Yahoos CEO Marissa Mayer decided as one part of
her plan to revitalize the company that she wanted
to end the companys work-from-home policy. In an
internal memo from Jackie Reses, Yahoos executive
vice president of people and development, working at
the office rather than at home was necessary because
of the need for employees to communicate and collaborate and to reduce the chance that speed and quality
would be diminished. Yahoo received much negative
press from the decision to no longer allow employees
to work at home including comments from Richard
Branson, head of Virgin Group and Working Mother
magazine. Some of the criticism focused on the message that not allowing home work sent to employees:
Managers cant trust you to get the work done.
The reality is that working at home is becoming
more prevalent in the U.S. workplace. More employees are working from home at least one day each
week. One estimate is that 20 to 30 million Americans
work from home at least one day each week. Homebased workers are more likely to be employed in private companies than in public sector jobs. Employees
in management, business and finance, service, and
sales occupations are most able to work from home.
Employees in health care and installation, maintenance, and repair occupations are the least likely to
work from home.
Many employees want to work at home, so companies are using working at home as a benefit that
helps recruit and retain talented employees. Several
studies have demonstrated benefits from working at
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HR IN SMALL BUSINESS
Managing HR at a Growing Service Company
Susan K. Dubin describes herself as someone who
enjoys helping others and making her company a
positive place to work. Those attitudes have provided
a strong basis for her successful career in human
resource management. In two different companies,
Dubin took on responsibilities for payroll, training,
and employee relations. As she built her experience,
she established a strong working relationship with
Danone Simpson, an insurance agent.
Dubin was impressed with what she saw as
Simpsons commitment to client services. So when
Simpson prepared to open her own insurance services
business, Dubin was interested in signing on. For several years now, Dubin has been HR director for Danone
Simpson Insurance Services, which operates from
offices in Woodland Hills, California. She also answers
questions from clients who call the agencys HR hotline.
Dubin sees herself as contributing to the fastgrowing companys success. For example, she looks
for the best deals in benefits programs in order to have
room in her budget for the little things that contribute to
an employee-friendly workplace: monthly luncheons,
raffle prizes, and break rooms. Thats a priority, Dubin
says, because employees who are happy at work are
more productive, so everybody wins. Simpson sees
that balance between nurturing and practicality in
Dubin. According to Simpson, Dubin is supportive but
NOTES
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(Washington, DC: BNA Books, 1988), pp. 1187227;
M. A. Hitt, B. W. Keats, and S. M. DeMarie, Navigating
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66
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
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75.
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95.
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J. Deal, D. Altman, and S. Rogelberg, Millennials at Work:
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Toossi, Labor Force Projections to 2020: A More Slowly
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B. Shepherd, DataBank, Workforce Management, March
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M. Loden and J. B. Rosener, Workforce America! (Homewood, IL: Business One Irwin, 1991); N. Lockwood,
Workplace Diversity: Leveraging the Power of Difference
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J. Jones, Record 64% Rate Honesty, Ethics of Members
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Corruption Currents, Survey Sees Less Misconduct but
More Reporting and Retaliation, Wall Street Journal,
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K. Gurchiek, Sarbanes-Oxley Compliance Costs Rising,
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R. Grossman, HR and the Board, HR Magazine, January
2007, pp. 5258.
J. Segal, The Joy of Uncooking, HR Magazine 47 (11)
(2002).
D. Buss, Corporate Compasses, HR Magazine 49 (6)
(2004), pp. 12632.
E. Krell, How to Conduct an Ethics Audit, HR Magazine,
April 2010, pp. 4850.
M. OBrien, Idol-izing Ethics, Human Resource Executive, May 16, 2009, pp. 3234.
G. F. Cavanaugh, D. Moberg, and M. Velasquez, The Ethics of Organizational Politics, Academy of Management
Review 6 (1981), pp. 36374.
Manufacturing: Engine of US Innovation, National
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