Last Class - Strategic HR Management

Our Goal for SHRM: To understand the strategic issues in using Human Resources for sustainable competitive advantage and how to implement the changes necessary to achieve this. This requires that we be able to: • Think systematically and strategically about managing human assets • Understand what really needs to be done to implement these policies. HR Creating Value Human Resource Management Practices Employees •Morale •Commitment •Productivity •Competence Customers •Satisfaction •Loyalty •Commitment Investors How does HR affect profitability, cost, growth, cash flow, and margin? “The War for Talent” “In the new economy, competition is global, capital is abundant, ideas are developed quickly and cheaply, and people are willing to change jobs often. In that kind of environment… all that matters is talent… superior talent will be tomorrow’s prime source of competitive advantage.” Chambers, E. et al. (1998) “The War for Talent.” McKinsey Quarterly, 2-15 Extraordinary People, Ordinary Performance? Performance Extraordinary Extraordinary Quality of People Ordinary Ordinary ? Case Studies z z z z z z z z Southwest Airlines Portman Hotel Morgan Stanley Slade Company NUMMI Saturn ServiceMaster John Snow Institute z z z z z z z Eastern Airlines Safelight Autoglass Visionary Design Systems SAS Institute Harrah’s Entertainment Springfield ReManufacturing Nordstrom Ordinary People, Extraordinary Performance? Performance Extraordinary Extraordinary Quality of People Ordinary œ Ordinary Two Mysteries z z How have these companies achieved extraordinary performance with people who are no different from those employed by the competition? If what they are doing is so understandable, why haven’t their competitors simply replicated them and achieved similar competitive advantages? Several Integrative Themes z The role of HR in the execution of strategy HR is about the Execution of Strategy “The competitive difference is not in deciding what to do, but in how to do it. Execution becomes paramount.” Larry Bossidy CEO Allied-Signal “I spend a lot of time talking about values rather than trying to figure out business strategies... Execution is what spells the difference between success and failure.” Lew Platt CEO HP “I could leave our strategic plan on a plane and it wouldn’t make any difference. No one could execute it. Our success has nothing to do with planning. It has to do with execution.” Dick Kovacevich CEO Norwest Competitive Advantage through People z z z A worldwide study of the automobile industry showed that people-centered practices were associated with almost twice the productivity and quality as conventional mass production. Similar studies in steel, apparel, semiconductors, and oil refining industries reveal similar positive effects for people-centered practices. A study of IPOs among 136 firms showed that people-centered practices were associated with a 42% higher survival rate. Top Performing Stocks: 1972-1992 Company Percent Increase Southwest Airlines 21,775% Wal-Mart 19,807% Tyson Foods 18,118% Circuit City 16,410% Plenum Publishing 15,689% Money, October, 1992 “I’ve tried to create a culture of caring for people in the totality of their lives, not just at work. There’s no magic formula. It’s like building a giant mosaic--it takes thousands of little pieces…The intangibles are more important than the tangibles. Someone can go out and buy airplanes from Boeing and ticket counters, but they can’t buy our culture, our esprit de corps.” Herb Kelleher CEO Southwest WSJ 8/31/99 Several Integrative Themes z z The role of HR in the execution of strategy The importance of alignment and consistency of HR with business strategy Organizational Alignment Strategy/Vision Executive Leadership • What business are we in? • How will we compete? • What’s our vision ? • Model • Behavior • Symbolic action Key Success Factors • What specific tasks have to get done to implement the strategy? Human Resources Culture • Do people have the necessary competencies? • Are they motivated? • What are the norms, values, attitudes, and behaviors needed? Formal Organization • Structure? • Rewards? Controls? Careers? Strategic HR Consistency Business Unit Strategy/ Vision / Objectives • Products/Services • Customers/Markets • Technology • Timing Key Success Factors 1. Human Resource Levers • Vision\Purpose • Recruitment/Selection • Training/Development • Reward and Recognition • Careers/Promotions • Job Design/Teamwork • Measurement • Information Sharing • Culture + + + + + + 0 + + 2. 3. 4. 5. Degree of Alignment (- / 0 / + ) 0 0 0 + + 0 + + + 0 + + 0 0 0 0 0 0 0 0 0 0 + 0 0 + 0 + Several Integrative Themes z z z The role of HR in the execution of strategy The importance of alignment and consistency of HR with business strategy The range of HR levers available to managers Looking Back on the course…. Exposure to some intriguing HR practices - Vision, values, and key success factors - Open Book Management (critical #s) - Team-based systems (social control) - Selection for “fit” as well as skills - Investing in people (intellectual capital) - Long-term employment vs. free agency - Psychological vs. financial ownership - Performance management HR and Competitive Advantage • The bad news: It’s not easy to do. The good news: It’s hard to imitate. • The HR levers for competitive advantage are identifiable. The only issue is whether we consciously manage them. To do this effectively requires us to think about motivation in a non-intuitive way. Conventional Model of Motivation As individuals we have Values Interests Needs Personality This approach: • Fits our intuition • Makes us feel good • Doesn’t work very well These shape our Expectations Goals Attitudes Feelings Which lead to Consistent choices and behavior Personality Attitudes Behavior Brigham Young University Study Visible 90% Not Visible 16% Stanford University Prison Experiment “I was surprised at myself... I made them call each other names and clean the toilet out with their bare hands. I practically considered the prisoners cattle...” “I was tired of seeing the prisoners in their rags and smelling them. I watched them tear at each other on orders given by us.” Stanford students acting as guards in Zimbardo’s experiment Milgram Obedience Study Question: What proportion of a group of normal adults would voluntarily deliver what they believed to be a fatal electric shock to another human being? The Fundamental Attribution Error When we watch people behave, we tend to “see” their behavior as being “caused” by something about their personality or dispositions. When we explain our own behavior, we are far more conscious of the pressure of the situation (e.g., deadlines, rewards, the opinions of others.) An Alternative Model of Motivation This approach is We work in settings with • less intuitive • more useful to managers • more powerful Which get us focused on Which shape our Strategies Structures Reward systems Leaders Specific tasks Subunit objectives Salient information Coworkers Expectations Choices Interpretations Behavior Attitudes Behavior Context What really “explains” behavior? What our intuition says that drives behavior What we observe What we don’t “see” because of our focus on the individual Rewards Personality Values and Beliefs Attitudes and Behavior Demographics Roles Background Organizational Culture Situational Pressures These can be managed only through selection These can be managed by designing the context The Social Construction of Reality “Three people were at work on a construction site. All were doing the same job, but when each was asked what his job was, the answers varied. ‘Breaking rocks,’ the first replied. ‘Earning my living,’ said the second. ‘Helping to build a cathedral,’ said the third,” Peter Schutz Former CEO Porsche HR Levers to Manage Context Vision, Values Recruitment and Selection Compensation Rewards and Recognition Participation & Involvement Teams/Job Design Context Long-Term Perspective Training and Development Information Sharing Measurement Psychological Ownership Symbolic Management Conventional View of Strategy Strategy What business are we in? How will we compete? Functional Strategies Marketing, manufacturing, finance, HR, etc. Key Success Factors What critical tasks must get done to execute the strategy? Organizational Alignment Design practices and systems (recruitment and selection, performance management, Training and development, etc.) Senior Management Role Monitor alignment and compliance A Values-Based View of Strategy Fundamental values or beliefs • What are our basic principles? • What do we believe in? Design management practices that reflect and embody these values • What policies and practices are consistent with these values? Use these to build core capabilities • What can we do for the customer better than our competitors? Invent a strategy consistent with the values using capabilities to compete in new and unusual ways Senior Management’s Role • Given our capabilities, how can we deliver value to customers in a way our competitors cannot easily imitate? • Manage the values and culture of the firm. All Organizations Have “Values” “Business people don’t like to talk about values. But without these, all business is about is making money. To me, achieving business goals is great. But no business goal is worth sacrificing your values…You can build an organization based on mutual loyalty, even in today’s economy. But you can’t do it if you treat people as disposable.” Pat Kelly CEO, PSS World What are the values of this organization? z z z z z z z z z z Career resilience Employment at will “Buy” rather than “Make” Lean staffing Periodic downsizing Outsourcing Individual incentives Pay-for-performance Wage dispersion Shareholder value first and last Values-based Organizations “These organizations place less emphasis on following a clear strategy than on building a rich, engaging corporate purpose…focus less on formal structural design and more on effective management processes…and are less concerned with controlling employees’ behavior than with developing their capabilities. Such a transformation can start only with top management.” Chris Bartlett and Sumantra Ghoshal Value-based Practices z z z z z z z Values and culture come first. Hiring for fit. Investment and opportunities for all people in the company. Widespread information sharing of operational and financial data. Reliance on teams and involvement. Emphasis on equity and non-monetary rewards. Leaders, not managers. Two Bases of “Ownership” Financial Ownership Yes No Southwest ServiceMaster SAS Institute NUMMI Many High Tech Firms Traditional Companies Yes Psychological Ownership No HR’s Role z The job of Human Resources is NOT primarily to: • • • • z Keep the company out of court Enforce rules and maintain consistency. Manage administrative processes. Tell people “No”. HR’s job is to: • Help build and reinforce the company’s values and culture • Play a leadership role in building capabilities that ensure the successful execution of business strategy.