an investment perspective of human resource management

Strategic Human Resource Strategic Human Resource ManagementManagement

Strategic Human Resource Strategic Human Resource ManagementManagement

CHAPTER 1AN INVESTMENT PERSPECTIVE OF HUMAN RESOURCE MANAGEMENT

CHAPTER 1AN INVESTMENT PERSPECTIVE OF HUMAN RESOURCE MANAGEMENT

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The Strategic View of Human The Strategic View of Human ResourcesResources

The Strategic View of Human The Strategic View of Human ResourcesResources

• Employees are Employees are human assetshuman assets – Increase in value to organization and marketplace when Increase in value to organization and marketplace when

investments of appropriate policies & programs are appliedinvestments of appropriate policies & programs are applied

• Effective organizations recognize that employees Effective organizations recognize that employees have valuehave value

– Much as organization’s physical & capital assets have valueMuch as organization’s physical & capital assets have value

• Employees are valuable source of Employees are valuable source of sustainable sustainable competitive advantagecompetitive advantage

• Employees are Employees are human assetshuman assets – Increase in value to organization and marketplace when Increase in value to organization and marketplace when

investments of appropriate policies & programs are appliedinvestments of appropriate policies & programs are applied

• Effective organizations recognize that employees Effective organizations recognize that employees have valuehave value

– Much as organization’s physical & capital assets have valueMuch as organization’s physical & capital assets have value

• Employees are valuable source of Employees are valuable source of sustainable sustainable competitive advantagecompetitive advantage

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Exhibit 1-1Exhibit 1-1

Sources of Employee ValueSources of Employee ValueExhibit 1-1Exhibit 1-1

Sources of Employee ValueSources of Employee Value

1–4

Sources of Employee ValueSources of Employee ValueSources of Employee ValueSources of Employee Value

• Technical KnowledgeTechnical Knowledge– Markets, processes, customers, environmentMarkets, processes, customers, environment

• Ability to Learn and GrowAbility to Learn and Grow– Openness to new ideasOpenness to new ideas– Acquisition of knowledge & skillsAcquisition of knowledge & skills

• Decision Making CapabilitiesDecision Making Capabilities• MotivationMotivation• CommitmentCommitment• TeamworkTeamwork

– Interpersonal skills, leadership abilityInterpersonal skills, leadership ability

• Technical KnowledgeTechnical Knowledge– Markets, processes, customers, environmentMarkets, processes, customers, environment

• Ability to Learn and GrowAbility to Learn and Grow– Openness to new ideasOpenness to new ideas– Acquisition of knowledge & skillsAcquisition of knowledge & skills

• Decision Making CapabilitiesDecision Making Capabilities• MotivationMotivation• CommitmentCommitment• TeamworkTeamwork

– Interpersonal skills, leadership abilityInterpersonal skills, leadership ability

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Adopting an Investment PerspectiveAdopting an Investment PerspectiveAdopting an Investment PerspectiveAdopting an Investment Perspective

• Determines how to best invest in peopleDetermines how to best invest in people• CostsCosts

– Out-of-pocketOut-of-pocket– OpportunityOpportunity

• Human assets become competitive advantageHuman assets become competitive advantage• Required skills become less manual, more Required skills become less manual, more

knowledge-basedknowledge-based• Appropriate, integrated, strategy-consistent Appropriate, integrated, strategy-consistent

approach is neededapproach is needed

• Determines how to best invest in peopleDetermines how to best invest in people• CostsCosts

– Out-of-pocketOut-of-pocket– OpportunityOpportunity

• Human assets become competitive advantageHuman assets become competitive advantage• Required skills become less manual, more Required skills become less manual, more

knowledge-basedknowledge-based• Appropriate, integrated, strategy-consistent Appropriate, integrated, strategy-consistent

approach is neededapproach is needed

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A DilemmaA DilemmaA DilemmaA Dilemma

• Failure to invest in employees causes Failure to invest in employees causes – Inefficiency Inefficiency – Weakening of organization’s competitive Weakening of organization’s competitive

positionposition

• Human assets are risky investment Human assets are risky investment

• Require extra effort to ensure that they Require extra effort to ensure that they are not lostare not lost

• Failure to invest in employees causes Failure to invest in employees causes – Inefficiency Inefficiency – Weakening of organization’s competitive Weakening of organization’s competitive

positionposition

• Human assets are risky investment Human assets are risky investment

• Require extra effort to ensure that they Require extra effort to ensure that they are not lostare not lost

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Types of Organizational Types of Organizational Assets/CapitalAssets/Capital


Types of Organizational Types of Organizational Assets/CapitalAssets/Capital

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Research FindingsResearch FindingsResearch FindingsResearch Findings

• HR practices directly related to profitability & HR practices directly related to profitability & market valuemarket value

• Primary reason for profitability (Watson Wyatt Primary reason for profitability (Watson Wyatt study)study)

– Effective management of human capitalEffective management of human capital

• Integrated management of human capital can Integrated management of human capital can result in 47% increase in market valueresult in 47% increase in market value

• Top 10% of organizations studied experienced Top 10% of organizations studied experienced 391% return on investment in management of 391% return on investment in management of human capitalhuman capital

• HR practices directly related to profitability & HR practices directly related to profitability & market valuemarket value

• Primary reason for profitability (Watson Wyatt Primary reason for profitability (Watson Wyatt study)study)

– Effective management of human capitalEffective management of human capital

• Integrated management of human capital can Integrated management of human capital can result in 47% increase in market valueresult in 47% increase in market value

• Top 10% of organizations studied experienced Top 10% of organizations studied experienced 391% return on investment in management of 391% return on investment in management of human capitalhuman capital

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HR Value ChainHR Value ChainExhibit 1-3Exhibit 1-3

HR Value ChainHR Value Chain

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HR Metrics Are ComplexHR Metrics Are ComplexHR Metrics Are ComplexHR Metrics Are Complex

• 90% of Fortune 500 organizations evaluate HR 90% of Fortune 500 organizations evaluate HR operations on basis of three metrics (below) & HR operations on basis of three metrics (below) & HR expense as percentage of operational expenses:expense as percentage of operational expenses:

– Employee retention and turnoverEmployee retention and turnover– Corporate moraleCorporate morale– Employee satisfactionEmployee satisfaction

• These metrics do not necessarily illustrate how These metrics do not necessarily illustrate how HR impacts HR impacts

– Profits Profits – Shareholder valueShareholder value

• 90% of Fortune 500 organizations evaluate HR 90% of Fortune 500 organizations evaluate HR operations on basis of three metrics (below) & HR operations on basis of three metrics (below) & HR expense as percentage of operational expenses:expense as percentage of operational expenses:

– Employee retention and turnoverEmployee retention and turnover– Corporate moraleCorporate morale– Employee satisfactionEmployee satisfaction

• These metrics do not necessarily illustrate how These metrics do not necessarily illustrate how HR impacts HR impacts

– Profits Profits – Shareholder valueShareholder value

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HR MetricsHR MetricsHR MetricsHR Metrics

• Absence RateAbsence Rate[(Number of days absent in month) ÷ (Average number of employees during [(Number of days absent in month) ÷ (Average number of employees during

mo.) × (number of workdays)] × 100mo.) × (number of workdays)] × 100

• Cost per HireCost per Hire(Advertising + Agency Fees + Employee Referrals + Travel cost of (Advertising + Agency Fees + Employee Referrals + Travel cost of

applicants and staff + Relocation costs + Recruiter pay and benefits) ÷ applicants and staff + Relocation costs + Recruiter pay and benefits) ÷ Number of HiresNumber of Hires

• Health Care Costs per Employee Health Care Costs per Employee Total cost of health care ÷ Total EmployeesTotal cost of health care ÷ Total Employees

• HR Expense FactorHR Expense FactorHR expense ÷ Total operating expenseHR expense ÷ Total operating expense

• Absence RateAbsence Rate[(Number of days absent in month) ÷ (Average number of employees during [(Number of days absent in month) ÷ (Average number of employees during

mo.) × (number of workdays)] × 100mo.) × (number of workdays)] × 100

• Cost per HireCost per Hire(Advertising + Agency Fees + Employee Referrals + Travel cost of (Advertising + Agency Fees + Employee Referrals + Travel cost of

applicants and staff + Relocation costs + Recruiter pay and benefits) ÷ applicants and staff + Relocation costs + Recruiter pay and benefits) ÷ Number of HiresNumber of Hires

• Health Care Costs per Employee Health Care Costs per Employee Total cost of health care ÷ Total EmployeesTotal cost of health care ÷ Total Employees

• HR Expense FactorHR Expense FactorHR expense ÷ Total operating expenseHR expense ÷ Total operating expense

Figure 1–5

Sources: Robert Grossman, “Measuring Up,” HR Magazine, January 2000, pp. 29–35; Peter V. Le Blanc, Paul Mulvey, and Jude T. Rich, “Improving the Return on Human Capital: New Metrics,” Compensation and Benefits Review, January/February 2000, pp. 13–20;Thomas E. Murphy and Sourushe Zandvakili, “Data and Metrics-Driven Approach to Human Resource Practices: Using Customers, Employees, and Financial Metrics,” Human Resource Management 39, no. 1 (Spring 2000), pp. 93–105; [HR Planning, Commerce Clearing House Incorporated, July 17, 1996;] SHRM/EMA 2000 Cost Per Hire and Staffing Metrics Survey; www.shrm.org.

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HR Metrics (cont’d)HR Metrics (cont’d)HR Metrics (cont’d)HR Metrics (cont’d)

• Human Capital ROI Human Capital ROI

Revenue − (Operating Expense − [Compensation cost + Benefit cost]) ÷ Revenue − (Operating Expense − [Compensation cost + Benefit cost]) ÷ (Compensation cost + Benefit cost)(Compensation cost + Benefit cost)

• Human Capital Value Added Human Capital Value Added

Revenue − (Operating Expense − ([Compensation cost + Benefit Cost]) ÷ Revenue − (Operating Expense − ([Compensation cost + Benefit Cost]) ÷ Total Number of FTE Total Number of FTE

• Revenue FactorRevenue Factor

Revenue ÷ Total Number of FTERevenue ÷ Total Number of FTE

• Time to fillTime to fill

Total days elapsed to fill requisitions ÷ Number hiredTotal days elapsed to fill requisitions ÷ Number hired

• Human Capital ROI Human Capital ROI

Revenue − (Operating Expense − [Compensation cost + Benefit cost]) ÷ Revenue − (Operating Expense − [Compensation cost + Benefit cost]) ÷ (Compensation cost + Benefit cost)(Compensation cost + Benefit cost)

• Human Capital Value Added Human Capital Value Added

Revenue − (Operating Expense − ([Compensation cost + Benefit Cost]) ÷ Revenue − (Operating Expense − ([Compensation cost + Benefit Cost]) ÷ Total Number of FTE Total Number of FTE

• Revenue FactorRevenue Factor

Revenue ÷ Total Number of FTERevenue ÷ Total Number of FTE

• Time to fillTime to fill

Total days elapsed to fill requisitions ÷ Number hiredTotal days elapsed to fill requisitions ÷ Number hired

Figure 1–5 (cont’d)


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HR Metrics (cont’d)HR Metrics (cont’d)HR Metrics (cont’d)HR Metrics (cont’d)

• Training Investment FactorTraining Investment Factor

Total training cost ÷ HeadcountTotal training cost ÷ Headcount

• Turnover CostsTurnover Costs

Cost to terminate + Cost per hire + Vacancy Cost + Learning curve lossCost to terminate + Cost per hire + Vacancy Cost + Learning curve loss

• Turnover RateTurnover Rate

[Number of separations during month ÷ Average number of employees [Number of separations during month ÷ Average number of employees during month] × 100during month] × 100

• Workers’ Compensation Cost per EmployeeWorkers’ Compensation Cost per Employee

Total WC cost for Year ÷ Average number of employeesTotal WC cost for Year ÷ Average number of employees

• Training Investment FactorTraining Investment Factor

Total training cost ÷ HeadcountTotal training cost ÷ Headcount

• Turnover CostsTurnover Costs

Cost to terminate + Cost per hire + Vacancy Cost + Learning curve lossCost to terminate + Cost per hire + Vacancy Cost + Learning curve loss

• Turnover RateTurnover Rate

[Number of separations during month ÷ Average number of employees [Number of separations during month ÷ Average number of employees during month] × 100during month] × 100

• Workers’ Compensation Cost per EmployeeWorkers’ Compensation Cost per Employee

Total WC cost for Year ÷ Average number of employeesTotal WC cost for Year ÷ Average number of employees

Figure 1–5 (cont’d)


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Mercer Model of Measuring HR Mercer Model of Measuring HR ImpactImpact

Mercer Model of Measuring HR Mercer Model of Measuring HR ImpactImpact

• Identify problem HR can impactIdentify problem HR can impact• Calculate actual cost of problemCalculate actual cost of problem• Choose HR solution that addresses problemChoose HR solution that addresses problem• Calculate cost of solutionCalculate cost of solution• Calculate value of improvement 6 to 24 months Calculate value of improvement 6 to 24 months

after implementationafter implementation• Calculate specific return on investmentCalculate specific return on investment• ROI in human assets often not realized until some ROI in human assets often not realized until some

time in futuretime in future

• Identify problem HR can impactIdentify problem HR can impact• Calculate actual cost of problemCalculate actual cost of problem• Choose HR solution that addresses problemChoose HR solution that addresses problem• Calculate cost of solutionCalculate cost of solution• Calculate value of improvement 6 to 24 months Calculate value of improvement 6 to 24 months

after implementationafter implementation• Calculate specific return on investmentCalculate specific return on investment• ROI in human assets often not realized until some ROI in human assets often not realized until some

time in futuretime in future

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Factors Influencing Investment Factors Influencing Investment OrientationOrientation


Factors Influencing Investment Factors Influencing Investment OrientationOrientation

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Investment-Oriented OrganizationInvestment-Oriented OrganizationInvestment-Oriented OrganizationInvestment-Oriented Organization

• Sees people as central to mission & strategySees people as central to mission & strategy

• Mission statement & strategic objectives Mission statement & strategic objectives espouse value of human assets in achieving espouse value of human assets in achieving goalsgoals

• Management philosophy encouraging Management philosophy encouraging development & retention of human assets development & retention of human assets

• Does not treat human assets in same ways Does not treat human assets in same ways as physical assetsas physical assets

• Sees people as central to mission & strategySees people as central to mission & strategy

• Mission statement & strategic objectives Mission statement & strategic objectives espouse value of human assets in achieving espouse value of human assets in achieving goalsgoals

• Management philosophy encouraging Management philosophy encouraging development & retention of human assets development & retention of human assets

• Does not treat human assets in same ways Does not treat human assets in same ways as physical assetsas physical assets

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Investment Orientation FactorsInvestment Orientation FactorsInvestment Orientation FactorsInvestment Orientation Factors

• Senior Management Values & ActionsSenior Management Values & Actions– Managers need “investment orientation” toward Managers need “investment orientation” toward

peoplepeople

• Attitude Toward RiskAttitude Toward Risk– Investment in human resources inherently riskier Investment in human resources inherently riskier – Human assets never absolutely “owned” Human assets never absolutely “owned”

• Nature of Skills Needed by EmployeesNature of Skills Needed by Employees– The more marketable employee skills, the riskier the The more marketable employee skills, the riskier the

firm’s investment in skill developmentfirm’s investment in skill development

• Senior Management Values & ActionsSenior Management Values & Actions– Managers need “investment orientation” toward Managers need “investment orientation” toward

peoplepeople

• Attitude Toward RiskAttitude Toward Risk– Investment in human resources inherently riskier Investment in human resources inherently riskier – Human assets never absolutely “owned” Human assets never absolutely “owned”

• Nature of Skills Needed by EmployeesNature of Skills Needed by Employees– The more marketable employee skills, the riskier the The more marketable employee skills, the riskier the

firm’s investment in skill developmentfirm’s investment in skill development

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Investment Orientation FactorsInvestment Orientation FactorsInvestment Orientation FactorsInvestment Orientation Factors

• Utilitarian (“Bottom Line”) MentalityUtilitarian (“Bottom Line”) Mentality– Attempt made to quantify employee worth through Attempt made to quantify employee worth through

cost-benefit analysiscost-benefit analysis– ““Soft” benefits of HR programs difficult to objectively Soft” benefits of HR programs difficult to objectively

quantifyquantify

• Availability of OutsourcingAvailability of Outsourcing– Given availability of cost-effective outsourcing, Given availability of cost-effective outsourcing,

investments in HR should produce investments in HR should produce highest returnshighest returns & & sustainable competitive advantagessustainable competitive advantages..

• Utilitarian (“Bottom Line”) MentalityUtilitarian (“Bottom Line”) Mentality– Attempt made to quantify employee worth through Attempt made to quantify employee worth through

cost-benefit analysiscost-benefit analysis– ““Soft” benefits of HR programs difficult to objectively Soft” benefits of HR programs difficult to objectively

quantifyquantify

• Availability of OutsourcingAvailability of Outsourcing– Given availability of cost-effective outsourcing, Given availability of cost-effective outsourcing,

investments in HR should produce investments in HR should produce highest returnshighest returns & & sustainable competitive advantagessustainable competitive advantages..

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Reading 1.1: The Hidden Leverage of Human CapitalReading 1.1: The Hidden Leverage of Human Capital

Model for Management SuccessModel for Management SuccessReading 1.1: The Hidden Leverage of Human CapitalReading 1.1: The Hidden Leverage of Human Capital

Model for Management SuccessModel for Management Success

• Strengthen key Strengthen key relationshipsrelationships– CustomersCustomers– EmployeesEmployees– ShareholdersShareholders

• Strengthen key Strengthen key relationshipsrelationships– CustomersCustomers– EmployeesEmployees– ShareholdersShareholders

• Leverage Leverage downtimedowntime– Use variable-payUse variable-pay– Address neglected Address neglected

areas:areas:• InfrastructureInfrastructure

• MarketingMarketing

• OperationsOperations

• Leverage Leverage downtimedowntime– Use variable-payUse variable-pay– Address neglected Address neglected

areas:areas:• InfrastructureInfrastructure

• MarketingMarketing

• OperationsOperations

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Reading 1.1 Reading 1.1

Model for Management SuccessModel for Management SuccessReading 1.1 Reading 1.1

Model for Management SuccessModel for Management Success

• Refocusing staff on Refocusing staff on what’s important what’s important

– Performance Performance management as management as disciplined, strategic, disciplined, strategic, value-added processvalue-added process

– Clearly define, Clearly define, differentiate & balance differentiate & balance between core between core competencies & resultscompetencies & results

• Refocusing staff on Refocusing staff on what’s important what’s important

– Performance Performance management as management as disciplined, strategic, disciplined, strategic, value-added processvalue-added process

– Clearly define, Clearly define, differentiate & balance differentiate & balance between core between core competencies & resultscompetencies & results

• Building return on Building return on compensationcompensation

– Link base-pay Link base-pay progression to progression to competency competency achievementachievement

– Link incentive pay to Link incentive pay to annual, semiannual, or annual, semiannual, or quarterly resultsquarterly results

• Building return on Building return on compensationcompensation

– Link base-pay Link base-pay progression to progression to competency competency achievementachievement

– Link incentive pay to Link incentive pay to annual, semiannual, or annual, semiannual, or quarterly resultsquarterly results

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Reading 1.2Reading 1.2 Seven Common MisconceptionsSeven Common Misconceptions

Reading 1.2Reading 1.2 Seven Common MisconceptionsSeven Common Misconceptions

1.1. Conscientiousness is a better predictor of Conscientiousness is a better predictor of performance than intelligence.performance than intelligence.

2.2. Companies that screen job applicants for values Companies that screen job applicants for values have higher performance than those that screen have higher performance than those that screen for intelligence.for intelligence.

3.3. Integrity tests don’t work well in practice Integrity tests don’t work well in practice because so many people lie on them.because so many people lie on them.

4.4. Integrity tests have adverse impact on racial Integrity tests have adverse impact on racial minorities.minorities.

1.1. Conscientiousness is a better predictor of Conscientiousness is a better predictor of performance than intelligence.performance than intelligence.

2.2. Companies that screen job applicants for values Companies that screen job applicants for values have higher performance than those that screen have higher performance than those that screen for intelligence.for intelligence.

3.3. Integrity tests don’t work well in practice Integrity tests don’t work well in practice because so many people lie on them.because so many people lie on them.

4.4. Integrity tests have adverse impact on racial Integrity tests have adverse impact on racial minorities.minorities.

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Reading 1.2Reading 1.2

Seven Common MisconceptionsSeven Common MisconceptionsReading 1.2Reading 1.2

Seven Common MisconceptionsSeven Common Misconceptions

5.5. Encouraging employee participation is more Encouraging employee participation is more effective for improving organizational effective for improving organizational performance than setting performance goals.performance than setting performance goals.

6.6. Most errors in performance appraisal can be Most errors in performance appraisal can be eliminated by providing training to managers on eliminated by providing training to managers on how to avoid them.how to avoid them.

7.7. If employees are asked how important pay is to If employees are asked how important pay is to them, they are likely to overestimate its true them, they are likely to overestimate its true importance.importance.

5.5. Encouraging employee participation is more Encouraging employee participation is more effective for improving organizational effective for improving organizational performance than setting performance goals.performance than setting performance goals.

6.6. Most errors in performance appraisal can be Most errors in performance appraisal can be eliminated by providing training to managers on eliminated by providing training to managers on how to avoid them.how to avoid them.

7.7. If employees are asked how important pay is to If employees are asked how important pay is to them, they are likely to overestimate its true them, they are likely to overestimate its true importance.importance.

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Seven Common Misconceptions: Seven Common Misconceptions: ImplicationsImplications



1.1. Select new employees on both intelligence and Select new employees on both intelligence and conscientiousness.conscientiousness.

2.2. Assess intelligence and conscientiousness before Assess intelligence and conscientiousness before values. values.

3.3. Define the values that are important and assess Define the values that are important and assess them through carefully developed, valid them through carefully developed, valid procedures.procedures.

4.4. Use integrity tests with ability tests for high Use integrity tests with ability tests for high predictability.predictability.

1.1. Select new employees on both intelligence and Select new employees on both intelligence and conscientiousness.conscientiousness.

2.2. Assess intelligence and conscientiousness before Assess intelligence and conscientiousness before values. values.

3.3. Define the values that are important and assess Define the values that are important and assess them through carefully developed, valid them through carefully developed, valid procedures.procedures.

4.4. Use integrity tests with ability tests for high Use integrity tests with ability tests for high predictability.predictability.

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5.5. Develop compelling goals; enlist participation Develop compelling goals; enlist participation and support it through rewards.and support it through rewards.

6.6. Training and feedback are important, but errors Training and feedback are important, but errors are difficult to eliminate. Top managers should are difficult to eliminate. Top managers should serve as role models in quality of performance serve as role models in quality of performance reviews.reviews.

7.7. Attitude surveys are subject to biases; study Attitude surveys are subject to biases; study behaviors as well as attitudes.behaviors as well as attitudes.

5.5. Develop compelling goals; enlist participation Develop compelling goals; enlist participation and support it through rewards.and support it through rewards.

6.6. Training and feedback are important, but errors Training and feedback are important, but errors are difficult to eliminate. Top managers should are difficult to eliminate. Top managers should serve as role models in quality of performance serve as role models in quality of performance reviews.reviews.

7.7. Attitude surveys are subject to biases; study Attitude surveys are subject to biases; study behaviors as well as attitudes.behaviors as well as attitudes.

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Reading 3.2Reading 3.2 Distinctive Human ResourcesDistinctive Human Resources


• ““Flexibility” dimension associated with Flexibility” dimension associated with “prospectors”“prospectors”

• ““Established markets” category linked to Established markets” category linked to classifications like “defenders” classifications like “defenders”

• Employment practices are difficult to Employment practices are difficult to change & transferchange & transfer

• Core competencies should drive business Core competencies should drive business strategy & not vice versastrategy & not vice versa

• ““Flexibility” dimension associated with Flexibility” dimension associated with “prospectors”“prospectors”

• ““Established markets” category linked to Established markets” category linked to classifications like “defenders” classifications like “defenders”

• Employment practices are difficult to Employment practices are difficult to change & transferchange & transfer

• Core competencies should drive business Core competencies should drive business strategy & not vice versastrategy & not vice versa

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• If competencies are available to everyone If competencies are available to everyone on open market, how can they generate a on open market, how can they generate a unique competency & competitive unique competency & competitive advantage for any one firm?advantage for any one firm?

• If competencies are available to everyone If competencies are available to everyone on open market, how can they generate a on open market, how can they generate a unique competency & competitive unique competency & competitive advantage for any one firm?advantage for any one firm?

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Final Conclusions (Reading 3.2)Final Conclusions (Reading 3.2)Final Conclusions (Reading 3.2)Final Conclusions (Reading 3.2)

• Clear relationship between business strategies and Clear relationship between business strategies and employment practices.employment practices.

• Organizations that want to move fast and seize Organizations that want to move fast and seize opportunities compete through flexibility and hence do not opportunities compete through flexibility and hence do not develop competencies from withindevelop competencies from within

• On the other hands, organizations enjoying dominant roles On the other hands, organizations enjoying dominant roles in established markets of niches look internally and rely in established markets of niches look internally and rely on organization specific capabilities.on organization specific capabilities.

• Clear relationship between business strategies and Clear relationship between business strategies and employment practices.employment practices.

• Organizations that want to move fast and seize Organizations that want to move fast and seize opportunities compete through flexibility and hence do not opportunities compete through flexibility and hence do not develop competencies from withindevelop competencies from within

• On the other hands, organizations enjoying dominant roles On the other hands, organizations enjoying dominant roles in established markets of niches look internally and rely in established markets of niches look internally and rely on organization specific capabilities.on organization specific capabilities.

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HR competencies and Business Strategy (Reading 3.2)HR competencies and Business Strategy (Reading 3.2)HR competencies and Business Strategy (Reading 3.2)HR competencies and Business Strategy (Reading 3.2)

Business strategyBusiness strategy HR competenciesHR competencies

Outside developmentOutside development Inside selectionInside selection

FlexibilityFlexibility Raiders Raiders BCG BCG A.I.G. A.I.G. PepsiPepsi

--

Established Markets/ NichesEstablished Markets/ Niches -- 49ers49ersMckinseyMckinseyChubbChubbCokeCoke

1–29

ContinuedContinuedContinuedContinued

• Interestingly there is no companies on quadrants Interestingly there is no companies on quadrants away from the diagonal. This reflects a sort of away from the diagonal. This reflects a sort of patternpattern

• Going from the “inside” to “outside” more easy Going from the “inside” to “outside” more easy than the converse.than the converse.

• Contrary examples to the above are very few like Contrary examples to the above are very few like GE.GE.

• Firms operating with an “outside” approach too Firms operating with an “outside” approach too can have its unique abilities.can have its unique abilities.

• Interestingly there is no companies on quadrants Interestingly there is no companies on quadrants away from the diagonal. This reflects a sort of away from the diagonal. This reflects a sort of patternpattern

• Going from the “inside” to “outside” more easy Going from the “inside” to “outside” more easy than the converse.than the converse.

• Contrary examples to the above are very few like Contrary examples to the above are very few like GE.GE.

• Firms operating with an “outside” approach too Firms operating with an “outside” approach too can have its unique abilities.can have its unique abilities.

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ContinuedContinuedContinuedContinued

• The need for change may causes a shift along the The need for change may causes a shift along the diagonal. (UPS, IBM)diagonal. (UPS, IBM)

• The shifting along the diagonal may cause eroding The shifting along the diagonal may cause eroding of core competency.of core competency.

• In current product markets flexible firms may In current product markets flexible firms may respond faster while this may not be a case across respond faster while this may not be a case across product markets.product markets.

• The need for change may causes a shift along the The need for change may causes a shift along the diagonal. (UPS, IBM)diagonal. (UPS, IBM)

• The shifting along the diagonal may cause eroding The shifting along the diagonal may cause eroding of core competency.of core competency.

• In current product markets flexible firms may In current product markets flexible firms may respond faster while this may not be a case across respond faster while this may not be a case across product markets.product markets.

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Public policy discussions (Reading Public policy discussions (Reading 3.2)3.2)

Public policy discussions (Reading Public policy discussions (Reading 3.2)3.2)

• Changing employment practices in a nation as a whole is a Changing employment practices in a nation as a whole is a risky propositionrisky proposition

• Numerous practices exist and it is not always possible to Numerous practices exist and it is not always possible to predict one best practice.predict one best practice.

• Practices not central to organizational core competence Practices not central to organizational core competence can have one best practice that sweeps across the industry, can have one best practice that sweeps across the industry, E.g.: Lean production among auto makersE.g.: Lean production among auto makers

• Variety in employment practices is a source of Variety in employment practices is a source of distinctiveness and competitive advantage.distinctiveness and competitive advantage.

• Changing employment practices in a nation as a whole is a Changing employment practices in a nation as a whole is a risky propositionrisky proposition

• Numerous practices exist and it is not always possible to Numerous practices exist and it is not always possible to predict one best practice.predict one best practice.

• Practices not central to organizational core competence Practices not central to organizational core competence can have one best practice that sweeps across the industry, can have one best practice that sweeps across the industry, E.g.: Lean production among auto makersE.g.: Lean production among auto makers

• Variety in employment practices is a source of Variety in employment practices is a source of distinctiveness and competitive advantage.distinctiveness and competitive advantage.

an investment perspective of human resource management

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