chapter 1 human resources in a globally competative business enviornment

P A R T

ENVIRONMENT 1 To manage people effectively in today’s world of work, one must understand and appreciate the significant competitive, legal, and social issues. The pur-pose of Chapters 1 through 4 is to provide insight into these issues. They pro-vide both direction for and perspective on the management of human resources in the 21st century.

1 HUMAN RESOURCES IN A GLOBALLY COMPETITIVE BUSINESS ENVIRONMENT

2 THE FINANCIAL IMPACT OF HUMAN RESOURCE MANAGEMENT ACTIVITIES

3 THE LEGAL CONTEXT OF EMPLOYMENT DECISIONS

4 DIVERSITY AT WORK

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C H A P T E R

Questions This Chapter Will Help Managers Answer

1. What will 21st-century corporations look like?

2. What people-related business issues must managers be concerned about?

3. Which features will characterize the competitive business environment in

the foreseeable future, and how might we respond to them?

4. What people-related problems are likely to arise as a result of changes in

the forms of organizations? How can we avoid these problems?

5. What are the HR implications of our firm’s business strategy?

1 HUMAN RESOURCES IN A

GLOBALLY COMPETITIVE

BUSINESS ENVIRONMENT


21ST-CENTURY CORPORATION *

Sparked by new technologies, particularly the Internet, the corporation is un-dergoing a radical transformation that is nothing less than a new Industrial Revolution. This time around, the revolution is reaching every corner of the globe. The 21st-century corporation that emerges is, in many ways, the polar opposite of the 20th-century organizations that senior managers helped shape. Many factors are driving change, but none is more important than the rise of Internet technologies. Like the steam engine or the assembly line, the Inter-net has already become an advance with revolutionary consequences, most of which we have only begun to feel. The Internet gives everyone in the organiza-tion, from the lowliest clerk to the chairman of the board, the ability to access a mind-boggling array of information—instantaneously from anywhere. Instead of seeping out over months or years, ideas can be zapped around the globe in the blink of an eye. That means that the 21st-century corporation must adapt itself to management via the Web. It must be predicated on constant change, not stability; organized around networks, not rigid hierarchies; built on shifting partnerships and alliances, not self-sufficiency; and constructed on technologi-cal advantages, not bricks and mortar. The organization chart of the large-scale enterprise had long been defined as a pyramid of ever-shrinking layers leading to an omnipotent CEO at its apex. The 21st-century corporation, in contrast, is far more likely to look like a web: a flat, intricately woven form that links partners, employees, external contrac-tors, suppliers, and customers in various collaborations. The players will grow more and more interdependent, and managing this intricate network will be as important as managing internal operations. In contrast to factories of the past 100 years that produced cookie-cutter products, the company of the future will tailor its products to each individual by turning customers into partners and giving them the technology to design and demand exactly what they want. Mass customization will result in waves of individualized products and services, as well as huge savings for companies, which no longer will have to guess what and how much customers want. Intellectual capital will be critical to business success. Bringing breakthrough products to market first will provide little advantage to companies because tech-nology will let competitors match or exceed them almost instantly. To keep ahead of the steep new-product curve, it will be crucial for businesses to attract and retain the best thinkers. Companies will need to build a deep reservoir of talent—including both employees and free agents—to succeed in this new era. But attracting and retaining top talent will require more than just huge pay-checks. Organizations will need to create the kinds of cultures and reward sys-tems that keep the best minds engaged. The old command-and-control hierarchies

Human Resource Management

in Action

*Sources: World Economic Forum and Boston Consulting Group. (2011). Global talent risk—Seven responses. Cologny/Geneva, Switzerland: Author; Economist Intelligence Unit. (2010). Global Firms in 2020: The Next Decade of Change for Organizations and Workers. Alexandria, VA: SHRM; Colvin, G. (2009, March 16). The world’s most admired companies. Fortune, pp. 75–78; Hamm, S. (2007, Mar. 27). Speed demons. BusinessWeek, pp. 67–76; Hamm, S. (2007, Apr. 16). People are his bottom line. Fortune, p. 30 ; Byrne, J. A. (2000, Aug. 28). Management by web. BusinessWeek, pp. 84–96; Colvin, G. (2000, Mar. 6). Managing in the info era. Fortune, pp. F6–F9; Pfeffer, J. and Veiga, J. F. (1999). Putting people first for organizational success. Academy of Management Executive 13 (2), pp. 37–48.

3


4 Part 1 Environment

are fast crumbling in favor of organizations that empower vast numbers of people and reward the best of them as if they were owners of the enterprise.

It’s Global. In the beginning, the global company was defined as one that sim-ply sold its goods in overseas markets. Later, global companies assumed a man-ufacturing presence in numerous countries. The company of the future will call on talent and resources—especially intellectual capital—wherever they can be found around the globe, just as it will sell its goods and services around the globe. Indeed, the very notion of a headquarters country may no longer ap-ply, as companies migrate to places of greatest advantage. The new global cor-poration might be based in the United States but do its software programming in Sri Lanka, its engineering in Germany, and its manufacturing in China. Every outpost will be connected seamlessly by the Internet, so that far-flung employ-ees and freelancers can work together in real time.

It’s about Speed. Call it the innovation imperative. Competition is more intense than ever because of the rise of the Asian powerhouses and the spread of disrup-tive new Internet technologies and business models. If companies are to thrive in this hypercompetitive environment, they must innovate more and faster. Here’s just one example: In the cell-phone business, Nokia, Motorola, and others used to take 12 to 18 months to develop basic models. Today, it’s six to nine months. With everything from product cycles to employee turnover on fast-forward, there is simply not enough time for delibera tion or bureaucracy. The 21st-century corporation will not have one ideal form. Some will be com-pletely disaggregated, wholly dependent on a network of suppliers, manufactur-ers, and distributors for their survival. Others, less so. Some of the most successful companies will be very small and very specialized. Others will be gargantuan in size, scope, and complexity. Table 1–1 presents a summary of these changes. If people are so critical to business success in the 21st-century organization, what will it take to attract and retain the best? According to John T. Chambers, CEO of Cisco Systems, Inc.: “The reason people stay at a company is that it’s a great place to work. It’s like playing on a great sports team. Really good players want to be around other really good players. Secondly, people like to work for good leadership. So creating a culture of leaders that people like is key. And the third is, are you working for a higher purpose than an IPO or a paycheck? Our higher purpose is to change the way the world works, lives, and plays.” a

So if firms are to produce profits through people, what should they do? In the case conclusion at the end of the chapter, we will examine seven practices of successful organizations.

Challenges

1. In Table 1–1 , which dimensions of the 21st-century prototype model require effective skills in managing people?

2. How might the Internet change the ways that employees and managers interact?

3. If the 21st-century prototype model of organizations is to be successful, how must companies change their approaches to managing people?

aHamm, 2007 (April 16), op. cit.


Chapter 1 Human Resources in a Globally Competitive Business Environment 5

THE ENTERPRISE IS THE PEOPLE

Organizations are managed and staffed by people. Without people, organiza-tions cannot exist. Indeed, the challenge, the opportunity, and also the frustra-tion of creating and managing organizations frequently stem from the people-related problems that arise within them. People-related problems, in turn, frequently stem from the mistaken belief that people are all alike, that they can be treated identically. Nothing could be further from the truth. Like snowflakes, no two people are exactly alike, and everyone differs physically and psychologically from everyone else. Sitting in a sports arena, for example, will be tall people, small people, fat people, thin people, people of color, white people, elderly people, young people, and so on. Even within any single phys-ical category there will be enormous variability in psychological characteris-tics. Some will be outgoing, others reserved; some will be intelligent, others not so intelligent; some will prefer indoor activities, others outdoor activities. The point is that these differences demand attention so that each person can maximize his or her potential, so that organizations can maximize their effec-tiveness, and so that society as a whole can make the wisest use of its human resources.

Table 1–1 WHAT A DIFFERENCE A CENTURY CAN MAKE: CONTRASTING VIEWS OF THE CORPORATION

Characteristic 20th century 21st century

Organization The pyramid The web or network Focus Internal External Style Structured Flexible Source of strength Stability Change Structure Self-sufficiency Interdependencies Resources Atoms (physical assets) Bits (information) Operations Vertical integration Virtual integration Products Mass production Mass customization Reach Domestic Global Financials Quarterly Real-time Inventories Months Hours Strategy Top-down Bottom-up Leadership Dogmatic Inspirational Workers Employees Employees � free agents Job Expectations Security Personal growth Motivation To compete To build Improvements Incremental Revolutionary Quality Affordable best No compromise



This book is about managing people, the most vital of all resources, in work settings. Rather than focus exclusively on issues of concern to the human resource specialist, however, we will examine human resource man-agement (HRM) issues in terms of their impact on management in general. A changing world order has forced us to take a hard look at the ways we manage people. Research has shown time and again that HRM practices can make an important, practical difference in terms of three key organizational outcomes: productivity, quality of work life, and profit. Each chapter in this book considers the impact of a different aspect of human resource management on these three broad themes. To study these impacts, we will look at the latest theory and research in each topical area, plus examples of actual company practices. This chapter begins by considering what human resources management is all about, how it relates to the work of the line manager, and how it relates to profits. Then we will consider some current competitive challenges in the busi-ness environment, emphasizing the importance of business and human re-sources (HR) strategy—both of which have direct implications for productivity and quality of work life. Let’s begin by considering the nature of HRM.

MANAGING PEOPLE: A CRITICAL ROLE FOR EVERY MANAGER

Managers are responsible for optimizing all of the resources available to them—material, capital, and human. 1 When it comes to managing people, however, all managers must be concerned to some degree with the following five activities: staffing, retention, development, adjustment, and managing change. Staffing comprises the activities of (1) identifying work requirements within an organization; (2) determining the numbers of people and the skills mix nec-essary to do the work; and (3) recruiting, selecting, and promoting qualified candidates. Retention comprises the activities of (1) rewarding employees for performing their jobs effectively; (2) ensuring harmonious working relations between em-ployees and managers; and (3) maintaining a safe, healthy work environment. Development is a function whose objective is to preserve and enhance em-ployees’ competence in their jobs through improving their knowledge, skills, abilities, and other characteristics; HR specialists use the term “competencies” to refer to these items. Adjustment comprises activities intended to maintain compliance with the organization’s HR policies (e.g., through discipline) and business strategies (e.g., cost leadership). Managing change is an ongoing process whose objective is to enhance the ability of an organization to anticipate and respond to developments in its ex-ternal and internal environments, and to enable employees at all levels to cope with the changes. Needless to say, these activities can be carried out at the individual, work-team, or larger organizational unit (e.g., department) level. Sometimes they are initiated by the organization (e.g., recruitment efforts or management develop-ment programs), and sometimes they are initiated by the individual or work team (e.g., voluntary retirement, safety improvements). Whatever the case, the



responsibilities for carrying out these activities are highly interrelated. To-gether, these activities constitute the HRM system. To understand how each of the major activities within HRM relates to every other one, consider the follow-ing scenario. As a result of a large number of unexpected early retirements, the Hand Corporation finds that it must recruit extensively to fill the vacated jobs. The firm is well aware of the rapid changes that will be occurring in its business over the next 5 to 10 years, so it must change its recruiting strategy in accor-dance with the expected changes in job requirements. It also must develop selection procedures that will identify the kinds of competencies required of future employees. Compensation policies and procedures may have to change because job requirements will change, and new incentive systems will probably have to be developed. Since the firm cannot identify all the compe-tencies that will be required 5 to 10 years from now, it will have to offer new training and development programs along the way to satisfy those needs. As-sessment procedures will necessarily change as well, because different com-petencies will be required in order to function effectively at work. As a result of carrying out all this activity, the firm may need to discharge, promote, or transfer some employees to accomplish its mission, and it will have to provide mechanisms to enable all remaining employees to cope effectively with the changed environment. It is surprising how that single event, an unexpectedly large number of early retirees, can change the whole ballgame. So it is with any system or net-work of interrelated components. Changes in any single part of the system have a reverberating effect on all other parts of the system. Simply knowing that this will occur is healthy because then we will not make the mistake of confining our problems to only one part. We will recognize and expect that whether we are dealing with problems of staffing, training, compensation, or labor rela-tions, all parts are interrelated. In short, the systems approach provides a con-ceptual framework for integrating the various components within the system and for linking the HRM system with larger organizational needs. To some, the activities of staffing, retention, development, and adjustment are the special responsibilities of the HR department. But these responsibilities also lie within the core of every manager’s job throughout any organization and because line managers have authority (the organizationally granted right to in-fluence the actions and behavior of the workers they manage), they have con-siderable impact on the ways workers actually behave. Thus a broad objective of HRM is to optimize the usefulness (i.e., the pro-ductivity) of all workers in an organization. A special objective of the HR de-partment is to help line managers manage those workers more effectively. As Jack Welch, legendary former CEO of General Electric noted: “ Look, HR should be every company’s ‘killer app.’ What could possibly be more important than who gets hired, developed, promoted, or moved out the door? Business is a game, and as with all games, the team that puts the best people on the field and gets them playing together wins. It’s that simple.” 2 This is consistent with the findings of a recent survey by the Economist Intelligence Unit (EIU), based on responses from 555 senior executives from 68 countries. 3 Findings revealed two of the most important human capital chal-lenges that organizations everywhere are facing: (1) recruitment and retention of high-quality people across multiple territories, particularly as competition



for top talent grows more intense; and (2) improving the appeal of the com-pany culture and working environment. Meeting these challenges is a respon-sibility that is shared by the HR department and line managers, as shown in Table 1–2 . In the context of Table 1–2 , note how line and HR managers share people-related business activities. Generally speaking, HR provides the tech-nical expertise in each area, while line managers (or, in some cases, self- directed work teams) use this expertise in order to manage people effectively. In a small business, however, line managers are responsible for both the technical and managerial aspects of HRM. In a 2011 survey of chief HR offi-cers, one described his or her greatest challenge as follows: “Creating a true sense of ownership among the senior leaders regarding their roles as “Chief Talent Officers.” Recognizing that having the right people in critical leadership roles is not an HR thing, or responsibility, but rather it is a busi-ness imperative and must be truly owned by the leaders of the respective businesses/functions.”4

Table 1–2 HRM ACTIVITIES AND THE RESPONSIBILITIES OF LINE MANAGERS AND THE HR DEPARTMENT

Activity Line management responsibility HR department responsibility

Staffing

Retention

Development

Adjustment

Managing change

Providing data for job or competency analyses and minimum qualifications; integrating strategic plans with HR plans; interviewing candidates, integrating information collected by the HR department, making final decisions on entry-level hires and promotions

Fair treatment of employees, open communication, face-to-face resolution of conflict, promotion of teamwork, respect for the dignity of each individual, pay increases based on merit

On-the-job training, job enrichment, coaching, applied motivational strategies, performance feedback to subordinates

Discipline, discharge, layoffs, transfers

Provide a vision of where the company or unit is going and the resources to make the vision a reality

Job/competency analysis, workforce planning, recruitment; compliance with civil rights laws and regulations; application forms, written tests, performance tests, interviews, background investigations, reference checks, physical examinations

Compensation and benefits, employee relations, health and safety, employee services

Development of legally sound performance management systems, morale surveys, technical training; management and organizational development; career planning, counseling; HR research

Investigation of employee complaints, outplacement services, retirement counseling

Provide expertise to facilitate the overall process of managing change



WHY DOES EFFECTIVE HRM MATTER?

At a broad level, HRM is concerned with choices—choices that organizations make from a wide variety of possible policies, practices, and structures for managing employees. 5 More specifically, there exists a substantial and growing body of research evidence showing a strong connection between how firms manage their people and the economic results they achieve. For example, a 2011 meta-analysis (a quantitative summary of empirical results) included 66 studies with 68 samples involving 12,163 observations.6 Results indicated that the average correlation between measures of human capital (e.g., the executive experience of the top-management team) and measures of performance (e.g., profitability, customer satisfaction), was 0.21. Results were even stronger for studies that used specific measures of human capital, as opposed to general measures, and for those that relied on operational performance measures (e.g., innovation, customer-service satisfaction) rather than global performance mea-sures (e.g., return on assets, return on sales). Another 2011 study done by accounting professors at Wharton and Stanford used data from 153 publicly traded companies to assess the impact of several HR management practices on stock returns 12 months later.7 They found that a 10 percent increase in a measure of goal-setting activity at firms was associated with a 6 percent increase in industry-adjusted stock returns. A 6 percent stock boost also was associated with a 10 percent increase in a measure of the extent to which managers used the full spectrum of the rating scale when evaluating employees. In short, managers in companies that are clear with employees about work expectations and that provide honest feedback on a regular basis drive successful performance. Needless to say, the extent to which these prac-tices actually will pay off depends on the skill and care with which the many HR practices available are implemented to solve real business problems and to support a firm’s operating and strategic initiatives. Such high-performance work practices provide a number of important sources of enhanced organizational performance. 8 People work harder because of the increased involvement and commitment that comes from having more control and say in their work. They work smarter because they are encouraged to build skills and competence. They work more responsibly because their em-ployers place more responsibility in the hands of employees farther down in the organization. What’s the bottom line in all of this? HR systems have impor-tant, practical impacts on the survival and financial performance of firms, and on the productivity and quality of work life of the people in them. Now that we know what HRM is, and why it matters, the next step is to understand some significant features of the competitive business environment in which HRM activities take place. Four such features are globalization, tech-nology, e-commerce, and demographic changes.

FEATURES OF THE COMPETITIVE BUSINESS ENVIRONMENT

Globalization

At its core, the globalization of business refers to the free movement of capital, goods, services, ideas, information, and people across national boundaries. Markets in every country have become fierce battlegrounds where both domestic



and foreign competitors fight for market share. For example, Coca-Cola earns more than 75 percent of its revenues from outside the United States! The top 5 of the 500 largest firms in the world (Walmart Stores, Royal Dutch Shell, Exxon Mobil, BP, and Toyota) gross almost $1.5 trillion; the top 5 in profits (Gazprom, Exxon Mobil, Industrial and Commercial Bank of China, BP, and China Con-struction Bank) make more than $94 billion in profits; and the top 5 biggest employers (Walmart Stores, China National Petroleum, State Grid Corporation China, U.S. Postal Service, and Sinopec) employ more than 6.5 million people. 9

The Backlash against Globalization. In no small part, the booming economies of recent years in developed countries have been fueled by globalization. Open borders have allowed new ideas and technology to flow freely around the globe, accelerating productivity growth and allowing companies to be more competitive than they have been in decades. Yet there is a growing fear on the part of many people that globalization benefits big companies instead of average citizens, as stagnating wages and growing job insecurity in developed countries create rising disenchantment. In theory, less-developed countries win from globalization be-cause they get jobs making low-cost products for rich countries. Rich countries win because, in addition to being able to buy inexpensive imports, they also can sell more sophisticated products like financial services to emerging economies. The problem, according to many experts, is that workers in the West are not equipped for today’s pace of change, in which jobs come and go and skills can quickly become redundant. 10 In the public eye, multinational corporations are synonymous with globalization. In all of their far-flung operations, therefore, they bear responsibility to be good corporate citizens, to preserve the environment, to uphold labor standards, to provide decent working conditions and competitive wages, to treat their employees fairly, and to contribute to the communities in which they operate. Doing so will make a strong case for continued globalization.

Implications of Globalization for HRM. Globalization is a fact of organizational life, as countries, companies, and workers are interconnected as never before. Global trade connects the fate of every industry and laborer, no matter how small or seemingly self-sufficient, to the decisions of bureaucrats in China, shipbuilders in Korea, and bankers everywhere.11 To illustrate, consider how the ripple effects of the Japanese earthquake of 2011 affected auto manufacturers. When the quake shut down parts suppliers in Japan, assembly of General Motors vehicles in Shreveport, LA, and Buffalo, NY, also shut down, and workers were laid off. Production slowdowns in Spain, France, and Germany affected GM, Toyota, and PSA Peugeot-Citroën.12

Another feature of globalization is that cheap labor and plentiful resources, combined with ease of travel and communication, have created global labor markets. This is fueling mobility as more companies expand abroad and people consider foreign postings as a natural part of their professional development. Beyond the positive effects that such circulation of talent brings to both devel-oped and developing countries, it enables employment opportunities well be-yond the borders of one’s home country. This means that competition for talent will come not only from the company down the street, but also from the em-ployer on the other side of the world. It will be a seller’s market, with talented individuals having many choices. Countries as well as companies will need to brand themselves as employers of choice in order to attract this talent.13



Along with these trends, expect to see three more. The first is increasing workforce flux, as more roles are automated or outsourced, and more workers are contract-based, are mobile, or work flexible hours. This may allow companies to leverage global resources more efficiently, but it also will increase the com-plexity of management’s role. Second, expect more diversity as workers come from a greater range of backgrounds. Those with local knowledge of an emerg-ing market, a global outlook, and an intuitive sense of the corporate culture will be particularly valued. Not surprisingly, talented young people will more frequently choose their employers based, at least in part, on opportunities to gain international experience. Finally, technical skills, while mandatory, will be less defining of the successful manager than the ability to work across cul-tures and to build relationships with many different constituents.14

Technology

It is no exaggeration to say that modern technology is changing the ways we live and work. Consider the number of mobile phone users in just three nations: China (900 million), India (800 million), and the United States (303 million). That is more than 2 billion in just three countries!15 The information revolu-tion will transform everything it touches—and it will touch everything. Infor-mation and ideas are keys to the new creative economy because every country, every company, and every individual depends increasingly on knowledge. People are cranking out computer programs and inventions, while lightly staffed factories churn out the sofas, the breakfast cereals, and the cell phones. Fortunately, history shows that technology-driven job destruction does not decrease overall employment—even while making some jobs obsolete. Ultimately,

New technology has changed the ways we work.



the economic growth created by new jobs overwhelms the drag from jobs de-stroyed.16 Perhaps author Thomas Friedman of The World Is Flat expressed the effects of technology best when he wrote:

You know the “IT revolution” that the business press has been touting for the last 20 years? Sorry, but that was only the prologue. The last 20 years were just about forging, sharpening, and distributing all the new tools with which to collaborate and connect. Now the real IT revolution is about to begin, as all the complementa-rities between these tools start to really work together to level the playing field. 17

In the creative economy, however, the most important intellectual property is not software or music. Rather, it is the intellectual capital that resides in people. When assets were physical things like coal mines, shareholders truly owned them. But when the most vital assets are people, there can be no true ownership. The best that corporations can do is to create an environment that makes the best people want to stay. 18 Therein lies the challenge of managing human resources.

Impact of New Technology on HRM. If they have not done so already, HR professionals will need to recognize collaborative technology as a key com-ponent of their firms’ global hiring strategy—leveraging social-networking sites and researching which sites are most effective in each market. How-ever, the most central use of technology in HRM is an organization’s human resources information system (HRIS). Indeed, as technology integrates with tradi-tionally labor-intensive HR activities, HR professionals are seeing improve-ments in response time and efficiency of the report information available. Dozens of vendors offer HRIS applications ranging from benefits enrollment to applicant tracking, time and attendance records, training and development, payroll, pension plans, and employee surveys. Such systems are moving be-yond simply storing and retrieving information to include broader applications such as report generation, succession planning, strategic planning, career plan-ning, and evaluating HR policies and practices. 19 In that sense, today’s HRIS tools help with management control and decision making.

E-Commerce

Consider this forecast:

The Internet will change the relationship between consumers and producers in ways more profound than you can yet imagine. The Internet is not just another marketing channel; it’s not just another advertising medium; it’s not just a way to speed up trans-actions. The Internet is the foundation for a new industrial order. The Internet will empower consumers like nothing else ever has. . . . The Web will fundamentally change customers’ expectations about convenience, speed, comparability, price, and service. 20

Today, electronic commerce (e-commerce) encompasses a very wide range of business activities and processes, from e-banking to offshore manufacturing to e-logistics. In fact, the ever-growing dependence of modern industries on electronically enabled business processes gave impetus to the growth and development of supporting systems, for example, broadband and fiber-optic



networks, supply-chain management software, customer- relationship manage-ment software, inventory-control systems, and financial-accounting software. 21 Whether it’s business-to-business (B2B) or business-to-consumer (B2C), e-commerce has taken off, with a compound annual growth rate exceeding 20 percent from 2000–2009 in the United States alone. 22 E-commerce companies that understand what consumers want and can deliver it are growing at a rate that few other consumer businesses their size have ever attained. As an example, con-sider search engine Google. Google makes hundreds of millions of dollars selling advertising that is keyed to the words that people search for. Advertisers only pay if people click. Advertisers like that model because they know exactly who looked at their ads, and they only pay if their ads are seen. As of 2011, online advertising generated $55 billion in revenues—and it is gaining momentum. 23 The Internet is now a major factor in pricing. Retail e-commerce sites cut consumer prices by pitting a multitude of sellers against one another, allowing Web-surfing buyers to identify quickly the lowest possible price for any good. Web-based search engines provide buyers with more information—and bargaining power—about products than ever before. Industries like books, music, and travel led the way. Jewelry, online bill payments, telecom, hotels, real estate, and soft-ware are following close behind. 24 As you read this, however, and as you ponder the future of e-commerce, consider one inescapable fact: All of the people who make e-commerce possi-ble are knowledge workers. The organizations they work for still have to ad-dress the human resource challenges of attracting, retaining, and motivating them to perform well.

Demographic Changes and Increasing Cultural Diversity

The number as well as the mix of people available to work is changing rapidly, as Figures 1–1 and 1–2 illustrate. As Figure 1–1 shows, there will be a pre-cipitous drop in the growth of the labor force among prime-age employees between 2006 and 2016. Over the next four decades, non-Hispanic whites will be a slim majority of the U.S. population. Hispanics will make up nearly a quarter of the population, with Asians, African Americans, and, to a much lesser extent, Native Americans, comprising the rest (see Figure 1–2 ). Cur-rently, female participation has jumped to 60 percent from 50 percent two decades ago, and the long-term trend toward earlier retirement has recently

Figure 1–1

Projected percent-age change in labor force by age, 2006–2016. (Source: U. S. Bureau of Labor Statistics (July 31, 2008). Projected growth in labor force participation of seniors, 2006–2016. Retrieved from http://www.bls.gov/opub/ted/2008/jul/wk4/art04.htm.)

0 20�20

�6.9

40 60 80 100

2.4

36.5

83.4

84.3

16 to 24

25 to 54

55 to 64

65 to 74

75 and older

Percent change



been reversed. The average retirement age is now 64. Seventy-five percent of retirees want to launch new careers after that, and 42 percent of those want to cycle between periods of work and leisure. 25

Implications for HRM. These trends have two key implications for managers: (1) The reduced supply of workers (at least in some fields) will make finding and keeping employees a top priority. (2) The task of managing a culturally di-verse workforce, of harnessing the motivation and efforts of a wide variety of workers, will present a continuing challenge to management. The organizations that thrive will be the ones that embrace the new demo-graphic trends instead of fighting them. That will mean even more women and minorities in the workforce—and in the boardrooms as well. Workforce diversity is not just a competitive advantage. Today it’s a competitive necessity.

RESPONSES OF FIRMS TO THE NEW COMPETITIVE REALITIES

In today’s world of fast-moving global markets and fierce competition, the win-dows of opportunity are often frustratingly brief. 26 “Three-C” logic (i.e., com-mand, control, compartmentalized information) dominated industrial society’s approach to organizational design throughout the 19th and 20th centuries, but trends such as the following are accelerating the shift toward new forms of organization in the early part of the 21st century: 27

� The shift from vertically integrated hierarchies to networks of specialists. � The decline of routine work (sewing-machine operators, telephone opera-

tors, word processors) coupled with the expansion of complex jobs that require flexibility, creativity, and the ability to work well with people (managers, software-applications engineers, artists, and designers).

� Pay tied less to a person’s position or tenure in an organization and more to the market value of his or her skills.

� A change in the paradigm of doing business from making a product to pro-viding a service, often by part-time or temporary employees .

� Outsourcing of activities that are not core competencies of a firm (e.g., pay-roll, benefits administration, relocation services).

� The redefinition of work itself: constant learning, more higher-order think-ing, less nine-to-five mentality.

Figure 1–2

U.S. population by age and race, 2000 and 2050. (Source: U.S. Census Bureau.)

Non-Hispanic Whites Non-Hispanic BlacksAsians and Pacific Islanders Native Americans

U.S. Population

1995 2050

Hispanics (any race)

3.3% 0.7%

10.2%12.0%

73.6%

0.9%

8.2%

24.5%

13.6%

52.8%



In response to these changes, many firms are doing one or more of the fol-lowing: developing new forms of organization, restructuring (including down-sizing), adopting quality-management programs, reengineering work processes, and building flexibility into work schedules and rules. Let’s briefly consider each of these.

New Forms of Organization

One example of a new organizational form that is evolving from these changes is the virtual organization, where teams of specialists come together to work on a project—as in the movie industry—and then disband when the project is finished. Virtual organizations are already quite popular in consulting, in legal defense, and in sponsored research. They are multisite, multi organizational, and dynamic. 28 More common in the information age, how ever, is the virtual workplace in which employees operate remotely from each other and from managers. 29 They work anytime, anywhere—in real space or in cyberspace. The widespread availability of e-mail, teleconferencing, collaborative software, and intranets (within-company information networks) facilitates such arrange-ments. Compelling business reasons, such as reduced real estate expenses, in-creased productivity, higher profits, improved customer service, access to global markets, and environmental benefits drive their implementation. Jobs in sales, marketing, project engineering, and consulting seem to be best suited for virtual workplaces because individuals in these jobs already work with their clients by phone, or at the clients’ premises. Such jobs are service- and knowledge-oriented, dynamic, and evolve according to customer requirements. A third example of a new organizational form is the modular corporation— that’s right, modular. The basic idea is to focus on a few core competencies—those a company does best, such as designing and marketing computers or copiers—and to outsource everything else to a network of suppliers. 30 If design and marketing are core competencies, then manufacturing or service units are modular components. They can be added or taken away with the flexibility of switching parts in a child’s LEGO set. Companies are outsourcing work within their home countries (onshore), near their home countries (nearshore), and far from their home countries (offshore). At a global level, firms are spending enor-mous sums of money on outsourcing and offshoring (offshore outsourcing), as Figure 1–3 shows. The fact is, the work processes in practically every big department of a cor-poration can now be outsourced and managed to some degree offshore. Here is an example of how truck-leasing company Penske and India’s Genpact collabo-rate on one process. 31

1. When Penske buys a truck and leases it in the United States, Genpact’s Indian staff remotely secures state titles, registrations, and permits electronically.

2. After the truck is returned, the driver’s log and taxes, fuel, and toll docu-ments are sent to Genpact. The paperwork is forwarded to Genpact’s of-fice in Juarez, Mexico. There, the staff enters data from the driver’s logs in Penske’s computer system.

3. Workers in Genpact’s office in Hyderabad, India, then process all the data for tax filings and accounting.



The number of people involved in the remote, global workforce is staggering. According to one estimate, it comprises hundreds of millions of people, and it is growing at many times the rate of the traditional workforce. 32 The impli-cation? The global search for talent must focus increasingly on building re-mote capa city, as opposed to recruiting foreign talent to domestic shores. Leaders need to focus laser-like attention on attracting, deploying, and keep-ing a workforce that is as good as or better than that of the competition. In the long run, all other threats and opportunities pale by comparison. As an example, consider General Electric. In 2000, about 30 percent of GE’s business was over-seas; today, 60 percent is. In 2000, 46 percent of GE employees were overseas; today, 54 percent are. 33

Restructuring, Including Downsizing

Restructuring can assume a variety of forms, of which employment downsizing is probably the most common. Companies can restructure by selling or buying plants or lines of business by altering reporting relationships, or by laying off

Figure 1–3

The modular corporation.

Source: Engardio, P. (2006, Jan. 30). The future of outsourcing. BusinessWeek , p. 55.

Work processes inpractically every bigdepartment of acorporation can nowbe outsourced andmanaged to somedegree offshore. Someof the biggest sectorsin terms of globalspending in 2005.

The Modular Corporation

HUMANRESOURCES$13 Billion

Includes payroll administration,benefits and training programs.

ENGINEERING$27 Billion

Testing and designof electronics,chips, machinery,car parts, etc.

INFOTECH$90 Billion

Software development,tech support, Website design, ITinfrastructure

LOGISTICS &PROCUREMENT$179 Billion

Includes just-in-timeshipping, partspurchasing, andafter-sales repairs

FINANCE &ACCOUNTING$14 Billion

Includes accountspayable, billing,and financial andtax statements

MANUFACTURING$170 Billion

Contract productionof everything fromelectronics tomedical devices

CUSTOMERCARE$41 Billion

Car centers for techsupport, air bookings,bill collection etc.

ANALYTICS$12 Billion

Includes marketresearch, financialanalysis, and riskcalculation

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employees. Downsizing, the planned elimination of positions or jobs, has had, and will continue to have, profound effects on organizations, managers at all levels, employees, labor markets, customers, and shareholders.34 Based on the type of restructuring in question, one study examined restructuring’s effects on profitability and stock returns of 500 representative companies listed on the New York Stock Exchange (Standard & Poor’s 500) over an 18-year period (1982–2000). (Companies are included in the S&P 500 because of their size and financial contribution to the market.) The study began by classifying the companies each year as stable employ-ers, employment or asset downsizers, or employment or asset upsizers. Re-searchers observed the subsequent effects over the following three years. 35 In terms of profitability (return on assets) all categories of downsizers generated lower returns on assets than either stable employers or upsizers in the year prior to the announcement of the layoffs, in the year in which the layoffs occurred, and in the two subsequent years. This conclusion held up on an industry-adjusted basis, as well. In terms of stock performance, on an industry-adjusted basis, only the asset upsizers yielded returns that were significantly higher than those of all other groups, including stable employers. The cumulative total return by the end of year two for a $1 investment was $1.69 for stable employers, $1.72 for both employment and asset downsizers, and $2.42 for asset upsizers. Employment downsizers reduced their work forces by an average of 11%. Relative to their industries, they were able to attain a return on assets that was only 0.3% above their industry average by year two. The benefits of downsiz-ing seem small when compared to the human cost. The message to employers is clear: Don’t try to shrink your way to prosperity. Instead, the best way to prosper is by growing your business.

Quality-Management Programs

One of the best known quality-management programs is Six Sigma. 36 Six Sigma originated at Motorola in 1986, and became a staple of corporate life in the 1990s after it was embraced by GE. Its goal is to reduce variability from a process (no more than 3.4 defects per million) in order to avoid errors (defects) and increase predictability. It is based on five steps: define, mea-sure, analyze, improve, and control, or DMAIC (pronounced “dee-may-ic”). Originally invented as a way to improve quality, Six Sigma’s main value to corporations today lies in its ability to save time and money. According to the American Society for Quality, 82 of the 100 largest companies in the United States—companies as varied as DuPont, Textron, Bank of America, and Sun Microsystems—have embraced Six Sigma. Yet there is an inherent tension between innovation and efficiency. Whereas process excellence de-mands precision, consistency, and re petition, innovation calls for variation, failure, and serendipity. As the emphasis shifts to today’s idea-based, cre-ative economy, Six Sigma may be less appropriate in companies like Google and 3M, which have the long-term strategy to dream up innovations. 37 Unfortunately, quality-management programs have not been the final an-swer to customer satisfaction and productivity improvement. In many cases



managers view quality as a quick fix and are disillusioned when results prove difficult to achieve. It generally takes three to five years before quality- management programs become institutionalized, 38 and some CEOs and managers are unwilling to make that kind of commitment. When such initiatives do work, however, it is often because managers have made major changes to their philosophies and HR programs. In fact, organizations known for the quality of their products and services strongly believe that employees are key to those results. 39

Reengineering

Some organizations have moved to a more comprehensive approach to rede-signing business processes called reengineering. Reengineering is the funda-mental rethinking and radical redesign of business processes to achieve dramatic improvements in cost, quality, and speed. 40 A process is a collection of activities (such as procurement, order fulfillment, product development, or credit issuance), that takes one or more kinds of input and creates an output that is of value to a customer. Customers may be internal or external. Consider credit issuance as an example. Instead of the separate jobs of credit checker and pricer, the two may be combined into one “deal structurer.” Such integrated processes may cut response time and increase efficiency and productivity. Em-ployees involved in the process are responsible for ensuring that customers’ requirements are met on time and with no defects, and they are empowered to experiment in ways that will cut cycle time and reduce costs. Result: Less su-pervision is needed, while workers take on broader responsibilities and a wider purview of activities. HR issues are central to the reengineering of business processes. 41 Reengi-neering requires that managers create an environment and an organizational culture that embraces, rather than resists, change. The effectiveness of such ef-forts depends on effective leadership and communication, both of which are people-related business processes. In fact, changes in job analyses, selection, training, performance management, career planning, compensation, and labor relations are all necessary in order to complement and support reengineering efforts.

Flexibility

Almost 40 percent of employed U.S. adults don’t take all of the vacation days they earn for the year, although more working Generation Xers (born between 1965 and 1978) than baby boomers (born between 1946 and 1964) do. 42 Time is employees’ most precious commodity, and they want the flexibility to control their own time—where, when, and how they work. They want balance in their lives between work and leisure. Flexibility in schedules is the key, as organiza-tions strive to retain talented workers. 43 In practice, the concept of “flexibility” reflects a broad spectrum of possi-ble work arrangements, as Table 1–3 makes clear. Unfortunately, flexibility is frequently viewed by managers and employees as an exception or employee accommodation, rather than as a new and effective way of working to achieve business results. A face-time culture, excessive workload, manager skepticism,



customer demands, and fear of negative career consequences are among the barriers that prevent employees from taking advantage of policies they might otherwise use—and that prevent companies from realizing the full benefits that flexibility might bestow. 44 Three features are keys to making the business case for increased flexibil-ity: talent management (specifically, attraction and retention); human capital outcomes (increased satisfaction and commitment, decreased stress); and fi-nancial, operational, and business outcomes. Consider the first of these, attrac-tion and retention. At IBM, responses to a recent global work-life survey from almost 42,000 IBM employees in 79 countries revealed that lack of work-life fit—of which flexibility is a significant component—is the second leading reason for poten-tially leaving IBM, behind compensation and benefits. In the Corporate Finance organization, for example, 94 percent of all managers reported positive impacts of flexible work options on the company’s ability to retain talented profession-als. In light of these findings showing the strong link between flexibility and retention, IBM actively promotes flexibility as a strategy for retaining key tal-ent. In Case 1–1 at the end of this chapter, we will see how Best Buy takes this concept even further. People make organizations go. How the people are selected, trained, and managed determines to a large extent how successful an organization will be. As you can certainly appreciate by now, the task of managing people in today’s world of work is particularly challenging in light of the competi-tive realities we have discussed. To survive, let alone compete, firms need a strategy for managing talent. General Electric Company (GE) is legendary for doing that well. The HR Buzz box on pages 20 and 21 shows how GE does it.

Table 1–3 IMPLEMENTING FLEXIBILITY: A SPECTRUM OF PRACTICE

Individual AccommodationsSpecial arrangements, or “deals,” are granted on a case-by-case basis and are often kept secret.

Policies and Programs in PlacePolicies and programs exist, but flexibility is used only in “pockets” across the organization.

Flexibility’s Many FacesWidespread use of formal and informal flexibility meets business and individual needs.

New Ways of WorkingA results-driven culture, where flexible work practices are utilized as a management strategy to achieve business results, ensues.

Source: Corporate Voices for Working Families (2011, February). Business Impacts of Flexibility: An Imperative for Expansion (Updated, 2011), p. 16. Retrieved from www.cvwf.org/publication-toolkits/business-impacts-flexibility-imperative-expansion-updated-2011 on September 29, 2011.



ETHICAL DILEMMA Conflict between American and Foreign Cultural Values

Each chapter of this book contains a brief sce-nario that illustrates a decision-making situation that could result in a breach of acceptable behav-ior. Such situations pose ethical dilemmas. To be ethical is to conform to moral standards or to con-form to the standards of conduct of a given pro-fession or group (e.g., medicine, auditing). Ethical decisions about behavior take account not only of one’s own interests but also, equally, the interests of those affected by a decision. What would you recommend in response to the following situation? a You are the director of HR for a large, southwestern teaching hospital. This hos-pital has a cooperative program with a major teaching hospital in Saudi Arabia. Each year sev-eral doctors from your hospital spend the year in Saudi Arabia teaching and doing research. The stay in Saudi Arabia is generally considered both lucrative and professionally rewarding. This morning you had a visit from two of the doctors in the hospital who had been rejected for assignment to Saudi Arabia. They were very up-

set, as they are both very qualified and ambitious. You had carefully explained to them that although the selection committee was impressed with their abilities, the members had decided that because they were Jewish, it would be best if they were disqualified from consideration. In spite of vigor-ous protest from the two doctors, you had held

your ground and supported the commit-tee’s decision. However, as you sit at home reading that evening, the situation replays itself in your mind, and you think about the decision and feel a little uncertain.

Is the director of HR correct in sup-porting the committee’s decision? What

criteria should the committee, and the director of HR, use to make a decision such as this? What would you recommend?

a Taylor, S., and Eder, R. W. (2000). U.S. expatriates and the Civil Rights Act of 1991: Dissolving boundaries. In M. Men-denhall and G. Oddou (Eds.), Readings and Cases in Interna-tional Human Resource Management (3rd ed.). Cincinnati, OH: South-Western College Publishing, pp. 251–279.

HR BUZZ NURTURING LEADERS AT GENERAL ELECTRIC COMPANY a On the eve of his retirement after 40 years with GE, the last 13 as head of HR, William J. Conaty, architect of GE’s new vision of global leadership, shared seven secrets for nurturing leaders. Here they are.

Dare to Differentiate. Conaty advises: Relentlessly assess and grade employees to build organizational vitality and to foster a true meritocracy. The knowledge that one is being measured against his or her peers helps boost performance. “We want to create angst in the system,” he says.

Constantly Raise the Bar. According to Conaty, leaders continually seek to improve performance, both their own and their team members’. “The one rea-son executives fail at GE is they stop learning. The job grows, accountability grows, and the people don’t grow with it.” GE employees think so highly of continuous learning that they consider training courses to be rewards.

Don’t Be Friends with the Boss. “The HR leader locks in with the CEO and the rest of the organization thinks the HR leader isn’t trustworthy and can’t be a confidant,” Conaty explains. Although he deliberately socializes with other

aBrady, D. (2007, Apr. 9). Secrets of an HR superstar. BusinessWeek, pp. 66, 67.



colleagues at functions, Conaty is totally candid with leaders in private. CEO Jeff Immelt remarked, “I call Bill the ‘first friend’—the guy that could walk in my office and kick my butt when it needed to be.”

Become Easy to Replace. Conaty believes that great leaders develop great suc-cession plans and that insecure leaders are intimidated by them. So, at GE, lead-ers are judged by the strength of their teams and are rewarded for mentoring people throughout the organization. Conaty’s own successor is someone he men-tored through the HR department at GE, a fact he takes pride in.

Be Inclusive. Conaty admits, within every organization there’s a tendency to favor people you know. He believes that can undermine success. Take acquisi-tions, for example. GE has learned to rigorously assess the talent within compa-nies before they are even acquired. Conaty elaborates, “We make special provisions to make ‘top talent’ feel financially welcome as well as emotionally welcome. Our GE people can’t be the victors in these deals.”

Free up Others to Do Their Jobs. Conaty advises: Give people the tools and per-mission to work on their own terms. Take Sharon R. Daley, a senior HR executive who turned down a promotion to spend more time with her kids. GE worked with her, allowing her to work part time until she was ready to take on more responsi-bility. She eventually rose to company officer and top industry HR executive.

Keep It Simple. Says Conaty, “You can’t move 325,000 people with mixed messages and thousands of initiatives. Leaders succeed by being consistent and straightforward about a handful of core messages. And the best don’t get de-railed when times get tough. . . . Everyone experiences failure now and then. It’s how you handle it that matters.”

Each chapter of this book focuses on a different aspect of HRM and consid-ers its impact on three important outcomes: productivity, quality of work life, and profits. In the next two sections we will examine the concepts of produc-tivity and quality of work life. In the next chapter we will focus on the contri-bution of effective HRM to profits.

PRODUCTIVITY: WHAT IS IT AND WHY IS IT IMPORTANT?

In general, productivity is a measure of the output of goods and services relative to the input of labor, capital, and equipment. The more productive an industry, the better its competitive position because its unit costs are lower. When productivity increases, businesses can pay higher wages without boosting inflation. As Figure 1–4 illustrates, nations vary significantly in terms of productivity, expressed as gross domestic product per person employed (in US$). Evidence indicates that innovative HR practices in manufacturing (e.g., production ideas drawn from nonmanagerial employees, job rotation, tying pay to performance) may account for as much as 89 percent of the growth in what economists call “multifactor” productivity—a measure of how businesses enhance production by combining workers and machines using technology, production processes, and managerial practices. 45 Improving productivity is not working harder; it is working smarter. Today’s world demands that we do more with less—fewer people, less money, less time, less space, and fewer resources in general. These ideas are shown graphically in Figure 1–5 and illustrated in the HR Buzz on page 23.



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More productive organizations get more goods and services out of a given amount of labor, capital, and equipment than do less productive organizations.



Automation has revolu-tionized automobile assembly.

aDavid, G. (2004, Apr. 5). One truck a minute: Ford’s Kansas City factory builds more vehicles than any other assembly plant in the country. Here’s how it gets done. Fortune, p. 255. From Fortune Magazine, April 5, 2004, © 2004 Time Inc. Used under license.

HR BUZZ ONE TRUCK A MINUTE AT FORD’S KANSAS CITY PLANT a Ford’s Kansas City automobile plant is one of the largest in the United States, turning out more than 490,000 F-150 pickup trucks, Ford Escapes, and Mazda Tributes each year. The plant is “flexible,” meaning that with just a little tweak-ing it can produce any kind of car that Ford makes. Mostly it produces F-150s, the best-selling vehicle of any kind in the United States for the past 22 years. The new model has so many options, including a paint called Screaming Yel-low, that there are more than one million possible combinations. In a flexible plant, each vehicle is assigned a metal pallet on which it will be built. The pallet has a reprogrammable ID card that contains data on the vehicle-to-be. Parts arrive four to six hours before they’re installed, in the sequence in which they will be used. Assembly is synchronized by computers down to the last rear-view mirror. As an example, consider the 11 people who attach suspen-sions to vehicle frames. Every task they do is listed on a computer printout posted at each workstation. They have 57.5 seconds to get their jobs done. Ford is making a company-wide shift to flexible manufacturing. Doing so will enable it to save $2 billion over the next 10 years. When plant manager Dave Savchetz was asked what’s changed over the years he replied: “We didn’t have robots and computers 30 years ago.” To a manager, the basic concepts haven’t changed, so the magnitude of the operation still overwhelms Savchetz (the plant covers 18 acres). But what impresses him most, he says, is the way that auto-manufacturing facilities, such as the one in Kansas City, have made giant, often unnoticed leaps in productivity in order to stay competitive in the modern marketplace. How big a leap? The plant produces one truck a minute.



Greater productivity benefits organizations directly (i.e., it improves their competitive position relative to that of rivals), and it benefits workers indi-rectly (e.g., in higher pay and improved purchasing power). Many workers, however, want to see a tighter connection between working smarter and the tangible and psychological rewards they receive from doing their jobs well. They want to see significant improvements in their quality of work life.

QUALITY OF WORK LIFE: WHAT IS IT?

There are two ways of looking at what quality of work life ( QWL ) means. 46 One way equates QWL with a set of objective organizational conditions and practices (e.g., promotion-from-within policies, democratic supervision, employee involve-ment, safe working conditions). The other way equates QWL with employees’ perceptions that they are safe and relatively well satisfied, they have reasonable work-life balance, and they are able to grow and develop as human beings. This way relates QWL to the degree to which the full range of human needs is met. In many cases, these two views merge: Workers who like their organizations and the ways their jobs are structured will feel that their work fulfills them. In such cases, either way of looking at one’s quality of work life will lead to a com-mon determination of whether a good QWL exists. However, because people differ and because the second view is quite subjective—it concedes, for example, that not everyone finds such things as democratic decision making and telework to be important components of a good QWL—we will define QWL in terms of employees’ perceptions of their physical and mental well-being at work. In theory, QWL is simple: It involves giving workers the opportunity to make decisions about the design of their jobs and workplaces, and what they need to make products or to deliver services most effectively. Of course, what workers want varies by country. It’s competitive base pay in the United States, career opportunities in Brazil, chances to learn in China, challenging work in Japan, and work-life balance in Spain. 47 Innovation, flexibility, individualism, flat organizational structures, and challenging roles for all are hallmarks of the new, creative economy. Success requires a willingness to share power, extensive training for workers and man-agers, and continuous experimentation with new ideas.48 None of this is simple or easily done, and it may take several years to be-come fully integrated into a business. Now that we understand the concepts of productivity and QWL, let’s examine the impact of effective HRM on them as well as on the bottom line.

BUSINESS TRENDS AND HR COMPETENCIES

Over the past decade, organizations have become more complex, dynamic, and fast-paced. As a result, senior managers recognize that attracting, retaining, and managing people effectively is more important than ever. In fact, the results of a recent study of more than 400 companies in North and South America, Europe, China, and Australia indicate that effective HR professionals play six key roles 49 :

1. Credible activists deliver results with integrity, share information, build relationships of trust, take appropriate risks, provide candid observations,



and influence others. They are admired and listened to, take positions, and challenge assumptions. This is the heart of what it takes to be an ef-fective HR leader.

2. Cultural stewards recognize, articulate, and help shape company culture by facilitating change, helping employees find meaning in their work, managing work-life effectiveness, and encouraging innovation.

3. Talent managers/organizational designers ensure today’s and tomorrow’s tal-ent, shape the organization, foster communication, and design reward sys-tems. They do this by mastering theory, research, and practice in these areas.

4. Strategy architects know how to make the right changes happen. They execute changes in strategy, and energize others to accept and embrace the changes.

IMPACT OF EFFECTIVE HRM ON PRODUCTIVITY, QUALITY OF WORK LIFE, AND THE BOTTOM LINE

For most of the last two decades, downsizing set the tone for the modern employment contract. As companies frantically restructured to cope with slipping market share or heightened competition, they tore up old notions of paternalism. They told employees, “Don’t expect to spend your life at one company anymore. You are responsible for your own career, so get all the skills you can and pre-pare to change jobs, employers, even in-dustries. As for the implicit bond of loyalty that might have existed before, well, forget it. In these days of fierce global competition, loyalty is an unaf-fordable luxury.” a Today, faced with the retirements of large numbers of baby boomers, and im-pending labor shortages, employers have changed their tune. Now it’s, “Don’t leave. We need you. Work for us—you can build a career here.” Em-ployers are going to great lengths to persuade em-ployees that they want them to stay for years. According to a recent survey, employees are less loyal to their companies, and they tend to put their own needs and interests above those of their employers. More often they are willing to trade off higher wages and benefits for flexibility and autonomy, job characteristics that allow them to balance their lives on and off the job. Almost 9 out of every 10 workers live with family members,

and nearly half care for dependents, including chil-dren, elderly parents, or ailing spouses. b Among employees who switched jobs in the last five years, pay and benefits rated in the bottom half of 20 possible reasons why they did so. Factors rated highest were “nature of work,” “open com-munication,” and “effect on personal/family life.” What are the implications of these results? When

companies fail to factor in quality-of-work-life issues and quality-of-life is-sues when introducing any of the popular schemes for improving pro-ductivity, the only thing they may gain is a view of the backs of their best peo-ple leaving for friendlier employers. c

a DeMeuse, K. P., and Dai, G. (In press.). Reducing costs and enhancing efficiency or damaging the company: Downsiz-ing in today’s global economy. In C. Cooper, A. Pandey, and J. C. Quick (Eds.). Downsizing: Is Less Still More? Cambridge, UK: Cambridge University Press.b Galinsky, E., Aumann, K., and Bond, J. T. (2009). Times Are Changing: Gender and Generation at Work and at Home. New York, NY: Families and Work Institute. See also Lawler, E. E. III, and O’Toole, J. (2006). The New American Work-place. New York: Palgrave Macmillan.c Spector, P. E., Cooper, C. L., Poelmans, S., Allen, T. D., O’Driscoll, M., Sanchez, J. I., Siu, O. L. et al. (2004). A cross-national comparative study of work/family stressors, work-ing hours, and well-being. China and Latin America versus the Anglo world. Personnel Psychology, 57, pp. 119–142.



5. Business allies contribute to success by knowing how their businesses make money, who the customers are, and why customers buy the company’s products and services. They are “business literate,” for they understand the business and how it works, the financials, and the strategic issues.

6. Operational executors administer the day-to-day work of managing peo-ple by implementing workplace policies and advancing HR technology.

IMPLICATIONS FOR MANAGEMENT PRACTICE

The trends we have reviewed in this chapter suggest that the old approaches to managing people may no longer be appropriate responses to economic or social reality. A willingness to experiment is healthy. To the extent that the newer approaches do enhance produc-tivity, QWL, and profits, everybody wins. Competitive issues cannot sim-ply be willed away, and because of this we may see even more radical experi-ments in organizations. The traditional role of the manager may be blurred further as workers take a greater and greater part in planning and control-ling work, not simply doing what managers tell them to do. Take accounting firm Jefferson Wells, International (now owned by Manpower, Inc.). a Of its 2,000 employees, 10 percent work a flexible schedule, with benefits. A further 20 percent work even fewer hours, project by project, without benefits. The remaining

70 percent are full-time but still have a lot more control over their lives than is typical of the Big Four firms many come from, where travel sched-ules are often grueling. How does the firm do it? It is structured on a local-office model. Even

when staff members are stationed in their clients’ offices, the offices are usually within driving distance of home. The company relies on its commitment to work-life fit in order to attract top-caliber candidates to its auditing practice, and it will not hire anyone with fewer than seven years’ experience. Programs such as these

suggest that human resource management, an essential part of the jobs of all managers, will play an even more crucial role in the future world of work.

a Byrnes, N. (2005, Oct. 10). Treating part-timers like royalty. BusinessWeek, p. 78.

THE 21ST-CENTURY CORPORATION

Management systems that produce profits through people seem to share seven dimensions in common. Let’s briefly examine each one.

1. Employment security. Such security is fundamental to most other high-per-formance management practices. The reason is that innovations in work practices or other forms of worker-management cooperation or productivity improvement are not likely to be sustained over time when workers fear that by increasing productivity they will work themselves out of a job. In addi-tion, if the goal is to avoid layoffs, organizations will be motivated to hire sparingly in order to keep their labor forces smaller and more productive.

2. Selective hiring. This dimension has several prerequisites, the first of which is having a large applicant pool from which to select. Second, the organization

Human Resource Management in Action: Conclusion



needs to be clear about the most critical skills and attributes in the applicant pool. At Southwest Airlines, for example, applicants for flight attendant posi-tions are evaluated in interviews on the basis of initiative, judgment, adapt-ability, and ability to learn. Third, the skills and abilities sought should be consistent with particular job requirements and the organization’s approach to the market (e.g., exceptional customer service). Fourth, interviewers screen for attributes that are difficult to change through training. For example, technical skills are easier to acquire than teamwork and a service attitude.

3. Self-managed teams and decentralization are basic elements of organiza-tion design. Teams substitute peer-based control for hierarchical control of work. They also make all of the people in a firm feel accountable and responsible for the operation and success of the enterprise, not just a few people in senior management. This increased sense of responsibility stim-ulates more initiative and effort on the part of everyone involved. By sub-stituting peer for hierarchical control, teams permit removal of layers of hierarchy and the absorption of tasks previously performed by administrative specialists. The tremendously successful natural-foods grocery-store chain Whole Foods Markets is organized on the basis of teams. It attributes much of its success to that arrangement.

4. Comparatively high compensation contingent on organizational perfor-mance. It is simply not true that only certain industries can or should pay high wages. The extremely successful and profitable company SAS is the world’s largest privately held software business and is ranked the #1 Best Company to Work For on Fortune magazine’s 2010 and 2011 lists, SAS, the world’s largest privately held software business and ranked the #1 best employer on Fortune magazine’s 2010 and 2011 lists, yet it pays industry-average compensation plus profit sharing, in addition to offer-ing eye-popping benefits to employees. Actually, compensation and benefits are only one part of a broader philosophy and culture that in-corporates other practices such as training, information sharing, and delegation of responsibility. Perhaps that is why employee turnover at SAS is less than 4 percent, year after year.

5. Extensive training. Training is an essential component of high-performance work systems because these systems rely on front-line employee skills and initiative to identify and resolve problems, to initiate changes in work meth-ods, and to take responsibility for quality. Firms such as the Men’s Wear-house (an off-price specialty retailer of men’s tailored business attire and accessories) and Google use training as a source of competitive advantage. Google offers 100 hours of professional training per year to its employees. It is simply part and parcel of the overall management process of these firms.

6. Reduced differences in status. The fundamental premise of high- performance management systems is that organizations perform at a higher level when they are able to tap the ideas, skills, and efforts of all of their people. Reducing the status distinctions that separate individuals and groups—distinctions that cause some to feel less valued—helps make all members of an organization feel important and committed. Sam Walton, founder of Walmart, was one of the most underpaid CEOs in the United States. He wasn’t poor, for he owned stock in his company. He also encouraged stock ownership for his employees. Having his fortune rise and fall along with those of other employees produces a sense of common fate and reduces status differences.



7. Sharing of information. The sharing of information on such things as finan-cial performance, strategy, and operational measures conveys to an organiza-tion’s people that they are trusted. Even motivated and trained people cannot contribute to enhancing organizational performance if they don’t have infor-mation on important dimensions of performance and training on how to use and interpret that information. John Mackey, CEO of Whole Foods Markets, states, “If you’re trying to create a high-trust organization . . . an organization where people are all-for-one and one-for-all, you can’t have secrets.”

It may appear easy to create a high-performance organization, but if that were so, then all firms would be as successful as the ones mentioned here. Do not be fooled. Implementing these ideas in a systematic, consistent fashion is tough, and it remains rare enough to be an important source of competitive advantage for firms in a number of industries. The bottom line is that management is a human art—and is becoming more so as information technology takes over routine tasks. Progressive managers understand that they will provide competitive advantage by tapping employees’ most essential humanity, their ability to create, judge, imagine, and build relationships. As you can see from this case, managing 21st-century or-ganizations is fast-paced, exciting, and full of people-related business challenges.

SUMMARY

People are a major component of any business, and the management of people (or human resource management, HRM) is a major part of every manager’s job. It is also the specialized responsibility of the HR department. In fact, we use the term “strategic HRM” to refer to the wisest possible use of people with re-spect to the strategic focus of the organization. HRM involves five major areas: staffing, retention, development, adjustment, and managing change. Together they compose the HRM system, for they describe a network of interrelated components. The HRM function is responsible for maximizing productivity, quality of work life, and profits through better management of people. The competitive business environment of the 21st century reflects factors such as an aging and changing workforce in a high-tech workplace that demands and rewards ever-increasing skill, and increasing global competition in almost every sector of the economy. In response, new organization forms, such as the virtual corporation, the virtual workplace, and the modular corporation, are appearing. The new forms imply a redistribution of power, greater participation by workers, and more teamwork. Firms are also restructuring, reengineering, implementing quality-improvement programs, and building flexibility into work schedules in order to support their competitive strategies. The challenge of attracting, retaining, and motivating people has never been greater. One of the most pressing demands we face today is for productivity improvement—getting more out of what is put in; doing better with what we have; and working smarter, not harder. Nevertheless, increased productivity does not preclude a high quality of work life (QWL). QWL refers to employees’



perceptions of their physical and psychological well-being at work. It involves giving workers the opportunity to make decisions about their jobs, the design of their workplaces, and ensuring work-life fit. Its focus is on employees and managers operating a business together. HR professionals can help by serving as credible activists, cultural stewards, talent managers, strategy architects, business allies, and operational executors.

DISCUSSION QUESTIONS

1–1. What are the HRM implications of globalization, technology, and e-commerce? 1–2. How will demographic changes and increasing diversity in the workplace af-

fect the ways that organizations manage their people? 1–3. Considering everything we have discussed in this chapter, describe manage-

ment styles and practices that will be effective for your country’s businesses in the next decade.

1–4. What difficulties do you see in shifting from a hierarchical, departmentalized organization to a leaner, flatter one in which power is shared between workers and managers?

1–5. How can effective HRM contribute to improvements in productivity and qual-ity of work life?

staffing retention development adjustment managing change HRM system authority globalization human resources information system virtual organization

virtual workplace restructuring downsizing Six Sigma reengineering processethical decisions about behavior productivity quality of work life

KEY TERMS

Case 1–1 Smashing the Clock *

No schedules. No mandatory meetings. Inside Best Buy’s radical reshaping of the workplace. One afternoon last year, Chap Achen, who oversees online orders at Best Buy Co., shut down his computer, stood up from his desk, and announced that he was leaving for the day.

APPLYING YOUR KNOWLEDGE

*Sources: Conlin, M. (2006, Dec. 11). Smashing the clock. BusinessWeek, pp. 60–68. Fox, A. (2009, Sept.). Gap Outlet: Second retailer adopts results-only work environment strategy. Retrieved from www.shrm.org/hrdisciplines/orgempdev/articles/Pages/GapOutletROWE.aspx on May 20, 2011. See also Conlon, M. (2009, Sept. 17). Gap to employees: work wherever, whenever you want. Retrieved from http://www.businessweek.com/careers/managementiq/archives/2009/09/gap_to_employee.html.



It was around 2 p.m., and most of Achen’s staff were slumped over their keyboards, deep in a post-lunch, LCD-lit trance. “See you tomorrow,” said Achen. “I’m going to a matinee.” Under normal circumstances, an early-afternoon departure would have been totally un-Achen. After all, this was a 37-year-old corporate comer whose wife laughs in his face when he utters the words “work-life balance.” But at Best Buy’s Minneapolis head-quarters, similar incidents of strangeness were breaking out all over the ultramodern campus. In employee relations, Steve Hance had suddenly started going hunting on workdays, a Remington 12-gauge in one hand, a Verizon LG in the other. In the retail training department, e-learning specialist Mark Wells was spending his days traveling around the country following rocker Dave Matthews. Single mother Kelly McDevitt, an online promotions manager, started leaving at 2:30 p.m. to pick up her 11-year-old son, Calvin, from school. Scott Jauman, a Six Sigma black belt, began spending a third of his time at his Northwoods cabin. At most companies, going AWOL during daylight hours would be grounds for a pink slip. Not at Best Buy. The nation’s leading electronics retailer has embarked on a radical—if risky—experiment to transform a culture once known for killer hours and herd-riding bosses. The endeavor, called ROWE, for “results-only work environment,” seeks to demolish decades-old business dogma that equates physical presence with pro-ductivity. The goal at Best Buy is to judge performance on output instead of hours. Hence workers pulling into the company’s amenity-packed headquarters at 2 p.m. aren’t considered late. Nor are those pulling out at 2 p.m. seen as leaving early. There are no schedules. No mandatory meetings. No impression-management hustles. Work is no longer a place where you go, but something you do. It’s OK to take conference calls while you hunt, collaborate from your lakeside cabin, or log on after dinner so you can spend the afternoon with your kid. Best Buy did not invent the post-geographic office. Tech companies have been go-ing bedouin for several years. At IBM, 40 percent of the workforce has no official office; at AT&T, a third of managers are untethered. Sun Microsystems Inc. calculates that it has saved $400 million over six years in real estate costs by allowing nearly half of all employees to work anywhere they want. And this trend seems to have legs. A recent Boston Consulting Group study found that 85 percent of executives expect a big rise in the number of unleashed workers over the next five years. In fact, at many companies the most innovative new product may be the structure of the workplace itself. But, arguably, no big business has smashed the clock quite so resolutely as Best Buy. The official policy for this post–face-time, location-agnostic way of working is that people are free to work wherever they want, whenever they want, as long as they get their work done. “This is like TiVo for your work,” says the program’s co-founder, Jody Thompson. By the end of 2007, all 4,000 staffers working at corporate will be on ROWE. Starting in February, the new work environment will become an official part of Best Buy’s recruiting pitch as well as its orientation for new hires. And the company plans to take its clockless campaign to its stores—a high-stakes challenge that no company has tried before in a retail environment. Another thing about this experiment: It wasn’t imposed from the top down. It began as a covert guerrilla action that spread virally and eventually became a revolution. So se-cret was the operation that Chief Executive Brad Anderson only learned the details two years after it began transforming his company. Such bottom-up, stealth innovation is ex-actly the kind of thing Anderson encourages. The Best Buy chief aims to keep innovating even when something is ostensibly working. “ROWE was an idea born and nurtured by a handful of passionate employees,” he says. “It wasn’t created as the result of some edict.” So bullish are Anderson and his team on the idea that they have formed a subsid-iary called CultureRx, set up to help other companies go clockless. CultureRx expects to sign up at least one large client in the coming months. The CEO may have bought in, but there has been plenty of opposition inside the company. Many execs wondered if the program was simply flextime in a prettier bottle.



Others felt that working off-site would lead to longer hours and destroy forever the de-marcation between work and personal time. Cynics thought it was all a PR stunt dreamed up by Machiavellian operatives in human resources. And as ROWE infected one department after the other, its supporters ran into old-guard saboteurs, who con-tinue to plot an overthrow and spread warnings of an imminent paradise for slackers. Then again, the new work structure’s proponents say it’s helping Best Buy over-come challenges. And thanks to early successes, some of the program’s harshest critics have become true believers. With gross margins on electronics under pressure, and Walmart Stores Inc. and Target Corporation shouldering into Best Buy territory, the company has been moving into services, including its Geek Squad and “customer cen-tricity” program in which salespeople act as technology counselors. But Best Buy was afflicted by stress, burnout, and high turnover. The hope was that ROWE, by freeing employees to make their own work-life decisions, could boost morale and productivity and keep the service initiative on track. It seems to be working. Since the program’s implementation, average voluntary turn-over has fallen drastically, CultureRx says. Meanwhile, Best Buy notes that productivity is up an average 35 percent in departments that have switched to ROWE. Employee en-gagement, which measures employee satisfaction and is often a barometer for retention, is way up too, according to the Gallup Organization, which audits corporate cultures. ROWE may also help the company pay for the customer-centricity campaign. The endeavor is hugely expensive because it involves tailoring stores to local markets and training employees to turn customer feedback into new business ideas. By letting people work off-campus, Best Buy figures it can reduce the need for corporate office space, perhaps rent out the empty cubicles to other companies, and plow the millions of dol-lars in savings into its services initiative. Phyllis Moen, a University of Minnesota sociology professor who researches work-life issues, is studying the Best Buy experiment in a project sponsored by the National Institutes of Health. She says most companies are stuck in the 1930s when it comes to employees’ and managers’ relationships to time and work. “Our whole notion of paid work was developed within an assembly-line culture,” Moen says. “Showing up was work. Best Buy is recognizing that sitting in a chair is no longer working.”

One Giant Wireless Kibbutz Jody Thompson and Cali Ressler are two HR people you actually don’t hate. They groan over cultish corporate slogans like “Build Superior Organizational Capability.” They dis-dain Outlook junkies who double-book and showboating PowerPointers. But it’s flextime, or Big Business’s answer to overwork, long commutes, and lack of work–family balance, that elicits the harshest verdict. “A con game,” says Thompson. “A total joke,” adds Ressler. Flexible work schedules, they say, heap needless bureaucracy on managers instead of addressing the real issue: how to work more efficiently in an era of transcontinental teams and multiple time zones. They add that flextime also stigmatizes those who use it (the reason so few do) and keeps companies acting like the military (fixated on sched-ules) when they should behave more like MySpace (social networks where real-time innovation can flourish). Besides, they say, if people can virtually carry their office around in their pockets or pocketbooks, why should it matter where and when they work if they are crushing their goals? Thompson, 49, and Ressler, 29, met three years ago. The boomer and the Gen Xer got each other right away. When they talk about their meeting, it sounds like something out of Plato for HR , or two like minds making a whole. At the time, Best Buy was still a ferociously face-time place. Workers arriving after 8 a.m. on sub-zero mornings stashed their parkas in their cars to foil detection as late arrivals. Early escapees crept down back stairwells. Cube-side, the living was equally uneasy. One manager required his MBAs to sign out for lunch and to list their restaurant locations and ETAs. Another insisted his team track its work—every 15 minutes. As at many companies, the last one to turn out the lights won.



Outside the office, Thompson and Ressler couldn’t help noticing how wireless broad-band was turning the world into one giant work kibbutz. They talked about how managers were mired in analog-age inertia, often judging performance on how much they saw you versus how much you did. Ressler and Thompson recognized the dangerous, life-wrecking cocktail in the making: The always-on worker also had to be always in. The culture, not exactly Minnesota-nice, was threatening Best Buy’s massive expan-sion plans. But Ressler and Thompson knew their solution was too radical to simply trot up to CEO Anderson. Nor, in the beginning, did they feel they could lobby their executive supervisors for official approval. Besides, they knew the usual corporate route of imposing something from the top down would bomb. So they met in private, stealth-ily strategizing about how to protect ROWE and then dribble it out under the radar in tiny pilot trials. Ressler and Thompson waited patiently for the right opportunity. It came in 2003. Two managers—one in the properties division, the other in communications—were desperate. Top performers were complaining of unsustainable levels of stress, threatening business continuity just when Best Buy was rolling out its customer-centricity campaign in hundreds of stores. They also knew from employee engagement data that workers were suffering from the classic work-life hex: jobs with high demands (always-on, transcontinental availability) and low control (always on-site, no personal life). Ressler and Thompson saw their opening in these two vanguard managers. Would they be willing to partake in a private management experiment? The two outlined their vision. They explained how in the world of ROWE, there would be no mandatory meet-ings. No times when you had to physically be at work. Performance would be based on output, not hours. Managers would base assessments on data and evidence, not feelings and anecdotes. The executives liked what they heard and agreed. The experiment quickly gained social networking heat. Waiting in line at Best Buy’s on-site Caribou Coffee, in e-mails, and during drive-bys at friends’ desks, employees in other parts of the company started hearing about this seeming antidote to megahour agita. A curious culture of haves and have-nots emerged on the Best Buy campus, with those in ROWE sporting special stickers on their laptops as though they were part of some cabal. Hance, the hunter, started taking conference calls in tree stands and exchanging e-mails from his fishing boat. When Wells wasn’t following around Dave Matthews, chances were he was biking around Minneapolis’ network of urban lakes, and digging into work only after night had fallen. Hourly workers were still putting in a full 40, but they began doing so wherever and whenever they wanted. At first, participants were loath to share anything about ROWE with higher-ups for fear the perk would be taken away or reversed. But by 2004, loftier and loftier levels of manage-ment began hearing about the experiment at about the same time that opposition to it grew more intense. Critics feared executives would lose control and coworkers would forfeit the collaboration born of proximity. If you can work anywhere, they asked, won’t you always be working? Won’t overbearing bosses start calling you in the middle of the night? Won’t coast-ers see ROWE as a way to shirk work and force more dedicated colleagues to pick up the slack? And there were generational conflicts: Some boomers felt they’d been forced to choose between work and life during their careers. So everyone else should, too. Shari Ballard, Best Buy’s executive vice-president for human capital and leadership (an analog title if ever there was one), was originally skeptical, although she eventually bought in. At first she couldn’t figure out why managers needed a new methodology to help solve the work-life conundrum. “It wasn’t hugs and smiles,” she says of Ressler’s and Thompson’s campaign. “Managers in the old mental model were totally irritated.” In the e-learning division, many of Wells’s older coworkers (read 40-year-olds; the average age at Best Buy is 36) expressed resentment over the change, insisting that work relationships are better face-to-face, not screen-to-screen. “We have people in our group who are like, ‘I’m not going to do it,’” says Wells, who likes to sleep in and doesn’t own an alarm clock. “I’m like, ‘That’s fine, but I’m outta here.’” In enemy circles, Ressler and Thompson are known to this day as “those two” and “the subversives.”



Yet ROWE continues to spread through the company. If intrigued nonparticipants work for progressive superiors, they usually talk up the program and get their bosses to agree to trials. If they toil under clock-watchers, they form underground networks and quietly lobby for outside support until there is usually no choice but for their boss to switch. It was only this past summer that CEO Anderson got a full briefing, and total understanding, about what was happening. “We purposely waited until the tipping point before we took it to him,” says Thompson. Until then he wasn’t well-versed on the 13 ROWE commandments. No. 1: People at all levels stop doing any activity that is a waste of their time, the customer’s time, or the company’s money. No. 7: Nobody talks about how many hours they work. No. 9: It’s OK to take a nap on a Tuesday afternoon, grocery shop on Wednesday morning, or catch a movie on Thursday afternoon. That’s the commandment Achen was following when he took off that day to see Star Wars Episode III: Revenge of the Sith . Doing so felt abnormal and uncomfortable. Achen felt guilty. But Ressler and Thompson had told him to “model the behavior.” So he did. It helped that Achen saw in ROWE the potential to solve a couple of nagging business problems. As the head of the unit that monitors everything that happens after someone places an order at BestBuy.com , including manually reviewing orders and flag-ging them for possible fraud, Achen wanted to expand the hours of operation without mandating that people show up in the office at 6 a.m. He had another issue. One of his top-performing managers lived in St. Cloud, Minnesota, and commuted two and a half hours each way to work. He and Achen had a gentleman’s agreement that he could work from home on Fridays. But the rest of the staff didn’t appreciate the favoritism. “It was creating a lot of tension on my team,” says Achen.

Record Job Satisfaction Ressler and Thompson had convinced Achen that ROWE would work. Now Achen would have to convince the general manager of BestBuy.com , senior vice-president John “J. T.” Thompson. That wasn’t going to be easy. Thompson, a former General Electric Company guy, was as old school as they come with his starched shirt, booming voice, and ramrod-straight posture. He came of age believing there were three 8-hour days in every 24 hours. He loved working in his office on weekends. At first, he pushed back hard. “I was not supportive,” says Thompson, who was privately terrified about the loss of control. “He didn’t want anything to do with it,” says Achen. “He was all about mea-surement, and he kept asking me, ‘How are you going to measure this so you know you’re getting the same productivity out of people?’” That’s where Achen’s performance metrics came in handy. He could measure how many orders per hour his team was processing no matter where they were. He told Thompson he’d reel everyone back to campus the minute he noticed a dip. Within a month, Achen could see that not only was his team’s productivity up, but engagement scores, or measuring job satisfaction and retention, were the highest in the dot-com division’s history. For years, engagement had been a sore spot for Thompson. “I showed J. T. these scores, and his eyes lit up,” says Achen. Thompson rushed to roll out ROWE to his entire department. Voluntary turnover among men dropped from 16.11 percent to 0. “For years I had been focused on the wrong currency,” says Thompson. “I was always looking to see if people were here. I should have been looking at what they were getting done.” Today, Achen’s commuting employee usually comes in once a week. Nearly three-quarters of his staff spend most of their time out of the office. Doesn’t he worry that he loses some of the interoffice magic when they don’t gather together all day, every day? What about the value in riffing on one another’s ideas? What about teamwork and cama-raderie? “You absolutely lose some of that,” he says. “But what we get back far out-weighs anything we’ve lost.” Achen says he would never go back. Orders processed by people who are not working in the office are up 13 percent to 18 percent over those who are. ROWE’ers are posting



higher metrics for quality, too. Achen says he believes that’s due to the new office paradox: Given the constant distractions, it sometimes feels impossible to get any work done at work. Ressler and Thompson say all the Best Buy groups that have switched to the freer struc-ture report similar results. Meanwhile, the two have other big plans for the company. Last month they launched a new pilot called Cube-Free. Ressler and Thompson believe offices encourage the wrong kinds of habits, keeping people wrapped up in a paper, prewireless mentality as opposed to pushing employees to use technology in the efficiency-enhancing way it was intended. Offices also waste space and time in an age when workers are becom-ing more and more place-neutral. “This also sets up Best Buy to be able to completely oper-ate if disaster hits,” says Thompson. Work groups that go cube-free will be able to redesign their spaces to better accommodate collaboration instead of working alone. Next year Ressler and Thompson plan to pilot their boldest move yet, testing ROWE in retail stores among both managers and workers. How exactly they will do this in an environment where salespeople presumably need to put in regular hours, they won’t say. And they acknowledge it won’t be easy. Still, they are eager to try just about anything to help the company slash its 65 percent turnover rates in stores, where disgruntlement is common and workers form groups on MySpace with names like “Best Buy Losers Club!” Best Buy has transformed its workplace culture in a remarkably short time. Isn’t it also true that ROWE could unravel just as quickly? What happens if the company hits a speed bump? Competition isn’t getting any less intense, after all. Best Buy sells a lot of extended warranties, an area where both Walmart and Target are eager to undercut the electronics retailer on price. What’s more, the current boom in flat-panel, digital TVs will peak in a few years. If Best Buy’s business goes south, human nature dictates that the people who always believed the clockless office was a flaky New Age idea will see an opportunity to try to force a hasty retreat. Some at the company complain that productivity is up only because many Best Buyers are now working longer hours. And some die-hard ROWE opponents still privately roll their eyes when they see Ressler and Thompson in the hallway. But it’s worth remembering that most big companies fail to grow at the rate of infla-tion. That’s true in part because the bigger the company gets, the harder it is to get the best out of each and every employee. ROWE is one of Best Buy’s answers to avoiding that fate. “The old way of managing and looking at work isn’t going to work anymore,” says Ressler. “We want to revolutionize the way work gets done.” Admit it, you’re rooting for them, too. Ressler and Thompson have since left Best Buy and set up their own consulting shop called CultureRx. The firm helps other companies migrate to ROWE. One of those is the headquarters staff at the Gap Outlet. A post-pilot assessment conducted in early 2009 revealed that productivity increased 21 percent and quality improved 15 percent among the pilot group. Turnover plummeted 18 percent, down to 5 percent in 2008 over the year prior. Engagement scores spiked from 67 percent in 2007 to 86 percent in 2008, and work–life balance scores rose significantly from 72 percent to 82 percent. Said Chief HR Officer Eva Sage-Gavin, “ “If I were speaking to another CHRO, I would say that in this economic environment, it is critical to look into ROWE. Check your culture, look at your demographics and if all those are green, then what’s the risk in trying it? Go slow, pilot it and check the results.”

Questions 1. Are there trade-offs in implementing a ROWE culture? 2. Can ROWE work with managers? 3. Is ROWE all or nothing? Might there be other options? 4. What types of employees might find ROWE most/least appealing?



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chapter 1 human resources in a globally competative business enviornment

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