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Achieving Excellence in Human Resource Management

Stanford University Press

Contents

Tables and Exhibits.......................................................viiPreface...................................................................xiThe Authors...............................................................xiii1 What HR Can Do..........................................................12 Research Design.........................................................123 Role of Human Resources.................................................214 Business Strategy.......................................................285 HR Decision Science.....................................................386 Design of the HR Organization...........................................497 Human Resources Activities..............................................568 HR Analytics and Metrics Uses and Comprehensiveness.....................619 HR Analytics and Metrics Effectiveness..................................7510 Outsourcing............................................................8311 Use of Information Technology..........................................8912 Human Resource Skills..................................................9613 Effectiveness of the HR Organization...................................10514 Determinants of HR Effectiveness.......................................11215 HR Excellence..........................................................12616 What the Future of HR Should Be........................................134References................................................................143Appendices................................................................147

Chapter One

Global competition, advances in information technology, new knowledge, offshoring, and a host of other changes are forcing organizations to constantly examine and reevaluate how they operate. Organizations are creating new strategic initiatives and significantly changing how they operate. They are utilizing new technologies, changing their structures, redesigning work, relocating their workforces, and improving work processes to respond to an increasingly demanding and global competitive environment. These important changes have significant implications for their human capital and their human resources functions. But are organizations changing their human capital management processes? Are they redesigning their HR functions?

During the past decade it has been difficult to find a management book or magazine that doesn't point out how many of the changes in the business world have made human capital-people-an organization's most important asset (Lawler 2008). The "war for talent" has been the focus of a great deal of writing focused on finding, motivating, and developing the "right talent" (Guthridge, Komm, and Lawson 2008).

The annual reports of many corporations argue that their human capital and intellectual property are their most important assets. In many organizations, compensation is one of the largest costs, if not the largest. In service organizations it often represents 70 to 80 percent of the total cost of doing business. Adding the costs of training and other human resources management activities to compensation costs, we can see that the human resources function often has responsibility for a large portion of an organization's total expenditures, and this portion is growing.

But the compensation cost of human capital is not the only, or even the most important, consideration. Even when compensation accounts for very little of the cost of doing business, human capital can have a significant impact on the performance of most organizations (Cascio 2000; Cascio and Boudreau 2008). In essence, without effective human capital, organizations are likely to have little or no revenue. Even the most automated production facilities require skilled, motivated employees to operate them. Knowledge work organizations depend on employees to develop, use, and manage their most important asset, knowledge. Thus, although the human capital of a company does not appear on the balance sheet of corporations, it represents an increasingly large percentage of many organizations' market valuation (Lev 2001; Huselid, Becker, and Beatty 2005).

Not all organizations can or should look upon their human capital as a major source of competitive advantage (Lawler 2008). In some organizations it may be sufficient to simply have talent that can and will do relatively simple jobs effectively. But in an increasing number of organizations, talent that is better trained, motivated, and organized can be a source of competitive advantage. It can make it possible for companies to be more innovative, develop superior products and customer knowledge, and offer superior services.

A growing body of evidence affirms that HR practices have a direct impact on the performance of an organization (for example, Ulrich, Brockbank, Johnson, Sandholtz, and Younger 2008). The initial work on the relationship between a firm's performance and its HR practices was conducted by Becker and Huselid (1998). In their study of 740 corporations, they found that firms with the greatest intensity of HR practices that reinforce performance had the highest market value per employee. They argued that HR practices are critical in determining the market value of a corporation, and that improvements in HR practices can lead to significant increases in the market value of corporations. They concluded that the best firms are able to achieve both operational and strategic excellence in their HR systems.

Roles of the Human Resources Organization

The HR function can add value by adopting a control-and-audit role. But two other roles that it can take on allow it to add greater value. Lawler (1995) has developed this line of thought by describing three roles HR can take on. The first is the familiar human resources management role (Exhibit 1.1).

The second is the role of business partner (Exhibit 1.2). It emphasizes developing systems and practices to ensure that a company's human resources have the needed competencies and motivation to perform effectively. In this approach, HR has a seat at the table when business issues are discussed and brings an HR perspective to these discussions. When it comes to designing HR systems and practices, this approach focuses on creating systems and practices that support the business strategy. HR measures the effectiveness of the human capital management practices and focuses on process improvements.

The business partner approach positions the HR function as a value-added part of an organization, so that it can contribute to business performance by effectively managing what is the most important capital of most organizations, their human capital. But this approach may not be one that enables the HR function to add the greatest value. By becoming a strategic partner (see Exhibit 1.3), HR has the potential to add more value.

In acting as a strategic partner, HR plays a role that includes helping the organization develop its strategy. Not only does HR have a seat at the strategy table, HR helps to set the table. Boudreau and Ramstad (2005a, 2005b, 2007) support this idea by suggesting that strategies can be shaped and enhanced by bringing a human capital decision science to HR's role in strategy.

In the...