Foundation CLAWebinar HR Strategy EPG

8/4/2019 Foundation CLAWebinar HR Strategy EPG

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Human Resource Strategy:How HR Drives

PerformancePatrick M. Wright

William J. Conaty/GE Professor of Strategic HR

Leadership

School of ILR

Cornell University

www.ilr.cornell.edu


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HR Strategy EPG: Origins

Effective Practice Guidelines: Reports

summarizing the academic research on aspecific area, i.e., research-based bestpractice

Asked by SHRM Foundation to reviewresearch on the relationship between HRPractices and Performance

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What is the Impact of HR Strategy? AStory

In order to understand how HR drives

performance, our story begins in the early1990s as Delta Airlines, a company that had

been known for its outstanding customerservice, faced a difficulty strategic decision.

Up until this time, what did their HR strategylook like?

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Core Competence

Profits

Costs

Revenues

OutstandingCustomer

Service

ValuedCustomerOutcome

Skilled,Experienced,CommittedEmployees

Deliveredby?

Internal PromotionExtensive Training

High PayNon-Union

Flexible work rulesFamily Culture

Driven by?

Figure 1: Delta Air Lines Pre 1994 Business Model:


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Our Storycontinued

Faced by a war in the Middle East, rising fuel

prices, and an economic recession (soundfamiliar?), Delta was losing $400-500 million($10 per share).

They unveiled a new business strategy(Leadership 7.5) with its accompanying HRstrategy

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Profits

Costs

Revenues

Competitive(Low) Cost

Travel


CommodityWorkforce:ContingentTemporaryLow Tenure

Deliveredby?

LayoffsLow Wage

Low TrainingContractors

Driven by?

Post 1994 Business Model (Leadership 7.5):


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What were the outcomes?

By 1994, Delta was making record profits.

Their costs had gone from 10.1 cent/ASM, to9.8, and the costs rose at a CAGR of 2%through 1998

Their revenues were flat, rising at CAGR of3%.

By 1998, the CAGR was 13% for the industry

Why?7

There are morale

problemsso be itCEO Ron Allen


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Profits

Costs

Revenues

Competitive(Low) Cost

Travel


CommodityWorkforce:ContingentTemporaryLow Tenure

Deliveredby?

LayoffsLow Wage

Low TrainingContractors

Driven by?

Post 1994 Business Model (Leadership 7.5):

Unintended Consequences:Unions

Customer ServiceBaggage Handling

Safety


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What is the moral of the story?

How companies treat employees, particularly

through the HR practices they use, canultimately impact firm performance, eitherpositively or negatively

But, what is HR strategy?

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IBM

STRATEGY

Innovation BusinessValue

GlobalIntegration

On DemandInfrastructure

Focus onEnterprises thatValue Innovation

IBMDifferentiators:The Employee

Experience

HumanResourcesFocus Areas

Diverse,Talented PeopleLeadership

Performance-Based

Opportunities

Values-based

Climate

Anticipate and Build Skills

Lead the Transformation

Grow IBM

Flexibility An inspiringclimate inwhichemployeesflourish bycreating valuefor our clientsand the world

Figure 2: How The IBM HR Strategy Supports and Enables the BusinessStrategy


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HR Strategy

HR Strategy is the system of human resource

practices for a particular job or collection ofjobs aimed at the best employee performancepossible to meet the firms ultimate goals

System of practices

Job or collection of jobs

Performance oriented (have, feel, do)

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Strategic HRM

Human Capital

Organization or businesslevel

Designed jointly betweenline and HR

Get right people in rightplace in the business tomaximize businesssuccess

HR Strategy

Human ResourcePractice System

Job Level

Designed mostly by HR

Get people to have(skills), feel (attitudes)and do (behaviors) thingsthat lead to job andbusiness success

HR BestPractices

Single HR Practice

Job Level

Designed entirely byHR

Get people to have(skills), feel(attitudes) ordo(behaviors)something that leadsto job success

Key Terms

Focus

Level ofInterest

Responsibility

Goal orObjective


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HR Strategy Approaches

HighRoad/Commitment/HR as an Asset

High Pay

Selective Hiring

Importance ofRetention

Intensive Training

Broad Work Design

Opportunities forParticipation

Information Sharing

LowRoad/Control/HR asa Cost orCommodity

Low Pay

Hire anyone

High turnover

Low Training

Narrow Work Design Autocratic DecisionMaking

Little InformationShared


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Another Conceptualization: AMO

Ability

Selection tests, selectivity, structured interviews,training more than 20 hours/year

Motivation

Pay for performance, merit pay, individualincentives, performance feedback, performancemanagement

Opportunity

Quality circles, suggestion systems, informationsharing, participation in decisions, grievance

procedures 14


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Sams Club vs. Costco

Profit per

employee

$11,615 $21,805

Average HourlyWage

$9.86 $17.00

Percent withHealth Care


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HR StrategyRecruitment

SelectionTraining

DevelopmentPerformanceManagement

Rewards

Communication

WhatEmployees

HaveSkills,

Abilities,Competencies

WhatEmployees

FeelMotivation

CommitmentEngagement

WhatEmployees

DoTask,

Discretionary,Counterproductive

Behavior,Attendance,

Turnover

CustomerOutcomesSatisfaction

Retention

OperationalOutcomesProductivity

QualityShrinkageAccidents

FinancialOutcomesExpensesRevenues

Profits

HR Strategy and Performance


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HR and Performance: What does theresearch say?

There are over 100 studies now on the

relationship between HR practices andperformance, and in the aggregate, theysuggest a positive relationship

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HR and Performance: What does theresearch say?

Employees

Feel Engagement/Commitment Do - Behavior

Have - Skill?

Customers - consistent

Operations pretty consistent

Financials strong and consistent

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Caveats to the Research

Causal Direction

Measuring HR Practices Which HR Practices

Single respondents

Fit to Strategy Has not been demonstrated

Due to measuring principles, not practices

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HR Impact: Sysco Foods

Sysco Corporation exemplifies how they have

attempted to implement HR strategies to drivebusiness performance

Decentralized structure with earnedautonomy principle provides lattitude in howbusinesses manage people

They wanted to test how these peoplemanagement practices impacted

performance 20


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HR and Employee Engagement

Note: In order todisguise the date, themean has beensubtracted from thenumbers on the Y-axis.


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HR Practices and Operating Expense

Note: In order todisguise the date, themean has beensubtracted from thenumbers on the Y-axis.


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HR Practices and Pre-Tax Profitsat Sysco

Note: In order to disguisethe date, the mean hasbeen subtracted from thenumbers on the Y-axis.


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HR StrategyRecruitment

SelectionTraining

DevelopmentPerformanceManagement

Rewards

Communication

WhatEmployees

HaveSkills,

Abilities,Competencies

WhatEmployees

FeelMotivationCommitmentEngagement

WhatEmployees

DoTask,

Discretionary,Counterproductive

Behavior,Attendance,

Turnover

CustomerOutcomesSatisfaction

Retention

OperationalOutcomesProductivity

QualityShrinkageAccidents

FinancialOutcomesExpensesRevenues

Profits

HR Strategy and Performance: Sysco Findings


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Now, how do you develop an HRStrategy?

Before getting to the details, we need to

recognize a caveat While it is important to treat everyone well, in

a world of limited resources, we mustprioritize where to devote our resources

This prioritization entails determining the keyjob groups that will leverage firm success

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Now, how do you develop an HRStrategy? How about Dell?

Step 1: Analyze the industry to determine

what pressures exist Innovation pressures?

Cost pressures?

Customer pressures?

Step 2: Analyze your value chain todetermine how/where you create value

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Supply Chain/Inventory

DistributionManufacturing Service

ProcessesProcesses

Processes

VALUE

Processes

Dells Value Chain

Design

Processes

strong

strong

Weak

Weak

Weakwith

consum

ers


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How to build an HR Strategy

Step 3: Determine the key job groups to focus

on Could be based on most critical to strategy

Could be based on most critical to the strategicchange

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InnovativeProductDesigners



ProcessesProcesses

Processes

VALUE

Processes

Dells people needs

Design

Processes

Sales to RetailersConsumerService Techs


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How to build an HR Strategy

Step 4: Determine the key HR practices

necessary to build a workforce that has theright competencies, feels the right level ofcommitment, and does the right things

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InnovativeProductDesigners



VALU

E

Dells HR Strategy

Design

ProcessesRecruitment:

Where to find these people?

Selection:

What skills do they need andhow to assess those skills

Rewards:

What is the market pay rate andwhat types of incentives willattract and motivate them?

Training and Development

What skills do they need trained?How do we orient them to Dell?

Performance Management:

What competencies andoutcomes should be evaluated?

Information/Participation:

What information should beshared with them and in whatareas should they participate?

HR Strategy


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Conclusion

The relationship between HR practices and

performance (employee, customer,operational, and financial) is well documented

While there are some caveats, we can bepretty certain that all else equal, firms arebetter off implementing progressive HRpractices rather than not doing so

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Patrick M. Wright

Cornell University

ILR School397 ILR Library BuildingIthaca, New York 14853

t. 607.255.3429

f. [email protected]

www.ilr.cornell.edu

Documents

Foundation CLAWebinar HR Strategy EPG