1.2 Introduction to Human Resource Management

Before defining human resource management (HRM), it is helpful to first define the context within which HRM occurs. Every organization, regardless of size, industry, or motive, exists to accomplish a mission. This applies to for-profit companies as well as nonprofit entities such as educational institutions and government agencies. Organizations accomplish their missions and seek to create a competitive advantage by combining various types of resources (also referred to as capital) to create a product or service in a way that adds value for the customer.

An organization A collection of people working together to achieve a common purpose. is a collection of people working together to achieve a common purpose. Organizations collect and combine various types of capital, such as buildings, equipment, vehicles, investments, and loans that are needed to produce their product or service. Organizational leaders and other experts in the field have come to recognize that the most vital type of capital in any organization is the human assets. Human capital The knowledge, skills, competencies, and attributes embodied in individuals that facilitate the creation of personal, social, and economic well-being. is defined by the Organisation for Economic Co-operation and Development (OECD) as the knowledge, skills, competencies, and attributes embodied in individuals that facilitate the creation of personal, social, and economic well-being.

Human capital differs from other types of resources in significant ways. Buildings, land, and equipment can be bought and sold. Improvements can be made, which will result in a return on investment when the asset is sold. However, individuals have human rights and cannot be bought or sold like other assets. They can be leased or contracted with, but the individual can terminate the arrangement because they, and not the organization, own their own human capital. If an employee leaves the organization, any investment that the company has made in the individual (e.g., education, training, development, or coaching) is lost. The opening case about Google illustrates the importance of attracting and retaining human talent, and how analytics and innovation play an important role in creating an employer brand.

The human resources of an organization also differ from other assets in that they have the capability to think, to learn, and to analyze situations. These assets are often referred to as knowledge-based workers. Competitive advantage is created by attracting, developing, and retaining human resources with superior knowledge, skills, and abilities than those at competing organizations. As information and technology continue to grow, the human resources of a firm will become even more important. As David Bloom stated in The Creative Society of the 21^st Century, “The value of knowledge…has continued to rise. It is fundamentally different from other forms of capital. As it becomes more abundant, it may be further expanded more easily and cheaply, in turn creating especially lucrative returns.”

As the importance of human resources to organizations has grown, so has the importance of a system for managing these resources. Human resource management The set of policies and practices that attract, develop, and retain a qualified workforce in ways that result in engaged employees who contribute positively to organizational performance. is the set of policies and practices that attract, develop, and retain a qualified workforce, in ways that result in engaged employees who contribute positively to organizational performance.

What makes a workforce unique? Why do some companies have motivated, highly skilled, and happy employees who value customer service, while others seem to have employees that are grumpy, do not know their jobs well, and do not treat customers well? Does this just happen by coincidence, or is it the result of an effective human resource management strategy (or lack of one)?

This is a good starting point as you begin your study of human resource management. Think about what makes one workforce different from another. What comes to mind? Perhaps some of the following characteristics:

Give some thought to the role of human resources in the overall competitive advantage of a firm. A workforce that exhibits the above characteristics is likely the result of a proactive human resource strategy. In other words, these characteristics do not happen by accident…they are the result of decisions made by management. The role of HR is to develop the type of workforce that is necessary to accomplish organizational goals and objectives. The main point here is that human resource management is not just a functional area concerned with things such as government compliance, payroll, employee benefits, etc. Rather, HR is a vital component to a competitive business strategy.

Many businesses worry about the ability to grow and compete because they cannot find workers with the right skills. At the same time, many Americans continue to struggle with unemployment and underemployment and finding full-time work that pays a competitive wage. A growing skills gap has created a mismatch between the demand and supply of skills. The skills gap is especially critical in middle-skills jobs, in which sixty-nine million people in the U.S. currently work, representing roughly 48% of the workforce.

If the presence of a large pool of cheap, unskilled workers once helped attract industry, today it will discourage rather than attract businesses. Business location decisions today increasingly are made based on the presence of a workforce with the appropriate skills. A survey of company executives by Area Development magazine found that availability of skilled labor has become the most important factor in site selection. In the same publication, site consultant Phil Schneider explains:

At the beginning of 2019, the unemployment rate in the United States was at a forty-nine-year low of 3.7%. The low number of individuals seeking employment, along with severe skill shortages, has amplified the importance of creating an environment that attracts qualified employees, and one in which employees are engaged and want to stay with the organization. Throughout this text, you will learn theories and techniques to enhance recruitment, retention, and performance in an environment of labor shortages and skills gaps. Upon completion of this course, you will be prepared to create a culture of respect and autonomy and to create an effective workplace in a diverse environment.

You will find it useful to consider the concept of organizational culture The beliefs, philosophies, values, assumptions, attitudes, and expectations of an organization. and its relationship to HRM. Organizational culture is the beliefs, philosophies, values, assumptions, attitudes, and expectations of an organization. The culture represents the type of behavior that is acceptable and expected. It includes conduct, skills, and attitudes. How do new employees become familiar with the corporate culture? How are they indoctrinated? This has implications for orientation, training, and development. What type of behavior does the reward system encourage? This has implications for the compensation policy of the firm. Does the company value cutting-edge technology? This would have implications for training also. As you embark on your study of HRM, consider how human resource policies and practices impact the organizational culture, and how the culture subsequently impacts competitive advantage.

Human resource management has evolved through several major eras or schools of thought. Those eras are Scientific Management, Unionization, and the Human Relations Movement.

The Scientific Management era began around the 1880s, during the Industrial Revolution. Frederick Taylor is often called the father of scientific management. Taylor was a supervisor at the Midvale Steel Company in Philadelphia. An engineer by training, he began to conduct time and motion studies of employees in an effort to find ways to increase productivity. Taylor’s idea of scientific management revolved around three concepts: work rules, work methods, and standardized times. Scientific management involved creating work performance standards and established routine operating procedures that employees were expected to adhere to. Can you think of any modern companies where scientific management is prevalent today? How about McDonald’s, or UPS, or the U.S. Postal Service? The main criticism of this school of thought is that it led to repetitive, monotonous jobs, and treated employees like machines to be programmed. In other words, it ignored the human elements of performance such as motivation and creativity.

The Unionization movement began during the 1930s and peaked around 1960. The growth of unions began with the passage of the National Labor Relations Act in 1935. We will be studying unions, labor relations, and collective bargaining in Chapter 12 “Labor Relations and Employee Rights”. The union movement had both positive and negative consequences. Many of us enjoy job benefits such as vacation pay, forty-hour work weeks, weekends off, and health insurance, largely because unions negotiated these benefits. Nonunion employers eventually had to offer similar benefits to attract good employees. On the other hand, the union movement sometimes creates an adversarial relationship between labor and management and can hamper productivity and competitiveness if union wage and benefit demands are unreasonable.

The Human Relations era began with the Hawthorne Studies in the 1920s. The movement did not really begin to take hold until the 1960s, but the Hawthorne Studies are generally credited with being the first research into the human element of human resource management. The Hawthorne Studies involved a university research project conducted at the Chicago Western Electric plant from 1924 to 1927. The purpose of the experiment was originally to determine what the optimum illumination level was. At what lighting level would employees be the most productive? The researchers set up two groups: a control group and an experimental group. The illumination level remained constant for the control group, but was altered for the experimental group. The researchers were confused when they found that productivity increased when they increased the lighting levels, but productivity also increased when they decreased the lighting levels. Productivity did not decline until the lighting reached moonlight levels.

They then entered a second phase of the experiment by altering changes in hours and working conditions. It seemed that no matter what they did, productivity increased. The researchers then brought in Elton Mayo from Harvard University to assist them. They decided to conduct a third phase of experiments, which were plantwide interviews. The researchers found that the increases in productivity occurred because of the human element of productivity, rather than as the result of the physical work environment. The following is a summary of the four phases of the Hawthorne Studies:

The Hawthorne Studies prompted managers to think about the importance of the individual in organizational structure and job design. These experiments eventually caused managers to think more about the people factor in helping to create a company with a competitive advantage. From the 1990s to the present, there has been a shifting emphasis from viewing employees as resources to be managed, toward viewing them as valuable assets that should be respected, valued, and developed.