Strategic Use of HR: Building Human Capital

1. Strategic Use of HR: Building Human Capital OS652 HRM Fisher August 26, 2004

2. Agenda • In-class writing • What is human capital? • Linking HRM and strategy

3. In-class writing • Goals • Develop your thoughts about certain issues • Help facilitate in class discussions • Demonstrate your preparedness for class • Will be scored 0, ½, 1 • Counts as part of your participation grades • Looking at trends

4. In-class writing • HR practices can be proactive or reactive. What is the difference? • Give an example of each in relation to the Toyota article we read on Tuesday.

5. Strategy and human capital • Overall, strategy involves developing and sustaining a competitive advantage • Source of value • Rare • Difficult to copy • Highly skilled, motivated employees can meet these resource characteristics • Human capital • Reputation as a top place to work can also help provide an advantage (www.fortune.com)

6. Developing human capital • How do each of these systems contribute to the development of human capital? • Recruitment • Selection • Training • Performance management • Compensation • Retention is key

7. Human Resource Strategy • A firm’s deliberate use of human resources to help it gain or maintain an edge against its competitors in the marketplace.

8. HR can respond to organizational strategy • Three general business strategies* • Operational excellence • Product leadership • Customer intimacy • How would HR respond to each strategy? • How do these strategies relate to the two described in the book? • Growth-prospector-high tech-entrepreneurial • Mature-defender-cost efficiency *Based on Beatty, R.W., Huselid, M.A., & Schneier, C.E. (2003). New HR Metrics: Scoring on the Business Scorecard. Organizational Dynamics, 32, 107-121.

9. Continental Airlines example • Four prong change strategy • Fly to win. Improve revenue and deliver a profit. • Fund the future. Cut the debt burden. • Make reliability a reality. Improve service. • Working together. Create an environment of dignity and respect. Employees should feel valued, enjoy going to work. • Which of these would drive HR strategy or actions?

10. HR can also inform strategy • Organization’s internal strengths and weaknesses often inform strategic decisions • Identify areas of competitive advantage • Core skill areas • Corporate culture • Labor/management relations • Identify environmental changes • Pending legislation • Competitor strengths and weaknesses • HR as part of the dominant coalition

11. HR responds to external forces • Labor market demands • Competitors’ actions • Regulatory environment • Industry best practices

12. But must also consider internal factors • Best practices may not be effective due to characteristics of the organization • Industry, Size, History, Culture, Knowledge and skills • “..you can’t copy anyone else. Because then you really don’t know how to fix things…”(Pernille Spiers-Lopez, president of IKEA North America, in Meisler 2004) • Need to tailor HR activities • HR activities must be aligned

13. Southwest Airlines discussion • What strategy is Southwest pursuing? • What is the HR strategy? Is it consistent with the overall strategy?

14. For next class • Evaluating effectiveness of HR systems • Read Beatty, Huselid and Schneier article, and Chapter 2 pages 56-59.