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

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

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

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.

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 (

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

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.

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,

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?

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

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

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

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

For next class Evaluating effectiveness of HR systems Read Beatty, Huselid and Schneier article, and Chapter 2 pages