Ch. 1: Human Resources Strategy

Learning outcomes

1. Define HRM and explain how it has evolved.
2. Explain the role of HRM in organizations.
3. Define, discuss and explain the major HRM activities.
4. Explain the professional and personal skills needed to succeed in HRM.
5. Define how the business context influences HRM.
6. Discuss the external and internal factors that affect organizations and HR departments.

1.1 Human Resource Management

To keep the business running, each organization relies on capital, meaning money, assets or goods that produce income (registers and stock in a shop, owned software or offices in a consultancy). No matter which sector they operate in, firms share one point: people have to be seen as human capital. The book returns to this idea in every chapter.

What is HRM? HR is found inside organizations, which are groups of people assigned particular roles and duties who cooperate to reach the organization's aims.

HRM counts as one of the most vital functions, since an efficient organization depends on staff and on systems that back them up. HR professionals ensure that the right candidates are recruited and trained and that they meet customer and company standards, and they manage staff so the organizational goals (the driving force that steers employees toward success) are met. Firms that appear on rankings like Fortune's World's Most Admired Companies or Canada's Top 100 Employers all, without exception, rest on strong, efficient and innovative HR processes.

Strategic plans. Through a strategic plan the organization matches what it is good and bad at internally with the opportunities and threats it faces outside. Firms often build it using a SWOT analysis, a planning and assessment tool covering strengths, weaknesses, opportunities and threats, which lets the company collect facts and data on its industry. Based on this, the firm drafts the plan and can "take action". Plans are normally stated as a vision, a mission, objectives and goals. Running and carrying out the plan is known as strategic management, the process of defining goals, procedures and objectives so the organization becomes more competitive. Within the strategic plan HR has three possible roles: guiding the planning process, carrying out internal and external research, and managing the people side of the plan.

HRM as an integrated set of processes. How effective HRM is depends on how closely its processes fit together and how well they match the mission and strategy. For instance, a new safety policy at work only succeeds when staff are trained to grasp and follow it, when it is built into performance appraisal and, where there is a union, when it is drafted jointly with the union so it becomes part of the collective agreement.

1.2 Evolution and history of HRM

HRM has its roots in psychology, organizational behaviour and industrial engineering, and has changed a lot in the last twenty years. It used to be the personnel department, which hired people and handled the employment paperwork. Later the personnel department was split into human resource management and human resource development. Today many HR departments include "people" and "culture" in their name to signal their broad organizational influence. HRM plays a key support role in strategic planning because businesses depend on people to realise their vision and mission.

Ulrich's four waves. HR From the Outside In (Ulrich et al., 2012) splits the development of HR work into four waves:

In Wave 4 HR became a kind of quasi-counsellor for employees. Millions of employees were laid off, and those who stayed had to be protected and kept motivated in a new normal. Companies hired doctors, nurses and other health professionals; HR revised job descriptions and decided who could do which work when colleagues were absent; HR supported whole families (child care, elder care), distributed accurate information about the virus and dealt with stressed and depressed employees with physical symptoms such as fatigue and headaches. The lay-offs also created a huge administrative workload. Where the focus used to be salaries, engagement and motivation, it now also includes health and wellness, and HR keeps playing a role in communication and engaging employees in new ways after the pandemic. Although each wave must be managed well, it is the "outside in" perspective that lets HR shine: through the external reputation and successes of the organization.

1.3 The role of HRM in organizations

HRM is an umbrella term for many interrelated functions. A manager is responsible for achieving the organization's goals through the effort of its people, so every manager has an HRM role, even without the HR title. Most managers deal with selection, compensation and motivation of employees, which makes these tasks part of management in general. The book says most experts agree on eight main roles, but in practice lists the following ten areas:

1. Legislation and law. HR managers need to be familiar with every law that touches the workplace and make sure processes follow them. The legal frameworks they operate in are: federal government, provincial government, health and safety rules, labour laws and employment standards. Since the legal setting is always shifting, HR has to follow the changes and pass them on to all managers. Instead of a single legal chapter, the book covers the relevant laws chapter by chapter.

2. Corporate policies. Besides legal requirements, organizations have their own policies, set to ensure fairness (e.g. a vacation policy above the legal minimum), to enhance effectiveness (e.g. an internet usage policy) or to reinforce the culture (e.g. a dress code). HR identifies issues a policy could address (from chronic tardiness to lack of decorum in meetings). HR, management and executives develop policies together; typically HR recognizes the need, seeks opinions, writes the policy and communicates it to employees. Innovative examples: time off to volunteer in the community (well-being and group work) and eliminating job titles.

3. Job analysis and design. Tasks must be structured to maximize efficiency: clear, distinct from each other and performed by capable employees. HR supports defining, documenting and organizing tasks through job analysis and job design.

4. Talent acquisition. Advanced machines do not remove the need for people. Talent acquisition spans the entire hiring process, from advertising a vacancy to agreeing on a salary package, and has four main steps (pictured in a figure in the book).

5. Training and development. New hires must be trained and keep developing, which raises productivity. Training also drives motivation: employees who develop their skills are happier, which increases performance, productivity and retention. Examples: job skills training (e.g. a computer program), communication training, team-building, policy and legal training (sexual harassment, safety, ethics) and time management.

6. Performance assessment and management. HR designs, maintains and administers the performance management policies and systems, and must define and measure performance precisely (e.g. a barista must make a great coffee, within a certain time, served pleasantly). Appraisal systems may include a 360 appraisal, a behaviour checklist, a graphic rating scale, MBO (management by objectives), annual appraisals and a Performance Improvement Plan (PIP). Performance information is then used for: feedback to employees, determining compensation (bonus, raise), disciplinary measures and supporting career development.

7. Compensation and benefits administration. Pay has to be fair, in line with the industry and attractive enough to draw candidates. Compensation covers everything a worker gets in return for their work. Because pay should be similar to what people in comparable jobs earn, pay systems take into account tenure with the organization, years of experience, education and external salary surveys (e.g. Hays Canada). A full compensation package can contain pay, holidays and bonuses, sick leave, tuition reimbursement, benefits, group health and life insurance, pension plans for retirement, and stock purchase plans and stock grants.

8. Labour relations. A labour union (trade union, workers' union) represents the collective interests of employees. HR is involved in negotiating (collective bargaining) and managing union contracts, which cover compensation, work schedules, benefits, discipline and other work processes. Unions are very common in Canada.

9. Health and safety. New laws often set federal or provincial safety standards, and union contracts can add requirements. HR must know the worker protection requirements and ensure the workplace meets federal, provincial, industry-specific and union standards. Examples of issues: chemical hazards, heating and ventilation, "no fragrance" zones and protection of private employee information.

10. HR analytics. Much employee information is collected in Human Resource Information Systems (HRIS) and can support management decisions with analytical tools. Example: a financial institution runs quarterly employee satisfaction surveys (ESAT) and finds that staff on the investment side are very stressed while preparing end-of-quarter fund reports; it can respond with extra communication, better processes or training during those critical periods.

1.4 The Human Resources Manager

HR managers have responsibilities towards the HR department, the executive group and the employees. The book lists five responsibilities:

HR manager's competencies. HR leaders (HR business leaders) mix technological and behavioural skills. To add value they have to use the organization's resources to provide HR expertise that serves business goals, work as partners of executives, join in strategic planning, lead the people side of implementation, and make sense of information and apply it so business decisions are sound. Strobel (2016) lists the competency areas in which they should be strong:

The National Occupational Classification (NOC) describes the main duties of HR managers in Canada.

1.5 Human resources and environmental factors

External and internal influences shape HR policies and practices. HR managers must continually research and monitor them, and respond proactively when issues arise so the organization is protected and moves towards positive change.

The book lists technology, globalization and government under the internal factors heading, although they largely originate outside the organization; what matters is how HR responds to them.

External factors

Labour market. The workforce is diverse in demographics (gender, age, race), values and norms, gender identification and nationality. Canada has protected groups (visible minorities, women, Aboriginal peoples, persons with disabilities). HR must recognize and respect these groups.

Economy. Economic conditions affect demand for products and services and therefore demand for labour. In a good economy employers hire; in a poor one they lay off. With low unemployment competition for talent rises, so firms need better hiring and retention strategies (higher wages, benefits, perks). When downsizing, firms lay off workers, offer early retirement or early leave programs. HR handles hiring and lay-offs based on longer-term projections of labour demand.

Production. Firms must watch productivity because of competition on world markets. HR must find ways to produce more with fewer resources while keeping employees satisfied; this matters for long-term survival.

Generations of workers. For the first time, four generations work side by side. HR must balance their different values, attitudes and needs, give each attention for job satisfaction, and help them communicate and collaborate (Tanner, 2020).

Education. Expectations are higher: more post-secondary education and higher literacy (understanding, reading, writing). HR ensures employees' talents are used well and offers opportunities for career advancement; it may also provide literacy programs.

Internal factors

Organization culture: the shared values, beliefs and attitudes of the organization and how they affect employee behaviour. Employees see the culture in the mission and vision statements, and in symbols, stories and ceremonial events. It gives employees a sense of purpose, describes the norms, shapes attitudes and defines roles, which produces loyal and committed employees. Example: a bureaucratic, hierarchical bank has a different culture than Facebook with its flat, less structured organization. HR creates and maintains culture (employee-of-the-month pictures, parties, baseball games, family outings, a distinctive logo as symbol), which supports recruitment and retention through loyalty.

Management practice. Traditional hierarchical structures are pyramids: the CEO at the top, many management levels, employees at the bottom. They offer opportunities for advancement, but employees often become narrow specialists, communication across departments is hard and bureaucracy slows change. Practice has shifted to flat structures with better communication and relationships between managers and employees, a simpler and more efficient chain of command, more decision-making responsibility for employees and lower costs because middle managers are removed. HR shapes management practice through performance management, compensation design, training and development for advancement, goal setting and simplifying technology and analytics.

Organizational climate: the atmosphere of the organization and employees' perception of it (Jay), comparable to a personality. Climate influences how employees build relationships, their autonomy and the structure. Examples of perceptions: are employees trusted to work without micromanagement, do they feel they develop, are they rewarded for high performance? Happy employees are productive employees. HR can measure the "temperature" with surveys and suggest improvements, leading to satisfaction, skill development, productivity, retention and profit.

Technology. Technology allows automation of processes, products and services, lowers overhead, raises productivity, improves customer service and opens a wider talent pool through remote work. Digital tools give more uniform control of work and faster communication (email, instant messages, video conferencing), which increases collaboration and creativity and lets teams respond to problems in minutes. It eliminates waste, saving costs and increasing revenue. HR uses technology for hiring, administration, training and development and analytics, and for decisions on attendance, legal issues and employee progress, supporting strategic alignment.

Globalization. Most goods and services now come from the world market, so business has become very competitive and closely linked. Workers also travel across the globe for jobs. Advantages include cheaper products, better living standards in some countries, entry into new markets and access to more highly skilled talent. For HR this brings staff who speak different languages and come from different cultures, new policies, learning about cultural differences, meeting social responsibility demands (low wages in some countries, fair working conditions), managing a diverse workforce and relying on technology to communicate across time zones.

Government. In Canada, laws that affect HRM deal with minimum wage, human rights, overtime pay, vacation pay, sick benefits, protected groups, equity and diversity, labour relations, health and safety, and sexual harassment. Its legal framework: Canadian Charter of Rights and Freedoms, Pay Equity, Employment Equity, and the Canadian Human Rights Act (in Quebec: Quebec Human Rights Act). These laws operate at the federal, provincial and territorial level, and provinces may have different rules.

1.6 HRM and business challenges

Although HR processes are internal, they need an external focus, because they have to help the organization deal with pressures from its surroundings. Outside factors cannot be controlled by the organization, yet they can work out well or badly. The book names: globalization, offshoring, changes in employment law, health, safety and employee protection, what employees expect (e.g. pay, standard hours), workforce diversity, shifting demographics, a changing education profile among workers, layoffs and downsizing, advanced technologies and a changing industry. Managers who overlook these outside forces fall out of line with their company and industry, push employees away (leaving them unmotivated and unhappy) and may end up breaking the law. Next, the book covers these wider challenges:

Crisis management. Looser lending rules at investment banks and a steep increase in subprime loans triggered the 2008 financial crisis, which brought down the financial system (within weeks the S&P 500 halved, and US house prices dropped 20%). HRM felt the impact at once: as the economy slowed, huge layoffs followed (US unemployment reached 10%). The COVID-19 crisis (starting in winter 2020) proved that pandemics are also an external factor. It put health and safety first, pushed HR topics like turnover, absenteeism and burn-out into the spotlight, and made HR processes change faster, for instance telework, remote training and fair compensation (e.g. the discussion about pay for nursing home workers).

Globalization. Almost every organization has activities abroad, in its supply chain, core activities or customer base; even a local coffee shop buys coffee from Haiti and cups from the US. Canada is one of the world's top ten trading nations (2022: goods exports of $777 billion, imports of $757 billion, a trade surplus). The United States-Mexico-Canada Agreement (USMCA) replaced NAFTA (1994), with stronger protections for workers and the digital economy, bigger markets for US farmers and rules to encourage auto manufacturing in North America. For HR, globalization means dealing with people from different cultures and adapting to different employment laws and business practices.

Technology. From the employee's perspective technology eliminates jobs, changes job requirements, changes demands and expectations, influences needed skills and competencies and creates a workforce that expects to be mobile. Employees may request or demand flexible schedules; managers worry about productivity under flextime and about fairness to other workers. Technology requires policies on employee privacy and company data protection. The main challenge is the fast pace of change and the need to keep updating employee knowledge. Technology also adds stress (higher job demands, constant change, constant email and texting, physical strain of sitting at a computer). "Super skills" for the new world of work include managing your personal brand, digital fluency and resilience (Vozza, 2018). From the HR perspective technology changes how HR is delivered: jobs replaced by robots or AI, recruiting via social media, interviewing and training on Zoom, virtual reality (VR) for onboarding and training (useful for dangerous or high-stress jobs), fully automated payroll and benefits, all centralized in HRIS to track recruiting, hiring, compensation and training.

Cost containment and efficiency. Global competition and rising costs push organizations to maximize efficiency and productivity. HR processes must contribute to the bottom line in an objective, measurable way: an HR manager asking $20,000 for training must make a business case showing better performance and more profit or lower cost. Human capital typically represents 60% to 65% of an organization's total annual budget. Example: a wellness program (company gym, healthy cafeteria menu, ergonomic workstations) is costly but can reduce health problems; Johnson & Johnson estimated a return of $2.71 per dollar invested, over $250 million in health care savings (Berry et al., 2014).

Talent acquisition. Business challenges increase demands on recruiting, selecting, training and retaining talent. The "full-time one-employer career" has given way to a gig economy with many employment configurations: permanent part-time, fractional, contract, casual and on-call. North American employers face a skills gap, with a focus on dependability and flexibility, so they must both attract and keep the right people. COVID-19 added lockdowns, wage subsidies and vaccination mandates as hiring and retention issues.

Indigenous perspective. HR professionals must understand the rights of Indigenous Peoples (First Nations, Inuit and Métis) and know that policies may look different in Indigenous communities. They must understand legislation and Land Claims Agreements and their effect on HRM and Indigenous stakeholders. Examples: companies in Iqaluit must follow Article 23 of the Nunavut Land Claims Agreement (NLCA), with responsibilities for hiring Inuit and investing in their training and development; a company working in a First Nations community may have a duty to consult that community; Indigenous people registered under the Indian Act have no income tax deducted when they work on a reserve.

1.7 Key terms

• Human capital: organizational effectiveness through people's skills, education, knowledge, expertise and abilities.
• HRM: integrated set of processes, practices, programs and systems for deploying and developing employees.
• Manager: responsible for achieving the organization's goals through the effort of its people.
• Organization: a group of people with specific roles and responsibilities working together to achieve its goals.
• Strategic management: setting goals, procedures and objectives to make the organization more competitive.
• Strategic plan: aligning internal strengths and weaknesses with external opportunities and threats.
• SWOT analysis: planning tool assessing strengths, weaknesses, opportunities and threats.

1.8 Summary

HRM is a connected set of processes for using and developing staff. In the strategic plan, HR guides the process, does the research and manages the people side. Starting in the early 1900s, HRM has grown into today's strategic partner. Its tasks include law and policies, job analysis and design, talent acquisition, training and development, performance, pay and benefits, health and safety, labour relations and analytics. The HR manager is accountable to the HR department, to executives and to employees, and needs particular competencies, skills, education and experience. Organizations are shaped by internal and external factors, so HR staff have to be qualified professionals who can handle this complexity.