As the present global economic environment becomes increasingly complex and ever-changing, it is important for managers to have a higher level of autonomy to adapt to rapid changes. However

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Human Resource Management GAINING A COMPETIT IVE ADVANTAGE 10e

RAYMOND A. NOE The Ohio State University

JOHN R. HOLLENBECK Michigan State University

BARRY GERHART University of Wisconsin–Madison

PATRICK M. WRIGHT University of South Carolina

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HUMAN RESOURCE MANAGEMENT: GAINING A COMPETITIVE ADVANTAGE, TENTH EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2017 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2015, 2013, and 2010. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

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Noe, Raymond A. Human resource management : gaining a competitive advantage / Raymond A. Noe, The Ohio State University, John R. Hollenbeck, Michigan State University , Barry Gerhart, University of Wisconsin-Madison, Patrick M. Wright, University of South Carolina. —10 Edition. pages cm Revised edition of Human resource management, 2015. ISBN 978-1-259-57812-0 (alk. paper) 1. Personnel management—United States. I. Title. HF5549.2.U5N64 2016 658.3—dc23 2015035070

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.

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To my wife, Caroline, and my children, Ray, Tim, and Melissa —R. A. N.

To my parents, Harold and Elizabeth, my wife, Patty, and my children, Jennifer, Marie, Timothy, and Jeffrey —J. R. H.

To my parents, Robert and Shirley, my wife, Heather, and my children, Chris and Annie —B. G.

To my parents, Patricia and Paul, my wife, Mary, and my sons, Michael and Matthew —P. M. W.

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RAYMOND A. NOE is the Robert and Anne Hoyt Designated Professor of Management at The Ohio State University. He was previously a professor in the Department of Management at Michigan State University and the Industrial Relations Center of the Carlson School of Management, University of Min- nesota. He received his BS in psychology from The Ohio State University and his MA and PhD in psy- chology from Michigan State University. Professor Noe conducts research and teaches undergraduate as well as MBA and PhD students in human resource management, managerial skills, quantitative meth- ods, human resource information systems, training, employee development, and organizational behavior. He has published articles in the Academy of Man- agement Annals, Academy of Management Journal, Academy of Management Review, Journal of Applied Psychology, Journal of Vocational Behavior, and Per- sonnel Psychology. Professor Noe is currently on the editorial boards of several journals including Person- nel Psychology, Journal of Applied Psychology, and Journal of Management. Professor Noe has received awards for his teaching and research excellence, including the Ernest J. McCormick Award for Distin- guished Early Career Contribution from the Society for Industrial and Organizational Psychology. He is also a fellow of the Society of Industrial and Organi- zational Psychology.

JOHN R. HOLLENBECK holds the positions of Uni- versity Distinguished Professor at Michigan State University and Eli Broad Professor of Management at the Eli Broad Graduate School of Business Adminis- tration. Dr. Hollenbeck received his PhD in Manage- ment from New York University in 1984. He served as the acting editor at Organizational Behavior and Human Decision Processes in 1995, the associate edi- tor of Decision Sciences from 1999 to 2004, and the editor of Personnel Psychology from 1996 to 2002. He has published over 90 articles and book chapters on the topics of team decision making and work moti- vation. According to the Institute for Scientific Infor- mation, this body of work has been cited over 4,000 times by other researchers. Dr. Hollenbeck has been awarded fellowship status in both the Academy of Management and the American Psychological Asso- ciation, and was recognized with the Career Achieve- ment Award by the HR Division of the Academy of Management (2011), the Distinguished Service Con- tributions Award (2014), and the Early Career Award by the Society of Industrial and Organizational Psy- chology (1992). At Michigan State, Dr. Hollenbeck has won several teaching awards including the Michi- gan State Distinguished Faculty Award, the Michigan State Teacher-Scholar Award, and the Broad MBA Most Outstanding Faculty Member.

ABOUT THE AUTHORS

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PATRICK M. WRIGHT is Thomas C. Vandiver Bicen- tennial Chair and the Director of the Center for Executive Succession in the Darla Moore School of Business at the University of South Carolina. Prior to joining USC, he served on the faculties at Cornell University, Texas A&M University, and the Univer- sity of Notre Dame.

Professor Wright teaches, conducts research, and consults in the area of Strategic Human Resource Management (SHRM), particularly focusing on how firms use people as a source of competitive advantage and the changing nature of the Chief HR Officer role. He is the faculty leader for the Cornell ILR Executive Education/NAHR program, “The Chief HR Officer: Strategies for Success,” aimed at developing potential successors to the CHRO role. He served as the lead editor on the recently released book, The Chief HR Officer: Defining the New Role of Human Resource Leaders, published by John Wiley and Sons.

He has published more than 60 research articles in journals as well as more than 20 chapters in books and edited volumes. He is the Editor at the Journal of Management. He has co-edited a special issue of Research in Personnel and Human Resources Man- agement titled “Strategic Human Resource Manage- ment in the 21st Century” and guest edited a special issue of Human Resource Management Review titled “Research in Strategic HRM for the 21st Century.”

He currently serves as a member on the Board of Directors for the Society for Human Resource Management and the National Academy of Human Resources (NAHR). He is a former board member of HRPS, SHRM Foundation, and World at Work (for- merly American Compensation Association). From 2011 to 2015 he was named by HRM Magazine as one of the 20 “Most Influential Thought Leaders in HR.”

BARRY GERHART is Professor of Management and Human Resources and the Bruce R. Ellig Distin- guished Chair in Pay and Organizational Effective- ness, Wisconsin School of Business, University of Wisconsin-Madison. He has also served as depart- ment chair or area coordinator at Cornell, Vander- bilt, and Wisconsin. His research interests include compensation, human resource strategy, international human resources, and employee retention. Professor Gerhart received his BS in psychology from Bowl- ing Green State University and his PhD in industrial relations from the University of Wisconsin-Madison. He has co-authored two books in the area of compen- sation. He serves on the editorial boards of and has published in the Academy of Management Journal, Industrial and Labor Relations Review, International Journal of Human Resource Management, Journal of Applied Psychology, Management and Organization Review, and Personnel Psychology. Professor Gerhart is a past recipient of the Heneman Career Achieve- ment Award, the Scholarly Achievement Award, and (twice) the International Human Resource Manage- ment Scholarly Research Award, all from the Human Resources Division, Academy of Management. He is a Fellow of the Academy of Management, the Ameri- can Psychological Association, and the Society for Industrial and Organizational Psychology.

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The steady but slow recovery of the U.S. economy means that both consumers and businesses are carefully considering their spending patterns and investments. Both private-and public-sector employers are cautiously adding new employees if they see an increased demand for their products or services. Some companies are struggling to find qualified, talented, and skilled employees despite the many workers available. Also, they are continuing to examine how they can improve their “bottom line” while reducing costs. This has resulted in not only considering purchasing new technology and upgrad- ing equipment, but putting a greater emphasis on ensuring that management practices and working conditions help employees work harder and smarter, and enhance their motivation, satisfaction, and commitment.

At the same time companies are taking steps to deal with the current economic condi- tions, they are also paying closer attention to how to engage in business practices that are economically sound but sustainable. That is, business practices that are ethical, protect the environment, and contribute to the communities from which the business draws the financial, physical, and human resources needed to provide its product and services. Consumers are demanding accountability in business practices: making money for shareholders should not involve abandoning ethics, ruining the environment, or taking advantage of employees from developing countries!

Regardless of whether a company’s strategic direction involves downsizing, restructur- ing, growth, or a merger or acquisition, how human resources are managed is crucial for providing “value” to customers, shareholders, employees, and the community in which they are located. Our definition of “value” includes not only profits but also employee growth and satisfaction, additional employment opportunities, stewardship of the envi- ronment, and contributions to community programs. If a company fails to effectively use its financial capital, physical capital, and human capital to create “value,” it will not sur- vive. The way a company treats its employees (including those who are forced to leave their jobs) will influence the company’s public reputation and brand as a responsible business, and its ability to attract talented employees. For example, the human resource practices at companies such as Google, SAS Institute, Quicken Loans, REI, and Weg- mans Food Markets helped them earn recognition on Fortune magazine’s recent list of the “The Top 100 Companies to Work For.” This kind of publicity creates a positive image for these companies, helping them attract new employees, motivate and retain their cur- rent employees, and make their products and services more desirable to consumers.

We believe that all aspects of human resource management—including how com- panies interact with the environment; acquire, prepare, develop, and compensate employees; and design and evaluate work—can help companies meet their competitive challenges and create value. Meeting challenges is necessary to create value and to gain a competitive advantage.

The Competitive Challenges The challenges that organizations face today can be grouped into three categories:

∙ The sustainability challenge. Sustainability refers to the ability of a company to sur- vive and succeed in a dynamic competitive environment. Sustainability depends on how

PREFACE

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well a company meets the needs of those who have an interest in seeing that the com- pany succeeds. Challenges to sustainability include the ability to deal with economic and social changes, engage in responsible and ethical business practices, efficiently use natural resources and protect the environment, provide high-quality products and ser- vices, and develop methods and measures (also known as metrics) to determine if the company is meeting stakeholder needs. To compete in today’s economy companies use mergers and acquisitions, growth, and downsizing. Companies rely on skilled workers to be productive, creative, and innovative and to provide high-quality customer service; their work is demanding and companies cannot guarantee job security. One issue is how to attract and retain a committed, productive workforce in turbulent economic conditions that offer opportunity for financial success but can also turn sour, mak- ing every employee expendable. Forward-looking businesses are capitalizing on the strengths of a diverse multigenerational workforce. The experiences of Enron, News of the World, and Lehman Brothers provide vivid examples of how sustainability depends on ethical and responsible business practices, including the management of human resources. Another important issue is how to accomplish financial objectives through meeting both customer and employee needs. To meet the sustainability challenge com- panies must engage in human resource management practices that address short-term needs but help ensure the long-term success of the firm. The development and choice of human resource management practices should support business goals and strategy.

The role of ethical behavior in a company’s sustainability has led us to include more discussion and examples of “integrity in action” in this edition. The actions of top executives and managers show employees how serious they are about human resource management practices. Also, employees look at their behaviors to determine if they are merely giving “lip service” to ethical behavior or if they genuinely care about creating an ethical workplace. As a result, in this edition of the book we include Integrity in Action boxes that highlight good (and bad) decisions about HR prac- tices made by top executives, company leaders, and managers that either reinforce (or undermine) the importance of ethical behavior in the company.

∙ The global challenge. Companies must be prepared to compete with companies from around the world either in the United States or abroad. Companies must both defend their domestic markets from foreign competitors and broaden their scope to encom- pass global markets. Globalization is a continuing challenge as companies look to enter emerging markets in countries such as Brazil and China to provide their prod- ucts and services.

∙ The technology challenge. Using new technologies such as computer-aided manu- facturing, virtual reality, and social media can give companies an edge. New tech- nologies can result in employees “working smarter” as well as provide higher-quality products and more efficient services to customers. Companies that have realized the greatest gains from new technology have human resource management practices that support the use of technology to create what is known as high-performance work systems. Work, training programs, and reward systems often need to be reconfigured to support employees’ use of new technology. The three important aspects of high- performance work systems are (1) human resources and their capabilities, (2) new technology and its opportunities, and (3) efficient work structures and policies that allow employees and technology to interact. Companies are also using social media and e-HRM (electronic HRM) applications to give employees more ownership of the employment relationship through the ability to enroll in and participate in training programs, change benefits, communicate with co-workers and customers online, and work “virtually” with peers in geographically different locations.

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We believe that organizations must successfully deal with these challenges to create and maintain value, and the key to facing these challenges is a motivated, well-trained, and committed workforce.

The Changing Role of the Human Resource Management Function The human resource management (HRM) profession and practices have undergone sub- stantial change and redefinition. Many articles written in both the academic and practitioner literature have been critical of the traditional HRM function. Unfortunately, in many orga- nizations HRM services are not providing value but instead are mired down in managing trivial administrative tasks. Where this is true, HRM departments can be replaced with new technology or outsourced to a vendor who can provide higher-quality services at a lower cost. Although this recommendation is indeed somewhat extreme (and threatening to both HRM practitioners and those who teach human resource management!), it does demonstrate that companies need to ensure that their HRM functions are creating value for the firm.

Technology should be used where appropriate to automate routine activities, and managers should concentrate on HRM activities that can add substantial value to the company. Consider employee benefits: Technology is available to automate the process by which employees enroll in benefits programs and to keep detailed records of benefits usage. This use of technology frees up time for the manager to focus on activities that can create value for the firm (such as how to control health care costs and reduce work- ers’ compensation claims).

Although the importance of some HRM departments is being debated, everyone agrees on the need to successfully manage human resources for a company to maxi- mize its competitiveness. Several themes emerge from our conversations with managers and our review of research on HRM practices. First, in today’s organizations, managers themselves are becoming more responsible for HRM practices and most believe that people issues are critical to business success. Second, most managers believe that their HRM departments are not well respected because of a perceived lack of competence, business sense, and contact with operations. A study by Deloitte consulting and The Economist Intelligence Unit found that only 23% of business executives believe that HR currently plays a significant role in strategy and operational results. Third, many manag- ers believe that for HRM practices to be effective they need to be related to the strategic direction of the business. This text emphasizes how HRM practices can and should con- tribute to business goals and help to improve product and service quality and effective- ness. An important way, which we highlight throughout the text, is through using “Big Data” and evidence-based HR to demonstrate the value of HRM practices.

Our intent is to provide students with the background to be successful HRM profes- sionals, to manage human resources effectively, and to be knowledgeable consumers of HRM products. Managers must be able to identify effective HRM practices to purchase these services from a consultant, to work with the HRM department, or to design and implement them personally. The text emphasizes how a manager can more effectively manage human resources and highlights important issues in current HRM practice.

This book represents a valuable approach to teaching human resource management for several reasons:

∙ The text draws from the diverse research, teaching, and consulting experiences of four authors who have taught human resource management to undergraduates, traditional day MBA students as a required and elective course, and more experienced managers

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and professional employees in weekend and evening MBA programs. The teamwork approach gives a depth and breadth to the coverage that is not found in other texts.

∙ Human resource management is viewed as critical to the success of a business. The text emphasizes how the HRM function, as well as the management of human resources, can help companies gain a competitive advantage.

∙ The book discusses current issues such as social networking, talent management, diversity, and employee engagement, all of which have a major impact on business and HRM practice.

∙ Strategic human resource management is introduced early in the book and integrated throughout the text.

∙ Examples of how new technologies are being used to improve the efficiency and effectiveness of HRM practices are provided throughout the text.

∙ We provide examples of how companies are evaluating HRM practices to determine their value.

∙ The Chapter openers, in-text boxes, and end-of-chapter materials provide questions that provide students the opportunity to discuss and apply HR concepts to a broad range of issues including strategic human resource management, HR in small busi- nesses, ethics and HR’s role in helping companies achieve sustainability, adopt and use technology, adapt to globalization, and practice integrity. This should make the HR classroom more interactive and increase students’ understanding of the concepts and their application.

Organization Human Resource Management: Gaining a Competitive Advantage includes an introduc- tory chapter (Chapter 1) and five parts.

Chapter 1 provides a detailed discussion of the global, new economy, stakeholder, and work system challenges that influence companies’ abilities to successfully meet the needs of shareholders, customers, employees, and other stakeholders. We discuss how the management of human resources can help companies meet the competitive challenges.

Part 1 includes a discussion of the environmental forces that companies face in attempting to capitalize on their human resources as a means to gain competitive advan- tage. The environmental forces include the strategic direction of the business, the legal environment, and the type of work performed and physical arrangement of the work.

A key focus of the strategic human resource management chapter is highlighting the role that staffing, performance management, training and development, and compensation play in different types of business strategies. A key focus of the legal chapter is enhanc- ing managers’ understanding of laws related to sexual harassment, affirmative action, and accommodations for disabled employees. The various types of discrimination and ways they have been interpreted by the courts are discussed. The chapter on analysis and design of work emphasizes how work systems can improve company competitiveness by alleviat- ing job stress and by improving employees’ motivation and satisfaction with their jobs.

Part 2 deals with the acquisition and preparation of human resources, including human resource planning and recruitment, selection, and training. The human resource planning chapter illustrates the process of developing a human resource plan. Also, the strengths and weaknesses of staffing options such as outsourcing, use of contingent workers, and downsizing are discussed. Strategies for recruiting talented employees are emphasized. The selection chapter emphasizes ways to minimize errors in employee selection and placement to improve the company’s competitive position. Selection

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method standards such as validity and reliability are discussed in easily understand- able terms without compromising the technical complexity of these issues. The chapter discusses selection methods such as interviews and various types of tests (including per- sonality, honesty, and drug tests) and compares them on measures of validity, reliability, utility, and legality.

We discuss the components of effective training systems and the manager’s role in determining employees’ readiness for training, creating a positive learning environment, and ensuring that training is used on the job. The advantages and disadvantages of differ- ent training methods are described, such as e-learning and mobile training.

Part 3 explores how companies can determine the value of employees and capitalize on their talents through retention and development strategies. The performance man- agement chapter examines the strengths and weaknesses of performance management methods that use ratings, objectives, or behaviors. The employee development chapter introduces the student to how assessment, job experiences, formal courses, and mentor- ing relationships are used to develop employees. The chapter on retention and separation discusses how managers can maximize employee productivity and satisfaction to avoid absenteeism and turnover. The use of employee surveys to monitor job and organiza- tional characteristics that affect satisfaction and subsequently retention is emphasized.

Part 4 covers rewarding and compensating human resources, including designing pay structures, recognizing individual contributions, and providing benefits. Here we explore how managers should decide the pay rate for different jobs, given the company’s com- pensation strategy and the worth of jobs. The advantages and disadvantages of merit pay, gainsharing, and skill-based pay are discussed. The benefits chapter highlights the dif- ferent types of employer-provided benefits and discusses how benefit costs can be con- tained. International comparisons of compensation and benefit practices are provided.

Part 5 covers special topics in human resource management, including labor– management relations, international HRM, and managing the HRM function. The collective bargaining and labor relations chapter focuses on traditional issues in labor– management relations, such as union structure and membership, the organizing process, and contract negotiations; it also discusses new union agendas and less adversarial approaches to labor–management relations. Social and political changes, such as introduction of the euro currency in the European Community, are discussed in the chapter on global human resource manage- ment. Selecting, preparing, and rewarding employees for foreign assignments is also dis- cussed. The text concludes with a chapter that emphasizes how HRM practices should be aligned to help the company meet its business objectives. The chapter emphasizes that the HRM function needs to have a customer focus to be effective.

New Feature and Content Changes in This Edition All examples, figures, and statistics have been updated to incorporate the most recently published human resource data. Each chapter was revised to include current examples, research results, and relevant topical coverage. All of the Exercising Strategy, Managing People, and HR in Small Business end of chapter cases are either new or updated. Fol- lowing are the highlights for each chapter.

Chapter 1 New Opening Vignette: How Marriott is using human resource practices to support expansion of its properties around the world and reinventing itself to appeal to millennial generation travelers’ tastes and preferences.

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New Boxes: ∙ Dow Chemical, Merck, and Novartis socially responsible programs help improve liv-

ing conditions around the world. ∙ How the CEO of Gravity Payments introduced a new pay policy to help employees

meet their expenses. ∙ Iberdrola USA, SAP, and Boeing efforts to prepare employees for global assignments. ∙ How General Cable used data to show the value of its high performance work

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