Introduction

Every organization, large or small, uses a variety of capital to make the business work. Capital includes cash, valuables, or goods used to generate income for a business. For example, a retail store uses registers and inventory, while a consulting firm may have proprietary software or buildings. No matter the industry, all companies have one thing in common: they must have people to make their capital work for them. This will be our focus throughout this chapter: generation of revenue through the use of people’s skills and abilities.

What Is HRM?

Human resource management (HRM) is the process of employing people, training them, compensating them, developing policies relating to them, and developing strategies to retain them. As a field, HRM has undergone many changes over the last twenty years, giving it an even more important role in today’s organizations. In the past, HRM meant processing payroll, sending birthday gifts to employees, arranging company outings, and making sure forms were filled out correctly—in other words, more of an administrative role rather than a strategic role crucial to the success of the organization. Jack Welch, the former CEO of General Electric and management guru, sums up the new role of HRM: “Get out of the parties and birthdays and enrollment forms.… Remember, HR is important in good times, HR is defined in hard times” (Frasch, et. al., 2010).

It’s necessary to point out here, at the beginning of this chapter, that every manager has some role relating to human resource management. Just because we do not have the title of HR manager doesn’t mean we won’t perform all or at least some of the HRM tasks. For example, most managers deal with compensation, motivation, and retention of employees—making these aspects not only part of HRM but also part of management. As a result, the information in this chapter is equally important to someone who wants to be an HR manager and to someone who will manage a business.

Staffing

You need people to perform tasks and get work done in the organization. Even with the most sophisticated machines, humans are still needed (so far!). Because of this, one of the major tasks in HRM is staffing. Staffing involves the entire hiring process from posting a job to negotiating a salary package. Within the staffing function, there are four main steps:

1. Development of a staffing plan. This plan allows HRM to see how many people they should hire based on revenue expectations.
2. Development of policies to encourage multiculturalism at work. Multiculturalism in the workplace is becoming more and more important, as we have many more people from a variety of backgrounds in the workforce.
3. Recruitment. This involves finding people to fill open positions.
4. Selection. In this stage, people will be interviewed and selected, and a proper compensation package will be negotiated. This step is followed by training, retention, and motivation.

Development of Workplace Policies

Every organization has policies to ensure fairness and continuity within the organization. One of the jobs of HRM is to develop the verbiage surrounding these policies. In the development of policies, HRM, management, and executives (as well as employees) are involved in the process. For example, the HRM professional will likely recognize the need for a policy or a change of policy, seek opinions on the policy, write the policy, and then communicate that policy to employees. It is key to note here that HR departments do not and cannot work alone. Everything they do needs to involve all other departments in the organization. Some examples of workplace policies might be the following:

• Discipline process policy
• Vacation time policy
• Dress code
• Ethics policy
• Internet usage policy

Compensation and Benefits Administration

HRM professionals need to determine that compensation is fair, meets industry standards, and is high enough to entice people to work for the organization. Compensation includes anything the employee receives for their work. In addition, HRM professionals need to make sure the pay is comparable to what other people performing similar jobs are being paid. This involves setting up pay systems that take into consideration the number of years with the organization, years of experience, education, and similar aspects. Examples of employee compensation include the following:

• Pay
• Health benefits
• RRSP
• Stock purchase plans
• Vacation time
• Sick leave
• Bonuses
• Tuition reimbursement

Retention

Retention involves keeping and motivating employees to stay with the organization. Compensation is a major factor in employee retention, but there are other factors as well. Ninety percent of employees leave a company for the following reasons:

1. Issues around the job they are performing
2. Challenges with their manager
3. Poor fit with organizational culture
4. Poor workplace environment

Despite this, 90 percent of managers think employees leave as a result of pay (Rivenbark, 2010). As a result, managers often try to change their compensation packages to keep people from leaving, when compensation isn’t the reason they are leaving at all.

Training and Development

Once we have spent the time to hire new employees, we want to make sure they not only are trained to do the job but also continue to grow and develop new skills in their job. This results in higher productivity for the organization. Training is also a key component in employee motivation. Employees who feel they are developing their skills tend to be happier in their jobs, which results in increased employee retention. Examples of training programs might include the following:

• Job skills training, such as how to run a particular computer program
• Training on communication
• Team-building activities
• Policy and legal training, such as sexual harassment training and ethics training

Dealing With Laws Affecting Employment

Human resources people must be aware of all the laws that affect the workplace. An HRM professional might work with some of these laws:

• Discrimination laws
• Health-care requirements
• Compensation requirements such as the minimum wage
• Worker safety laws
• Labour laws

The legal environment of HRM is always changing, so HRM must always be aware of changes taking place and then communicate those changes to the entire management organization.

Worker Protection

Safety is a major consideration in all organizations. Oftentimes new laws are created with the goal of setting federal or state standards to ensure worker safety. Unions and union contracts can also impact the requirements for worker safety in the workplace. It is up to the human resource manager to be aware of worker protection requirements and ensure the workplace is meeting both federal and union standards. Worker protection issues might include the following:

• Chemical hazards
• Heating and ventilation requirements
• Use of “no fragrance” zones
• Protection of private employee information

Awareness of External Factors

In addition to managing internal factors, the HR manager needs to consider the outside forces at play that may affect the organization. Outside forces, or external factors, are those things the company has no direct control over; however, they may be things that could positively or negatively impact human resources. External factors might include the following:

1. Globalization and offshoring
2. Changes to employment law
3. Health-care costs
4. Employee expectations
5. Diversity of the workforce
6. Changing demographics of the workforce
7. A more highly educated workforce
8. Layoffs and downsizing
9. Technology used, such as HR databases
10. Increased use of social networking to distribute information to employees

For example, the recent trend in flexible work schedules and telecommuting are external factors that have affected HR. HRM has to be aware of these outside issues, so they can develop policies that meet not only the needs of the company but also the needs of the individuals. Another example is the Patient Protection and Affordable Care Act, signed into law in 2010 in America. Compliance with this bill has huge implications for American HR employees. For example, a company with more than fifty employees must provide health-care coverage or pay a penalty. Currently, it is estimated that 60 percent of employers offer health-care insurance to their employees (Cappelli, 2010). Because health-care insurance will be mandatory, cost concerns as well as using health benefits as a recruitment strategy are big external challenges. Any manager operating without considering outside forces will likely alienate employees, resulting in unmotivated, unhappy workers. Not understanding the external factors can also mean breaking the law, which has a concerning set of implications as well. Consider for example what is required in your province (which in Ontario includes the Access for Ontarians with Disabilities Act) as well as Canada federally,.

Skills Needed for HRM

One of the major factors of a successful manager or human resource (HR) manager is an array of skills to deal with a variety of situations. It simply isn’t enough to have knowledge of HR, such as knowing which forms need to be filled out. It takes multiple skills to create and manage people, as well as a cutting-edge human resource department.

The first skill needed is organization. The need for this skill makes sense, given that you are managing people’s pay, benefits, and careers. Having organized files on your computer and good time-management skills are crucial for success in any job, but especially if you take on a role in human resources.

Like most jobs, being able to multitask is important in managing human resources. A typical person managing human resources may have to deal with an employee issue one minute, then switch and deal with recruiting. Unlike many management positions, which only focus on one task or one part of the business, human resources focus on all areas of the business, where multitasking is a must.

As trite as it may sound, people skills are necessary for any type of management and perhaps might be the most important skills for achieving success at any job. Being able to manage a variety of personalities, deal with conflict, and coach others are all in the realm of people management. The ability to communicate goes along with people skills. The ability to communicate good news (hiring a new employee), bad news (layoffs), and everything in between, such as changes to the policy, makes for an excellent manager and human resource management (HRM) professional.

Keys to a successful career in HRM or management include understanding specific job areas, such as managing the employee database, understanding employment laws, and knowing how to write and develop a strategic plan that aligns with the business.

A strategic mindset as an HR professional is a key skill as well. A person with a strategic mind-set can plan far in advance and look at trends that could affect the environment in which the business is operating. Too often, managers focus on their own area and not enough on the business as a whole. The strategic HR professional is able to not only work within his or her area but also understand how HR fits into the bigger picture of the business.

Ethics and a sense of fairness are also necessary for human resources. Ethics is a concept that examines the moral rights and wrongs of a certain situation. Consider the fact that many HR managers negotiate salary and union contracts and manage conflict. In addition, HR managers have the task of ensuring compliance with ethics standards within the organization. Many HR managers are required to work with highly confidential information, such as salary information, so a sense of ethics when managing this information is essential

Most companies need a human resource department or a manager with HR skills. The industries and job titles are so varied that it is possible only to list general job titles in human resources:

1. Recruiter
2. Compensation analyst
3. Human resources assistant
4. Employee relations manager
5. Benefits manager
6. Work-life coordinator
7. Training and development manager
8. Human resources manager
9. Vice president for human resources

This is not an exhaustive list, but it can be a starting point for research on this career path.

Today’s HRM Challenges

If you were to ask most business owners what their biggest challenges are, they will likely tell you that cost management is a major factor in the success or failure of their business. In most businesses today, the people part of the business is the most likely place for cuts when the economy isn’t doing well.

Consider the expenses that involve the people part of any business:

1. Health-care benefits
2. Training costs
3. Hiring process costs
4. And many more…

These costs cut into the bottom line of any business. The trick is to figure out how much, how many, or how often benefits should be offered, without sacrificing employee motivation. A company can cut costs by not offering benefits or RRSP, but if its goal is to hire the best people, a hiring package without these items will most certainly not get the best people. Containment of costs, therefore, is a balancing act. An HR manager must offer as much as he or she can to attract and retain employees, but not offer too much, as this can put pressure on the company’s bottom line.

For example, there are three ways to cut costs associated with health care:

1. Shift more of the cost of healthcare to employees
2. Reduce the benefits offered to cut costs
3. Change or better negotiate the plan to reduce health-care costs

Health care costs companies approximately $8,330 per year for a single employee, and sometimes this health care isn’t even fully expended by the employee (Lee, 2017). One possible strategy for containment for health-care plans is to implement a cafeteria plan. Cafeteria plans started becoming popular in the 1980s and have become standard in many organizations (Allen, 2010). This type of plan gives all employees a minimum level of benefits and a set amount to spend on flexible benefits, such as additional health care or vacation time. It creates more flexible benefits, allowing the employee, based on his or her family situation, to choose which benefits are right for them. For example, a mother of two may choose to spend her flexible benefits on health care for her children, while a single, childless female may opt for more vacation days. In other words, these plans offer flexibility, while saving money, too.

Another way to contain costs is by offering training. While this may seem counterintuitive, as training does cost money upfront, it can actually save money in the long run. Consider how expensive a sexual harassment lawsuit or wrongful termination lawsuit might be. For example, a Sonic Drive-In was investigated by the Equal Opportunity Employment Commission (EEOC) on behalf of seventy women who worked there, and it was found that a manager at one of the stores subjected the victims to inappropriate touching and comments. This lawsuit cost the organization $2 million (LL Sonic Settles, 2011). Some simple training upfront (costing less than the lawsuit) likely would have prevented this from happening. Training employees and management on how to work within the law, thereby reducing legal exposure, is a great way for HR to cut costs for the organization as a whole.

The hiring process and the cost of turnover in an organization can be very expensive. Turnover refers to the number of employees who leave a company in a particular period of time. By creating a recruiting and selection process with cost containment in mind, HR can contribute directly to cost-containment strategies company-wide. In fact, the cost of hiring an employee or replacing an old one (turnover) can be as high as $12,000 for a managerial position that pays $60,000, and this number only increases as the position and salary go up (The True Cost of Employee Turnover, 2019). By hiring smart the first time, HR managers can contain costs for their organization.

In a survey reported on by the Sales and Marketing Management newsletter (The Cost of Poor, 2006), 85 percent of managers say that ineffective communication is the cause of lost revenue. E-mail, instant messaging, text messages, and meetings are all examples of communication in business. An understanding of communication styles, personality styles, and channels of communication can help us be more effective in our communications, resulting in cost containment. In HRM, we can help ensure our people have the tools to communicate better, and contain costs and save dollars in doing so.

One cost-containment strategy for businesses has been offshoring. Offshoring refers to the movement of jobs overseas to contain costs. It’s been surveyed that 50% of Canadian companies have outsourced more than 10% of their jobs. According to IT World Canada, these jobs being outsourced are mostly general IT services. This issue is unique to HR, as the responsibility for developing training for new workers and laying off domestic workers will often fall under the realm of HRM.

Of course, cost containment isn’t only up to HRM and managers, but as organizations look at various ways to contain costs, human resources can certainly provide solutions.

Technology

Technology has greatly impacted human resources and will continue to do so as new technology is developed. Through the use of technology, many companies have virtual workforces that perform tasks from nearly all corners of the world. When employees are not located just down the hall, the management of these human resources creates some unique challenges. For example, technology creates an even greater need to have multicultural or diversity understanding. Since many people will work with individuals from across the globe, cultural sensitivity and understanding is the only way to ensure the use of technology results in increased productivity rather than decreased productivity due to miscommunications.

Technology also creates a workforce that expects to be mobile. Because of the ability to work from home or anywhere else, many employees may request and even demand a flexible schedule to meet their own family and personal needs. Productivity can be a concern for all managers in the area of flextime, and another challenge is the fairness to other workers when one person is offered a flexible schedule. Many companies, however, are going a step further and creating virtual organizations, which don’t have a physical location (cost containment) and allow all employees to work from home or the location of their choice. As you can imagine, this creates concerns over productivity and communication within the organization.

The use of smartphones and social networking has impacted human resources, as many companies now disseminate information to employees via these methods. Of course, technology changes constantly, so the methods used today will likely be different one year or even six months from now.

The large variety of databases available to perform HR tasks is mind-boggling. For example, databases are used to track employee data, compensation, and training. There are also databases available to track the recruiting and hiring processes.

Of course, the major challenge with technology is its constantly changing nature, which can impact all practices in HRM.

A very real change toward HR is the needed knowledge and use of an HR software, this skill becomes even more crucial towards a large organization with a lot of people and data to manage (HRIS Technology).

The Economy

Tough economic times in a country usually results in tough times for business, too. High unemployment and layoffs are clearly HRM and managerial issues. If a human resource manager works for a unionized company, union contracts are the guiding source when having to downsize owing to a tough economy. Besides union restrictions, legal restrictions on who is let go and the process followed to let someone go should be at the forefront of any manager’s mind when he or she is required to lay off people because of a poor economy. Dealing with performance issues and measuring performance can be considerations when it is necessary to lay off employees.

Likewise, in a growth economy, the HR manager may experience a different kind of stress. Massive hiring to meet demand might occur if the economy is doing well. For example, McDonald’s restaurants had to fill six hundred positions throughout Las Vegas and held hiring day events in 2010 (McDonald’s Readies, 2010). Imagine the process of hiring this many people in a short period of time The same recruiting and selection processes used under normal circumstances will be helpful in mass hiring situations.

The Changing and Diverse Workforce

It is expected that over the next ten years, over 40 percent of the workforce will retire, and there will not be enough younger workers to take the jobs once held by the retiring workforce (Fernandez, 2007). As you can imagine, this will create a unique staffing obstacle for human resources and managers alike, as they try to find talented people in a pool that doesn’t have enough people to perform necessary jobs. The reason for this increase in retirement is the ageing baby boomers. Baby boomers can be defined as those born between the years 1946 and 1964, according to the Census Bureau. They are called the baby boomers because there was a large increase in babies born after soldiers came back from World War II. Baby boomers account for 27 percent of the population of Canada and in 2011 the first of the baby boomers started to retire and the percentage has been estimated to grow towards 25 percent as we reach 2031 (Boomers are still, 2019).

The impact of the baby boomer generation on our country and on human resource management is huge. First, the retirement of baby boomers results in a loss of a major part of the working population, and there are not enough people to fill those jobs that are left vacant. Second, the baby boomers’ knowledge is lost upon their retirement. Much of this knowledge isn’t formalized or written down, but it contributes to the success of the business. Third, elderly people are living longer, and this results in higher health-care costs for all currently in the workforce. It is estimated that three out of five baby boomers do not have enough money saved for retirement (Weisenthal, 2010), meaning that many of them will depend on Old Age Security payments to meet basic needs.

Another challenge, besides the lack of workers, is the multigenerational workforce. Employees between the ages of seventeen and sixty-eight have different values and different expectations of their jobs. Any manager who tries to manage these workers from varying generations will likely have some challenges. Even compensation preferences are different among generations. For example, the traditional baby boomer built a career during a time of pensions and strongly held values of longevity and loyalty to a company. Compare the benefit needs of this person to someone who is younger and expects to save through an RRSP, and it is clear that the needs and expectations are different (Capezza, 2010).

Awareness of the diversity of the workforce is crucial. Diversity refers to age, disability, race, sex, national origin, and religion. Each of these components makes up the productive workforce, and each employee has different needs, wants, and goals. This is why it is imperative for the HRM professional to understand how to motivate the workforce while ensuring that no laws are broken.

Ethics

A discussion of ethics is necessary when considering the challenges of human resources. Much of the discussion surrounding ethics happened after the early to mid-2000s, when several companies were found to have engaged in gross unethical and illegal conduct, resulting in the loss of billions of dollars from shareholders. Consider the statistics: only 25 percent of employees trusted their CEO, to tell the truth, and 80 percent of people said that employers have a moral responsibility to society (Strategic Management, 2011). Based on these numbers, an ethical workplace is important not only for shareholder satisfaction but for employee satisfaction as well. Companies are seeing the value of implementing ethics codes within the business.

Many human resource departments have the responsibility of designing codes of ethics and developing policies for ethical decision making. Some organizations hire ethics officers to specifically focus on this area of the business. Out of four hundred companies surveyed, 48 percent had an ethics officer, who reported to either the CEO or the HR executive (McGraw, 2011). According to Steve Miranda, chief human resources officer for the Society for Human Resource Management (SHRM), “[the presence of an ethics officer] provides a high-level individual with positional authority who can ensure that policies, practices, and guidelines are effectively communicated across the organization” (McGraw, 2011).

For example, the insurance company Allstate recently hired a chief ethics and compliance officer (CECO) who offers a series of workshops geared toward leaders in the organization, because they believe that maintaining high ethical standards starts at the top of an organization. In addition, the CECO monitors reports of ethics complaints within the organization and trains employees on the code of ethics or code of conduct (McGraw, 2011). A code of ethics is an outline that explains the expected ethical behaviour of employees. For example, General Electric (GE) has a sixty-four-page code of conduct that outlines the expected ethics, defines them, and provides information on penalties for not adhering to the code. The code of conduct is presented below. Of course, simply having a written code of ethics does little to encourage positive behaviour, so many organizations (such as GE) offer stiff penalties for ethics violations. Developing policies, monitoring behaviour, and informing people of ethics are necessary to ensure a fair and legal business.

The following is an outline of GE’s code of conduct (The Spirit, 2011):

• Obey the applicable laws and regulations governing our business conduct worldwide.
• Be honest, fair, and trustworthy in all your GE activities and relationships.
• Avoid all conflicts of interest between work and personal affairs.
• Foster an atmosphere in which fair employment practices extend to every member of the diverse GE community.
• Strive to create a safe workplace and to protect the environment.
• Through leadership at all levels, sustain a culture where ethical conduct is recognized, valued, and exemplified by all employees.

Networking for HR

Network effects are sometimes referred to as “Metcalfe’s Law” or “Network Externalities.” But don’t let the dull names fool you—this concept is rocket fuel for an organization. Bill Gates leveraged network effects to turn Windows and Office into virtual monopolies and in the process became the wealthiest man in America. Mark Zuckerberg of Facebook, and Pierre Omidyar of eBay, all of these entrepreneurs have built massive user bases by leveraging the concept. When network effects are present, the value of a product or service increases as the number of users grows. Simply, more users = more value. Of course, most products aren’t subject to network effects—you probably don’t care if someone wears the same socks, uses the same pancake syrup, or buys the same trash bags as you. But when network effects are present they’re among the most important reasons you’ll pick one product or service over another. You may care very much, for example, if others are part of your social network if your video game console is popular if the Wikipedia article you’re referencing has had prior readers. And all those folks who bought HD DVD players sure we’re bummed when the rest of the world declared Blu-ray the winner. In each of these examples, network effects are at work. In the case of HR, we want to use a platform with said network effect to find the right people to hire for our organization.

Where Does All That Value Come From?

Facebook for one person isn’t much fun, and the first guy in the world with a fax machine didn’t have much more than a paperweight. But as each new Facebook friend or fax user comes online, a network becomes more valuable because its users can potentially communicate with more people. These examples show the importance of exchange in creating value. Every product or service subject to network effects fosters some kind of exchange. For firms leveraging technology, this might include anything you can represent in the ones and zeros of digital storage, such as movies, music, money, video games, and computer programs. And just about any standard that allows things to plug into one another, interconnect, or otherwise communicate will live or die based on its ability to snare network effects.

Progress in Communication Technology

Communication is an essential part of Human Resources, and with modern technology, communication has been greatly enhanced. People have communicated at a distance using fires, smoke, lanterns, flags, semaphores, etc. since ancient times, but the telegraph was the first electronic communication technology. Several inventors developed electronic telegraphs, but Samuel Morse’s hardware and code (using dots and dashes) caught on and became a commercial success. Computer-based data communication experiments began just after World War II, and they led to systems like MIT’s Project Whirlwind, which gathered and displayed telemetry data, and SAGE, an early warning system designed to detect Soviet bombers. The ARPANet, a general-purpose network, followed SAGE. In the late 1980s, the US National Science Foundation created the NSFNet, an experimental network linking the ARPANet and several others – it was an internetwork. The NSFNetwork was the start of today’s Internet. Improvement on the Internet illustrates communication technology progress. There are several important metrics for the quality of a communication link, but speed is basic. Speed is typically measured in bits per second – the number of ones and zeros that can be sent from one network node to another in a second. Initially, the link speed between NSFNet nodes was 64 kilobits per second, but it was soon increased to 1.5 megabits per second then to 45 megabits per second and now some of the fastest speed we have in Canada is around 120 megabits per second (Griffith, 2019).

Software Progress

The hardware progress we have enjoyed would be meaningless if it did not lead to new forms of software and applications. The first computers worked primarily on numeric data, but early computer scientists understood their potential for working on many types of applications and data. By 1960, researchers were experimenting non-numeric data like text, images, audio and video; however, these lab prototypes were far too expensive for commercial use. Technological improvement steadily extended the range of affordable data types. The following table shows the decades in which the processing of selected types of data became economically feasible: