Many organizations face a volatile environment in which change is nearly constant.6 For this reason IBM’s ex-CEO, Sam Palmisano, tells his managers that he doesn’t believe in forecasts longer than one week.7 If they are to survive and prosper, firms need to adapt to change quickly and effectively. Human resources are almost always at the heart of an effective response system.8 Here are a few examples of how HR policies can help or hinder a firm grappling with external change:

• ▪ New company town As firms experience high pressure to become more productive and deal with very short product life cycles (often measured in months), Americans are working longer, harder, and faster.9 As a result, the line between home and work is blurred for many employees. To deal with this phenomenon, sociologist Helen Mederer of the University of Rhode Island notes that “companies are taking the best aspects of home and incorporating them into work.”10

  A survey of 975 employers by consulting firm Hewitt Associates found that an increasing number of companies are providing “home at work” benefits. These include dry cleaner/laundry service, company store, take-home meals, concierge service, oil changes/autocare, hair salon, and pet care.11

  According to a report in the New York Times: 12

  . . . things like nap rooms and massage recliners may sound out of place to some in a working environment. But such perks can boost productivity when there are older workers with sore backs, or young parents with sometimes sleepless nights. Musical performance, too, may seem at first like an unnecessary distraction. But companies trying them say that they can be done simply and inexpensively, and that they produce better morale, increased motivation and less stress.

• ▪ Dealing with stress Rapid change and work overload can put employees under a great deal of stress. The Bureau of Labor Statistics reported that 50 percent of the 19.8 million Americans who say they work at home at least once a week aren’t compensated for it. In other words, millions of employees must work at home just in order to catch up.13

  Unless the organization develops support mechanisms to keep stress manageable, both the firm and employees may pay a heavy price.14 In some extreme cases, workplace violence may result. In 2014 the Centers for Disease Control calls workplace violence a “national epidemic”; the most recent figures indicate that U.S. employees at work were the victims of 18,104 injuries from assault and 609 homicides.15 Typically, however, the observed results of poorly handled stress are more subtle, yet still highly destructive, costing the company substantial money. According to some estimates, stress-related ailments cost companies about $200 billion a year in increased absenteeism, tardiness, and the loss of talented workers.16 One survey reports that 67 percent of employees categorize their work-related stress as high.17 The National Institute of Mental Health estimates that approximately 222.7 million days of work are lost annually due to absence and impairments related to depression alone, costing employers (the majority of which are small firms) $51.5 billion a year.18 Many firms, including Microsoft, Sysco Food Services, Apple, IBM, General Motors, Google, Chrysler, Johnson & Johnson, Coors Brewing Company, Citigroup Inc., Texas Instruments, and Hughes Aircraft (now merged into Raytheon), among others, have introduced stress-control programs in recent years.

Throughout this book we emphasize how HR practices can enable a firm to respond quickly and effectively to external changes. Two chapters (Chapter 13 on employee relations and Chapter 16 on managing workplace safety and health) specifically deal with issues related to employee stress.

The dramatic growth of the Internet in recent years probably represents the single most important environmental trend affecting organizations and their human resource practices. In the mid-1990s, the term Web economy had not yet been coined.19 Now, almost all firms use the Internet as part of their normal business practices. The Internet is having a pervasive impact on how organizations manage their human resources, as the following examples show:

• ▪ Necessitating greater written communication skills Companies have discovered that Internet technology creates a high demand for workers who can deal effectively with e-mail messages.20 This skill is key if companies want to keep fickle Internet customers loyal, making them less likely to go to a competitor by simply tapping a few keystrokes.

  E-mail writing may also involve legal issues. For instance, an employee’s e-mail response to a customer complaint may be legally binding on the firm, and there is the “written” record to prove it. Some jokes among employees may be used as evidence of sexual harassment. Unlike regular mail, electronic communication is not considered private and thus the company and employees may be open to scrutiny by government agencies as well anyone with the basic skills required to access the system.

  Although English is the main language of the Internet, almost half of Internet communication takes place in foreign languages, and only 7 percent of users on a global basis are native English speakers.21 Major multimillion-dollar blunders due to language problems have already been documented, such as the case of Juan Pablo Davila, a commodities trader in Chile. He typed the word “buy” on the computer by mistake, instead of “sell.” To rectify his mistake, he started a frenzy of buying and selling, losing 0.5 percent of his country’s GNP. His name has become an Internet-related verb—“davilar”—meaning, “to screw up royally.”22

• ▪ Dealing with information overflow Although executives spend an average of four hours a day receiving, checking, preparing, and sending e-mails, they are still spending 130 minutes a day in formal and informal face-to-face meetings. According to Neil Flett, CEO of a large communication consulting firm, “Because e-mail consumes so much time it may just be that it just adds to communication time rather than reducing it.”23

  According to some estimates, almost one-third of e-mails received by employees are not directly relevant to their jobs; considering that employees are now receiving an average of 30 e-mails each day, this may translate into as much as one hour a day of lost productivity.24

• ▪ Breaking down labor market barriers More than ever before, the Internet is creating an open labor market where information about prospective employees and firms is available on a global basis and may be obtained quickly and inexpensively.25 [no longer online] Monster.com, for instance, posted 85 million resumes in 2014.26 Thousands of specialized search engines (such as [no longer online] Indeed.com, [no longer online] Simplyhired.com, [no longer online] Workzoo.com , and [no longer online] Jobsearch.org ) now scan both well-known and obscure employment boards on the job seeker’s behalf.27 While more and more organizations are relying on Web applications to recruit and screen employees, it is unclear to what extent these highly efficient yet “cold” impersonal approaches to staffing allows organizations to learn about candidates’ intangible qualities such as leadership skills, work ethic, business acumen, and flexibility. Applicants often complain that sophisticated computer programs tend to have a narrow focus, relying on numerical and/or concrete criteria that may not truly capture what the person could contribute if given an opportunity (see the Manager’s Notebook, “A Cold Way to Get a Job”).

  MANAGER’S NOTEBOOK A Cold Way to Get a Job

  Emerging Trends

  The way people look for jobs has changed dramatically. Employers often require people to submit applications via the Internet, and hiring managers sift through queries with special computer programs. Unless you fit the precise algorithm that the computer program is looking for, you may never get a prospective employer’s attention. For instance, you may have four years, 351 days of experience, but not the five years the machine uses as a cutoff, and thus you are out of luck. Or, failure to show evidence that you have used a particular skill during the past two months may be grounds for an automatic rejection (even if maybe you did use the skill but forgot to include it).

  In a job market thick with candidates, employers have become extremely selective, and a common complaint among applicants is that computer screening programs are totally inflexible, leading to automatic rejections for small details. The computer makes a decision without giving you a chance to make your case. If an application doesn’t make the cut, there is usually no rejection letter or feedback. The process may be efficient for the company, but it can be frustrating and demoralizing to the applicant.

  Sources:

  Based on www.employtest.com . (2014); www.articlesbase.com . (2014). Computer based recruitment software; Arizona Republic (2010, Oct. 31). Networking pays off to get old job back; Black, T. (2011). Every tool you need for hiring, www.inc.com . A-8.▪▪

• ▪ Using online learning Corporate training has always been dominated by traditional in-house “paper-and-pencil” training programs. Over the last few years, however, there has been a tremendous migration from classroom learning to online learning.28 For example, 99 percent of employees at the Mayo Clinic opted for online training to learn about new rules on health care privacy (even though the clinic gave them the option to attend a traditional classroom seminar on company time covering the same material).29 One of the most recent developments in HR is the entry of well-known firms into the online training business for the general public, with a focus on “niche certifications” rather than degree programs (see the Manager’s Notebook, “The Growth of Online Niche Certifications to Meet Training Needs”).

• ▪ Enabling HR to focus on management The Internet enables firms to handle many operational HR details much more quickly and efficiently. According to Philip Fauver, president and CEO of Employease Inc., the Internet is “the enabler.”30 For a flat fee of about $5 to $6 per employee, Employease manages HR information for 700 small-to-midsize companies. One of its clients is Amerisure Insurance Company in Farmington Hills, Michigan. According to Derick Adams, Amerisure’s HR vice president, the Internet allows his 14-member HR department to devote more attention to important managerial challenges. For instance, Adams notes that his department was able to “develop a variable pay plan after handing off the department’s data entry work to Employease.”31

Managers across the United States are confronted daily with the increasing diversity of the workforce. In 2014, approximately 35 percent of the U.S. workforce was from a minority group, including African Americans (12%), Asian Americans (4.7%), Latinos (16%), and other minorities (2%).32 In many large urban centers, such as Miami, Los Angeles, and New York, minorities comprise at least half of the area’s workforce. The influx of women workers is another major change in the composition of the U.S. workforce. Women with children under age 6 are now the fastest-growing segment of the workforce. Currently, more than 76 percent of employed men have employed wives, versus 54 percent in 1980.33

These trends are likely to accelerate in the future. By 2050, the U.S. population is expected to increase by 50 percent, with minority groups comprising nearly half of the population. Nonwhite immigrants, mostly Hispanics, will account for 60 percent of this population growth. Despite fears that immigrants are not assimilating, children of immigrants actually do better than children of natives in the same socioeconomic class.34

Furthermore, never before in history has such a large-scale mixing of the races occurred, due to a sharp rise in the rate of intermarriage. 35 “One day race will not be needed because it will be obsolete,” notes Candy Mills, a magazine editor in Los Angeles, who is black. Candy is married to a French-Hungarian with whom she has a child.36 The best example of this trend, of course, is the current president of the United States, Barack Obama, who is of mixed race. The U.S. Census Bureau has acknowledged this reality, incorporating “mixed” categories for future population censuses.

All these trends present both a significant challenge and a real opportunity for managers.37 Firms that formulate and implement HR strategies that capitalize on employee diversity are more likely to survive and prosper (see example in the Manager’s Notebook, “How Harley-Davidson is Taking Advantage of a Diverse Customer Base”). Chapter 4 is devoted exclusively to the topic of managing employee diversity. This issue is also discussed in several other chapters throughout this book.

One of the most dramatic challenges facing U.S. firms as they enter the second decade of the twenty-first century is how to compete against foreign firms, both domestically and abroad. The Internet is fueling globalization, and most large firms are actively involved in manufacturing overseas, international joint ventures, or collaboration with foreign firms on specific projects. Currently the companies that make up the S&P 500 generate 46 percent of their profits outside the United States, and for many of the biggest U.S. companies, the proportion is much higher.

The implications of a global economy for human resource management are many. Here are a few examples:

• ▪ Worldwide company culture Some firms try to develop a global company identity to smooth over cultural differences between domestic employees and those in international operations. Minimizing these differences increases cooperation and can have a strong impact on the bottom line. For instance, the head of human resources at the European division of Colgate Palmolive notes that the goal of the company is to “make all employees Colgaters.”38

• ▪ Worldwide recruiting Some firms recruit workers globally, particularly in the high-technology area, where specialized knowledge and expertise are not limited by national boundaries.39 For instance, Unisys (an e-business solutions company whose 37,000 employees help customers in 100 countries apply information technology) recruits between 5,000 and 7,000 people a year, 50 percent of whom are information technology (IT) professionals. Unisys is always looking across borders to try to find the best persons.40

  Global recruitment, however, is no panacea, because good employees everywhere are in high demand, and there may not be as much applicant information available to make the appropriate selection decision.41 Kevin Barnes, technical director for Store Perform, with facilities in Bangalore, India, notes that “top Indian engineers are world-class, but most are taken. Anyone in India who can spell Java already has a job.” And the labor market attracts legions of unqualified candidates, Barnes says, making it harder to distinguish the good from mediocre performers.42

• ▪ Industrial metamorphosis The proportion of the American labor force in the manufacturing sector has dropped to less than 10 percent, down from 25 percent about 30 years ago. Similar drops have been experienced in several European countries, including England, Germany, and France. According to the Economist, “It has happened because rich-world companies have replaced workers with new technology to boost productivity and shifted production from labor-intensive products such as textiles to higher-tech, higher value-added, sectors such as pharmaceuticals. Within firms, low-skilled jobs have moved offshore.”43 Labor unions have lost much of their influence.44 For instance, in the 1950s almost 40 percent of the U.S. workforce was unionized; by the time President Ronald Reagan took office in the early 1980s this percentage had dropped by almost half (22%); and by the time President Barrack Obama took office less than 20 years later (2009), this proportion had dropped by more than two-thirds (to approximately 7% of the private-sector workforce).

• ▪ Global alliances International alliances with foreign firms require a highly trained and devoted staff. For instance, Philips (a Dutch lighting and electronics firm) became the largest lighting manufacturer in the world by establishing a joint venture with AT&T and making several key acquisitions, including Magnavox, parts of GE Sylvania, and the largest lighting company in France.45

• ▪ A virtual workforce Because of restrictive U.S. immigration quotas,46 U.S. firms are tapping skilled foreign labor but not moving those workers to the United States. The Internet is making this possible with little additional expense. For example, Microsoft Corp. and RealNetworks Inc. use Aditi Corp., a Bangalore, India, company, to handle customer e-mails.47 In addition, many “virtual” expatriates work abroad but live at home.48

• ▪ The global enterprise Internationalization is growing at warp speed, creating a powerful new reality. For instance, most people think of Coca-Cola as emblematic of the United States. Yet its CEO, Muhtar Kent, describes Coca Cola in the following terms: “We are a global company that happens to be headquartered in Atlanta. We have a factory in Ramallah that employs 2,000 people. We have a factory in Afghanistan. We have factories everywhere.” Nearly 80 percent of Coca-Cola’s revenue comes from 206 countries outside the United States.49

• ▪ Wage competition Not too long ago, many U.S. blue-collar workers could maintain a solid middle-class standard of living that was the envy of the rest of the world. This was sustained, in part, by higher productivity and superior technological innovation in the United States and because American manufacturers enjoyed a high market share with little foreign competition. Unfortunately, this is no longer the case in many sectors, particularly the automobile industry. As noted in a recent report, “While businesses have a way to navigate this new world of technological change and globalization, the ordinary American worker does not. Capital and technology are mobile; labor isn’t. American workers are located in America.”50

An entire chapter of this book (Chapter 17) is devoted to the HR issues firms face as they expand overseas. We also include international examples throughout the book to illustrate how firms in other countries manage their human resources.

Much of the growth in the HR function over the past four decades may be attributed to its crucial role in keeping the company out of trouble with the law.51 Most firms are deeply concerned with potential liability resulting from personnel decisions that may violate laws enacted by the U.S. Congress, state legislatures, or local governments.52 Discrimination charges filed by older employees, minorities, and the disabled, for instance, have been on the rise for years. In some cases, such as charges of sex discrimination by Hispanic and Asian women, the increase has exceeded 65 percent in the past 20 years.53

One legal area growing in importance is alleged misuse of “proprietary company information” by ex-employees. Pitney Bowes, the world’s largest maker of postage meters and other mailing equipment, recently sued eight ex-employees who opened a small competing firm called Nexxpost. According to a Pitney Bowes’ spokesperson:

The company invests a great deal of time and money in areas of developing our intellectual property, in marketing and training our sales force. We must protect our investment, which also includes our customer lists, information about consumer preferences, as well as pricing. All that has a significant competitive value. When a former employee wants to challenge us, we take that breach very seriously and do what we need to do to protect it.54

Operating within the legal framework requires keeping track of the external legal environment and developing internal systems (for example, supervisory training and grievance procedures) to ensure compliance and minimize complaints. Many firms are now developing formal policies on sexual harassment and establishing internal administrative channels to deal with alleged incidents before employees feel the need to file a lawsuit. In a country where mass litigation is on the rise,55 these efforts may well be worth the time and money.

Legislation may differentiate between public- and private-sector organizations. (Public sector is another term for governmental agencies; private sector refers to all other types of organizations.) For instance, affirmative action requirements (see Chapter 3) are typically limited to public organizations and to organizations that do contract work for them. However, much legislation applies to both public- and private-sector organizations. In fact, it is difficult to think of any HR practices that are not influenced by government regulations. For this reason, each chapter of this book addresses pertinent legal issues, and an entire chapter (Chapter 3) provides an overall framework that consolidates the main legal issues and concerns facing employers today.

The proportion of dual-career families, in which both wife and husband (or both members of a couple) work, is increasing every year.

More companies are introducing “family-friendly” programs that give them a competitive advantage in the labor market.56 Companies use these HR tactics to hire and retain the best-qualified employees, male or female. Through the Office of Personnel Management, the federal government provides technical assistance to organizations that wish to implement family-friendly policies. On its 2015 Web page ( [no longer online] opm.gov ), for instance, the office makes available numerous publications on issues such as adoption benefits, child care, elder-care resources, parenting support, and telework.

Family-friendly policies are discussed in detail in Chapter 12 under the heading “Employee Services.” Special issues that women confront in the workplace are discussed in Chapter 4.

As noted earlier, U.S. manufacturing has dropped dramatically in terms of the percentage of employees who work in that sector. Most employment growth has taken place in the service industry. The categories with the fastest growth are expected to be professional specialties (27 percent) and technical occupations (22 percent). The fastest-growing occupations demand at least two years of college training.57 Expansion of service-sector employment is linked to a number of factors, including changes in consumer tastes and preferences, legal and regulatory changes, advances in science and technology that have eliminated many manufacturing jobs, and changes in the way businesses are organized and managed.

Unfortunately, many available workers will be too unskilled to fill those jobs. Even now, many companies complain that the supply of skilled labor is dwindling and that they must provide their employees with basic training to make up for the shortcomings of the public education system.58 For example, 84 percent of the 23,000 people applying for entry-level jobs at Bell Atlantic Telephone (formerly NYNEX) failed the qualifying test. Chemical Bank (now merged with Chase) reported that it had to interview 40 applicants to find one proficient teller.59 David Hearns, former chairman and CEO of Xerox, laments that “the American workforce is running out of qualified people.”60

To rectify these shortcomings, companies spend at least $55 billion a year on a wide variety of training programs. This is in addition to the $24 billion spent on training programs by the federal government each year.61 On the employee-selection side, an increasing number of organizations are relying on job simulations to test for the “soft skills” needed to succeed in a service environment, such as sound judgment in ambiguous situations, the ability to relate to diverse groups of people, and effective handling of angry or dissatisfied customers.

The improving unemployment picture at the time of this writing makes the skill shortage a greater challenge for U.S. firms. New York has become the first state in the nation to issue a “work readiness” credential to high school students who pass a voluntary test measuring their ability to succeed in entry-level jobs. An article in the New York Times notes, “Employers have complained for years that too many students leave high school without basic skills, despite the battery of exams—considered among the most stringent in the nation—that New York requires for graduation.”62 The test covers “soft skills,” including the ability to communicate, follow directions, negotiate and make basic decisions, in 10 broad areas. Chapter 8 focuses directly on training; Chapter 5 (staffing), Chapter 7 (appraising employee performance), and Chapter 9 (career development) all discuss issues related to the skills and knowledge required to succeed on the job.

A stream of recent disasters, including the 2011 Japanese earthquake; the early 2005 tsunami that killed over 250,000 people in Asia; the 2010 Haitian earthquake and subsequent cholera epidemics during 2010–2012, which killed more than 200,000 people; the 2010 oil spill environmental disaster of British Petroleum in the Gulf of Mexico; and a string of devastating hurricanes—most notably Katrina, which destroyed most of the city of New Orleans in August 2005—have increased awareness among HR professionals of the importance of having plans to deal with such catastrophes. A survey conducted by Mercer Human Resource Consulting indicated that almost 3 million employees were affected in one way or another by Katrina.63 Employers had to suddenly deal with HR issues to which they previously had given little thought. These included: deciding whether to keep paying employees who were unreachable and unable to report to work, paying for a variety of living expenses for displaced staffers in temporary living quarters, providing telecommuting equipment for employees working from hotels, awarding hazardous duty pay, hiring temporary employees (many of whom were undocumented workers) to fill the labor void, and preventing the loss of key talent to competitors outside the disaster area.64 Time Warner Inc. waived medical deductibles and supported out-of-network medical coverage for affected Katrina families. Walmart, with more than 34,000 employees displaced by Katrina, guaranteed them work in any other U.S. Walmart store and created an “Associate Disaster Relief Fund” for employees whose homes were flooded or destroyed.65 Surprisingly, even after Katrina, almost half of firms don’t have HR policies to deal with major disasters.66 But this is likely to change as new potential threats (such as avian flu, major earthquakes, chemical contamination, and more hurricanes) loom on the horizon.67 Another issue of concern to many firms, particularly multinationals, is terrorism, which we discuss later. Recent well-publicized terrorist incidents such as the 2013 Boston Marathon bombings, numerous mass shootings on American soil in the past five years, the 2013 attack on a major Nairobi (Kenya) shopping mall, and continued pirating of ships along the Somalian coast are continuous reminders that organizations need to be prepared to respond to potential terrorist threats.

Organizations commonly centralize major functions, such as HR, marketing, and production, in a single location that serves as the firm’s command center. Multiple layers of management execute orders issued at the top and employees move up the ranks over time in what some have called the internal labor market. 69 However, the traditional top-down form of organization is being replaced by decentralization , which transfers responsibility and decision-making authority from a central office to people and locations closer to the situation that demands attention. The Internet helps companies to decentralize even faster by improving the communication flow among the workforce, reducing the need to rely on the traditional organizational pyramid.70

The need for maintaining or creating organizational flexibility in HR strategies is addressed in several chapters of this book, including those dealing with work flows (Chapter 2), compensation (Chapters 10 and 11), training (Chapter 8), staffing (Chapter 5), and globalization (Chapter 17).

Periodic reductions in a company’s workforce to improve its bottom line—often called downsizing —are becoming standard business practice, even among firms that were once legendary for their “no layoff” policies, such as IBM, Kodak, and Xerox.71 Although U.S. firms traditionally were far more willing than companies in other industrialized nations to resort to layoffs as a cost-cutting measure, globalization is quickly closing the gap. Chinese, Korean, and Indian firms have also experienced massive layoffs in the wake of the economic crisis at the end of the last decade.72 In recent years, German companies—ranging from electronics giant Siemens to chip-maker Infineon Technologies to Commerzbank—have announced thousands of layoffs. Countries such as France, where authorities have repeatedly blocked management efforts to cut costs via layoffs, often find that these well-intentioned efforts are counterproductive, leading to a wave of bankruptcies. This was the fate of appliance maker Moulinex, once considered an icon of French industry, which shut its doors in 2002, with almost 9,000 employees losing their jobs as a result.73

In 2013, the socialist government in France passed a more restrictive law whereby the state has the right to disapprove restructuring plans depending on a firm’s assets and economic health. At the time of this writing, the French government is applying this new law by blocking Alcatel-Lucent from laying off 900 French employees. Following a period of unprecedented growth, Iceland has experienced since the end of the past decade what amounts to an economic catastrophe, with almost a quarter of its workforce being laid off within a short time.74 More recently, Ireland and Greece had a similar fate, with Italy, Portugal, and Spain not too far behind. In 2014 the unemployment rate in Spain reached an unprecedented 27%, provoking a large exodus of qualified personnel to other countries in Europe and Latin America (even though unemployment figures are decreasing at the time of this writing, mostly due to temporary hires in low-wage sectors).

Chapter 6 is devoted to downsizing and how to manage the process effectively. Other relevant chapters include those on benefits (Chapter 12), the legal environment (Chapter 3), labor relations (Chapter 15), and employee relations and communications (Chapter 13).

Over the past two decades there has been a dramatic transformation in how firms are structured. Tall organizations that had many management levels are becoming flatter as companies reduce the number of people between the chief executive officer (CEO) and the lowest-ranking employee in an effort to become more competitive. Mergers and acquisitions have been going on for decades. Often mergers fail because the cultures and HR systems of the firms involved do not coalesce.75 A newer and rapidly growing form of interorganizational bonding comes in the form of joint ventures, alliances, and collaborations among firms that remain independent, yet work together on specific products to spread costs and risks.

To be successful, organizational restructuring requires effective management of human resources.76 For instance, flattening the organization requires careful examination of staffing demands, work flows, communication channels, training needs, and so on. Likewise, mergers and other forms of interorganizational relations require the successful blending of dissimilar organizational structures, management practices, technical expertise, and so forth.77 Chapter 2 deals specifically with these issues. Other chapters that focus on related issues are Chapter 5 (staffing), Chapter 8 (training), Chapter 9 (career development), and Chapter 17 (international management). Chapters 10 and 11 (compensation issues) address some of the growing controversies with regard to pay inequities between top and lower levels as organizations become flatter.78

The traditional system in which individual employees report to a single boss (who oversees a group of three to seven subordinates) is being replaced in some organizations by the self-managed team system. Employees are assigned to a group of peers and, together, they are responsible for a particular area or task. It has been estimated that 40 percent of U.S. workers are operating in some kind of team environment.79

According to two experts on self-managed work teams, “Today’s competitive environment demands intense improvement in productivity, quality, and response time. Teams can deliver this improvement. Bosses can’t. . . . Just as dinosaurs once ruled the earth and later faded into extinction, the days of bosses may be numbered.”80

Very few rigorous scientific studies have been done on the effectiveness of self-managed work teams. However, case studies do suggest that many firms that use teams enjoy impressive payoffs. For example, company officials at General Motors’ Fitzgerald Battery Plant, which is organized in teams, reported cost savings of 30 to 40 percent over traditionally organized plants. At FedEx, a thousand clerical workers, divided into teams of 5 to 10 people, helped the company reduce service problems by 13 percent.81

HR issues concerning self-managed work teams are discussed in detail in Chapter 2 (work flows), Chapter 10 (compensation), and Chapter 11 (rewarding performance).

According to the U.S. Small Business Administration (SBA), the precise definition of a small business depends on the industry in which it operates. For instance, to be considered “small” by the SBA, a manufacturing company can have a maximum of 500 to 1,500 employees (depending on the type of manufacturing). In wholesaling, a company is considered small if the number of its employees does not exceed 100.82

An increasing percentage of the 14 million businesses in the United States are considered to be small.83 One study using tax returns as its source of data found that 99.8 percent of U.S. businesses have fewer than 100 employees and approximately 90 percent have fewer than 20 employees.84 Another study reports that approximately 85 percent of these firms are family owned.85 One study found that Latinos and immigrants have substantially higher entrepreneurship rates than U.S. natives, and that African Americans increasingly are becoming entrepreneurs.86

Unfortunately, small businesses face a high risk of failure. According to some estimates, 40 percent of them fail in the first year, 60 percent fail before the start of the third year, and only 10 percent survive an entire decade.87 To survive and prosper, a small business must manage its human resources effectively. For instance, a mediocre performance by one person in a 10-employee firm can mean the difference between making a profit and losing money. In the eighth edition of this book, each chapter has at least a section or a feature concerning special HR issues faced by small businesses.

The term organizational culture refers to the basic assumptions and beliefs shared by members of an organization. These beliefs operate unconsciously and define in a basic “taken for granted” fashion an organization’s view of itself and its environment.88 The key elements of organizational culture are:89

• ▪ Observed behavioral regularities when people interact, such as the language used and the rituals surrounding deference and demeanor

• ▪ The norms that evolve in working groups, such as the norm of a fair day’s work for a fair day’s pay

• ▪ The dominant values espoused by an organization, such as product quality or low prices

• ▪ The philosophy that guides an organization’s policy toward employees and customers

• ▪ The rules of the game for getting along in the organization—“the ropes” that a newcomer must learn to become an accepted member

• ▪ The feeling or climate that is conveyed in an organization by the physical layout and the way in which members of the organization interact with one another, customers, and outsiders

Firms that make cultural adjustments to keep up with environmental changes are likely to outperform those whose culture is rigid and unresponsive to external jolts. Campbell’s Soup Company’s problems in the 2000s are often attributed to norms and values that had not kept up with rapidly changing consumer tastes. As Khermouch wrote in BusinessWeek, “It’s definitely a risk-averse, control-oriented culture. It’s all about two things: financial control and how much they can squeeze out of a tomato. Campbell needs to reward risk-taking, remove organizational roadblocks, and summon up the courage to move bold initiatives from proposal to execution quickly and regularly.”90

Changing an entrenched organizational culture is not easy. For example, Carly Fiorina, an outsider with a nontechnical background, was brought into Hewlett-Packard (HP) in 1999 as CEO in order to overhaul the company.91 Yet she was fired just six years later because her marketing focus, aggressiveness, autocratic style, flair for public drama, and what many thought was an overblown ego alienated key HP employees, managers, and members of the board of directors.

Although technology is changing rapidly in many areas, such as robotics, one area in particular is revolutionizing human resources: information technology.92 Telematics technologies—a broad array of tools, including computers, networking programs, telecommunications, and fax machines—are now available and affordable to businesses of every size, even one-person companies. These technologies—coupled with the rise of the Internet—have impacted businesses in a number of ways, specifically:

• ▪ The rise of telecommuting Because technology makes information easy to store, retrieve, and analyze, the number of company employees working at least part-time at home (telecommuters) has been increasing by 15 percent annually. Because telecommuting arrangements are expected to continue to grow in the future, they raise many important issues, such as performance monitoring and career planning. A recent survey uncovered that almost half of off-site employees believe that people who work onsite get more recognition than those who work off-site. On the same survey, more telecommuters than onsite employees reported that they are unlikely to stay in their current position and firm if they can find a suitable job elsewhere that pays them a similar amount.93 Instead of being easy work, telecommuting makes it difficult for most telecommuters to draw a line between personal and work life, sometimes making these jobs very stressful.

• ▪ The ethics of proper data use Data control, data accuracy, the right to privacy, and ethics are at the core of a growing controversy brought about by the new information technologies, particularly the Internet.94 Personal computers now make it possible to access huge databases containing information on an individual’s credit files, work history, driving records, health reports, criminal convictions, and family makeup. One Web site, for example, promises that in exchange for a $7 fee, it will scan “over two million records to create a single report on an individual.”95 A critical observer notes: “Because of the large volume of information errors may creep in and those who are negatively affected may not have a chance to defend themselves.”96 The Manager’s Notebook, “What to Do with Personal Information,” offers several examples of the ethical issues confronting human resource professionals given easy access to personal data via modern technology.

• ▪ Electronic monitoring As illustrated in the You Manage It! case “Electronic Monitoring to Make Sure That No One Steps Out of Line” at the end of this chapter, some companies are experimenting with all sorts of sophisticated devices to measure employee productivity. Approximately 40 percent of firms in 2014 were using artificial intelligence software that monitors when, how, and why workers are using the Internet. According to Clares Voice, a Dallas-based messaging security company, “We look at every piece of mail while it is in motion.”97 E-mail messages are now used as evidence for all sorts of legal cases concerning age discrimination, sexual harassment, price fixing, and the like.98 “Some 70 percent of the evidence that we routinely deal with is in the form of electronic communication,” says Garry G. Mathiason, a senior partner at Littler Mendelson, a prestigious legal firm in San Francisco.99

• ▪ Medical testing Genetic testing, high-tech imaging, and DNA analysis may soon be available to aid in making employment decisions.100 Firms’ decisions about how to harness the new information (to screen applicants, to establish health insurance premiums, to decide who should be laid off, and the like) are full of ethical implications. IBM seems to be on the forefront, recently announcing that it will not use genetic data for employment decisions. This is one area where the legal system is still far behind technical advances. A related issue concerns punishing employees who are exposed to health risks; with the new health care law coming into effect, a growing number of firms are trying to “individualize” the price of health insurance (see the Manager’s Notebook, “Watching Over Your Shoulder: Paying a Price for Unhealthy Life Styles”).

• ▪ An increase in egalitarianism Because information is now available both instantaneously and broadly, organizational structures are becoming more egalitarian, meaning that power and authority are spread more evenly among all employees. Groupware networks, which enable hundreds of workers to share information simultaneously, can give office workers corporate and business intelligence previously available only to their bosses.101 They also enable the rank-and-file to join in online discussions with senior executives. In these kinds of interactions, people are judged more by what they say than by their rank on the corporate ladder.102

The challenges and implications of rapidly changing technologies—especially information technologies—for human resources are discussed in every chapter of this book.

The 9/11 attacks on the Twin towers and the Pentagon, the Boston Marathon massacre, and several subsequent plots and mass shootings since then have engendered a collective obsession with security in the United States. Many consulting firms are now focusing their attention on how to detect potential security problems, and a wide range of firms and industry groups, from trucking associations to sporting-event organizers, have made security screening a top priority.103 Apart from conducting background checks, HR departments are increasingly involved in beefing up security details by scanning employees’ eyes and fingerprints for positive identification, hiring armed guards to patrol facilities, identifying employees who might pose a violence threat, and even spotting potential spies.104

Although few would question that security checks are necessary, one concern from a human resource perspective is to ensure that applicants’ and employers’ rights are not violated and that due process is followed whenever suspected problems are identified. For example, should a person convicted of a drunken driving violation 15 years ago be denied a job as a flight attendant? What about people whose past reveals some facts that may be warning signals, depending on the bias of the evaluator (for instance, graduation from a Middle Eastern university, frequent job changes, multiple divorces, and the like)? Health sites offer tools used by medical professionals and companies to track data, including test results from HIV and cancer exams.105 Should firms use this type of information as part of their selection process?

According to a study conducted by Automatic Data Accessing, a computer-based security-service firm, more than 40 percent of résumés misrepresent education or employment history. The same survey shows that many companies are willing to overlook some degree of inaccuracy.106 In other words, how security-related information is used is a matter of interpretation, except perhaps in the most grievous cases. Chapter 14, “Respecting Employee Rights and Managing Discipline,” deals with these and related issues.

Numerous cases of unauthorized access to private data have been revealed during the past decade, in some situations leading to widespread identity fraud. (See the Manager’s Notebook, “What to Do with Personal Information.” ) According to a recent New York Times report, a well-financed computer underground operates from countries with highly skilled technicians that are subject to very little, if any, government control.107 “Right now the bad guys are improving more quickly than the good guys,” says Patrick Lincoln, director of the computer science laboratory at SRI International, a science and technology research group.108 The Privacy Rights Clearinghouse, a consumer advocacy group in San Diego, counted over 80 major data breaches involving the personal information of more than 50 million people.109 In one case, CardSystems (a credit card processor) left the account information of more than 40 million shareholders exposed to fraud.110 Such well-known organizations as Lexis/Nexis Group, ChoicePoint, Bank of America, the United States Air Force, the Pentagon, and even the FBI experienced serious data breaches during 2005–2012.111 The recent WikiLeaks dump into the Web of hundreds of thousands of U.S. secrets as well as classified material from the military and the State Department represents the most extreme case so far as to how even one low-level employee can use computer technology to create major damage and embarrassment for an organization. Data security is not just a concern for specialized computer experts; it should also involve HR policies to determine who has access to sensitive information and monitoring systems to prevent abuses by managers and employees.

Many large firms now shift work once performed internally to outside suppliers and contractors, a process called outsourcing . The motivation is simple: Outsourcing saves money. The Wall Street Journal reports that more than 40 percent of Fortune 500 companies have outsourced some department or service—everything from HR administration to computer systems.112 A survey conducted by the WorldatWork Association (which has more than 10,000 members in responsible HR positions) found that the following HR practices are now completely or partially outsourced by a large proportion of participating firms: health and welfare (79%), pension plans (90%), payroll (62%), training (50%), and recruitment and selection (32%).113

Outsourcing creates several HR challenges for firms. Although it often helps companies slash costs, employees may face layoffs when their jobs are farmed out to the lowest bidder. For instance, UPS subcontracted 5,000 jobs at its 65 customer service centers.114 In addition, customer dissatisfaction can result if subcontractors are not carefully watched and evaluated. For instance, a group of former employees at now-liquidated Skillset Software Inc. filed suit against its outside HR provider, TriNet Group Inc., for negligence in handling their claims. Part of the problem is that these HR providers often don’t provide enough access and human interaction (many rely extensively on the Web) to handle employee concerns and complaints.115 Subcontractors may take on more work than they can handle,116 and small businesses may not receive the best available service and support. When subcontracting HR activities such as training, staffing, and compensation, data security issues become paramount. The organization would have to trust that the subcontractor can effectively protect personal data (such as Social Security numbers, marital status, income level, performance problems, bank accounts) from misuse by insiders or outsiders. Outsourcing that includes a foreign location (which is increasingly common) further complicates the data security issue. Finally, outsourcing poses major difficulties for international firms trying to enforce ethical HR standards among its subcontractors around the world. Nike has been singled out in the press on numerous occasions for issues such as child labor, unsafe working conditions, and slave wages among subcontractors in China, Vietnam, Indonesia, and Thailand that produce 98 percent of its shoes at low cost. Walmart has also been singled out for hiring subcontractors in Bangladesh with very poor working conditions, in one case leading to the death of hundreds of women in a factory fire.

We discuss outsourcing and its challenges for HRM throughout this book. Chapter 2 discusses subcontracting within the context of downsizing, and Chapter 15, on labor relations, discusses how outsourcing affects unions.

One complex issue that has received much media attention during the last three years is the extent to which firms can effectively monitor the integrity of products or subcomponents that are made in foreign countries. For instance, traces of melamine, which could be deadly for children, have been found in infant formula in the United States and Europe.117 Similar problems have been reported with bad ingredients imported from China that were used by mainstream drug manufacturers as well as with counterfeit parts used by the U.S. military.118 The detection and prevention of these problems may require HR policies that involve carefully selecting, training, and providing appropriate incentives for the responsible managers and employees to acquire and monitor inputs from global suppliers (more on this in Chapter 17, which examines international HR issues).

Research suggests that HR strategies contribute to firm performance most when the firm uses these strategies to attract and retain the type of employee who best fits the firm’s culture and overall business objectives. For example, one study showed that fast-growth firms perform better with managers who have a strong marketing and sales background, who are willing to take risks, and who have a high tolerance for ambiguity. However, these managerial traits actually reduce the performance of mature firms that have an established product and are more interested in maintaining (rather than expanding) their market share.119

Chapter 5 deals specifically with the attempt to achieve the right fit between employees and the organization to enhance performance.

In previous editions of this book, we discussed the well-publicized scandals at Enron, Worldcom, Tyco, and Global Crossings, in which corruption apparently became a way of life at the top. Since then, we can scarcely read any business periodical without being bombarded by multiple cases of egregious unethical behaviors across a wide variety of organizations. These include, for example, American International Group (or AIG, one of the largest insurance companies, which artificially inflated its reserves by $500 million);120 Time Warner (accused of fraudulent accounting);121 Bank of America (forced to pay $1 billion in fines for ethical lapses);122 CitiGroup (several officers are being tried for alleged money laundering);123 Boeing (where top executives were sentenced in an Air Force procurement scandal involving millions of dollars);124 ChoicePoint (one of the largest credit reporting agencies, which allegedly kept hidden for a month information about an identity theft ring’s access to personal data on about 145,000 people, providing sufficient time for top executives to dump their ChoicePoint stock);125 Stratton Veterans Affairs Medical Center (at which certain employees posing as doctors conducted unauthorized clinical research on cancer patients, leading to death in some cases);126 State University of New York at Albany (whose president, Karen R. Hitchcock, was forced to resign after accusations that she hired a contractor who promised to fund an endowed university professorship just for her);127 the famous Getty Museum in Los Angeles (which is beset by charges of stolen antiquities and profligate executive perks);128 drug makers accused of systematically hiding the side effects of certain medicines;129 the ex-governor of Illinois, Rod R. Blagojevich, who brazenly put up for sale his appointment of Barack Obama’s successor to the U.S. Senate;130 and Royal Dutch Shell, found guilty of paying millions of dollars in bribes to secure contracts.131

We can safely assume that reported cases of unethical behavior represent only the tip of the iceberg.132

In response to these concerns, people’s fears that their employers will behave unethically are increasing,133 so much so that many firms and professional organizations have created codes of ethics outlining principles and standards of personal conduct for their members. Unfortunately, these codes often do not meet employees’ expectations of ethical employer behavior. In a poll of Harvard Business Review readers, almost half the respondents indicated their belief that managers do not consistently make ethical decisions.134 To the common person on the street, the economic crisis prompted by dubious financial instruments at the end of the first decade of the twenty-first century and the large bonuses received by top executives during the subsequent deep recession seem to have reinforced that image. President Obama called this situation “immoral.”

The widespread perceptions of unethical behavior may also be attributed to the fact that managerial decisions are rarely clear-cut. Except in a few blatant cases (such as willful misrepresentation), what is ethical or unethical is open to debate. Even the most detailed codes of ethics are still general enough to allow much room for managerial discretion. In fact, many of the executives convicted of illegal activities thought they were just buying time to turn the company around or that subordinates were too zealous in implementing “revenue enhancing” directives.135 Perhaps even more so than in other business areas, many specific decisions related to the management of human resources are subject to judgment calls. Often these judgment calls constitute a catch-22 because none of the alternatives is desirable.136

Some companies are using the Web to infuse employees and managers with ethical values. For instance, many of Lockheed Martin’s 160,000 employees are required to take a step-by-step online training program on ethics.137 CitiGroup started an online ethics training program that is mandatory for all of its 300,000 employees.138 Other companies are using more traditional training methods to implement so called “zero-tolerance policies.” For instance, at Goldman Sachs, the chief executive (Henry M. Paulson, Jr., who later became U.S. Treasury Secretary) moderated seminars on various business judgments and ethical issues with all the bank’s managing directors.139 One thing seems certain: Failure to self-regulate leads to constraining legislation. A 2011 federal law, for instance, provides financial incentives for employees to tell regulators directly about securities fraud and other wrongdoings, thus bypassing the company’s HR department and management.

A company that exercises social responsibility attempts to balance its commitments—not only to its investors, but also to its employees, its customers, other businesses, and the community or communities in which it operates. For example, McDonald’s established Ronald McDonald Houses years ago to provide lodging for families of sick children hospitalized away from home. Sears and General Electric support artists and performers, and many local merchants support local children’s sports teams. Philip Morris is trying to turn around its “ugly duckling” image by entering the business of treating smoke-related illnesses and supporting research projects on lung-disease prevention.140

An entire chapter of this book is devoted to employee rights and responsibilities (Chapter 13); each chapter includes (at selected points) pertinent ethical questions for which there are no absolute answers. Most chapters also include a Manager’s Notebook dealing with ethical issues related to the specific topic of that chapter. See the accompanying box for this chapter.

Most experts agree that productivity gains from technology have altered the economic playing field since the mid-1990s. Productivity is a measure of how much value individual employees add to the goods or services that the organization produces. The greater the output per individual, the higher the organization’s productivity. For instance, U.S. workers produce a pair of shoes in 24 minutes, whereas Chinese workers take three hours.141 Intangible human capital comes in many forms, such as designers’ creativity at Intel Corp., the tenacity of software architects at Sun Microsystems Inc., marketing knowledge at Procter & Gamble Co., and a friendly culture as in the case of Southwest Airlines.142 From an HR perspective, employee productivity is affected by ability, motivation, and quality of work life.

Employee ability , competence in performing a job, can be improved through a hiring and placement process that selects the best individuals for the job.143 Chapter 5 specifically deals with this process. It can also be improved through training and career development programs designed to sharpen employees’ skills and prepare them for additional responsibilities. Chapters 8 and 9 discuss these issues.

Motivation refers to a person’s desire to do the best possible job or to exert the maximum effort to perform assigned tasks. Motivation energizes, directs, and sustains human behavior. Several key factors affecting employee motivation are discussed in this book, including work design (Chapter 2), matching of employee and job requirements (Chapter 5), rewards (Chapters 11 and 13), and due process (Chapter 14).

A growing number of companies recognize that employees are more likely to choose a firm and stay there if they believe that it offers a high quality of work life . A high quality of work life is related to job satisfaction, which, in turn, is a strong predictor of absenteeism and turnover.144 A firm’s investments in improving the quality of work life also pay off in the form of better customer service.145 We discuss issues related to job design and their effects on employee attitudes and behavior in Chapter 2.

Many firms have reduced employee dependence on superiors, placing more emphasis on individual control over (and responsibility for) the work that needs to be done. This process has been labeled empowerment because it transfers direction from an external source (normally the immediate supervisor) to an internal source (the individual’s own desire to do well). In essence, the process of empowerment entails providing workers with the skills and authority to make decisions that would traditionally be made by managers. The goal of empowerment is an organization consisting of enthusiastic, committed people who perform their work ably because they believe in it and enjoy doing it (internal control). This situation is in stark contrast to an organization that gets people to work as an act of compliance to avoid punishment (for example, being fired) or to qualify for a paycheck (external control).

Empowerment can encourage employees to be creative and to take risks, which are key components that can give a firm a competitive edge in a fast-changing environment. Empowering employees is “the hardest thing to do because it means giving up control,” says Lee Fielder, retired president of Kelly Springfield Tire Co., a unit of Goodyear. “But [according to Fielder], managers who try to tell employees what and how to do every little thing will end up with only mediocre people, because the talented ones won’t submit to control.”146 To encourage risk taking, General Electric past-CEO Jack Welch exhorted his managers and employees to “shake it, shake it, break it.”147

HR issues related to internal and external control of behavior are discussed in Chapter 2 (work flows).

With organizational success more and more dependent on knowledge held by specific employees, companies are becoming more susceptible to brain drain —the loss of intellectual property that results when competitors lure away key employees. Important industries such as semiconductors and electronics also suffer from high employee turnover when key employees leave to start their own businesses. This brain drain can negatively affect innovation and cause major delays in the introduction of new products.148

At a national level, brain drain has been a major problem for developing countries because the best educated tend to leave. Universities and R&D labs in the United States are full of faculty and graduate students from China, India, and other emerging economies. In some of the poorest countries, such as Haiti, more than three-fourths of college-educated individuals have emigrated. Even some developed economies like that of Spain have suffered an enormous brain drain in recent years, with approximately 750,000 Spaniards (many with advanced degrees) emigrating to other countries during 2011–2015 as the unemployment rate soared and most new jobs created at the end of the recession were in low-wage, unskilled sectors. According to the National Academy of Engineering, more than half of engineers with advanced degrees in the United States are foreign born, as are over one-third of Nobel-award winners during the past 15 years.149 At Microsoft, more than 20 percent of employees are from India. This dependence on foreign talent places the United States in a vulnerable position, particularly if giants such as China and India continue their fast growth in the future.150 In fact, a new term has been coined for this phenomenon: reverse brain drain. It refers to foreign-born Americans who decide to return to their homelands, particularly in rapidly growing emergent economies such as China, India, and Brazil.

Brain drain and measures for dealing with it effectively are discussed in several chapters of this book, particularly in Chapter 3 (equal opportunity and the legal environment), Chapter 4 (managing diversity), Chapter 6 (employee separations and outplacement), and Chapter 11 (rewarding performance).

As noted in the introduction, most workers cannot count on a steady job and regular promotions. Companies argue that regardless of how well the firm is doing, layoffs have become essential in an age of cutthroat competition. For employees, however, chronic job insecurity is a major source of stress and can lead to lower performance and productivity. Reed Moskowitz, founder of a stress disorder center at New York University, notes that workers’ mental health has taken a turn for the worse because “nobody feels secure anymore.”151

The corporate crisis at the end of the last decade has produced huge losses in pension plans, meaning that many older employees can no longer afford to retire and will therefore compete for jobs with younger workers.152 An article in BusinessWeek labeled these older adults “the unretired”.153 Except in the public sector, the traditional retirement plans with a guaranteed income for retirees has largely become a thing of the past and a high proportion of older workers in their 70s and beyond are now part of the labor market. [no longer online] Retirementjobs.com, a career site for people older than age 50, is currently handling about 600,000 visitors per month, more than double the number just a short time ago.154

Paradoxically, voluntary employee turnover is still a problem for many employers (for instance, an annual turnover rate of 50 percent or more in the restaurant and hospitality industry is not unusual), and this can be very costly in terms of recruitment and training costs as well as customer dissatisfaction.155 Recent crackdowns on illegal immigrants (who work in many of the industries with high turnover, such as meat packing, agriculture, fast-food restaurants, and the like) have made it much more difficult to replace those who quit.156

We discuss the challenges of laying off employees and making the remaining employees feel secure and valued in Chapter 6. We discuss employee stress (and ways to relieve it) in Chapter 16. We explore union–management relations in Chapter 15.