Managing Global Human Resources
The Manager’s Global Challenge
What Is International Human Resource Management?
Adapting HR Activities to Intercountry Differences
How Intercountry Differences Affect Human Resource Management
HR Abroad: The European Union
HR Abroad: China
Staffing the Global Organization
International Staffing: Home or Local?
Management Values and International Staffing Policy
Ethics and Codes of Conduct
Selecting International Managers
Diversity Counts: Sending Women Managers Abroad
Avoiding Early Expatriate Returns
Training and Maintaining Employees Abroad
Orienting and Training Employees on International Assignment
Performance Appraisal of International Managers
Compensating Managers Abroad
Labor Relations Abroad
Terrorism, Safety, and Global HR
Repatriation: Problems and Solutions
Improving Performance through HRIS
Managing HR Locally: How to Put into Practice a Global HR System
Developing a More Effective Global HR System
Making the Global HR System More Acceptable
Implementing the Global HR System
This chapter outlines some of the HR problems and issues involved with international businesses. The subjects covered include understanding intercountry differences, using selection to improve international assignments, and training and maintaining international employees.
Many companies desire to rotate managers through international assignments but find that work visa requirements of the host countries (including the United States) can sometimes greatly hinder these efforts. Federal anti-terrorism laws also make moving employees across borders more challenging.
1. List the HR challenges of international business.
2. Illustrate with examples how intercountry differences affect HRM.
3. List and briefly describe the main methods for staffing global organizations.
4. Discuss some important issues to keep in mind in training, appraising, and compensating international employees.
5. Explain with examples how to implement a global human resource management program.
I. The Manager’s Global Challenge - Global challenges include deployment, knowledge, and innovation dissemination, as well as identifying and developing talent on a global basis. Complicating these decisions are the cultural, political, legal, and economic differences among countries and their peoples.
A. What Is International Human Resource Management? - Employers rely on international human resource management (IHRM) to deal with global
HR challenges like these. We can define IHRM as the human resource management concepts and techniques employers use to manage the human resource challenges of their international operations. IHRM generally focuses on three main topics:
1. Managing human resources in global companies (for example, selecting, training, and compensating employees who work abroad)
2. Managing expatriate employees (those the employer sends abroad)
3. Comparing human resource management practices in different countries
II. Adapting HR Activities to Intercountry Differences
A. How Intercountry Differences Affect Human Resource Management - A company operating multiple units abroad does not have the luxury of dealing with a relatively limited set of economic, cultural, and legal variables.
B. Cultural Factors - Countries differ widely in their cultures, which are the basic values to which their citizens adhere. Cultural differences from country to country necessitate corresponding differences in management practices among a company’s subsidiaries because local cultural norms can undermine employer’s attempts to have uniform codes of conduct.
C. Economic Systems Differences in economic systems translate into differences in HR practices. Differences in labor costs are substantial.
D. HR Abroad: The European Union - The EU refers to the unification of separate European countries in the 1990s into a common market for goods, services, capital, and labor. EU directives are binding on all member countries, which necessitate adjustments to both EU directives and individual country laws. Variances in HR practices affect minimum EU wages, working hours, and employee representation.
E. HR Abroad: China - There are relatively scarce employment services, and there is an active union movement in China. The ownership of the firm affects how these issues need to be handled. Sporadic labor shortages are fairly widespread. Employees tend to gravitate toward employers that can provide the best career advancement training and opportunities. Employees are primarily selected on the basis of their resume and an interview. The need to save face and avoid confrontation can make employee appraisal very sensitive. Compensation issues also exist. China implemented a new labor contract which adds numerous new employment protections for employees and makes it correspondingly more expensive for employers to implement certain personnel actions.
III. Staffing the Global Organization
A. International Staffing: Home or Local? - Multinational companies (MNCs) employ several types of international managers. Locals are citizens of the countries where they are working. Expatriates (“expats”) are non-citizens of the countries in which they are working. Home-country nationals are citizens of the country in which the multinational company has its headquarters. Third-country nationals are citizens of a country other than the parent or the host-country. More flexible expatriate assignments involving no formal relocation are becoming increasingly popular and are aided by technological advances.
B. Management Values and International Staffing Policy - Ethnocentric-run firms staff foreign subsidiaries with parent-country nationals because they believe that home country attitudes, management styles, and knowledge are superior to the host-country. Polycentric-run firms staff foreign subsidiaries with host-country nationals because they are the only ones that can really understand the culture and the behavior of the host-country market. Geocentric-run firms staff foreign subsidiaries with the best people for key jobs regardless of nationality because they believe that the best manager for any specific position anywhere on the globe may be in any of the countries in which the firm operates.
C. Ethics and Codes of Conduct - Employers should have set policies on things like discrimination, harassment, bribery, and Sarbanes-Oxley.
D. Selecting International Managers - Is similar to selecting domestic managers, but firms need to determine whether managers for foreign assignments can cope internationally.
E. Diversity Counts: Sending Women Managers Abroad - While women represent about 50% of the middle management talent in U.S. companies, they represent only 21% of managers sent abroad. What accounts for this? Many misperceptions still exist. Line managers make these assignments, and many assume that women don’t want to work abroad, are reluctant to move their families abroad, or can’t get their spouses to move. In fact, this survey found, women do want international assignments, they are not less inclined to move their families, and their male spouses are not necessarily reluctant.
F. Avoiding Early Expatriate Returns - International assignments fail for various reasons including personality, the person’s intentions, and non-work factors. Family pressures are frequent. Three things help the adjustment: language fluency, having preschool age children rather than school-age or no children, and a strong bond between spouse and ex-pat partner.
IV. Training and Maintaining Employees Abroad
A. Orienting and Training Employees on International Assignment – Some claim there is generally little or no systematic selection and training for assignments overseas. Some recommended programs provide the following: (1) the basics of the new country's history, politics, business norms, education system, and demographics; (2) an understanding of how cultural values affect perceptions, values and communications; and (3) examples of why moving to a new country can be difficult, and how to manage these challenges.
B. Performance Appraisal of International Managers Appraising Managers Abroad – The appraisal process can be improved by:
1. Stipulating the assignment’s difficulty level;
2. Weighing the evaluation more toward the on-site manager’s appraisal than toward the home-site manager’s distant perceptions of the employee’s performance; and
3. If the home-office manager does the actual written appraisal, having him or her use a former expatriate from the same overseas location for advice.
C. Compensating Managers Abroad - Compensation presents some tricky problems due to the question of whether or not to maintain companywide pay scales and policies.
D. Labor Relations Abroad - Differ from those in the United States. Four issues have been identified as characteristics of European labor practices: 1) centralization, 2) employer organization, 3) union recognition, and 4) content and scope of bargaining.
E. Terrorism, Safety, and Global HR – New federal anti-terrorism laws are affecting an employer’s ability to import and export workers.
1. Taking Protective Measures – Many firms retain crisis management team services. Firms face resistance from employees who are reluctant to accept foreign assignments. Kidnappings have been on the rise.
2. Kidnapping and Ransom (K&R) Insurance – The insurance itself typically covers several costs associated with kidnappings, abductions, or extortion attempts. These costs might include, for instance, hiring a crisis team, the actual cost of the ransom payment to the kidnappers or extortionists, ensuring the ransom money in case it’s lost in transit, legal expenses, and employee death or dismemberment.
F. Repatriation: Problems and Solutions – Some common repatriation problems are fearing that out of sight is out of mind; returning to mediocre or makeshift jobs; returnees are taken aback when the trappings of the overseas job are lost upon return; being overlooked for promotions; and experiencing culture shock. Some possible solutions are written repatriation agreements, sponsors, career counselors, open communications, and reorientation programs.
G. Improving Performance through HRIS: Taking the HRIS Global – As a company grows relying on manual HR systems to manage activities like worldwide safety, benefits administration, payroll, and succession planning becomes unwieldy. For global firms, it makes particular sense to expand the firm’s human resource information systems abroad.
V. Managing HR Locally: How to Put into Practice a Global HR System
A. Developing a More Effective Global HR System
1. Form global HR networks.
2. Remember that it’s more important to standardize ends and competencies than specific methods.
B. Making the Global HR System More Acceptable
1. Remember global systems are more accepted in truly global organizations.
2. Investigate pressures to differentiate and determine their legitimacy.
3. Try to work within the context of a strong corporate culture.
C. Implementing the Global HR System
1. Remember, “You can’t communicate enough.”
2. Dedicate adequate resources for the global HR effort.
Improving Performance Questions:
17-1: What other non-union surprises do you think Wal-mart should be planning its HR practices for in China?
17-2: Why do you think appraisal in these Chinese firms seems to be tougher than in the United States?
17-3: Might not some of these policies make it harder to get employees to move abroad? Why?
17-4: Discuss two factors that a manufacturer abroad, such as China’s Lenovo, might encounter when “offshoring” jobs to the United States.
17-5: Choose one country abroad and write 200 words on this topic: “Here is what we should cover in our realistic preview to someone we are sending to this country.”
17-6: You are the president of a small business. What are some of the ways you expect “going international” will affect HR activities in your business?
Being involved internationally can affect virtually every aspect of your business. It can affect the growth of your business due to additional markets, it can affect costs of doing business, and it can affect every aspect of HRM as outlined in the chapter.
17-7: What are some of the specific, uniquely international activities an international HR manager typically engages in?
Formulating and implementing HR policies and activities in the home-office of a multinational company. This HRM manager would engage in selecting, training, and transferring parent-company personnel abroad and formulating HR policies for the firm as a whole and for its foreign operations. Conducting HR activities in the foreign subsidiary of an MNC is another form. Again, local HR practices are often based on the parent firm's HR policies, fine-tuned for local country practices.
17-8: What intercountry differences affect HRM? Give several examples of how each may affect HRM.
1) Cultural Factors – U.S. managers may be most concerned with getting the job done. Chinese managers may be most concerned with maintaining a harmonious environment. Hispanic managers may be more concerned with establishing trusting, friendship relationships. 2) Economic Factors – U.S. economic systems tend to favor policies that value productivity, while more socialistic countries like Sweden would favor policies that prevent unemployment. 3) Labor Cost Factors – Mexican labor costs (low) can allow inefficiencies of labor, while German labor costs (high) might require a focus on efficiency. 4) Industrial Relations Factors – German law requires that workers have a vote in setting policies while in Japan the employees do not have a say, but the government may have a say in establishing policies. 5) The European Community – The EC will gradually reduce the differences between member countries.
17-9: You are the HR manager of a firm that is about to send its first employees overseas to staff a new subsidiary. Your boss, the president, asks you why such assignments often fail, and what you plan to do to avoid such failures. How do you respond?
Estimates say that 20% to 25% of all overseas assignments fail. Reasons include spouse’s inability to adjust, managers' inability to adjust, other family problems, and managers' inability to cope with responsibility. We will need to select a manager that displays adaptability and flexibility, cultural toughness, self-orientation, others-orientation, perceptual ability, and who has a family with adaptability.
17-10: As an HR manager, what program would you establish to reduce repatriation problems of returning expatriates and their families?
The programs listed in the chapter give a good summarization of the types of programs and activities that should be established to assure a smooth repatriation.
Individual and Group Activities:
17-11: Working individually or in groups, outline an expatriation and repatriation plan for your professor, whom your school is sending to Bulgaria to teach HR for the next 3 years.
In developing their expatriation and repatriation plan, the students should use Internet resources to find information on various cultural, economic, and legal factors that could affect their professor. They should include a description of the type of training program their professor should take prior to leaving for Bulgaria, the pay structure while on the international assignment, and particulars for how the repatriation plan will work for the professor’s return.
17-12: Give three specific examples of multinational corporations in your area. Check on the Internet or with each firm to determine in what countries these firms have operations. Explain the nature of some of their operations, and summarize whatever you can find out about their international employee selection and training HR policies.
The examples will vary according to what companies have operations in your area. This can be an exciting opportunity for students to find out more about companies and what they are doing beyond your immediate geographic area.
17-13: Choose three traits useful for selecting international assignees, and create a straightforward test to screen candidates for these traits.
There are an infinite number of responses that you might get to this question. First, make sure that the traits either are on the list in the chapter, or are reasonable and logical traits that would be useful. Second, assure that the tests that the students develop are ones that will actually identify the presence of these traits.
17-14: Use a library or Internet source to determine the relative cost of living in five countries as of this year, and explain the implications of such differences for drafting a pay plan for managers being sent to each country.
The most common approach is to equalize purchasing power across countries, a technique known as the balance sheet approach. The basic idea is that each expatriate should enjoy the same standard of living he or she would have had at home
17-15: Appendix A, PHR and SPHR Knowledge Base at the end of this book lists the knowledge someone studying for the HRCI certification exam needs to have in each area of human resource management (such as in Strategic Management, Workforce Planning, and Human Resource Development). In groups of four to five students, do four things: (1) review Appendix A; (2) identify the material in this chapter that relates to the required knowledge Appendix A lists; (3) write four multiple-choice exam questions on this material that you believe would be suitable for inclusion in the HRCI exam; and (4) if time permits, have someone from your team post your team’s questions in front of the class, so that students in all teams can answer the exam questions created by the other teams.
The material from this chapter that is applicable to the HRCI certification exam would include: the HR challenges of international business, how intercountry differences affect HRM, global differences and similarities in HR practice, how to implement a global HR system, staffing the global organization, and training and maintaining expatriate employees.
17-16: An issue of HR Magazine contained an article titled “Aftershocks of War,” which said that soldiers returning to their jobs from Iraq would likely require HR’s assistance in coping with “delayed emotional trauma.” The term delayed emotional trauma refers to the personality changes such as anger, anxiety, or irritability that exposure to the traumatic events of war sometimes triggers in returning veterans. Assume you are the HR manager for the employer of John Smith, who is returning to work next week after 1 year in Iraq. Based on what you read in this chapter, what steps would you take to help smooth John’s reintegration into your workforce?
There are several suggestions in the section “Repatriation: Problems and Solutions.” At minimum, you should arrange for a sponsor/mentor, career counseling, and a reorientation program. You need to also make sure that there are clear and open doors for him to communicate with you. It would be a good idea to have some counseling available as well.
Experiential Exercise: A Taxing Problem for Expatriate Employees
Purpose: The purpose of this exercise is to give you practice identifying and analyzing some of the factors that influence expatriates’ pay.
Required Understanding: You should be thoroughly familiar with this chapter and with the website www.irs.gov.
How to Set up the Exercise/Instructions: Divide the class into teams of four or five students. Each team member should read the following: One of the trickiest aspects of calculating expatriates’ pay relates to the question of the expatriate’s U.S. federal income tax liabilities. Go to the Internal Revenue Service’s website, www.irs.gov. Scroll down to Individuals, and go to Overseas Taxpayers. Your team is the expatriate-employee compensation task force for your company, and your firm is about to send several managers and engineers to Japan, England, and Hong Kong. What information did you find on the site that will help your team formulate expat tax and compensation policies? Based on that, what are the three most important things your firm should keep in mind in formulating a compensation policy for employees you’re about to send to Japan, England, and Hong Kong?
Video Case Appendix:
Video Title: Global HR Management (Joby)
Joby is best known for its line of flexible camera tripods, called Gorillapods, and for its flexible flashlights, called Gorillatorches. Joby has only a few dozen employees, but has offices on three continents. It is often called “the smallest global company in the world.”
17-17: Describe Joby’s approach to managing globally. How does it coordinate design, manufacturing, and distribution in key world markets?
17-18: How does a small company like Joby hire employees to work in its facilities all over the world?
17-19: Based on what you read in this chapter, what suggestions would you make for improving this company’s global HR practices?
Application Case: “Boss, I Think We Have a Problem”
17-20: Based on this chapter and the case incident, compile a list of 10 international HR mistakes Mr. Fisher has made so far.
Among his mistakes, Fisher has not properly identified candidates; cultural sensitivity, interpersonal skills, and flexibility have not been included as required job skills; there is no system in place to assess candidates for proper skills; the company does not have realistic cost projects for cross-border operations; the company has not determined whether it would be cost effective to have an expatriate manager; there are no assignment letters documenting the scope of the job; there is no international compensation system in place; the company has not taken into account differences in foreign expenses; the company has not taken into account foreign taxes; there is no formal relocation assistance program in place; the company has not considered the importance of family support; and there is no cultural orientation program in place for expatriate managers or their family members.
17-21: How would you have gone about hiring a European sales manager? Why?
I would have investigated the market to determine the appropriate level of compensation and benefits. Expatriate compensation packages should consider tax equalization clauses or other measures for dealing with differing costs of living. The company should also have retained counsel on European labor laws/practices. The location of the office should be carefully selected for favorable labor and tax laws. Like Fisher, I would have wanted a large pool of potential applicants, but given Fisher’s inexperience, he may have benefited from the use of an outside agency (search firm). Finally, Fisher’s stereotypes of European managers may have clouded his judgment with his existing pool of applicants.
17-22: What would you do now if you were Mr. Fisher?
Fisher needs to seek legal counsel in regard to his labor situation. He is likely in the wrong, in which case, he will need to reinstate the employees and apologize. He will in all likelihood need to start over and find an appropriate sales manager with knowledge of the local culture and business practice.
Continuing Case: Carter Cleaning Company – Going Abroad
17-23: Assuming they began by opening just one or two stores in Mexico, what do you see as the main HR-related challenges Jack and Jennifer would have to address?
The students will not only need to incorporate their learnings from this chapter to answer this question, they should also include information from all the chapters in the text to come up with the main HR-related implications and challenges Carter Cleaning Company will face as a result of opening the Mexican stores.
17-24: How would you go about choosing a manager for a new Mexican store if you were Jack or Jennifer? For instance, would you hire someone locally or send someone from one of your existing stores? Why?
The students should use the information in the chapter on selecting international managers. The students are likely to differ in their choices as to which type of international manager they would suggest for the London operation; just look for them to justify their responses.
17-25: The cost of living in Mexico is substantially below that of where Carter is now located: How would you go about developing a pay plan for your new manager if you decided to send an expatriate to Mexico?
The students should use information from chapters 11, 12, and 13, and the Internet sources presented in those chapters to formulate their response to this question.
17-26: Present a detailed explanation of the factors you would look for in your candidate for expatriate manager to run the stores in Mexico.
The students should include information presented in chapters 1 through 15, in addition to the information presented in this chapter, to develop their list of HR-related functions that Carter Cleaning Company needs to do in selecting their expatriate employee for Mexico.
Hotel Paris: Improving Performance at the Hotel Paris: Managing Global Human Resources
17-27: Provide a one-page summary of what individual hotel managers should know in order to make it more likely incoming employees from abroad will adapt to their new surroundings.
Hotel managers need to know all the issues facing ex-pats and be prepared to assess the job fit and other items required to make a foreign assignment successful. Figure 17-1 will be helpful in developing answers
17-28: In previous chapters you recommended various human resource practices Hotel Paris should use. Choose one of these, and explain why you believe they could take this program abroad, and how you suggest they do so.
Answers will vary widely. Instructors should look for solid, text-based justification of answers given.
17-29: Choose one Hotel Paris human resources practice that you believe is essential to the company specifically for achieving its high-quality-service goal, and explain how you would implement that practice in the firm’s various hotels worldwide
Answers will vary widely. Instructors should look for solid, text-based justification of answers given.
International Human Resource Management - The human resource management concepts and techniques employers use to manage the human resource challenges of their international operations.
Works Councils - Formal, employee-elected groups of worker representatives.
Codetermination - Employees have the legal right to a voice in setting company policies.
Expatriates (expats) - Non-citizens of the countries in which they are working.
Home-Country Nationals - Citizens of the country in which the multinational company has its headquarters.
Locals - Citizens of the countries in which employees are working; also called host-country nationals.
Third-Country Nationals - Citizens of a country other than the parent or the host-country.
Virtual Teams - Groups of geographically dispersed coworkers who interact using a combination of telecommunications and information technologies to accomplish an organizational task.
Ethnocentric - The notion that home-country attitudes, management style, knowledge, evaluation criteria, and managers are superior to anything the host-country has to offer.
Polycentric - A conscious belief that only the host-country managers can ever really understand the culture and behavior of the host-country market.
Geocentric - The belief that the firm’s whole management staff must be scoured on a global basis, on the assumption that the best manager of a specific position anywhere may be in any of the countries in which the firm operates.
Adaptability Screening - A process that aims to assess the assignee’s (and spouse’s) probable success in handling a foreign transfer.
Foreign Service Premiums - Financial payments over and above regular base pay, typically ranging between 10% and 30% of base pay.
Hardship Allowances - Compensate expatriates for exceptionally hard living and working conditions at certain locations.
Mobility Premiums - Typically, lump-sum payments to reward employees for moving from one assignment to another.
Managing Human Resources in Small and Entrepreneurial Firms
The Small Business Challenge
How Small Business HRM Is Different
Why HRM Is Important to Small Business
Using Internet and Government Tools to Support the HR Effort
Complying with Employment Laws
Employment Planning and Recruiting
Employment Appraisal and Compensation
Employment Safety and Health
Leveraging Small Size with Familiarity, Flexibility, Fairness and Informality
Simple, Informal Employee Selection Procedures
Flexibility in Training
Flexibility in Benefits and Rewards
Fairness and the Family Business
Using Professional Employer Organizations
How Do PEOs Work?
Why Use a PEO?
Managing HR Systems, Procedures, and Paperwork
Basic Components of Manual HR Systems
Automating Individual HR Tasks
Human Resource Information Systems (HRIS)
Improved Transaction Processing
Improved Reporting Capability
HR System Integration
HR and Intranets
This chapter discusses that entrepreneurs have some special human resource management needs. The main purpose of this chapter is to outline and apply effective human resources principles and practices to running a small business. The main topics addressed include understanding the small business challenge; using Internet and government tools to support the HR effort; leveraging small size with familiarity, flexibility, fairness, and informality; using professional employer organizations; and managing HR systems, procedures, and paperwork.
Most people graduating from college in the next few years either will work for small businesses or will create their own small businesses, which are firms with fewer than 200 employees.
1. Explain why HRM is important to small businesses and how small business HRM is different from that in large businesses.
2. Give four examples of how entrepreneurs can use Internet and government tools to support the HR effort.
3. List five ways entrepreneurs can use their small size to improve their HR processes.
4. Discuss how you would choose and deal with a professional employee organization.
5. Describe how you would create a start-up human resource system for a new small business.
I. The Small Business Challenge
A. How Small Business Human Resource Management Is Different – Managing human resources in small firms is different for four main reasons: size, priorities, informality, and the nature of the entrepreneur.
1. Size – The general guideline is that it’s not until a company reaches the 100-employee milestone that it can afford a human resource specialist. However, even five- to six-employee organizations must recruit, select, train, compensate, and retain qualified staff.
2. Priorities – It is not just size but the realities of the entrepreneur’s situation that drive them to focus their time on non-HR issues.
3. Informality – Human resources management activities tend to be more informal in smaller firms. Entrepreneurs must be able to react quickly to changes in competitive conditions.
4. The Entrepreneur – Entrepreneurs are people who create businesses under risky conditions, and starting new businesses from scratch is always risky. Entrepreneurs therefore need to be highly dedicated and visionary.
5. Implications – The differences listed above result in potential implications. 1) Small business owners run the risk that their relatively rudimentary human resource practices will put them at a competitive disadvantage. 2) There is a lack of specialized HR expertise as compared with larger firms that have a full range of HR functions. 3) The smaller firm is probably not adequately addressing potential workplace litigation. Most small business owners are well aware of the threat of employment-related litigation. 4) The small business owner may not be fully complying with compensation regulations and laws. 5) Duplication and paperwork leads to inefficiencies and data entry errors. For small businesses, employee data often appears on multiple human resource management forms.
B. Diversity Counts – More men than women start new businesses, but according to one study, about 100 million women in 59 countries still started new businesses in one recent year. Interestingly, most of the women who did start businesses were not in the developed world. The most likely countries for women to start businesses were in Latin America and sub-Saharan Africa. This may be because in developed economies, women have more career options. In developing economies such as Ghana, necessity infuses a confidence that drives more women to make it on their own.
C. Why HRM Is Important to Small Business – Entrepreneurs need all the advantages they can get, and for them, effective human resource management is a competitive necessity. Small firms with effective HR practices perform better than those with less effective practices.
II. Using Internet and Government Tools to Support the HR Effort
A. Complying with Employment Laws – Small business owners spend much of their time tackling issues related to employment laws. These owners can quickly find the answers to many such questions online at federal agencies’ Web sites such as the following:
1. The DOL – The U.S. Department of Labor’s First Step Employment Law Advisor (www.DOL.gov) helps small employers determine which laws apply to their business.
2. The EEOC – The U.S. Equal Employment Opportunity Commission (www.EEOC.gov) guides small employers on all laws pertaining to employment discrimination.
3. OSHA – The DOL’s Occupational Safety and Health Administration site (www.OSHA.gov) supplies guidance for small business owners.
B. Employment Planning and Recruiting – Internet resources can make small business owners almost as effective as their large competitors at writing job descriptions and building applicant pools. Small business owners can use the online recruiting tools to post positions or popular Internet job boards.
C. Employment Selection – For the small business, one or two hiring mistakes could wreak havoc. Some tests are so easy to use they are particularly good for smaller firms. One example of such a test is the Predictive Index, which measures work-related personality traits, drives, and behaviors.
D. Employment Training – Although small companies can’t compete with the training resources of larger organizations, Internet training can provide, at a relatively low cost, the kinds of professional employee training that was formerly beyond most small employers’ reach.
1. Private Vendors – The small business owner can tap hundreds of suppliers of prepackaged training solutions.
2. The SBA – The federal government’s Small Business Administration (www.SBA.gov) provides a virtual campus that offers online courses, workshops, publications, and learning tools aimed toward supporting entrepreneurs.
3. NAM – The National Association of Manufacturers (NAM) is the largest industrial organization in the United States. NAM’s Virtual University (www.namvu.com) helps employees maintain and upgrade their work skills and continue their professional development.
E. Employment Appraisal and Compensation – Even small employers now have easy access to computerized and online appraisal and compensation services. Lack of easy access to salary surveys once made it difficult and time consuming for smaller businesses to fine tune their pay scales.
F. Employment Safety and Health – Without human resource managers or safety departments, small businesses often don’t know where to turn for advice on promoting employee safety. OSHA provides free on-site safety and health services for small businesses. The OSHA Sharp program is a certification process through which OSHA certifies that small employers have achieved commendable levels of safety awareness.
III. Leveraging Small Size with Familiarity, Flexibility, Fairness and Informality
A. Simple Informal Employee Selection Procedures – In general, small firms tend to rely on more informal employee selection and recruitment practices, such as employee referrals and unstructured interviews, than do large firms. Work sampling tests require candidates to perform actual samples of the job in question. This can also be a very simple way to select employees.
B. Flexibility in Training – Small companies typically take a more informal approach to training and development. Smaller firms also tend to focus any management development training on learning specific firm-related competencies.
C. Flexibility in Benefits and Rewards – The Family and Work Institute surveyed the benefits practices of about 1,000 small and large companies. They found that large firms offer more extensive benefit packages than do small ones. However, many small firms seemed to overcome their bigger competitors by offering more flexibility.
1. A Culture of Flexibility – Because of the familiarity that comes from owners personally interacting with the employees each day, small businesses do a better job of fostering a culture of flexibility.
2. Work-Life Benefits – Even without extensive resources, small firms can offer employees work-life benefits that larger employers cannot match. For example, additional time off, compressed workweeks, flexibility, and other benefits that can be offered because of their relatively small size.
D. Fairness and the Family Business – Most small businesses are family businesses, in that the owner and one or more managers are family members. Being a nonfamily employee here isn’t always easy. They sometimes feel like outsiders. Some best practices to avoid partiality include setting ground rules, treating people fairly, and erasing privilege.
IV. Using Professional Employer Organizations
A. How Do PEO’s Work? These vendors range from payroll companies to those that handle all of an employer’s human resource management requirements. PEOs have several characteristics. By transferring the client firm’s employees to the PEO’s payroll, PEOs become co-employers of record for the employer’s employees.
B. Why Use a PEO? Employers turn to PEO’s for several reasons.
1. Lack of Specialized HR Support – Up to 100 or so employees, small firms typically have no dedicated HR managers, and even larger ones may have few specialists.
2. Paperwork – The Small Business Administration estimates that small business owners spend up to 25% of their time on personnel-related paperwork. This includes background checks, benefits sign-ups, and so on.
3. Liability – Staying in compliance with pension plan rules, Title VII, OSHA, COBRA, the Fair Labor Standards Act, and other personnel-related laws can be distracting.
4. Benefits – Insurance and benefits are often the PEO attraction. Obtaining health and other insurance is often more challenging for smaller firms.
5. Performance – The professionalism that the PEO brings to recruiting, screening, training, compensating, and maintaining employee safety and welfare will hopefully translate into improved employee and business results.
C. Caveats – Many employers view their human resource management processes as a strategic advantage, and they are not inclined to turn over strategy-sensitive tasks like screening and training to third-party firms.
V. Managing HR Systems, Procedures, and Paperwork
A. Introduction – Recruiting and hiring an employee might require a help wanted advertising listing, an employment application, an interviewing checklist, and the verification of education and immigration status.
B. Basic Components of Manual HR Systems – Very small employers will probably start with a manual human resource management system. This would include obtaining and organizing a set of standardized personnel forms covering each important aspect of HR.
1. Basic Forms – Forms that should be considered include an application, reference check, employee record, performance evaluation, vacation request, corrective counseling, and exit interview.
2. Other Forms – Several direct-mail catalog companies offer a variety of HR Materials. Firms such as HRdirect (www.hrdirect.com), or G. Neil Company (www.gneil.com) can provide a comprehensive source of all needed HR forms.
C. Automating Individual HR Tasks – As the small business grows, it becomes increasingly unwieldy and uncompetitive to rely on manual HR systems. A company with 40 to 50 employees should consider computerizing individual human resource management tasks.
1. Packaged Systems – There are a variety of resources available. At the Web site of the International Association for Human Resource Information Management (www.ihrim.org), a categorical list of HR software vendors can be found. Automating Individual HR Tasks.
D. Human Resource Information Systems (HRIS) – The term information system refers to the interrelated people, data, technology, and organizational procedures a company uses to collect, process, store, and disseminate information.
E. Improved Transaction Processing – HRIS packages substitute powerful computerized processing for a wide range of the firm’s HR transactions.
F. Online Self-Processing – HR information systems make it possible to make the company’s employee part of the HRIS. For example, an organization can allow employees to self-enroll in all desired benefit programs.
G. Improved Reporting Capability – The HRIS system integrates numerous individual HR tasks, thereby increasing HR’s reporting capabilities.
H. HR System Integration – When the HRIS’ software components, such as payroll and record keeping, are integrated, the employer can dramatically reengineer its HR function.
I. HRIS Vendors – The Web site for the International Association for Human Resource Information Management (www.ihrim.org) provides a comprehensive list of HR vendors.
J. HR and Intranets – Employees can access the organization’s employee benefits home page and other useful HR information from this site.
Improving Performance Questions:
18-1: Write a short note on this topic: “What Carlos Ledezma is doing right with respect to HR management, based on what I’ve read about HR in the other chapters of this book.”
18-2: List two situation questions (what would you do . . .?) and two behavioral questions (what did you do . . .?) that you might ask to unearth insights into the candidate’s motivation.
18-3: How and why is HR in small businesses different than that in large firms?
Human resource management activities tend to be more informal in smaller firms. For example, one study analyzed training practices in about 900 family and non-family small companies. Training tended to be informal, with an emphasis, for instance, on methods like coworker and supervisor on-the-job training. Such informality isn’t just due to lack of expertise and resources; it is also partly a matter of survival. Entrepreneurs must be able to react quickly to changes in competitive conditions.
18-4: Explain why HRM is important to small businesses.
Small firms need all the advantages they can obtain, and for them effective human resource management is a competitive necessity. Small firms that have effective HR practices do better than those with less effective practices. For many smaller firms, effective human resource management is also a condition for getting and keeping big customers. This means that even small businesses must attend to their human resource processes.
18-5: Explain and give at least five examples of ways entrepreneurs can use small size familiarity, flexibility, and informality—to improve their HR processes.
Small business owners spend much of their time tackling legal issues. These small business owners can quickly find answers to many such questions online at the following: The Department of Labor or DOL.gov, the EEOC or EEOC.gov, the Occupational Safety and Health Administration or OSHA.gov, and the Society of Human Resource Management or SHRM.org.
18-6: Describe with examples how you would create a startup, paper-based human resource system for a new small business.
Very small employers will probably start with a manual human resource management system. From a practical point of view, this generally means obtaining and organizing a set of standardized personnel forms covering each important aspect of the HR recruitment, selection, training, appraisal, compensation, and safety process, as well as some means for organizing all this information for each of your employees.
Individual and Group Activities:
18-7: Form teams of five or six persons, each with at least one person who owns or has worked for a small business. Based on their experiences, make a list of the
“ inadequate-HR risks” the business endured, in terms of competitive disadvantage, lack of specialized HR expertise, workplace litigation, compensation laws compliance, and paperwork/data-entry errors.
Lack of effective and sophisticated recruitment strategies, additional legal issues due to lack of HR expertise, lack of training which may lead to employment discrimination or sexual harassment claims, small business may not comply with complex regulations and laws, lack of an HRIS system may lead to more timely processing of data as well as more manual errors.
18-8: You own a small business, and you are confused about which of your employees is eligible for overtime pay. The employees in question include your secretary, two accounting clerks, one engineer, and two inside salespeople. Individually or in groups of four or five students, use the DOL’s Overtime Security Advisor and DOL’s Calculator to determine who gets overtime pay.
The secretary and two accounting clerks should be classified as non-exempt, and the engineer and two inside salespeople should be classified as exempt.
18-9: You have about 32 employees working in your factory. Working individually or in teams of four or five students, find and create a list of five online sources you could use to provide training to them, at no cost to you or to them.
Here are 5 to start: www.DOL.gov, www.strategichr.com, www.ASTD.org, www.legalworkplace.com, and www.articlebased.com.
18-10: Appendix A, PHR and SPHR Knowledge Base at the end of this book lists the knowledge someone studying for the HRCI certification exam needs to have in each area of human resource management (such as in Strategic Management, Workforce Planning, and Human Resource Development). In groups of four to five students, do four things: (1) review Appendix A; (2) identify the material in this chapter that relates to the required knowledge Appendix A lists; (3) write four multiple-choice exam questions on this material that you believe would be suitable for inclusion in the HRCI exam; and (4) if time permits, have someone from your team post your team’s questions in front of the class, so that students in all teams can answer the exam questions created by the other teams.
The material from this chapter that is applicable to the HRCI certification exam would include: the HR challenges of small business, how small organizational differences affect HRM, how to implement a small business, HR system, staffing the small organization, and training and maintaining employees of small businesses.
Experiential Exercise: Building an HRIS
Purpose: The purpose of this exercise is to give you practice in creating a human resource management system (HRIS).
Required Understanding: You should be fully acquainted with the material in this chapter.
How to Set up the Exercise/Instructions: Divide the class into teams of five or six students. Each team will need access to the Internet. Assume that the owners of a small business come to you with the following problem. They have a company with less than 40 employees. They have been taking care of all HR paperwork informally, mostly on slips of paper and with memos. They want you to supply them with a human resource management information system—how computerized it is will be up to you, but they can only afford a budget of $5,000 upfront (not counting your consulting), and then about $500 per year for maintenance. You know from your HR training that there are various sources of paper-based and online systems. Write a two-page proposal telling them exactly what your team would suggest, based on its accumulated existing knowledge, and from online research.
Video Case Appendix:
Video Title: Managing Human Resources in Entrepreneurial Firms (Blackbird Guitars)
With about 10 employees, Blackbird Guitars must rely on cross-training and job rotation and relatively informal HR management. Founder Joe Luttwack uses various online HR information sources, and pays close attention to California labor laws, where the company resides. An interesting question is how the company will manage growth in production and workforce, since they’re now thinking of expanding into retail sales.
18-11: Based on what you read in this chapter, what other online sources would you suggest Blackbird use to improve its HR practices?
18-12: Outline five other steps Blackbird should be using to have an improved HR function.
18-13: What do you think accounts for the fact that turnover is low?
Application Case: Netflix Breaks the Rules
In many respects, the Netflix HR strategy seems like a dream come true for small businesses. You don’t need a pay plan; instead, you just update each person’s pay every few months based on market surveys. You offer no training and development. And you don’t track vacation time, more or less. If someone’s not doing well, you just pay him or her to leave, with no hassles. Netflix seems to have hit upon its own version of “Netflix High-Performance Work Practices.” Given that, answer the following questions (please be specific).
18-14: What (if anything) is it about Netflix that makes its HR practices work for it?
Student answers will vary and may include a discussion of the company’s culture. The culture is such that people are treated as adults and are able to “police themselves.” Everyone understands that not performing up to the company’s expectations will result in termination. Frequent pay raises and the constant updating to stay competitive with the market helps to keep motivation high.
18-15: Would you suggest using similar practices in other businesses, such as a new restaurant? Why?
Again, students will vary in their answers, but look for their arguments to be grounded in logical arguments to support their viewpoint.
18-16: List the criteria you would use for deciding whether another company is right for Netflix-type HR practices.
Criteria may include looking at the following areas: the current compensation system (Does the company pay at or above market wages?), the strength of the corporate ethical culture (Companies who are to be successful at this type of HR system must be highly ethical and as they must, to a certain degree, be honest and open about the work they are doing.), and the organization needs to be one where individuals can work independently of one another so to maintain workflow and quality while dealing with such extreme flexibility in the scheduling.
18-17: What argument would you make in response to the following: “Netflix just lucked out; they would have done even better with conventional HR practices?”
Student answers will vary. Either side is debatable, so look for students to defend their arguments with logical arguments from the book.
Continuing Case: Carter Cleaning Company - Cleaning in Challenging Times
18-18: Assume that we don’t want to terminate any of our employees. What work-scheduling related changes could we make that would reduce our payrolls by, 20% per week but still keep all our employees on board?
One of the benefits of a small employer is the ability to adapt to changing market conditions. Therefore, flexible work scheduling could be easily implemented to cover all required costs while keeping staffing costs at a minimum. Even offering the staff the option to take time without pay could prove beneficial to the employer while maintaining current staffing levels.
18-19: We are currently handling most of our personnel-related activities, such as sign-ons, benefits administration, and appraisals, manually. What specific suggestions would you have for us in terms of using software systems to automate our HR processes?
A packaged system would probably prove cost effective for this size employer. These types of systems offer programs for controlling attendance, maintaining employee records, writing job descriptions, and other HR-related requirements.
18-20: Suggest at least five free Internet-based sources we could turn to for helping us to lower our total employment costs.
The International Association for Human Resource Information Management (www.ihrim.org), the Small Business Administration (www.sba.gov), the U.S. Department of Labor’s – First Step Law Advisor (www.dol.gov/elaws/firstep), OSHA’s Small Business Handbook (www.osha.gov), and the National Association of Manufacturers (www.namvu.com).
Hotel Paris: Improving Performance at the Hotel Paris - The New HRIS
18-21: Using any benchmark data that you can find, including information from this textbook, what are some benchmark metrics that Lisa could be using to assess the efficiency of her human resource management operations? To what extent does the Hotel Paris’s quality service orientation enter into how Lisa’s metrics should compare?
Lisa should consider looking at benchmarking data on the following HR activities: benefits, work schedules/locations, compensation options, workforce demographics, training, development, and technology. Lisa should review carefully the Hotel Paris’s quality service orientation as it compares to Lisa’s metrics to determine the cost effectiveness of each activity.
18-22: Throughout this textbook, we’ve discussed various specific examples of how human resource management departments have been reducing the cost of delivering their services. Keeping in mind the Hotel Paris’s service quality orientation, please list and explain with examples how Lisa Cruz could use at least five of these.
Information technology could greatly help Lisa reduce the human resource administration’s current costs; in addition, Lisa could look at the resources available from the Small Business Administration as well as the Department of Labor. Also, Lisa could consider outsourcing some of the more costly HR activities to a PEO.
18-23: Focusing only on human resource information systems for a moment, which systems would you suggest Lisa consider recommending for the Hotel Paris? Why?
A packaged program would prove the most cost effective for the Hotel Paris. Online self-processing should prove especially beneficial to Lisa in order to help improve efficiency, accuracy, and cost reductions.
18-24: Explain with detailed examples how Lisa can use free online and governmental sources to accomplish at least part of what you propose in your previous answers.
Lisa could review the resources offered from the Small Business Administration as well as the Department of Labor.
18-25: Give three examples of fee-based online tools you suggest Lisa use.
Transaction-processing systems, management information systems, and executive support systems
18-26: Do you suggest Lisa use a PEO? Why?
Lisa should consider the use of a PEO for at least some of her HR programs. For example, payroll and benefits administration could prove very cost effective for Lisa since her HR costs are currently running 30% higher than comparable organizations. Very often PEO’s can offer comprehensive services at competitive fees.