CHAPTER 1

AN INVESTMENT
PERSPECTIVE OF
HUMAN RESOURCE
MANAGEMENT

PowerPoint Presentation by Charlie Cook

Copyright 2002 South-Western. All rights reserved

The Strategic View of Human

Resources

Employees are human assets that increase in

value to the organization and the marketplac
e when investments of appropriate policies a
nd programs are applied.
Effective organizations recognize that their e
mployees do have value, much as same as th
e organizations physical and capital assets h
ave value.
Employees are a valuable source of sustainab
le competitive advantage.

Sources of Sustainable Compe

titive Advantage

Valuable to the firm in that it exploits w

eaknesses or neutralizes threats
Must be rare among competitors
Must be difficult for competitors to imit
ate
Must not be easily substitutable

The New Competitive Environ

ment

Shortened product lifecycles

Erosion of patent prote
ction
Decreased regulation a
nd protected markets
Increased access to cap
ital markets
Increasing importance
of innovation, both pro
cess and product

HR is a key lever in ad
dressing these challe
nges!

HR & Competitive Advantag

e

The International Motor Vehicle Study, a worl

dwide research study of the automobile indu
stry conducted at MIT showed that people-ce
ntered practices were associated with almost
twice the productivity and quality as conventi
onal mass production.
Similar studies in steel, apparel, and semicon
ductors, sponsored by the Alfred P. Sloan Fou
ndation, reveal similar positive effects for pe
ople-centered practices.

HR CHOICES: FUNCTIONAL

Individual work v. team work

Pay for job v. pay for individual v. p
ay for group v. pay for need
Make or buy skills
Promote form within v. recruit at all
levels
Job security v. no commitments

HR CHOICES: PHILOSOPHY

Motivate by money v. peers v. the w

ork
Egalitarianism v. meritocracy
Assume shirking v. assume inherent
desire to do good work
Centralized v. decentralized control

WHY DIFFERENT CHOICES ARE

MADE

Investment Orientation

The Investment-Oriented Org

anization

Organizational Characteristics

Sees people as central to its mission/strategy.

Has a mission statement and strategic objective
s that espouse the value of human assets in ach
ieving goals.
Has a management philosophy that encourages
the development and retention of human asset
s and does not treat or regard human assets in
the same ways as physical assets.

Investment Orientation Factor

s

Senior Management Values and Actions

Attitude Toward Risk

An organizations willingness to invest in its human res

ources is determined by the investment orientation o
f its managers.
Investment in human resources is inherently riskier d
ue to lack of absolute ownership of the asset.

Nature of Skills Needed by Employees

The more likely that skills developed by employees are

marketable outside the firm, the more risky the firms
investment in the development of those skills.

Investment Orientation Factor

s

Utilitarian (Bottom Line) Mentality

An attempt is made to quantify employee worth to the

organization through a cost-benefit analysis.
The soft benefits of HR programs and polices are diffi
cult to objectively quantify because they affect many di
fferent organizational areas and have differential effect
s on individual employees.

Availability of Outsourcing

If cost-effective outsourcing is available, investments w

ill be made only in HR activities producing the highest r
eturns and largest sustainable competitive advantages.

Case Discussion
Southwest Airlines

Southwest Airlines

Southwest Airlines

Only major airline to have earned a profit ev

ery year for nearly three decades.
Southwest has won the Triple Crown (best on
time performance, fewest complaints, fewest
lost bags) for 5 years in a row. No other airlin
e has won this award.
Southwests operating costs are 20% below t
he industry average. Company is 84% unioniz
ed.
Now serves over 52 cities with 26,000 emplo
yees.
In 1998 they had over 140,000 job applicant
s.

Three Questions:

What does it take to make money in Southwe

sts business? What are Southwests sources
of competitive advantage? Are they sustainab
le?
How serious is the threat of competition? Ca
n other airlines copy the Southwest model? H
ow?
What are your concerns? What does Southwe
st need to do to continue their success?

Southwest Airlines

Talking about Southwest s recruiting.

Kelleher says, We draft great attitude
s. If you don t have a good attitude, w
e don t want you, no matter how skille
d you are.
What are your reactions to this approa
ch?

Mission Statement

The mission of Southwest Airlines i

s dedicated to the highest quality of
customer service delivered with a se
nse of warmth, friendliness, individ
ual pride, and company spirit.
Does this matter at Southwest? Wh
y?

To Our Employees:

We are committed to provide our employee

s a stable work environment with equal opp
ortunity for learning and personal growth. C
reativity and innovation are encouraged for i
mproving the effectiveness of Southwest Airl
ines. Above all, employees will be provided t
he same concern, respect, and caring attitud
e within the organization that they are expec
ted to share externally with every Southwest
Customer.

Every company I have ever g

one in, they say people are nu
mber one, but they re just no
t. They don t live up to that, a
nd we do.
Gary Kelly
Chief Financial Officer
Southwest Airline

Airline Performance,
January
1999
Lost
Complaint
On-time
bags Per s per
1000
100,000

Percent
Southwest
Continental
Delta
American West
American
Alaska
United
Northwest
TWA

76.7%
72.0%
71.4%
68.3%
67.1%
66.5%
66.5%
62.7%
60.0%

1
2
3
4
5
6
7
8
9

5.70
8.49
7.63
5.21
7.20
8.87
11.3
10.3
12.0

3
6
5
1
4
7
9
8
10

USAir

58.2% - 10 5.37 - 2

0.40
1.46
1.52
3.21
2.12
1.34
1.92
3.89
3.88

1
3
4
8
8
2
5
10
9

3.06 - 7

Southwest Takeaways

A simple, consistent strategy

Aligned and consistent HR practices

Long-term perspective on employment

Stability
Job design
Training and development

Careers
Compensation

Performance-based
Ownership
Compressed wages

Southwest Takeaways

Selection for attitude and fit

Strong culture --family, performance
Leadership reinforcement
Information sharing
Psychological Ownership

Reading 1.1: The SWA Value C

ycle
Value at Southwest Airlines is:
1. Created through satisfaction of employee needs.
SWA management acts to fulfill employee needs
(monetary and non-monetary) as a means of cre
ating value which can ultimately be converted to
organizational uses.
2. Converted to customer and share holder value vi
a organizational capabilities (the design of specifi
c operating processes).
3. Captured by SWA as competitive advantage thro
ugh lower costs and superior service (productivit
y) in relation to its competitors.

Reading 1.1: The SWA Value C

ycle
The airlines competitive advantage, achieved
in how it manages its workforce, can not be r
eadily imitated by it competitors for two reas
ons.
people management systems are not visible
or tangible
effective human resource management prac
tice involves having different functions worki
ng in tandem as a system

Reading 1.1: The SWA Value C

ycle
Management Implications:

Both aspects of strategy (e.g., low-price, high-ser

vice) must be in harmony to create and sustain i
nternally derived competitive advantage.

Harmony among operating processes, organizati

onal culture, and HR practices reinforce one ano
ther in the creation and conversion of value.

HRs ability to achieve and maintain of competiti

ve advantage

Reading 1.1: The SWA Value C

ycle
Management Implications (contd):

While competitive advantage through people is

difficult to achieve and hard to sustain, it is also
not easy to duplicate (imitate).

HR and line managers are responsible to identif

y which tools will be most effective in their orga
nizations effort to create value for employees.

HR is implemented by everyone in the organizat

ion.

Reading 1.2: Effective HRM Pr

actices

Employment Security
Selectivity in Recruiting
High Wages
Incentive pay
Employee Ownership
Information Sharing
Participation & Owners
hip
Self-Managed Teams

Training & Development

Cross-Utilization & Cros
s-Training
Symbolic Egalitarianism
Wage Compression
Promotion From Within
Taking the Long View
Measurement of Practic
e
Overall Philosophy