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Strategic Human Resource Management Aligning HR and Business-Level Strategy: Strategic Human Resource Management Aligning HR and Business-Level Strategy:

Human Resource Management HR’s focus is on attraction, retention, and motivation of employees l Human Resource Management HR’s focus is on attraction, retention, and motivation of employees l In many organizations, employees are key to creation of sustainable competitive advantage l Q: For Wal-Mart, in what way does HR contribute to creation of sustainable competitive advantage? l

“HR’s Toughest Challenges for 2006” Ensuring compliance w/ federal and state employment laws l “HR’s Toughest Challenges for 2006” Ensuring compliance w/ federal and state employment laws l Retaining talent in an improving economy l Managing performance l Developing leadership l Dealing w/ rising health care costs l l Source: Business & Legal Reports, 5/2/06

Listening to HR’s Critics l Quantify people-management results into dollars l l l Productivity Listening to HR’s Critics l Quantify people-management results into dollars l l l Productivity of workforce Cost of vacant position Cost of keeping bad manager Dollar impact of hiring and keeping top performers vs. average ones in mission-critical jobs Adopt “fact-based” decision-making l Not “I think” or “I believe” but “I know” re: cause and effect l l l Causes of turnover What motivates workers to produce more Which HR actions can turn business unit around l Source: Workforce Management, 7/31/06

Effective HR Strategy Formulation and Implementation Organizational Strategies Fit Consistency Fit Organizational Characteristics Environment Effective HR Strategy Formulation and Implementation Organizational Strategies Fit Consistency Fit Organizational Characteristics Environment Consistency HR Strategies Fit Improved Firm Performance Fit Consistency Organizational Capabilities

Selected HR Strategies That Fit Porter’s Three Major Types of Business Strategies Business Strategy Selected HR Strategies That Fit Porter’s Three Major Types of Business Strategies Business Strategy Overall cost leadership Common Organizational Characteristics • Sustained capital investment and access to capital • Intense supervision of labor • Tight cost control requiring frequent, detailed control reports • Low-cost distribution system • Structured organization and responsibilities • Products designed for ease in manufacture HR Strategies • Efficient production • Explicit job descriptions • Detailed work planning • Emphasis on technical qualifications and skills • Emphasis on job-specific training • Emphasis on job-based pay • Use of performance appraisal as a control device

Selected HR Strategies That Fit Porter’s Three Major Types of Business Strategies Business Strategy Selected HR Strategies That Fit Porter’s Three Major Types of Business Strategies Business Strategy Common Organizational Characteristics Differentiation • Strong marketing abilities • Product engineering • Strong capability in basic research • Corporate reputation for quality or technological leadership • Amenities to attract highly skilled labor, scientists, or creative people. HR Strategies • Emphasis on innovation and flexibility • Broad job classes • Loose work planning • External recruitment • Team-based training • Emphasis on individualbased pay • Use of performance appraisal as development tool

“Women vs. Wal-Mart” NO. OF EES* JOB REGIONAL V-P DISTRICT MNGR STORE MANAGER ASST “Women vs. Wal-Mart” NO. OF EES* JOB REGIONAL V-P DISTRICT MNGR STORE MANAGER ASST MNGR MNGT TRAINEE DPT HEAD SALES ASSOC CASHIER 39 508 3, 241 18, 731 1, 203 63, 747 100, 003 50, 987 % OF WOMEN 10% 10 14 36 41 78 68 93 AVERAGE ANNUAL EARNINGS** IN 2001 --------------MALE FEMALE SALARIES $419, 400 239, 500 105, 700 39, 800 23, 200 23, 500 16, 500 14, 500 * Full-time ** Including bonuses Data: Richard Drogin $279, 800 177, 100 89, 300 37, 300 22, 400 21, 700 15, 100 13, 800

“Women vs. Wal-Mart” l Wal-Mart culture built on inspirational leadership, autonomy, trust l l “Women vs. Wal-Mart” l Wal-Mart culture built on inspirational leadership, autonomy, trust l l Bring Ees into org, convert them to principles: respect for individual, customer service, excellence, and imperative to buy and sell at lowest price possible But practices also may create barriers, e. g. , job posting l l Wal-Mart famous for promotion from within – more than two-thirds of managers started as hourly Ees Hourly job posted within stores, but until current suit, Co had never posted openings for mngt training positions l l Another aspect of culture which may create barrier is willingness to move for the job l l Not the Wal-Mart way, thought to be too bureaucratic… Wal-Mart way was to trust that store mngrs will promote those who merit promotion Co now also developing formula for pay increases based on evaluation ratings, experience, and other factors to make raises more uniform Single mother Asst Mngr involved in litigation moved nine times in eight years across three states Key for Wal-Mart is making processes fair without losing culture that makes it special l Source: Fortune, 7/21/03

“Big Retailers Face Overtime Suits As Bosses Do More ‘Hourly’ Work” l Retailers such “Big Retailers Face Overtime Suits As Bosses Do More ‘Hourly’ Work” l Retailers such as Wal-Mart, Radio. Shack, Dollar General facing lawsuits accusing them of using low-level managers to do work of non-managers in order to avoid paying overtime l l Suits claim little difference between job duties of hourly ees and asst mngrs, esp nighttime asst mngrs (“glorified stockers”) Radio. Shack mngrs required to work at least 52 hrs/wk Under FLSA, mngrs may be entitled to overtime if more than 40% of their time is not spent supervising or if jobs don’t include decision making Wal-Mart tries to hold labor costs to 8% of sales, cf. 9 -10% on average at other large-store retailers l l Alleged that to stay within budget, Wal-Mart district mngrs have encouraged store mngrs to send hourly ees home before shift is over, then asst mngrs (who are required to work at least 48 hrs/wk) may stay on job for as much as 75 hrs/wk to cover Portion of store mngr compensation is annual bonus pegged to store profit l Source: Wall Street Journal, 5/26/04

“In Ad Blitz, Wal-Mart Counters Public Image as Harsh Employer” l Wal-Mart bought full-page “In Ad Blitz, Wal-Mart Counters Public Image as Harsh Employer” l Wal-Mart bought full-page ad space in January 2005 in more than 100 newspapers nationwide l Co said ads are attempt to set record straight on labor issues l l l “It’s becoming clear that we have to do more and be more aggressive in telling our story. The purpose is to be proactive and initiate debate. ” New web site: www. walmartfacts. com Amid criticism of labor practices, in 2004 Co initiated new wage structure to increase pay of some hourly Ees, created 40 -person compliance team to ensure labor laws adhered to and diversity goals met l Also linked percentage of executive bonuses to certain diversity goals l Source: Wall Street Journal, 1/14/05

“The Wegman’s Way” l l Wegman’s labor costs run between 15% and 17% of “The Wegman’s Way” l l Wegman’s labor costs run between 15% and 17% of sales, cf. 12% for most supermarkets Annual turnover rate is 6%, cf. 19% for grocery chains w/ similar number of stores Industry’s annual turnover costs can exceed entire profits by more than 40% Gallup survey found that over one-month period, shoppers who were emotionally connected to supermarket spent 46% more than shoppers who were satisfied but lacked emotional bond w/ store l Source: Fortune, 1/24/05

Current Developments in Union Organizing l Wal-Mart has won all but one of seven Current Developments in Union Organizing l Wal-Mart has won all but one of seven union votes in U. S. (as of 10/02) l One U win was butcher’s dept in TX store, which was disbanded two weeks after election l l Co announced plans to phase out butchers and use prepackaged meat in 180 stores, said timing of decision was a coincidence When Wal-Mart acquired Woolworth’s operations in Canada, it bought 120 stores, but not the seven that were unionized Wal-Mart EVP of People: “Where associates feel free to communicate openly with their management, why would they need a third party to represent them? ” Co gives managers 56 -page guide, “The Manager’s Toolbox to Remaining Union Free” l “It’s important for you to be constantly alert for efforts by a union to organize your associates”

Current Developments in Union Organizing l “In the 1970 s, General Motors was the Current Developments in Union Organizing l “In the 1970 s, General Motors was the nation’s largest corporate employer, and thanks to its contracts with the UAW, it not only set the standards, but it raised the standards for all workers. Wal-Mart is doing the exact opposite. Nowadays it is the nation’s largest corporate employer, and it is lowering standards for everyone. ” l l Organizing director for UFCW Wal-Mart says its average hourly pay for FT ees is $9. 68/hr l l UFCW counters that it’s only $8. 23/hr (based on independent statistical analysis) BLS estimates average hourly wage for all non-supervisory retail ees is $12. 34 l Wal-Mart spokesman says BLS data inflated by overtime, and that Wal-Mart’s pay scale is competitive l Source: CNNMoney, 7/27/05

Current Developments in Union Organizing l Legal union avoidance tactics have impact l Las Current Developments in Union Organizing l Legal union avoidance tactics have impact l Las Vegas Sam’s Club held mandatory Ee meetings every week to express anti-U views l l l Former Wal-Mart manager, now UFCW organizer, reports surveillance cameras “sprouted” at Scottsburg, IN store (N of Louisville) after he started talking to workers there l l l “You can speak for yourself” (Some ees started wearing “I can speak for myself” buttons) “The union only wants your money” Co says the 15 cameras installed there “have nothing to do with union activity” Other former managers say that when they telephoned Co hot line to report U literature was being distributed in their stores, LR specialists were flown in on Co jet that afternoon Other complicating factors include turnover, which may be 100% annually at some stores l Source: Business Week, 10/28/02; New York Times, 11/8/02; Business Week, 10/6/03

“Wal-Mart Says It Would Allow Unions in Its Chinese Operations” l Wal-Mart said it “Wal-Mart Says It Would Allow Unions in Its Chinese Operations” l Wal-Mart said it would allow trade unions in its Chinese operations, an apparent response to pressure from Chinese authorities l Wal-Mart has 42 outlets in China, ~20, 000 ees l l Wal-Marts in Germany aren’t unionized per se, although they have works councils Labor officials hope development will put pressure on other MNCs to follow suit l l In March, national legislature began investigation of compliance w/ country’s labor law Finding: some leading MNCs were resisting efforts to set up unions within operations l Source: Wall Street Journal, 11/24/04

Closing Case l Wal-Mart hiring more than 1 million ees over next five years Closing Case l Wal-Mart hiring more than 1 million ees over next five years l Advancement opportunities l l College recruiting l l Diversity recruiting Internships in pharmacy and merchandising Management trainee program for college students Networking l l 65% of store managers began in hourly jobs Students in Free Enterprise Case questions l l What corporate- and business-level strategies is Wal-Mart pursuing? Discuss how Wal-Mart’s growth plans affect and are affected by its HR strategy l SWOT analysis