Introduction to Human Resource Management and the Environment

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Introduction to
Human Resour 1
Management and
the Environment
Human resource management (HRM) is the effective management of people at work.
HRM examines what can or should be done to make working people more productive
and satisfied. This book has been written for individuals interested in learning about peo-
ple working within organizations. Its goal is to help develop more effective managers
and staff specialists who work directly with the human resources of organizations.
Part One consists of four chapters. Chapter 1, “Human Resource Management,” intro-
duces the reader to HRM and careers in HRM. The diagnostic approach is introduced in
Chapter 2, “A Strategic Management Approach to Human Resource Management.”
Chapter 2 also reviews behavioral science perspectives on managing people and shows how
knowledge of these can be used to influence employee effectiveness. In addition, the
chapter discusses the ways managers use knowledge of environmental factors—the work
setting, technological change, globalization, government regulations, and union
requirements—to influence employee performance. Chapter 3, “Equal Employment
Opportunity: Legal Aspects of Human Resource Management,” describes the influences of
the legal environment on HRM. A number of major laws and regulations are discussed in
this chapter, as well as throughout the book. Chapter 4, “Global Human Resource
Management,” discusses HRM in the new era of globalization. The “global enterprise” and
the interdependence of nations have become a reality. Global markets, mass markets, and
market freedom have fostered an international interest in managing human resources.

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Chapter 1
Human Resource
Learning Objectives
Internet/Web Resources
After studying this chapter you should be
General Sites
able to:
Define the term human resource
Describe the strategic importance of
human resource management (HRM)
activities performed in organizations.
Explain what career opportunities are
available in the HRM field.
Discuss the role that specialists and
operating managers play in perform-
ing HRM activities.
List the main objectives pursued by
Company Sites
HRM units in organizations.

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Career Challenge
Don Brokop has, over the past nine years, proved himself an outstanding shift supervisor
at the Melody Machine Products Corp. plant in South Chicago. He has worked every shift,
likes people, and recently was the winner of the Outstanding Plant Manager award. Don,
now 38 years old, is beginning to look closely at his career plans. He believes that he needs
to gain some experience in jobs other than production.
Last week a position opened at the plant for an assistant director of human resources.
At first, Don gave no thought to the position, but later he asked his boss, Marty Fogestrom,
about it. Marty encouraged Don to think his plans through and to consider whether he
wanted to work in the area of human resource management.
Don talked with plant colleagues about the new position, looked over the want ads in the
Chicago Tribune, read The Wall Street Journal, Fast Company, Inc., Business 2.0, HR Magazine,
and Fortune, and found a number of interesting news items concerning human
resource management. He discovered that many different careers existed in this field. He real-
ized that he had not really understood the job done by Melody’s department of human
resources. What struck him most was that issues, problems, and challenges concerning
people are what human resources are about.
Here are a few of the news items that caught his eye:1
• Over 10 years ago, at the height of another economic downturn, Ben Cheever lost his
job as an editor at Reader’s Digest. He decided to write a book (Selling Ben Cheever: Back
to Square One in a Service Economy.
) In response to his sudden job loss he offered advice
to those faced with a job market. A few of Ben’s pearls of wisdom are (1) you are not
your job title, (2) get past the shame barrier, (3) keep in touch with those in your net-
work, and (4) always have a plan. In a nutshell—don’t be shy; don’t be ashamed, take
action with confidence.
• The Web is a great place for HR managers and those interested in HRM to find sug-
gestions, best-in-class examples, and resources. A few favorite sites of those in the
know are,, and
Russell J. Campenello is a user of these sites and from his position of “Chief People
Officer” of Nervewire, Inc., he points people to human capital-oriented Web sites.
• Training is a must HRM activity. In good and bad economic times the top firms stick with
training and the message it sends about valuing people. Some of the top annual training
budgets are found at IBM—$1 billion; Ford Motor—$500 million; Intel—$319 million;
and Boeing—$250 million. Companies continue to stress the importance of training as a
competitive business advantage.
• The number of companies offering employees online access to HR functions such
as benefits enrollment, family status changes, and changes to 401(k) contributions is
increasing. A survey conducted by Towers Perra indicated 60 percent of employers
reported that they allow employees to complete their benefits enrollment and to per-
form other HR functions online. These findings show a 30 to 50 percent increase across
companies in one year.
• Many companies praise the benefits of telecommuting (employees who work at home on
a regular basis) such as lower real estate costs, reduced turnover, increased productivity,
and an increased ability to comply with workplace laws (e.g., Americans with Disabilities
Act and Family and Medical Leave Act). However, a study of managers and employees by
Boston College Center for Work & Family found some telecommuting disadvantages. It
found that telecommuters work more, rate their work/life balance satisfaction lower,
believe they have worse relationships with their managers and co-workers, and are less
committed to their job. The pros and cons of telecommuting need to be studied over long
time periods.
• In Australia, companies that have an HR director serving on their executive committee
tend to be more successful than those that do not. A study of the 50 largest Australian
(continued on next page)

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Career Challenge (continued)
companies reported more than twice the median growth in earnings per share than
those without such an HR presence. When strategic HR knowledge and authority sits on
the board, there is more focus on people issues. A similar study in Great Britain found
higher profitability in firms that had HR representatives on their boards of directors than
those that did not.
• Don Tapscott, internationally recognized consultant, has been talking about a new
economy based on knowledge for years. Microsoft, he says, has almost missed the envi-
ronmental shift. The firm’s management was clinging to the view that it was a PC (per-
sonal computer) firm, ignoring the Net and its potential. It was not money that turned
Microsoft around but human capital (knowledge). Brain power is what Tapscott claims
saved Microsoft and makes it a major force in the 21st century economy.
Don Brokop thought about his recent conversations, his career plans, the news stories, and
the challenges of moving from production to human resource management. He thought his
experience in first-line management would be helpful if he was fortunate enough to land the
job, but he wondered if he was qualified for this kind of job. Otherwise, he was confident and
considered his college education and experience invaluable. He wanted new challenges. Then
he learned through the grapevine that the job was his if he wanted to make the move. (If you
were Don, would you be likely to make this kind of career shift? Don’s decision will be pre-
sented at the end of this chapter.)
People, human resources, making organizations more aware of human resources, being
in the people business
—these words and thoughts are common in modern society. Don
Brokop is considering the challenges associated with this new wave of professional
treatment and concern for people within organizations. Organizations are definitely in
the people business: Don certainly saw this after only a quick review of a few news
This book will focus on people and optimizing performance in organizational settings.
The entire book will be concerned with the employees of organizations—the clerks, techni-
cians, software engineers, product designers, supervisors, managers, and executives. Large,
medium, and small organizations, such as IBM (, Kroger Supermarkets
(, Procter & Gamble (, Merck-Medco (www.merck-, CVS Pharmacies (, eBay (, and GAP
(, understand clearly that to grow, prosper, and remain healthy, they must opti-
mize the return on investment of all resources—financial and human.
When an organization is really concerned about people, its total philosophy, culture,
and orientation will reflect this belief. In this book, human resource management
is specifically charged with programs concerned with people—the employees.
Human resource management is the function performed in organizations that facilitates the
most effective use of people (employees) to achieve organizational and individual goals.
Whether a human resource management function or department even exists in a firm,
every manager must be concerned with people.
Terms such as personnel, human resource management, industrial relations, and
employee development are used by different individuals to describe the unit, department,
or group concerned about people. The term human resource management is now widely
used, though some people still refer to a personnel department. In order to be current, the
term human resource management will be used throughout the book. It is a term that
reflects the increased concern both society and organizations have for people. Today,
employees—the human resource—demand more of their jobs and respond favorably to
management activities that give them greater control of their lives.2

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Chapter 1
Human Resource Management
Human resource management (HRM) consists of numerous activities, including
1. Equal employment opportunity (EEO) compliance.
2. Job analysis.
3. Human resource planning.
4. Employee recruitment, selection, motivation, and orientation.
5. Performance evaluation and compensation.
6. Training and development.
7. Labor relations.
8. Safety, health, and wellness.
These activities are topics of various chapters in this book. They also appear as elements
in the model of the HRM function that is used to illustrate the importance of being diag-
nostic. (This model is described in Chapter 2.)
The following four descriptions of the HRM unit should be stressed at the outset:
1. It is action-oriented Effective HRM focuses on action rather than on record keeping,
written procedure, or rules. Certainly, HRM uses rules, records, and policies, but it
stresses action. HRM emphasizes the solution of employment problems to help achieve
organizational objectives and facilitate employees’ development and satisfaction.
2. It is people-oriented Whenever possible, HRM treats each employee as an individual and
offers services and programs to meet the individual’s needs. McDonald’s, the fast-food
chain, has gone so far as to give an executive the title vice president of individuality.
3. It is globally oriented HRM is a globally oriented function or activity; it is being prac-
ticed efficiently and continuously in Mexico, Poland, and Hong Kong. Many organiza-
tions around the world treat people fairly, with respect, and with sensitivity. Thus,
American practitioners can review best-in-class HRM practices in Brazil to determine
if some principles can be applied or modified to work in the United States.
4. It is future-oriented Effective HRM is concerned with helping an organization achieve
its objectives in the future by providing for competent, well-motivated employees. Thus,
human resources need to be incorporated into an organization’s long-term strategic
The following HR Journal of Malden Mills Company captures HRM at the peak of effec-
tiveness. This company did not allow a devastating fire to shut it down. Staffed by people
of many nations of the world, the company, with the help of a people-oriented leader, Aaron
Feuerstein, showed tenacity, dedication, and loyalty in their decision to rebuild.
A Brief History of Human Resource Management
The history of HRM can be traced to England, where masons, carpenters, leather workers,
and other craftspeople organized themselves into guilds. They used their unity to improve
their work conditions.3
The field further developed with the arrival of the Industrial Revolution in the latter part
of the 18th century, which laid the basis for a new and complex industrial society. In sim-
ple terms, the Industrial Revolution began with the substitution of steam power and
machinery for time-consuming hand labor. Working conditions, social patterns, and the
division of labor were significantly altered. A new kind of employee—a boss, who wasn’t
necessarily the owner, as had usually been the case in the past—became a power broker in
the new factory system. With these changes also came a widening gap between workers
and owners.

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Introduction to Human Resource Management and the Environment
HR Journal
Malden Mills
Article after article, television programs, and commen-
commitment. Meanwhile, HRM shifted into high gear
tary have continued for years about managerial greed,
with a crisis team—the foundation of which was actu-
corruption, and unethical behavior. One manager’s
ally laid before the fire. It was composed of Feuerstein,
story, however, serves as a shining model of caring for
three other executives, and representatives from each
people and really meaning it when you state that
department. The team met daily to discuss the status of
human assets are the most important factor in an
those injured, to assess the immediate needs of Malden
organization. This is the story of Aaron Feuerstein, a real
employees, to set up a communications and workers’
manager of human resources.
training center, to call upon community resources—
On the evening of December 11, 1995, an explo-
even to collect Christmas presents for the children of
sion occurred at the Malden Mills plant in Lawrence,
Malden’s corporate family.
Massachusetts. Approximately 300 employees were
As workers waited for the new state-of-the-art mill to
working when the fire broke out around 7:50 P.M. As is
be completed, they learned the computer skills that
turned out, 22 workers were rushed to several local
would be required to run the new machines. In less than
a year, more than 600 employees completed courses at
Malden Mills was founded in 1906 by Aaron
the internal communications center or at outside train-
Feuerstein’s grandfather. The $300 million-a-year man-
ing facilities. Malden’s center has received praise from
ufacturing company is best known for its high-quality
former Secretary of Labor Robert Reich as a national role
surface-finished fabrics, Polarfleece® and Polartec®.
model for employee training and development.
The story of Malden Mills has focused on Aaron
Clearly, what began as a traumatic event rallied the
Feuerstein and how he eschewed the option of taking
company and community—if not others worldwide.
insurance money from the fire and closing his plant.
HRM received calls from out-of-state employers offer-
Instead, the third-generation owner opted to pay 1,400
ing jobs to Malden’s displaced workers. Their reputa-
displaced employees for three months, extend their
tion as skilled and committed employees brought forth
health benefits for nine months, and rebuild the
myriad offers. Of the 1,400 displaced employees, more
plant—all at a personal cost of $15 million. He has since
than 90 percent of them returned to work.
received worldwide praise for his do-right deeds.
Since the fire Malden Mill has fallen on some hard
What many don’t hear about, however, are the
financial times. The company continues to struggle
incredible efforts of Malden’s HRM team: how it galva-
financially, but the story of what Aaron Feuerstein did
nized Malden’s corporate and community resources at
for his employees after the fire is still a bright light in
critical junctures since Massachusetts’ largest fire. For
the firm’s history. His legacy is an example of how one
its achievements, Malden Mills received the Workforce
person wanted his family business to create jobs, help
Magazine Optimas Award for Managing Change. Says
the economy of the community, and be ethical and
Feuerstein: “The tremendous amount of change in the
moral in making difficult choices. He succeeded in cre-
past few years makes me once again recognize HRM’s
ating an inspiring legacy for managers in any country
strength and courage. At Malden Mills, we have self-
or industry.
confidence to change without fear.”
Source: “Malden Mills Senior Management Team”
Feuerstein’s vow to rebuild Malden sounded the
(January 27, 2005), Corporate News; “The Mensch of
trumpet. On the day after the fire, Feuerstein made
Malden Mill” (July 6, 2003), CBS News; Kathy Skala
his unexpected announcement to pay his employees’
(March 1999), “Balancing the Human Equation,”
salaries and benefits. Workers wept as he declared his
Workforce, pp. 54–59.
Scientific management and welfare work represent two concurrent approaches that
began in the 19th century and, along with industrial psychology, merged during the era of
the world wars.4 Scientific management represented an effort to deal with inefficiencies in
labor and management primarily through work methods, time and motion study, and spe-
cialization. Industrial psychology represented the application of psychological principles
toward increasing the ability of workers to perform efficiently and effectively.
The renowned father of scientific management was Frederick W. Taylor. An engineer at
Midvale Steel Works in Philadelphia from 1878 to 1890, he studied worker efficiency and

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Chapter 1
Human Resource Management
attempted to discover the “one best way” and the one fastest way to do a job. He summa-
rized scientific management as (1) science, not rules of thumb; (2) harmony, not discord;
(3) cooperation, not individualism; and (4) maximum output, not restricted output.5
Whereas scientific management focused on the job and efficiencies, industrial psy-
chology focused on the worker and individual differences. The maximum well-being of the
worker was the focus of industrial psychology. Hugo Munsterberg and his book
Psychology and Industrial Efficiency initiated in 1913 the field of industrial psychology.6
The book served as a stimulus and model for the development of the field in the United
States and Europe.
The drastic changes in technology, the growth of organizations, the rise of unions, and
government concern and intervention concerning working people resulted in the develop-
ment of personnel departments. There is no specific date assigned to the appearance of the
first personnel department, but around the 1920s more and more organizations seemed to
take note of and do something about the conflict between employees and management.7
Early personnel administrators were called welfare secretaries. Their job was to bridge the
gap between management and operator (worker); in other words, they were to speak to
workers in their own language and then recommend to management what had to be done
to get the best results from employees.
Another early contributor to HRM was called the human relations movement. Two
Harvard researchers, Elton Mayo and Fritz Roelthisberger, incorporated human factors into
work. This movement began as a result of a series of studies conducted at the Hawthorne
facility of Western Electric in Chicago between 1924 and 1933. The purpose of the stud-
ies was to determine the effects of illumination on workers and their output. The studies
pointed out the importance of the social interaction and work group on output and satis-
faction. The human relations movement eventually, around the mid-1960s, became a
branch of and a contributor to the field of organizational behavior.8
The early history of personnel still obscures the importance of the HRM function to
management. Until the 1960s, the personnel function was considered to be concerned only
with blue-collar or operating employees. It was viewed as a record-keeping unit that
handed out 25-year tenure pins and coordinated the annual company picnic. Peter Drucker,
a respected management scholar and consultant, made a statement about personnel man-
agement that reflected its blue-collar orientation. Drucker stated that the job of personnel
was “partly a file clerk’s job, partly a housekeeping job, partly a social worker’s job, and
partly firefighting, heading off union trouble.”9
Strategic Importance of HRM
The HRM function today is concerned with much more than simple filing, housekeeping,
and record keeping.10 When HRM strategies are integrated within the organization, HRM
plays a major role in clarifying the firm’s human resource problems and develops solutions
to them. It is oriented toward action, the individual, worldwide interdependence, and the
future. Today it would be difficult to imagine any organization achieving and sustaining
effectiveness without efficient HRM programs and activities. The strategic and competi-
tive advantage importance of HRM to the survival of an organization will become clearer
as we move into the book.11
Strategic HRM differs significantly from traditional HRM. Exhibit 1-1 shows that the
main responsibility for managing human resources in a traditional arrangement rests with
specialists in a division (large companies) or team. In a strategic approach the main respon-
sibility for people management rests with any individual who is in direct contact with them
or a line manager. Thus, any individual in an organization who has responsibility for peo-
ple is a human resource manager in addition to his or her regular position.

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Introduction to Human Resource Management and the Environment
Traditional HRM
Strategic HRM
Traditional HRM
and Strategic HRM

Responsibility for human
Line managers
resources and management
Better performance
Improved understanding
and strategic use of human
Role of HRM area
Respond to needs
Lead, inspire, understand
Time focus
Short-term results
Short, intermediate, long-
Rules, policies, position
Flexible, based on human
Bureaucratic, top-down,
Open, participative,
Major emphasis
Following the rules
Developing people
Cost centers
Investment in human
For years the HRM function had not been linked to the corporate profit margin or what
is referred to as the bottom line. The role of HRM in the firm’s strategic plan and overall
strategy was usually couched in fuzzy terms and abstractions. HRM was merely a tagalong
unit with people-oriented plans, not a major part of planning or strategic thinking.
Despite the appeal that strategic HRM is important, many organizations have had a dif-
ficult time adopting a strategic perspective. They take a short-run approach and focus only
on current performance. This is not surprising given the emphasis by Wall Street and many
stockholders on achieving attractive quarterly performance results.
Second, many human resource managers do not have a strategic perspective. They are
narrowly trained and educated and primarily pay attention to their area of expertise—
compensation, labor law, performance evaluation, and other HR areas. They have insuffi-
cient knowledge of finance, accounting, marketing, and production.
Third, most executives simply categorize HRM in a traditional manner. They fail to see
how HRM can contribute to strategic initiatives, goals, and programs.
Finally, it is difficult to develop metrics for HRM activities. Placing values on and
tracking HRM programs is difficult. For example, the measures of effectiveness for health
wellness programs are not easy to develop and discuss. Thus, providing funds to programs
that have less measurable results is difficult to implement.
Today, because of the recognition of the crucial importance of people, HRM in an
increasing number of organizations has become a major player in developing strategic
plans.12 Organizational and human resource plans and strategies are inextricably linked.
The HRM strategies must reflect clearly the organization’s strategy regarding people,
profit, and overall effectiveness. The human resource manager, like all managers, is
expected to play a crucial role in improving the skills of employees and the firm’s prof-
itability. In essence, HRM in a growing number of organizations is now viewed as a “profit
center” and not simply a “cost center.”
The strategic importance of HRM means that a number of key concepts must be
applied. Some of these concepts are
• Analyzing and solving problems from a profit-oriented, not just a service-oriented,
point of view.
• Assessing and interpreting costs or benefits of such HRM issues as productivity,
salaries and benefits, recruitment, training, absenteeism, overseas relocation, layoffs,
meetings, and attitude surveys.

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Human Resource Management
• Using planning models that include realistic, challenging, specific, and meaningful
• Preparing reports on HRM solutions to problems encountered by the firm.
• Training the human resources staff and emphasizing the strategic importance of HRM
and the importance of contributing to the firm’s profits.
The increased strategic importance of HRM means that human resource specialists must
show managers that they contribute to the goals and mission of the firm.13 The actions, lan-
guage, and performance of the HRM function must be measured, precisely communicated,
and evaluated. The new strategic positioning of HRM means that accountability must be
taken seriously and the investment in human assets is the focal point.
The era of accountability for HRM has resulted from concerns about productivity, from
widespread downsizing and redesigning of organizations, from the need to effectively man-
age an increasingly diverse workforce, and from the need to effectively use all the resources
of an organization to compete in an increasingly complex and competitive world.14
The HRM function today is much more integrated and strategically involved. The
importance of recruiting, selecting, training, developing, rewarding, compensating, and
motivating the workforce is recognized and practiced by managers in every unit and func-
tional area of an institution. HRM and every other function must work together to achieve
the level of organizational effectiveness required to compete locally and internationally.
If the HRM function is to be successful, managers in other functions must be knowl-
edgeable and involved. Managers play a major role in setting the direction, tone, and effec-
tiveness of the relationship between the employees, the firm, and the work performed.
Managers must understand that carrying out HRM activities and programs is strategically
vital. Without managerial participation, there are likely to be major human resource prob-
lems. Richard Kovacevich (currently CEO at Wells Fargo) was CEO of Norwest, a large
financial service firm that merged with Wells Fargo Bank. When the merger occurred he
described managerial job responsibilities: to influence the hearts and minds of our people,
consistent with the culture of Norwest, so they care more about our business than com-
petitors care about theirs.15
HRM and Organizational Effectiveness
HRM activities play a major role in ensuring that an organization will survive and prosper.
Organizational effectiveness or ineffectiveness is described in this book in terms of such
criteria and components as performance, legal compliance, employee satisfaction, absen-
teeism, turnover, training effectiveness and return on investment, grievance rates, and acci-
dent rates. In order for a firm to survive and prosper and earn a profit, reasonable goals in
each of these components must be achieved.16 In most organizations, effectiveness is
measured by the balance of such complementary characteristics as reaching goals, employ-
ing the skills and abilities of employees efficiently, and ensuring the influx and retention
of well-trained and motivated employees.
Around the world, managers are beginning to recognize that human resources deserve
attention because they are a significant factor in top-management strategic decisions that
guide the organization’s future operations. Three crucial elements are needed for firms
to be effective: (1) mission and strategy, (2) organizational structure, and (3) HRM.17
However, it is important to remember that people do the work and create the ideas that
allow the organization to survive. Even the most capital-intensive, best-structured organi-
zations need people to run them.
People limit or enhance the strengths and weaknesses of an organization. Current
changes in the environment are often related to changes in human resources, such as shifts

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Introduction to Human Resource Management and the Environment
in the composition, education, and attitudes of employees. The HRM function should pro-
vide for or respond to these changes.
The changes experienced by organizations around the world include growing global
competition; rapidly expanding technologies; increased demand for individual, team, and
organizational competencies; faster cycle times; increasing legal and compliance scrutiny;
and higher customer expectations. These changes combined with the realization that the
performance of a firm’s human assets must be managed, led, and coached have resulted in
the need for more strategic planning and modern leadership practices. The mechanized or
routine-oriented workforce is giving way to a more knowledge-based, information-rich
One problem top management has in making strategic planning decisions regarding
people is that all other resources are evaluated in terms of money, and at present, in most
organizations, people are not. There has been a push toward human resources accounting,
which would place dollar values on the human assets of organizations.19 Professional
sports teams, such as the New York Yankees (, Los Angeles Lakers
(, and New England Patriots (, place a dollar
value on athletes. They then depreciate these values over the course of time.
If the objectives of the HRM function are to be accomplished, top managers will have
to treat the human resources of the organization as the key to effectiveness. To do this—
to accomplish the important objectives of HRM—management must regard the develop-
ment of superior human resources as an essential competitive requirement that needs careful
planning, hard work, and evaluation.
An increasing number of studies conducted in the United States and in other countries
across industries from high to low technology firms emphasize the importance of people.20
There is now evidence that shows that implementing high performance management prac-
tices results in profitability gains, stock price increases, and higher company survival rates.
One study of 968 firms found that a 1 standard deviation increase in the use of “people-
first” practices is associated with a 7.05 percent decrease in turnover, $27,044 more in
sales, and $18,641 and $3,814 more in market value and profits.21 Another study found
that a 1 standard deviation improvement in human resource practices was associated with
a $41,000 increase in shareholder wealth per employee.22
Similar results of people-first improvements were found in German industrial firms.
Investing time, energy, and resources in people was associated with stock market per-
formance increases.23
Based on the available research and analyses, we can specify some of the people-first
practices that have contributed to the positive research findings. Each of these practices
will be covered later in the book: employment security; selective hiring; self-managed
teams; compensation linked to performance; training; and the sharing of performance,
strategy, and operational information, data, and measures.24
Objectives of the HRM Function
The contributions HRM makes to organizational effectiveness include the following:
• Helping the organization reach its goals.
• Employing the skills and abilities of the workforce efficiently.
• Providing the organization with well-trained and well-motivated employees.
• Increasing to the fullest the employee’s job satisfaction and self-actualization.
Developing and maintaining a quality of work life that makes employment in the organ-
ization desirable.