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WORKFORCE BRIEF #7

BUILDING A STRATEGIC HUMAN RESOURCE FUNCTION

Introduction

All companies must plan, implement, and maintain some human

resource (HR) operations for such things as paying their employees,

keeping track of benefits, and screening and hiring applicants.

Although such operations are of vital importance, they often are

less valued than other aspects of business. It is not unusual for

small businesses to wait until they have 100 employees to establish

a dedicated human resource department. Smaller companies either

have no human resources staff whatsoever, or have staff assigned

human resource duties on a part-time basis. In many larger firms,

the human resource (or personnel) department is considered a

necessary evil, responsible for completing paperwork properly and on

time.

Management frequently has only sketchy knowledge about the

effectiveness and consequences of human resource policies and

procedures. In many small and mid-sized businesses, typical human

resource issues Ñ unionization, turnover, mishires, benefits

questions, and disparate treatment of employees Ñ are often

addressed solely on an as-needed basis. This creates an inefficient

administrative apparatus and fails to maximize the human resources

within the firm.

Human resource problems often arise when a business achieves

success or engages in change efforts that move it beyond the

capacities of long-used procedures, policies, and traditions. The

consequences of mishandled HR issues can be great, affecting the

very survival of the organization. Small and mid-sized firms need

to establish HR processes and procedures to solve short-term

problems, ensure the efficient administration of routine functions,

anticipate long-term problems, and strategically meet company goals

and objectives.

With technology and ideas moving around the globe at increasing

speeds, a companyÕs workforce is fast becoming its only mechanism

for distinguishing itself from its competitors. More and more

frequently, it is the workforce that enables a company to improve

productivity and competitiveness and create value in the

marketplace. Human resource issues are critical to business

success.

This Workplace Brief will show that:

* An HR function can and should be strategically integrated

with a company's business plan to help the company achieve

its business objectives;

* The major components of a strategic HR program - obtaining,

maintaining, and developing human resources - can be built

in a systematic manner; and

* The best way to get started in establishing a strategic

HR function is to conduct an HR audit.

************************************************************

* "Although 1.3 million new businesses start annually, 40 *

* percent fail the first year and 60 percent fail before *

* he start of the third year. These new businesses must *

* exercise care in managing human resources and *

* integrating human resource strategies with their *

* business strategies." *

* *

* - Dr. Carolyn Wiley, *

* University of Tennessee, Chattanooga *

************************************************************

HR's Strategic Role

The human resource function should be viewed in a strategic

context, not as a staff function separate from the rest of the

organization. It must play an important role in the company's

strategic business planning. Four elements ensure that the human

resource function helps a company achieve its business objectives:

* Plan Strategically. Strategic human resource planning ensures

that human resource programs support the overall business plan.

HR planning involves scanning the environment for influences

that will have an impact on human resources (e.g., government,

labor force demographics, competition, and economic conditions),

conducting an assessment of the internal environment (e.g.,

skill inventory, current human resource problems), and

forecasting the supply and demand for human resources. This

human resource information is then incorporated into the overall

business plan.

* Align Activities. The HR function must align itself with the

rest of the organization. It must be a force for change which

adds value to other organizational processes. The HR function

must operate as a part of line management, rather than staff

management. It must align and coordinate the company's

investments in people with its changes in organization design

and technology. The HR function should work with departmental

managers, supervisors, and workers to guide investments in

employee skill development to meet the demands created by the

changing nature of work.

* Value Employees. Employees that provide a competitive advantage

are a valuable asset, and company policies and practices should

reflect that value. Only employees that feel valued will be

committed to the company and fully apply their skills to improve

company performance. The HR function should help create a work

environment in which employees feel empowered, recognized and

rewarded, well-trained, and trusted.

* Be Proactive. The human resource function must be proactive

rather than reactive. In small and mid-sized businesses, the

time between decisions and their impact is usually short. The

HR function must anticipate and address issues before they

become unmanageable. It must also ensure the company meets ever

more demanding regulatory and compliance obligations such as

those of the Equal Employ-ment Opportun-ity Commission and

Occupational Safety and Health Administration.

Components of a Strategic HR Program

A strategic HR program ensures that human resource policies and

practices relating to obtaining, maintaining, and developing human

resources support and are fully integrated in the overall business

plan. It also documents activity related to these critical human

resource processes.

Obtaining Human Resources

From a strategic perspective, no area of human resource

management is more important than obtaining employees. The quality

of the workforce is a prime determinant of the success of an

organization. In a small or mid-sized business, one mediocre

performer can be the difference between a profit or a loss.

Every organization will have some type of process for obtaining

employees. What is critical is the quality of that process. The

more attention a firm pays to the details of its process for

obtaining employees, the greater the probability of attracting the

best possible employees. There are four principal activities

involved in obtaining employees - staff planning, job analysis,

recruitment, and selection.

* Staff planning. Staff planning considers such things as

projected growth, anticipated retirements, and turn-over in order

to forecast how many and what types of employees will be needed

to fill specific positions. Staff planning links obtaining human

resources to strategic planning.

* Job analysis. Job analysis is the primary tool for determining

position requirements. It is an often neglected activity, yet

it serves as the heart of most HR programs. Job analysis

identifies the major duties of a job, including essential job

functions; the knowledge, skills, and abilities necessary to

perform the job; and other characteristics unique to the job.

Knowing the specific talents necessary for a job make it easier

to recruit and select competent employees. A job analysis is

the only way to establish this relationship.

* Recruitment. Recruitment is an important component of business

success. The organization must attract a large enough pool of

applicants to make a suitable selection decision. Too often,

small businesses focus their recruitment efforts entirely on

classified newspaper ads; however, many alternative recruiting

sources are available, including schools, community

organizations, and government and private agencies. Many small

businesses find it cost-efficient and beneficial to establish a

good working relationship with the United States Employment

Service's local job service and one-stop career centers.

* Selection. Selection determines the ultimate success of the

organization. Hiring the right people is a critical part of

effective management. A business can use different assessment

tools to help in selection, including structured interviews,

published tests, reference checks, and other assessment devices.

The key is to find a suitable match between the candidate, the

position (as defined by the job analysis), and the organization.

Establishing a consistent process for obtaining human resources

will increase the probability of attracting the best possible

employees and reduce the chances of litigation related to employee

selection.

************************************************************

* Checklist: Becoming a Strategic Partner *

* *

* * Be proactive. Don't wait to be anointed a *

* strategic partner. *

* *

* * Learn the business. Be a businessperson first and *

* an HR person second. *

* *

* * Strategically analyze HR. How does HR add value? *

* If an HR function doesn't add value, don't do it. *

* *

* * Change the image of HR. Shift the focus away from *

* compliance. Demonstrate your concern for the total *

* business by outsourcing, delegating, and investing *

* in technology. *

* *

* * Share the vision. Capitalize on a traditional HR *

* strength - communication - to work tirelessly *

* toward the corporate dream. *

* *

* - 1995 Society of Human Resource Management Survey *

************************************************************

Maintaining Human Resources

Maintaining human resources means keeping employees satisfied

and productive. This is accomplished by ensuring equity and fair

treatment in employment, while minimizing conflict in and about the

workplace. Often small and mid-sized employers lack the time and

"know-how" to achieve this goal, thereby detrimentally affecting

worker dedication, motivation, performance, and productivity. The

key elements involved in maintaining human resources include

compensation and benefits, communication, dispute resolution, and

work environment.

************************************************************

* Rhino Foods *

* *

* When Rhino Foods, a 60-person speciality dessert *

* manufacturer in Burlington, faced a drop in orders and *

* excess capacity, the company entered into an employee *

* exchange program for hourly employees with two nearby *

* companies, including one of its biggest competitors, *

* Ben & Jerry's. The Rhino employees who participated *

* in this exchange learned new skills, gained a better *

* understanding of their customer needs and business *

* practices, and earned the same or higher pay and *

* benefits. Rhino recalled its outplaced employees when *

* market conditions improved. By instituting this *

* exchange program, Rhino built the skills of its *

* employees, avoided the stress and pain of lay-offs, *

* and built a level of trust that is impossible to *

* measure. *

* *

* - Guide to Responsible Restructuring, U.S. Department *

* of Labor *

************************************************************

* Compensation and benefits. Compensation and benefits packages

are considered to be primary employee motivators. To be

motivating, a package must be equitable, i.e., fair and

consistent. Two types of equity are important: 1) internal

equity, or how one employee is paid in relation to others within

the organization, and 2) external equity, or how employees are

paid in relation to employees in similar positions at other

organizations. Internal equity can be a prime determinant of

motivation and morale, while external equity is a prime

determinant of turnover. Wage and benefit surveys and job

evaluation studies are common mechanisms for establishing

equity.

Small employers are challenged by the need to balance

competitive pay with the need to control compensation costs.

They can look for ways to use compensation strategically,

developing compensation programs that support the business

strategy, reinforce organizational structures, and enhance the

desired culture of the organization. Strategic approaches to

compensation tie pay to performance, encouraging organizational

performance and enhancing a closer connection between employee

and organizational goals by enabling employees to more fully

share in the rewards and risks of the enterprise.

* Communication. Two types of communication affect employee

motivation. Communi-cation from management to employees both

motivates and ensures consistent human resource practices.

Management should inform employees about company policies (e.g.,

an employee handbook summarizing personnel policies and

procedures), update them about policy and organizational

changes, and provide a forum for getting questions answered.

Communication from employees to management provides

opportunities for individual and collective involvement in

problem solving at all levels of the company, motivating

employees while providing the company with sound suggestions on

how to improve operations. Employee involvement programs may

range from consultative committees (quality circles) to self

directed work teams.

* Dispute resolution. Dispute mechanisms need to be put in place

so that issues are resolved before they magnify. The dispute

resolution system should provide due process and allow free

speech. The system should: 1) provide a clear process with

specific forums to inquire about policies, procedures, or key

decisions that an individual or group finds unjust, and to

advocate for a different outcome; and 2) include preventive and

remedial mechanisms.

* Work environment. In today's tight economic environment,

companies adopting family-supportive and other quality-of-life

policies gain a competitive advantage by attracting and

retaining a more talented, committed, and productive workforce.

Supporting a high quality of work life and a safe working

environment may involve: 1) improving the condition of the

physical plant; 2) promoting health and fitness; 3) providing

flexible work hours and days, accommodations for disabled

employees, child care, and anti-discrimination policies and

practices; 4) monitoring employee morale and commitment and

promptly addressing problems; and 5) analyzing safety incidents

and identifying ways to reduce accidents.

******************************************************

* Recruitment Alternatives *

* *

* * High schools *

* * Outreach sources for minorities and females *

* * Outplacement firms *

* * Customer point of contact *

* * Trade, industry, and professional associations *

* * Employee referrals *

* * Job fairs *

* * Colleges and universities *

* * Temporary agencies *

* * Private employment agencies *

* * Direct mail *

* * One-stop career centers *

* * Internet *

* * Private trade schools *

******************************************************

Developing Human Resources

In establishing a strategic human resource function, it is

important to give proper attention to developing human resources.

There are four components to developing human resources:

orientation, training, career development, and performance

appraisal.

* Orientation. Research has shown that new employee orientation

programs have a direct relationship to turnover in the first

years of employment. A well-designed new employee orientation

program helps employees make the transition into the

organization and their work areas. Typically a new employee

orientation program will cover: 1) the normal workday; 2) the

nature of the organization; and 3) the organizational policies,

rules, and benefits.

* Training. Training is the process of developing an individual's

proficiency in a particular job or organization. Changing

technologies and new work structures and processes implemented

in company transformations have raised the skill levels required

for successful performance on the job and added to the

importance of an effective training program.

An effective employee training program should: 1) align with

company performance objectives and job requirements; 2) reflect

the workplace and its requirements (i.e., training curricula,

structure, and delivery methods should be appropriate to the

company's organizational structure, work processes, and

culture); 3) address both job-based or occupational skill

requirements and the academic or foundation knowledge, skills,

and behaviors that underlie them; 4) be tailored to employees'

needs; and 5) use evaluation measures to gauge both performance

outcomes and the quality and effectiveness of the training

process.

* Career development. Career development is the design and

management of career opportunities that improve an

organization's human resource preparedness, while providing

individual employees with a more meaningful relationship to the

organization over time. In today's competitive environment,

career development often enhances employability through self

assessment tools, career counseling, educational opportunities,

company job listings, and informing employees about future jobs.

* Performance appraisal. Successful organizations make serious

efforts to monitor the performance of their employees. A

performance appraisal system describes employees' job-related

strengths and weaknesses and provides them with guidance and

development assistance. It is a means for improving

organizational performance by focusing on the relationship

between individual behavior and strategic organizational

objectives. A well-designed performance appraisal system also

provides essential information for such human resource decisions

as compensation, promotion, program assessment, and training.

************************************************************

* Norton Manufacturing Company *

* *

* Norton Manufacturing Company has experienced tremendous *

* growth in a tight labor market. To solidify its *

* competitive position in the marketplace while *

* developing a high-performance workforce, Norton is *

* investing in its largest asset, its employees. To *

* develop its current workforce, Norton used job task *

* analysis and subject matter experts to create *

* benchmarks for skilled employees. It then implemented *

* an on-the-job training program, based on the National *

* Metalworking Skills Standards, which combines classroom *

* training and machine application. The administration *

* of the training program is supported by a software *

* program that directly links Norton to key partners in *

* this endeavor - Vanguard-Sentinel Vocational School, *

* Terra Community College, and various government *

* agencies. To prepare its future workforce, Norton *

* provides its courses and credentialing system to *

* educational institutions and the local employment *

* service. *

************************************************************

A successful performance appraisal system:

* Is based on complete and accurate job analyses;

* Uses appraisal instruments that match job descriptions and

organization goals, provides adequate criteria for

measurement, ensures objectivity, facilitates employee

understanding and completion by the supervisor, and

promotes individual goal setting;

* Trains supervisors to know the criteria for evaluation, how

to complete the performance appraisal instrument, and how

to conduct a performance appraisal conference; and

* Is adjusted periodically to ensure that it remains

congruent with individual jobs and the organization's

strategic objectives.

Documenting Human Resource Activity

Human resource or personnel departments are responsible for a

variety of activities, each of which requires extensive collection,

manipulation, and transmission of information. A human resource

record keeping and information system needs to be established to

help in routine administration, report preparation, planning, and

organizational decision making.

Documenting human resource information and activities benefits

an employer in three ways. First, maintaining comprehensive records

provides an internal checking procedure, ensuring that policies are

consistently applied and enforced. Second, accurate and detailed

records may be needed when a company is involved in a court or

agency proceeding or union grievance. Third, monitoring human

resource data such as absenteeism and turnover enables companies to

address problems in these areas.

************************************************************

* Papa John's Pizza *

* *

* From its grassroots beginnings in June 1985, Papa John's *

* has grown to 751 stores in twenty states, with a total *

* revenue in 1994 of $161.5 million. Papa John's hired *

* its first vice president of human resources in June *

* 1993. The challenge facing HR was to identify all of *

* the existing elements in the entrepreneurial culture, *

* and then to standardize the culture, benefits, *

* recruitment, and retention efforts to keep the company *

* on the right track. Key steps included: 1) getting to *

* know the company in order to strategically position HR *

* to support the stores' needs; 2) revising the employee *

* handbook; 3) standardizing performance appraisals; *

* 4) streamlining employment procedures and centralizing *

* employee data; 5) standardizing employee salaries and *

* establishing a pay-grade system that allows for regional *

* flexibility; 6) designing a benefits program that *

* provides different benefits for each level of employee; *

* 7) training store managers to use different recruitment *

* tactics to help "build the perfect team"; 8) providing *

* extensive training through ten regional training *

* centers; and 9) promoting from within and rewarding *

* performance goals. *

* *

* - Personnel Journal, September, 1995 *

************************************************************

Human Resource Audit

The mechanics of setting up a strategic human resource

department are not complex if approached in a systematic manner. In

most cases, human resource activities already exist, although they

may be dispersed throughout the organization. The first step in the

establishment of a strategic human resource function is performing

an HR audit. An HR audit appraises the quality of HR activities,

services, or programs in order to institute changes to improve them.

The audit examines every major aspect of HR management performed or

not performed by the organization and identifies strengths,

weaknesses, and necessary corrective actions. A number of different

HR audit formats are available to a small business. Common

components of audit formats include:

* Review policies and procedures. HR audits typically start with

a comprehensive review of the organization's HR policies and

procedures. The development of a clear and precise set of

policies and procedures serves as a building block for other

human resource activities. It also serves as a starting point

for developing an employee handbook.

* Focus on compliance issues. Additionally, HR audits typically

focus on legal and regulatory compliance issues involving equal

employment opportunity, immigration reform, safety, wage and

hour, employment-at-will, Employment Retirement Income Security

Act (ERISA), Consolidated Omnibus Budget Reconciliation Act

(COBRA), and the Family and Medical Leave Act. Most small

businesses start the HR function by first addressing areas of

vulnerability identified in the legal compliance portion of the

HR audit.

* Evaluate record keeping. Another area of focus of an HR audit

is record keeping. The HR audit should address contents of and

access to employee files, required government reports, and

procedures on the release of information. Additionally, an HR

audit should examine the need for a human resource information

system (HRIS), a computerized records management system.

Once the comprehensive HR audit is completed, the individual in

charge of the human resource function can set priorities for

activities in the critical areas of obtaining, maintaining, and

develop-ing human resour-ces, and documenting human resource

activity.

********************************************************************

Three Approaches to a Human Resource Audit

* Human Resource Network. The Northeastern Pennsylvania

Industrial Resource Center (NEPIRC) creates human resource

networks composed of 8 to 15 companies. Each network

strengthens a company's human resource functions through a

process of on-site consulting and training. The program teaches

companies how to operate more productively, comply with

federal/state regulations, and reduce operating costs. Topics

covered include employment issues, safety and health compliance,

workers' compensation, labor and employee relations, employee

benefits, and performance management.

* Human Resource Assessment Protocol (HRAP). Cleveland Advanced

Manufacturing Program/Great Lakes Manufacturing Technology

Center's HRAP is designed to help manufacturers improve their

"people practices." HRAP uses a combination of individual

interviews, group interviews, and employee surveys to

investigate a firm's human resource practices to determine

opportunities for improvement. The assessment looks at

management and leadership, communications, education and

training needs, empowerment, recognition/rewards and

compensation/benefits, safety and health perceptions, and

employee knowledge of customer wants and needs.

* Human Resource Development (HRD) Model. The Georgia Tech

Economic Development Institute -- HRD Center's assessment

process is organized in "blocks" of HRD functions: HR

development (training and development, organizational

development, career development); HR planning (organization/job

design, human resource planing, performance management systems,

selection and staffing); and HR management (HR research and

information systems, union/labor relations, employee assistance,

compensation/benefits/HRD laws). A pre-qualifying interview is

used to identify the client's specific concerns. Then, the

assessment questions only focus on those HR attributes that

relate directly to the company's current concerns. Data is

collected in one-on-one interviews and focus groups.

Recommendations show both qualitative and quantitative results.

********************************************************************

Further information on the issues presented in this brief can

be obtained from:

Adler, Ronald L. and Francis T. Coleman, Employment-Labor Law Audit

(Washington, D.C.: Bureau of National Affairs, Inc., 1992).

Arthur, Diane, Managing Human Resources in Small and Mid-Sized

Companies (Saranac Lake, NY: Amacom, 1995).

Dunlop, John, "The Challenge of Human Resources Department,"

Industrial Relations, Vol. 31, No. 1, January, 1992, p. 50.

Georgia Tech Economic Development Institute, Human Resources

Development Center, Georgia

Manufacturing Extension Alliance, 140 O'Keefe Building, Atlanta, GA

30332. Attn: Marilyn Marks, 404/894-6101.

Gilley, Jerry, "Marketing Your Human Resources Department to Your

Company," Employment Relations Today, Vol. 19, No. 2, Summer, 1992,

p. 127.

Great Lakes Manufacturing Technology Center, Prospect Park Building,

4600 Prospect Avenue, Cleveland, OH 44103-4314. Attn: Steven

Crimaldi, 216/432-5396.

Harriger, Dan, "Use TQM to Re-engineer Human Resources," HR Focus,

Vol. 70, No. 4, April, 1993, p.7, 17.

Hartsfield, William E., J.D., HR Audit: How to Evaluate Your

Personnel Policies and Practices (Madison, CT: Business & Reports,

Inc., 1990).

Mathis, Robert L. and John H. Jackson, Human Resource Management,

7th ed. (St. Paul, MN: West Publishing Corporation, 1994).

Northeast Pennsylvania Industrial Resource Center, 16 Luzerne

Avenue, Suite 125, West Pittston, PA 18643. Attn: Donald Olszewski,

717/654-8966.

"Setting Up A New Personnel Department" (parts 1-4), The Personnel

News, April through September, 1989.

-Ray Weinberg, Silverstone Consulting and Stephen Mitchell,

National Alliance of Business, 1996

The National Workforce Assistance Collaborative builds the

capacity of the service providers working with small and mid-sized

companies in order to help businesses adopt high-performance work

practices, become more competitive, and ultimately advance the well-

being of their employees. The Collaborative was created with a

$650,000 cooperative agreement grant from the Department of Labor to

the National Alliance of Business. Current partners on the project

include the Council for Adult and Experiential Learning, the

Institute for the Study of Adult Literacy at Pennsylvania State

University, the Maryland Center for Quality and Productivity, and

the National Labor-Management Association. The Collaborative

provides assistance in four areas: employee training, labor-

management relations, work restructuring, and workplace literacy.

For more information on the Collaborative, contact Cathy Stewart at

the National Alliance of Business, phone: 202/289-2915, fax:

202/289-1303, e-mail: NWAC@NAB.COM.

Bundles of 25 copies of this brief are available for $7.75

(includes postage and handling) by contacting the National Alliance

of Business, Distribution, P.O. Box 501, Annapolis Junction, MD

20701, phone: 1-800-787-7788, fax: 301/206-9789, e-mail:

INFO@NAB.COM. This brief can be downloaded from the Collaborative's

world wide web home page (http://www.psu.edu/institutes/nwac). R6111

.