SHRM FOUNDATIOn’S EFFECTIVE PRACTICE GUIDELINES SERIES Human Resource Strategy ADAPTING TO THE AGE OF GLOBALIZATION SHRM Foundation’S EFFECTIVE PRACTICE GUIDELINES SERIES Human Resource ADAPTING TO THE AGE OF Strategy GLOBALIZATION by Patrick M. Wright, Ph.D. Human Resource Strategy This publication is designed to provide accurate and authoritative information regarding the subject matter covered. Neither the pub- lisher nor the author is engaged in rendering legal or other professional service. If legal advice or other expert assistance is required, the services of a competent, licensed professional should be sought. Any federal and state laws discussed in this book are subject to frequent revision and interpretation by amendments or judicial revisions that may significantly affect employer or employee rights and obligations. Readers are encouraged to seek legal counsel regarding specific policies and practices in their organizations. This book is published by the SHRM Foundation, an affiliate of the Society for Human Resource Management (SHRM©). The interpretations, conclusions and recommendations in this book are those of the author and do not necessarily represent those of the SHRM Foundation. ©2008 SHRM Foundation. All rights reserved. Printed in the United States of America. This publication may not be reproduced, stored in a retrieval system or transmitted in whole or in part, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the SHRM Foundation, 1800 Duke Street, Alexandria, VA 22314. The SHRM Foundation is the 501(c)3 nonprofit affiliate of the Society for Human Resource Management (SHRM). The SHRM Foundation maximizes the impact of the HR profession on organizational decision-making and performance by promoting innova- tion, education, research and the use of research-based knowledge. The Foundation is governed by a volunteer board of directors, comprising distinguished HR academic and practice leaders. Contributions to the SHRM Foundation are tax deductible. Visit the Foundation online at www.shrm.org/foundation. For more information, contact the SHRM Foundation at (703) 535-6020. 08-0557 Table of Contents v Foreword Human Resource vii Acknowledgments ix About the Author 1 Human Resource Strategy: Adapting to the Age of Globalization Strategy 3 What Is HR Strategy? 4 Three Versions of a Generic HR Strategy 6 How HR Strategies Affect Performance 9 Real-World Impact of HR Strategies 15 Building Your Own HR Strategy 20 Future Challenges 21 Conclusion 23 Sources and Suggested Readings Foreword Dear Colleague: As a busy human resource practitioner, you probably find it difficult to keep up with the latest academic research in the field. Yet knowing which HR practices have been shown by research to be effective can help you in your role as an HR professional. That’s why the SHRM Foundation created the Effective Practice Guidelines series. These reports distill the latest research findings and expert opinion into specific advice on how to conduct effective HR practice. Written in a concise, easy-to-read style, these publications provide practical information to help you do your job better. The Effective Practice Guidelines were created in 2004. The SHRM Foundation publishes new reports annually on different HR topics. Past reports, available online at www.shrm.org/foundation, include Performance Management, Selection Assessment Methods, Employee Engagement and Commitment, Implementing Total Rewards Strategies, Developing Leadership Talent and Retaining Talent. You are now reading the seventh report in the series: Human Resource Strategy. For each report, a subject matter expert is chosen to be the author. After the initial draft is written, the report is reviewed by both academics and practitioners to ensure that the material is research-based, comprehensive and presented in an easy-to-use format. An annotated bibliography, “Sources and Suggested Readings” section, is included with each report as a convenient reference tool. This process ensures that the advice you receive in these reports is not only useful, but based on solid academic research. Our vision for the SHRM Foundation is to “maximize the impact of the HR profession on organizational decision-making and performance, by promoting innovation, education, research and the use of research- based knowledge.” In addition, the Foundation is strategically focused on initiatives designed to help organizations maximize leadership talent. We are confident that the Effective Practice Guidelines series takes us one step closer to making that vision a reality. Frederick P. Morgeson, Ph.D. Chair, SHRM Foundation Research Applications Committee Professor and Valade Research Scholar, Michigan State University v Acknowledgements The SHRM Foundation is grateful for the assistance of the following individuals in producing this report: CONTENT EDITOR Dan Henry, Sr. Frederick P. Morgeson, Ph.D. Chief Human Resource Officer Professor and Valade Research Bright Horizons Family Solutions Scholar Sumita Raghuram, Ph.D. The Eli Broad Graduate School of Associate Professor of Human Management Resource Management Michigan State University Department of Labor Studies and Employment Relations REVIEWERS Pennsylvania State University Rajiv Burman, SPHR, CCP, James R. Schultz, SPHR, GPHR CEBS, CHRP Vice President-HR, Global Vice President Human Resources, Downstream USA & Canada Griffith Laboratories Chevron Corporation John E. Delery, Ph.D. PROJECT MANAGER Professor and Raymond F. Orr Chair Department of Management Beth M. McFarland, CAE Sam M. Walton College of Business Manager, Special Projects University of Arkansas SHRM Foundation Mark Fogel Corporate Vice President HR and Customer Care Leviton Manufacturing Co., Inc. Major funding for the Effective Practice Guidelines series is provided by the HR Certification Institute and the Society for Human Resource Management. vii About the Author Patrick M. Wright Dr. Wright is the William J. Conaty GE Professor of Strategic Human Resources in the School of Industrial and Labor Relations at Cornell University. He is also a Senior Research Fellow in the School of Social Sciences at Tilburg University. He holds a BA in psychology from Wheaton College and an MBA and a Ph.D. in organizational behavior/ human resource management from Michigan State University. Professor Wright teaches, conducts research and consults in the area of strategic human resource management, particularly focusing on how firms rely on people as a source of competitive advantage. He has published more than 60 research articles, 20 chapters in books and edited volumes, co- authored a leading human resource management textbook, now in its 6th edition, and co-authored or co-edited six books. He has taught in Executive Development programs at Cornell University, University of Southern California and Texas A&M and has conducted programs and/or consulted for a number of large public and private sector organizations. Dr. Wright served as the Chair of the HR Division of the Academy of Management and on the Board of Directors for the SHRM Foundation, World at Work and Human Resource Planning Society. He was inducted as a Fellow in the National Academy of Human Resources in 2005 and won the 2007 HRM Scholar Award from the Dutch HRM Network. ix HR strategies need to simultaneously focus on building skills, motivation and behavior for a successful business strategy. Human Resource Strategy Human Resource Strategy: Adapting to the Age of Globalization Globalization of individual companies and capital markets over the past two decades has changed the business landscape. Many firms have expanded operations overseas, and even strictly domestic businesses are facing competition from abroad. To respond to global competition, firms are using new technologies to provide better, lower-cost solutions for their customers, but these technological innovations have led to constant movement of customers and competitors. At the same time, global capital markets are pressuring firms to innovate and reduce costs—not an easy feat. All of these trends are pushing companies to manage their assets as effectively as possible—especially their human assets. This report will explore a variety of ways to adapt your overall HR strategy to the new realities of global competition. Let’s first take a look at how one company responded to these new pressures. Delta Air Lines: From Clear Skies to Crash Landing In the 1970s and 1980s, Delta Air Lines became the premier U.S. airline for customer service with a culture of “southern hospitality” and employees who went above and beyond the call of duty. The company’s human resource strategy helped build the skills, motivation and opportunities for employees to deliver great customer service, and that allowed Delta to attract business travelers who paid premium prices for travel. Delta’s success shows just how important HR strategy can be, especially in its impact on company performance. Figure 1: Delta Air Lines: Pre-1994 Business Model Valued Customer Driven by Delivered by Outcome Revenues Internal promotion Extensive training Skilled, Outstanding High pay experienced, Profits customer Non-union committed service Flexible work rules employees Family culture Costs CORE COMPETENCE 1 Human Resource Strategy How did Delta do it? But by the 1990s, things were • A great reputation in the industry changing. Major business trends enabled Delta to recruit and select altered the competitive climate,