Transcription of “Starbucks: HRM as Strategic Partner” lecture by Dr. John R. Hollenbeck, Ph.D.
In this lecture, we want to answer a very basic question related to HR; specifically, what responsibilities and roles do HR departments perform in their organizations?
At the end of this lecture, if all goes well, you should be able to answer two specific questions that form our learning objectives.
Number one, you should be able to discuss the role that a company’s human resource management function plays in terms of supporting the mission of the organization, and then two, discuss the activities conducted by a company’s human resource management function as a part of performing this role.
We’ll start this lecture with a definition of organizational competitiveness because in the end, this is what it’s all about. Organizational competitiveness refers to a company’s ability to maintain and gain market share in its industry.
Competitiveness is related to effectiveness, which is determined by whether the company satisfies the needs of various stakeholder groups.
There are many different stakeholder groups you might be concerned with. Obviously, this would include customers but also shareholders, the employees themselves, and perhaps the government and the local community in which the company resides.
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Organizational competitiveness refers to the ability to meet the needs of all these different groups.
Human resource management within that system refers to policies, practices, and systems that influence employees’ behaviors, attitudes, and performance. Effective HRM practices relate to a company’s performance by contributing to employee and customer satisfaction, innovation in productivity, and the development of a favorable reputation in the community.
The recognition of HR’s importance as a source of competitiveness is actually a recent trend, and in the future, we’ll talk a little bit about the different roles that HR plays and how that’s changing over time.
The figure below shows some of the specific HR practices that have been followed to enhance company performance. These basic practices include analysis and design of work, human resource planning, recruiting, personnel selection and placement, training and development, pay and compensation, performance appraisal and management, and finally, employee relations.
These are the core activities that HRM units engage in in trying to support organizational competitiveness.
In general, it’s interesting to think about HRM as a separate business within the larger organization.
As a separate business, HRM has basically three different product lines and we’ll discuss each of these in turn.
First of all, one of the business lines is administrative services and transactions. This is the typical thing that almost all HR departments do. Second, business partner services; third, strategic partner.
Throughout this course and throughout this lecture, we’re going to try to discuss the ability of HR department to move from the first of these roles, which virtually every HR department does, to this final role, strategic partner, because this is the way organizations are moving their HRM departments as they move forward into the future.
First, talk about administrative HR services and transactions. Many, many routine transactions are associated with hiring, training, legal compliance, administering payroll, and working with unions. The emphasis in this particular business line is to make sure we have resource efficiency and service quality.
So for example, when it comes to payroll administration, if there are 1,000 employees that have to be paid once every two weeks, if we miss just one of these payments, we’re certainly going to hear about it from that employee who failed to get paid.
So administrative HR services and transactions, all those list is the most basic aspect of human resource management. We really do need to get this done and we need to get this done with 100% accuracy.
To the extent that we can perform that role, though, this allows us to move into a second role and this role is HR business partner services.
Here, the key to your HR department is developing effective HR systems and helping implement business plans and talent management. The emphasis here is basically placed on knowing the business and exercising influence. That is, the HRM department needs to get in with the other departments and be very active in problem solving, designing effective systems to ensure that the needed competencies are in place for each and every one of our employees.
Now the third and highest level is HR acting as a strategic partner. Here, HR contributes to business strategy based upon considering the human capital, business capabilities, readiness, and developing HR practices as strategic differentiation. The emphasis here is placed on knowledge of HR and the business, competition, the market and the business strategies of the company that the particular HR unit is located within.
Because we really want our HR departments to be moving in a strategic direction, we need to have a test.
We’re going to provide 10 questions that you can ask if you’re in an HR department or if you’re working with an HR department, to answer the question is our HR function really acting as a strategic partner. The 10 questions start like this.
Number one: What is HR doing to provide value-added services to internal clients?
Two: What can the HR department add to the bottom line of this organization?
Three: How do you measure the effectiveness of HR? How do you know when they’ve had a good year or if they’ve had a bad year, or can’t you tell at all?
Four: How can we reinvest in our own employees? If we have money to spend on employees, there’s a lot of different places we can spend it. What’s the best reinvestment decision for our employees?
Fifth: What HR strategy will we use to get the business from point A to point B, and do we have a plan for this?
Six: We’d also like to know what makes an employee want to stay at our company as well as what is making certain employees leave.
Finally, how are we going to invest in HR so that we have a better HR department than our competitors?
Can we actually use our HR department to gain competitive advantage on our competitors?
From an HR perspective, what should we be doing to improve our marketplace position, and then, what’s the best change we can make to prepare for the future?
All of these questions, if you can answer these in a meaningful way, then you know that your HR unit is actually working as a strategic partner. If you have a hard time coming up with answers to these questions, it probably means that your HR department is stuck in a transaction role and we probably need to work to move that forward.
Let’s give an example of a company that really uses human resource management as a competitive weapon. A company that you’re probably familiar with – Starbucks.
Most Americans have probably purchased a coffee or some product at Starbucks. If not, you’ve probably seen a Starbucks because they have 17,000 stores operating in the United States. They have more than 50 more stores located in countries all around the world including Canada, Bahrain, Sweden, Hong Kong, Singapore, and Brazil.
Starbucks is ubiquitous, and it’s a company that really does put a lot of attention on their human resources. Starbucks generally believes that its employees, who they call partners, are the key to Starbucks’ experience. Starbucks wants its partners to have coffee knowledge, product expertise, and provide excellent customer service.
At the same time, it believes in treating its partners with dignity and respect. Starbucks offers its partners comprehensive health benefits that exceed those provided by many other retailers. Although many partners work part time, they’re still eligible for full-time benefits if they work 240 hours a quarter.
Starbucks provides health, dental, vision care, as well as tuition reimbursement, stock options, vacations, and a 401(k) retirement plan.
Now the high importance placed on partners and Starbucks’ success is shown by the decision made by Starbucks CEO, Howard Schultz. Schultz was asked by an institutional investor during the worst time for the company, during the recent recession, to consider cutting its workers healthcare benefits in order to save costs. Schultz advised the investor that he would not do this, and he told the investor that he should take his money elsewhere.
Now clearly, investors are very important stakeholders in any organization, but notice that how CEO Schultz put the employees actually ahead of the shareholders in terms of his priorities for going forward into the future.
Now, if this is the kind of HR department we want to have, we need to ask the question what kind of competencies do HR professionals need?
The figure below shows six different HR competencies that we’re going to try to develop over the course of this lecture.
Number one: Credible activist. Here, the HR person delivers results with integrity, shares information, builds trusting relationships, and influences others, providing candid observations and taking appropriate risks. This is really about relationships.
Also, dealing with relationships, our HR person should be a business ally. This is someone who understands how the business makes money and the language of the business. It’s very, very critical that we have a sound understanding of the exact business that we’re in and not treat HR as something separate and different from the business itself.
Another role or competency that HR professionals need is to be a talent manager, and by that, we mean bring in talent to the company, develop talent, design reward systems, and shape the organization through its employees by building its structure and building its culture in a way that makes the organization distinctive in its competencies.
Another role is strategic architect. This person recognizes the business trends and their impact on the business, uses evidence-based HR, and develops people strategies that contribute to the business strategy.
Cultural steward is another very important competency that HR people need. This competency suggests that people need to be able to facilitate change, develop the values and culture of the company, and help employees navigate that culture.
Also, another competency is operational executor. This is the role that basically implements workplace policies, advances HR technology, and administers day-to-day work of maintaining people.
Now, we’ve suggested that over time, the HR function is changing. We want to look at some of the major changes that are occurring to this profession as it moves forward in the future.
First, the amount of time that the HR function is devoting to administrative tasks is decreasing, and its role as a strategic business partner change agent and employee advocate are increasing. Part of this is due to advancements in technology, which is enhancing self-service. By self-service, we just mean that the process of giving employees control over HR transactions is promoted by technology. This allows employees to take a greater responsibility for themselves and doing a lot of routine HR functions.
Also, we’re seeing the increased use of outsourcing. That is, the practice of having another company provide services instead of doing everything in-house. In the old days, HR departments use to do everything in-house, but increasingly now organizations are being very, very strategic about what they’re going to pay other people to do for them and what they’re going to do for themselves.
So for example, the idea of payroll administration, benefits administration, these things are very, very technical but they also are not necessarily at the core of all HR strategies. Therefore, these might be outplaced to companies that just do that one specific thing.
In-house HR activities that are likely to be retained, though – this includes performance management, employee communications, plans and strategy and policy development and implementation. These are the specific roles of HR that really allow them to leverage themselves for competitive advantage.
The last thing we’ll talk about in terms of how the HRM function is changing is the increased use of evidence-based HR; that is, demonstrating that human resource practices have a positive influence on the company’s bottom line or key stakeholders using real, hard empirical evidence.
Let’s give an example of this. United Healthcare Services consists of six businesses focusing on individual, community, and state healthcare plans and services. This company uses engagement surveys to help identify needed changes in HR practices, as well as to ensure the HR practices align with and support the company’s business strategy.
So when a recent survey suggested that managers’ understanding about each employee’s job contributes to the business strategy were areas are in need of improvement, the executive vice president of human capital initiated monthly communications with managers about how to engage employees and explain what employees can do in their jobs to positively impact the business strategy.
This decision was based upon evidence from published research studies that indicated that increases in employee engagement survey scores have been found to correlate with a decrease in turnover of 9%, a 13% increase in internal promotion rates, a 10% drop on a number of employees who leave the company in their first year.
Also increases in engagement scores have been accompanied by an increase in customer provider satisfaction and higher company revenues. This is the kind of data that we need as part of evidence-based HR to make good decisions about where to spend our time, where to spend our money as we move forward.
If you’re considering a career in HRM, it’s interesting to look at the profession and see the kinds of jobs that you might be able to take within this profession.
Number one, there are many different types of jobs, and the pay associated with these different jobs varies depending upon the nature of the responsibility and the experience required of the position.
The table below shows current data for many of these positions.
The primary professional organization for HRM is the Society for Human Resource Management. The Society for Human Resource Management, which is called SHRM, will certify people to practice HR.
Although you don’t necessarily need to be certified to practice HR, people who are certified often find it easier to obtain jobs, and also can find jobs that pay higher.
Speaking of pay, let’s show me the money. These are the median salaries for different kinds of HRM positions. As you can see, salaries increase with different kinds of responsibilities.
At the lowest level, you have an HR generalist. This is followed by several specific roles that do very specific technical work such as employee training, staff recruiting and selection, compensation analyst, and employee benefits manager.
Also, you see HR managers and of course, the top HR executive. This basically shows you the kind of career progression that you would go to if you had a long-term career in the area of HR.
You would probably start off as a generalist, work your way through several different specialist positions, and then hopefully, if all works out well, someday be the top HR executive.
In summary: in this lecture, we discussed number one, the role that the company’s human resource management function plays in terms of supporting the mission of the organization. Two, the activities conducted by a company’s human resource management function as a part of performing this role and three, how the HRM function’s increasingly viewed as a source of competitive advantage in today’s organizations.