Stanford University H280

GRADUATE SCHOOL OF BUSINESS Spring 1997

Many managers and organizations now recognize that a critical source of competitive advantage often comes not from having the most ingenious product design, the best marketing strategy, or the most state-of-the-art production technology, but rather from having an effective system for obtaining, mobilizing, and managing the organization’s human assets. A number of recent developments, including demographic changes in the labor force, increased global competition, experiments with new organizational arrangements, and public policy attention to work force issues have made human resource management increasingly important for organizations.

Although many managers and organizations recognize the importance of managing the work force effectively and even "know" what effective approaches are, it is remarkable how frequently firms fail to implement effective human resource management analysis and practices. Therefore, this course has two central themes: (1) How to think systematically and strategically about aspects of managing the organization's human assets, and (2) What really needs to be done to implement these policies and to achieve competitive advantage through people. The intent of the course is both to impart knowledge as well as to stimulate discussion about the values and beliefs that stand in the way of implementing this knowledge.

As a required course in a program for people interested in general management skills, our purpose is not to get into the technical detail of issues such as the psychometric properties of selection test validation, the specifics of doing job evaluations, the mechanics of interviewing, or the intricacies of employment law--all issues of relevance for people intending to be human resource professionals. Rather, the course adopts the perspective of the general manager and addresses human resource topics from a more strategic perspective, considering how human resource management might aid in developing competitive advantage and what might be done to fulfill this potential.

The course is divided into four sections. The first addresses the implementation of strategy and the importance of aligning human resource practices so that they are internally consistent and produce the skills and behaviors required to make a given strategy work. The second section treats a number of specific topics and their relationship to the development of a high performance or high commitment work organization. The third sections deals with some selected topics relevant to the implementation of human resource knowledge, including problems that come from the institutional environment. The final section of the course provides a summary and integration of the material and gives you a chance to learn from each other as you listen to the presentations of the group projects that are an important part of the course.

In designing the course, its content, and operating procedures, we have tried to adhere to a number of basic beliefs and values that are worth making explicit:

1. Responsibility. The students in the course are responsible, both individually and

collectively, in large measure for what goes on both in the classroom and outside of class. The quality of class discussion depends on all of you coming to class prepared to discuss the issues raised by the material. Learning depends on your reading and mastery of the material. What you learn from your group project depends on the effort you and your colleagues expend and what you do to apply the course concepts. I will do my utmost to facilitate the learning process, but in the end, what you gain from the course is up to you.

2. Implementing the Principles We Are Learning. We have tried to organize and run the

course in ways consistent with the ideas we are teaching. These include an emphasis on teams, mutual trust and respect, and information sharing. So, we will engage in 360 degree performance evaluation (I give you grades, you fill out course evaluation forms, and you will be assessing each other). We will do a lot of the course work in groups/teams, including a project that counts for one-half the grade. And, in the everyday interactions that occur in the course, we should strive to treat each other with respect and trust. As you will see, I do not cold call, although I understand how this helps you "get ready" for class. It does, however, convey that I can't trust you to prepare for the course unless you are somehow threatened with some sanction for being unprepared.

3. Fun. The material is interesting and engaging, and learning should be fun. We will do a number of things, including using video material, stimulating debate, and relying on your insights and examples to make the course enjoyable. If I believed that "suffering is good for you," I would be teaching somewhere else.

As described below, the readings come form a number of different sources. To integrate the conceptual and applied material you will be reading, we will use cases for most of the classes. Each case will provide an opportunity for you to apply the analytical material of the course.

It is important that you thoroughly prepare the case before class. To help focus your preparation and analysis, a set of questions for each case is included in the course outline. You are strongly encouraged to work with your pre-assigned study group in preparing for class. The opportunity to learn from each other is an important component of your learning.

The readings have been carefully selected by Professors James Baron, Charles O’Reilly, and myself to provide a variety of perspectives on the topics considered in the course. It may appear that there is a lot of reading, but learning how to absorb ideas and information is an important skill that will continue to serve you well even after you leave Stanford. Doing all of the readings is useful to your mastering the course material. This class is probably the best opportunity you will have to learn about human resources from a general management perspective—a subject that will be increasingly important as your career develops. So, you should seize this opportunity by availing yourself of the materials carefully culled for the course. And, you will have these materials to rely on after the course is over.

Jeffrey Pfeffer, The Human Equation: Building Profits by Putting People First, Boston, MA: Harvard Business School Press, 1998.

Described by one reviewer as "provocative," the book challenges, using numerous examples, logic, and a great deal of systematic empirical evidence, a lot of the prevailing ideology and organizational behavior with respect to managing people for profit (e.g., that one needs to cut wages to reduce labor costs, that fewer people are better than more, that the capital markets reward sound human resource management, that piece work and an emphasis on monetary compensation are helpful, etc.). The preface provides an overview of a) how this book differs form its predecessor and b) how it is organized.

Case Material and Additional Readings in Syllabus

Recommended Reading:

Reichheld, Frederick F., The Loyalty Effect, Harvard Business School Press, 1996.

A strategy consultant from Bain discovers the importance of employee loyalty and human resource management. The book (several chapters of which are required reading in the course) is rich in insights about how real economic value is created in businesses through customer and employee loyalty (the two are connected) and the analyses necessary to make sound economic decisions about these issues.

Pfeffer, Jeffrey. Competitive Advantage Through People, Harvard Business School Press, 1994. The precursor to the manuscript you will be using as the principal text in the course. We will be using some material (selected chapters) from the book during the course and it provides an organizing theme and framework for at least my thinking about the course content.

One-quarter (25%) of your grade will be based on a mid-term examination. All sections of H280 will take a common mid-term examination. This has been scheduled by the Registrar for the morning of Saturday, May3. The examination will be closed book and closed notes. The mid-term examination is designed to test your knowledge of the material and your ability to use it in a real situation to make recommendations for action.

One-half (50%) of your grade will be based on the group project. You can do this project with your study group or with any other group of six people you decide to construct. Instructions for the group project follow in a separate memorandum. What is important for you to know is that a) the group projects will be presented in class during the last three sessions, May 27, May 30, and June 3; b) the written, final version of the project will be due on the day and at the time your group presents in class—late projects will not be graded; and c) the group project is intended to help you apply the concepts learned in the course, see their relevance in a real field situation, and have some fun while doing so. Students in previous classes have found the group project to be an invaluable learning experience. The particular class session of the three scheduled for group presentations in which your group will present your report will be randomly determined.

One-fourth (25%) of your grade will be based on your class participation. Your class participation will be based importantly on the evaluations made by your peers as well as evaluations made by me. Twice during the quarter, you will have an opportunity to provide an assessment of who has contributed to your learning during class discussions, as well as specific, anonymous feedback to other class members if you so choose.

Assistant: Marcelino Clarke in Room L-320. Telephone: 725-6742.

Office: Littlefield Management Center, Room 351

Telephone: 723-2915

E-mail: Pfeffer_Jeffrey@gsb.stanford.edu

There is a Web page for H280 in the GSB home page.

Office Hours: By appointment (generally Wednesday will be preferred).

1. Human Resource Management as a Source of Sustainable Competitive Advantage.

Reading: Jeffrey Pfeffer, The Human Equation, Ch. 1, "Looking for Success in All the Wrong Places;" and Ch. 2, "The Business Case for Managing People Right."

Case: Southwest Airlines (A)

1. What is Southwest's competitive strategy? What are the sources of its success? How

does it make money?

2. What are the foundations of Southwest's competitive advantage?
3. How are these sources of competitive advantage produced and sustained by what the

organization does and how it does it?

4. To what extent are Southwest's sources of advantage difficult to imitate and likely to

persist over time?

5. To what extent is Southwest's success based on Herb Kelleher (or, prosaically put, if

he were to leave and the stock price would drop, would you be a buyer or a seller)?

6. How serious is the competitive threat? To what extent can United and/or Continental

duplicate Southwest's business model? Why or why not?

7. What issues should Ann Rhoades raise at tomorrow's meeting? What

recommendations should she make?

During class, we will see an edited version of a videotape sent to all Southwest employees at the time of United’s entry into the California market with United Shuttle.

2. Internal and External Alignment and Strategy Implementation.

Reading: Baron/Kreps, Ch. 2, "The Five Factos;" Ch. 3, "The Whole Can be More Than the Sum of the Parts."

The Human Equation, Ch. 4, "Aligning Human Resource Practices and Business Strategy"

Case: Portman Hotel (HBS #9-489-104)

1. What is Portman's market position? How competitive is that market?

2. What is Portman's strategy for competing successfully in its chosen market segment?

3. What behaviors, skills, and attitudes will it need from its people, particularly the

personal valets, to execute its strategy?

4. What are Portman's practices with respect to a) recruitment, b) selection, c)

compensation, d) training, e) career development and career paths, f) feedback and performance appraisal, g) staffing and organizational design, and h) management and supervision?

5. How do these help, and how do they hinder, the development of the skills and

behaviors listed in Question 3.

6. Is Portman having problems? What are the symptoms? What are the causes of the

problems Portman is experiencing?

7. What should Portman do?

8. Some (although not all) of your suggestions may involve spending resources to solve Portman's problems. This raises the question: how much should Portman be willing to invest to address its difficulties? Or alternatively, what is the successful implementation of Portman’s strategy worth? Some operating figures are given the case. The capital cost of the hotel was $310,000 per room.

3. Determining the Organizational Boundaries

Reading: Baron/Kreps, Ch. 4, "Employment and Economics."

Case: United Parcel Service (A) and (B) (HBS #9-488-016; #9-488-017).

1. How does UPS control and coordinate its workforce? What human resource policies

and practices comprise the UPS management system?

2. What are the strengths and weaknesses of UPS's human resource management system?
3. Why has UPS faced difficulties in its expansion into new businesses (for example,

overnight mail and package delivery), new countries (for instance, Germany), and new technologies (for instance, automated package tracking)?

4. How should UPS handle its problems with the information systems (IS) department?

Should it bring IS professionals into UPS the traditional way, injecting them with "brown blood?" Should it set up IS as a distinct department with its own, separate human resource policies? Be prepared to present and defend a specific plan as to how you would handle the IS challenge at UPS.

4. Employment Security and Downsizing

Readings: The Human Equation; Ch. 4, "The ‘New Employment Contract’ and the Virtual Work Force"

Reichheld, The Loyal Effect, Ch. 4, "The Right Employees"

Baron/Kreps, Ch. 8, "Internal Labor Markets."

Case: Lincoln Electric (HBS #376-028). Read the case lightly to get a sense of the company and its history.

1. What are the elements of Lincoln’s management system?

2. How does Lincoln’s full-employement policy fit into its management approach?

3. How has Lincoln been able to maintain full employment in a cyclical industry?

During class, we will see a recent speech given by Donald Hastings, the now-retired CEO of Lincoln, about downsizing and employment security. We want to discuss how Lincoln’s approach would work in other countries; to what extent it provides it with a source of competitive advantage; and most importantly, why it is so controversial and unusual in the U.S.

5. Information Sharing

Reading: Baron/Kreps, Ch. 5, "Employment as a Social Relation."

Recommended Reading: The Loyalty Effect, Ch. 4, "The Right Employees"

Case: Jack Stack (A) and (B). (HBS #9-993-009 and #9-993-010)

1. What does it take to succeed in the engine remanufacturing business? What are the critical skills and organizational competencies?
2. What is it like to work in such a plant?
3. What are the major risks of a leveraged buyout such as this?
4. What do you think of Stack’s ideas about management?
5. What are the key elements of the program Stack put in place?
6. How do the employees feel? Why?
7. Can this approach be used elsewhere? Where? Under what circumstances would it be appropriate? Where might it be less appropriate? How could it be implemented?

6. Teams as a Principle of Organizational Design and the Design of Jobs

Reading: The Human Equation, Ch. 3, "Seven Practices of Successful Organizations,"

Baron/Kreps, Ch. 12, "Job Design."

Cases: "Whole Foods Is All Teams," Fast Company, April-May, 1996, 102-111.

PPG: Developing a Self-Directed Work Force (HBS #9-693-020)

These two articles/cases describe the implementation of self-directed teams in a manufacturing and a service environment.

1. What is the situation in which teams have been implemented at the two companies?

How were things the same, and how were they different?

2. What are the similarities and what are the differences between how teams have been

implemented at Whole Foods and PPG?

3. What problems has PPG experienced? Why haven't these same issues apparently been as much of a problem at Whole Foods?

4. What advice would you give to John Povlik in terms of the initial period of

9. implementation? What should he have done differently?

5. What should he do now?

7. Compensation: The Pros and Cons of Individual Incentives

Reading: Alfie Kohn, "Why Incentive Plans Cannot Work,"Harvard Business Review, 1993 (Reprint #93506).

The Human Equation, Ch. 7, "How Common Approaches to Pay Causes Problems."

Case: Visionary Design (HBS #9-495-011)

1. What is the basic philosophy and values of VDS?

2. How would you characterize the VDS compensation (base and bonus and stock) System? On what principles is it based?

3. Why has VDS had problems with its Product Data Management effort? To what extent do you see incentive issues as important? What other issues are important?

4. What would you recommend VDS do about Product Data Management (PDM) problems?

5. Would you recommend any changes to the company’s compensation systems? What? Why?

8. Compensation: Group and Organization-Wide Incentives

Reading: Baron/Kreps, Ch. 11, "Performance Evaluation."

Case: Booz, Allen, and Hamilton: Vision 2000 (9-396-031)

1. What has motivated the change in structure? Do you think it is sound?

2. What has the firm done to make the implementation of the structure successful?

3. What do you think of the change in compensation arrangements? What are some advantages? What are some disadvantages?

4. What do you think of the other changes in how the firm manages its work force?

5. What other changes do you think Booz, Allen may need to make to have its Vision 2000 change be successful?

8. Training, Career Development, and Turnover

Case: ServiceMaster Industries, Inc. (HBS #9-388-064)

Calmetta Colemann, "Religious Roots Sprout Divine Results at ServiceMaster," Wall Street Journal, September 13, 1955, p. B4.

C. William Pollard, "The Soul of the Firm," 1995 ServiceMaster Annual Report, pp. 18-19.

1. What role has ServiceMaster’s values and goals played in the firm’s success?
2. Why haven’t other companies successfully copied the ServiceMaster approach?
3. How important are training and development in the ServiceMaster system? How does ServiceMaster socialize its employees? How does training and development affect the organization’s continued growth?
4. Why has ServiceMaster been willing to spend the resources it has on training and development for a set of jobs that many might see as comparatively low-skilled and for positions that typically experience high turnover?

There have been proposals made (particularly by the last labor secretary, Robert Reich) that the United States should follow the lead of some other countries (e.g., France, Singapore) and made, through the tax code, a certain level of training—for instance, as some percentage of the firm’s payroll. What do you think of this policy? Why might organizations spend less than a socially-optimal amount on training? Under what circumstances would this be more likely to occur? What else might be done if one believes that there is too little training and skill development occurring in the economy?

8. Recruitment, Internal Labor Markets, and Diversity

Reading: Baron/Kreps, Ch. 14, "Staffing and Recruitment," Ch.16, "Promotion and Career Concerns."

Case: Accountants and Business Advisors (HBS #9-490-033)

Note: The ABA case contains a few errors. The most notable is in Exhibit 5, which asserts that 1% out of 82 hires in 1984 remain, of which 46% are female. We believe that it meant to say that 16% of 82 (or 13) remain, of which 46% (or 6) are female. Second, the case in several places mentions the position of Supervisor. We assume that Supervisor used to be a position between Senior Associate and Manager, and that it no longer exists in the firm.

1. What additional data should Shaughnessy try to obtain to understand the problem more completely? (Assume that ABA is concerned company-wide with this matter, so that resources exist for extensive data collection and analysis). How should he use the data he collects?
2. Should ABA have, as its goal, a gender-neutral retention and promotion rate? Why or why not?
3. Should ABA be willing to put in place policies that provide preferences to women? What policies would you favor? Why? or why not?
4. What specific actions should ABA take to increase the retention and promotion of women in the firm?
5. If ABA were able to implement policies today that made retention in the City office completely gender neutral, how long will it take until the partnership can be expected to be 20% female? 40%?

MID-TERM EXAMIMNATION ON SATURDAY, May 3.

8. Managing Human Resources in the Global Company

Class will meet jointly with other sections to hear John Reed CEO of Citicorp.

Reading will be distributed in advance of class.

ISSUES IN IMPLEMENTING HR KNOWLEDGE

9. The Public Policy and Legal Framework of the Employment Relation

The Human Equation, Ch.9, "Market Failures and the role of Public Policy in Producing Profits Through People."

Competitive Advantage Through People, Ch. 6, "Labor Laws, Lawyers, and Litigation: Friends or Foes of Work Place Change?

Case: The Use of Contract Programmers

During class, we will watch at CBS 60 Minutes segment entitled, "North of the Border. Also before class, please read the materials on this issue to be distributed.

13. Overcoming Adversarial Labor Relations and the Role of Unions in Work Place Change

Reading: The Human Equation, Ch. 8, "Can You Manage With Unions?".

Coompetitive Advantage Through People, Ch 7, "Employee Organizations: Their Effects and Role in ‘Work Place Reform."

Baron/Kreps, Ch. 6, "Voice, Unions and Other Forms of Employee Representation"

Case: Vancom (A) and (B) (HBS #9-494-127 and 9-494-128).

1. What was the underlying philosophy of Vancom with respect to human resource issues?
2. How did that philosophy get operationalized over time in specific policies and practices?
3. How has Vancom handled their labor relations? What did they do well? What did they do poorly?
4. What are the advantages and disadvantages of Vancom’s approach to working with its unions?

Case: Magma Copper Materials

Marsh H. Campbell, "Magma: A Cultural Revolution—A Short Course."

Willliam H. Miller, "Metamorphosis in the Desert," Industry Week, March 16, 1992, pp. 27-34.

1. How was Magma able to change its labor relations?
2. Why don’t other, unionized companies (for instance, the copper of metals industry) do the same thing?
3. How was the Magma situation similar to Vancom? How was it different?
4. What lessons can you draw from these two cases about managing relationships with labor organizations?

14. Measurement

The Loyalty Effect, Ch. 8, "The Right Measures."

Case: Club Med (A) and (B) (HBS #9-687-046 and #9-687-047)

Read the A case mostly for general background on the company, its business and operations. Pay closer attention to the B case.

1. What information would you need (in addition to that provided in the case) to estimate the cost of turnover? How might you obtain such information if you were in Club Med?
2. What are the most important causes of the problems Jacky Amzallag, director of Human Resources, is facing?
3. What are the advantages and disadvantages of the policy of rotating employees every six months?
4. What is good and bad about the way Club Med Presently recruits, trains, compensates, and manages its human resources?
5. What specific changes would you recommend to the company’s current HR practices? Why? For each change or recommendation, be prepared to present your best estimate of the cost or saving involved and the anticipated effects on Club Med’s bottom line.

14. The Role of the Human Resources Function

Reading: Andrew S. Grove, "Human Resource Profession: Friend or Foe," In Y. K. Shetty and V. M. Buehler (Eds.), The Quest for Competitiveness, New York: Quorum, 1991.

Case: "Human Resources at the AES Corporation: The Case of the Missing Department" (Stanford Case #SHR-3).

1. What are the core competencies and sources of competitive advantage of AES?
2. What are its basic values and operating principles?
3. Make the argument for why the company needs to and should add an HR function to the firm. What kind of HR function—the characteristics of its staff, what it does—do you have in mind?
4. Make the argument as to why the company shouldn’t add and HR function to the firm.
5. What would human resources have to be and do to cause you to change your answer to question 4?
6. What do you see as the future for human resources and its relationship to line management in large, global firms?

16. People, Profits and Perspective

The Loyalty Effect, Ch. 5, "Productivity."

The Human Equation, Ch. 10, "People, Profits, and Perspective"

Case: The Rise and Decline of People Express (HBS #9-490-012)

1. What are the similarities between the Southwest Airlines and the People Express cases: a) in business environments, b) in strategy, c) in values and philosophy, and d) in human resource practices?
2. What are the differences between Southwest Airlines and People Express on these dimensions?
3. Is there any way of accounting for the success of Southwest over time and the demise of People Express?
4. What lessons do you draw from this for understanding the role of human resource practices and philosophy in producing competitive advantage?

Stanford University H280

GRADUATE SCHOOL OF BUSINESS Spring 1997

Working in a group of six people (either your study group or any other group you are able to construct), your task is to examine the human resource system of a division, company, or multiple companies. The purpose of this exercise is to give you experience using the course concepts in an actual field situation, help develop your clinical and analytical skills. Provide you the opportunity to "road test" some of the ideas from the course, and to get some understanding of barriers and issues in the implementation of the course concepts.

Your project can focus on one of the following types of issues: 1) assess the extent to which the current human resource policies and practices are aligned with the strategy of the firm, the degree of internal consistency and consistency with the strategy, and what changes you would recommend; 2) identify a specific human resource problem such as turnover, management development, etc., diagnose the source of the current problems(s), and provide feasible recommendations for organizational action; or 3) for a young or rapidly growing organization, assess its current human resource practices and identify areas of potential problems and also domains in which the company might leverage its human resources more effectively.

Regardless of which focus you choose, however, part of your assignment is also to identify human resource practices that the organization knows it should be implementing but that is not currently doing. In other words, you will undoubtedly encounter instances of misalignment in which the organization is, at some level, aware that it is not doing what it ought to be doing, but is doing it anyway. So, in each instance, part of your assignment is to explain why the organization’s knowledge is not being used and develop an action plan to overcome these barriers to implementation. This is a critical part of the assignment for it helps you understand why the concepts of the course are not always readily or easily implemented and provides more value to the client because you attend to issues of actually accomplishing change as contrasted with just doing a nice report.

Your insights will be developed from a case study you conduct of an organization or a department or set of departments. You should use interview, and possibly other methods as well, to help in your analysis. Possible methods include observation, unstructured, semi-structured, or structured interviews, questionnaires, or archival information. In doing interviews. It is helpful to ask more "what" than "why" questions. It is also useful to interview in pairs. Don’t miss the opportunity to get objective, archival information that will help in your analysis, and don’t miss the opportunity to get information from different levels in the organization (you may find that the alignment of human resources looks quite different depending on whether you are talking to the human resources manager or a first-line supervisor).

Please turn in a brief proposal (1-2 pages) detailing a) who is in your group, b) the organization or department you will analyzing, and c) a brief statement about the focus of your project. These are due no later than Friday, April 18, 1997

You will present a summary of what you learned to your classmates. As part of that presentation, if you intend to use overheads, please make copies available for all of the members of the class. This permits them to follow along and for you to get through more material more rapidly, allowing time for some questions and discussion. You will have approximately 25 minutes for the presentation and for discussion time, so plan accordingly.

You are also responsible for turning in a final report (which you should offer to share with the organization you analyzed), complete with an executive summary, text, and any supporting data or appendices. This is due on the day you are scheduled to present in class. Late papers will not be graded. The particular session in which you will present will be determined by a random drawing.