Strategic Human Resource Management

1. Strategic Human Resource Management Aligning HR and Business-Level Strategy

2. Human Resource Management • HR’s focus is on attraction, retention, and motivation of employees • In many organizations, employees are key to creation of sustainable competitive advantage • Q: For Wal-Mart, in what way does HR contribute to creation of sustainable competitive advantage?

3. “HR’s Toughest Challenges for 2006” • Ensuring compliance w/ federal and state employment laws • Retaining talent in an improving economy • Managing performance • Developing leadership • Dealing w/ rising health care costs • Source: Business & Legal Reports, 5/2/06

4. Listening to HR’s Critics • Quantify people-management results into dollars • Productivity of workforce • Cost of vacant position • Cost of keeping bad manager • Dollar impact of hiring and keeping top performers vs. average ones in mission-critical jobs • Adopt “fact-based” decision-making • Not “I think” or “I believe” but “I know” re: cause and effect • Causes of turnover • What motivates workers to produce more • Which HR actions can turn business unit around • Source: Workforce Management, 7/31/06

5. Effective HR Strategy Formulation and Implementation Organizational Strategies Environment Consistency Fit Fit Improved Firm Performance HR Strategies Consistency Consistency Fit Fit Organizational Characteristics Organizational Capabilities Consistency

6. Selected HR Strategies That Fit Porter’s Three Major Types of Business Strategies Common Organizational Characteristics Business Strategy HR Strategies Overall cost leadership • Sustained capital investment and access to capital • Intense supervision of labor • Tight cost control requiring frequent, detailed control reports • Low-cost distribution system • Structured organization • and responsibilities • Products designed for ease in manufacture • Efficient production • Explicit job descriptions • Detailed work planning • Emphasis on technical • qualifications and skills • Emphasis on job-specific • training • Emphasis on job-based pay • Use of performance • appraisal as a control device

7. Selected HR Strategies That Fit Porter’s Three Major Types of Business Strategies Common Organizational Characteristics Business Strategy HR Strategies Differ- entiation • Strong marketing abilities • Product engineering • Strong capability in basic research • Corporate reputation for • quality or technological • leadership • Amenities to attract highly skilled labor, scientists, or creative people. • Emphasis on innovation • and flexibility • Broad job classes • Loose work planning • External recruitment • Team-based training • Emphasis on individual- • based pay • Use of performance appraisal as development tool

8. “Women vs. Wal-Mart” AVERAGE ANNUAL EARNINGS** IN 2001 ----------------------------- NO. OF % OF MALE FEMALE JOB EES* WOMEN SALARIES SALARIES REGIONAL V-P 39 10% $419,400 $279,800 DISTRICT MNGR 508 10 239,500 177,100 STORE MANAGER 3,241 14 105,700 89,300 ASST MNGR 18,731 36 39,800 37,300 MNGT TRAINEE 1,203 41 23,200 22,400 DPT HEAD 63,747 78 23,500 21,700 SALES ASSOC 100,003 68 16,500 15,100 CASHIER 50,987 93 14,500 13,800 * Full-time ** Including bonuses Data: Richard Drogin

9. “Women vs. Wal-Mart” • Wal-Mart culture built on inspirational leadership, autonomy, trust • Bring Ees into org, convert them to principles: respect for individual, customer service, excellence, and imperative to buy and sell at lowest price possible • But practices also may create barriers, e.g., job posting • Wal-Mart famous for promotion from within – more than two-thirds of managers started as hourly Ees • Hourly job posted within stores, but until current suit, Co had never posted openings for mngt training positions • Not the Wal-Mart way, thought to be too bureaucratic… • Wal-Mart way was to trust that store mngrs will promote those who merit promotion • Co now also developing formula for pay increases based on evaluation ratings, experience, and other factors to make raises more uniform • Another aspect of culture which may create barrier is willingness to move for the job • Single mother Asst Mngr involved in litigation moved nine times in eight years across three states • Key for Wal-Mart is making processes fair without losing culture that makes it special • Source: Fortune, 7/21/03

10. “Big Retailers Face Overtime Suits As Bosses Do More ‘Hourly’ Work” • Retailers such as Wal-Mart, RadioShack, Dollar General facing lawsuits accusing them of using low-level managers to do work of non-managers in order to avoid paying overtime • Suits claim little difference between job duties of hourly ees and asst mngrs, esp nighttime asst mngrs (“glorified stockers”) • RadioShack mngrs required to work at least 52 hrs/wk • Under FLSA, mngrs may be entitled to overtime if more than 40% of their time is not spent supervising or if jobs don’t include decision making • Wal-Mart tries to hold labor costs to 8% of sales, cf. 9-10% on average at other large-store retailers • Alleged that to stay within budget, Wal-Mart district mngrs have encouraged store mngrs to send hourly ees home before shift is over, then asst mngrs (who are required to work at least 48 hrs/wk) may stay on job for as much as 75 hrs/wk to cover • Portion of store mngr compensation is annual bonus pegged to store profit • Source: Wall Street Journal, 5/26/04

11. “In Ad Blitz, Wal-Mart Counters Public Image as Harsh Employer” • Wal-Mart bought full-page ad space in January 2005 in more than 100 newspapers nationwide • Co said ads are attempt to set record straight on labor issues • “It’s becoming clear that we have to do more and be more aggressive in telling our story. The purpose is to be proactive and initiate debate.” • New web site: www.walmartfacts.com • Amid criticism of labor practices, in 2004 Co initiated new wage structure to increase pay of some hourly Ees, created 40-person compliance team to ensure labor laws adhered to and diversity goals met • Also linked percentage of executive bonuses to certain diversity goals • Source: Wall Street Journal, 1/14/05

12. “The Wegman’s Way” • Wegman’s labor costs run between 15% and 17% of sales, cf. 12% for most supermarkets • Annual turnover rate is 6%, cf. 19% for grocery chains w/ similar number of stores • Industry’s annual turnover costs can exceed entire profits by more than 40% • Gallup survey found that over one-month period, shoppers who were emotionally connected to supermarket spent 46% more than shoppers who were satisfied but lacked emotional bond w/ store • Source: Fortune, 1/24/05

13. Current Developments in Union Organizing • Wal-Mart has won all but one of seven union votes in U.S. (as of 10/02) • One U win was butcher’s dept in TX store, which was disbanded two weeks after election • Co announced plans to phase out butchers and use prepackaged meat in 180 stores, said timing of decision was a coincidence • When Wal-Mart acquired Woolworth’s operations in Canada, it bought 120 stores, but not the seven that were unionized • Wal-Mart EVP of People: “Where associates feel free to communicate openly with their management, why would they need a third party to represent them?” • Co gives managers 56-page guide, “The Manager’s Toolbox to Remaining Union Free” • “It’s important for you to be constantly alert for efforts by a union to organize your associates”

14. Current Developments in Union Organizing • “In the 1970s, General Motors was the nation’s largest corporate employer, and thanks to its contracts with the UAW, it not only set the standards, but it raised the standards for all workers. Wal-Mart is doing the exact opposite. Nowadays it is the nation’s largest corporate employer, and it is lowering standards for everyone.” • Organizing director for UFCW • Wal-Mart says its average hourly pay for FT ees is $9.68/hr • UFCW counters that it’s only $8.23/hr (based on independent statistical analysis) • BLS estimates average hourly wage for all non-supervisory retail ees is $12.34 • Wal-Mart spokesman says BLS data inflated by overtime, and that Wal-Mart’s pay scale is competitive • Source: CNNMoney, 7/27/05

15. Current Developments in Union Organizing • Legal union avoidance tactics have impact • Las Vegas Sam’s Club held mandatory Ee meetings every week to express anti-U views • “You can speak for yourself” (Some ees started wearing “I can speak for myself” buttons) • “The union only wants your money” • Former Wal-Mart manager, now UFCW organizer, reports surveillance cameras “sprouted” at Scottsburg, IN store (N of Louisville) after he started talking to workers there • Co says the 15 cameras installed there “have nothing to do with union activity” • Other former managers say that when they telephoned Co hot line to report U literature was being distributed in their stores, LR specialists were flown in on Co jet that afternoon • Other complicating factors include turnover, which may be 100% annually at some stores • Source: Business Week, 10/28/02; New York Times, 11/8/02; Business Week, 10/6/03

16. “Wal-Mart Says It Would Allow Unions in Its Chinese Operations” • Wal-Mart said it would allow trade unions in its Chinese operations, an apparent response to pressure from Chinese authorities • Wal-Mart has 42 outlets in China, ~20,000 ees • Wal-Marts in Germany aren’t unionized per se, although they have works councils • Labor officials hope development will put pressure on other MNCs to follow suit • In March, national legislature began investigation of compliance w/ country’s labor law • Finding: some leading MNCs were resisting efforts to set up unions within operations • Source: Wall Street Journal, 11/24/04

17. Closing Case • Wal-Mart hiring more than 1 million ees over next five years • Advancement opportunities • 65% of store managers began in hourly jobs • College recruiting • Diversity recruiting • Internships in pharmacy and merchandising • Management trainee program for college students • Networking • Students in Free Enterprise • Case questions • What corporate- and business-level strategies is Wal-Mart pursuing? • Discuss how Wal-Mart’s growth plans affect and are affected by its HR strategy • SWOT analysis