!Week12:ManagingPeopleDrChristopherPokarier|EB202IntroductiontoBusiness

Somekeyterms

! Labourmanagement–seeslabourasoneinputamongstothers(afactorofproduction)andsuggestsanimageoflabourintensiveindustry

! Humanresourcemanagement(HRM)–impliesthatstaffareanimportantresourceandnotjustacostlyinput

! StrategicHRM–suggeststhatHRMisaveryimportantpartofthestrategicplanningoffirmsandthattheHRMmanagerhassubstantialseniority

!HumanresourcemanagementGetting,enhancing,andrewardinggoodpeople+managingtheproblemones

Internalvsexternallabourmarkets

! An‘internallabourmarket’meansstaffforparticularrolesarerecruitedfromemployeesalreadyinsidethecompany

! The‘externallabourmarket’isanyoneoutsidethefirm–ie.Notalreadyanemployee

! ‘Internalisation’involvesthecompanytakinggreatercontrolofthesupplyofitsownlabour

! Whetherfirmsrelymoreoninternalorexternallabourmarketstofillpositionsdependsonlaws(eg.howeasilycanafirmfiresomebody,cantheyuse‘despatch’casualworkersetc),industrycharacteristicsetc

Internalisation:implications

! Firmswillneedtotrainexistingstaffforspecialistroles

! Initialrecruitmentofstaffwillfocusongeneralabilitiesandadaptabilityandlessonjob-specificskills(eg.recruitmentofnewgraduatesbylargeJapanesefirms)

! Employeesidentifystronglywiththefirmbutmaylosemotivation

! Highfixedcosts

! Moredifficulttobringinneededspecialisttechnicalandmanagerialexpertise

Internalisation:benefits

! Cantrainstafffortheparticulartechnicalneedsofthecompany

! Practicesthatretainemployeesalsoallowthefirmtoearnareturnontheirinvestmentintraining

! Readysupplyoflabourwhenthelabourmarketis‘tight’–thatis,skilledpeoplearescarce

! Lowemployeeturnovercanhelptopreserveandprotectcompanyknowledge

! Ifemployeeshave‘firm-specifichumancapital’theyarelesslikelytoquit,andmaybe‘trapped’–tothebenefitofthefirm

Japan’s‘lifetimeemployment’:benefits

! Greatercommitmentofemployeestothelong-terminterestsoftheorganisation

! Managementcanconfidentlyinvestinstafftrainingastheyknowtheycangetareturnfromit

! Employeesfeelasharedcommitmentto,andidentitywith,theorganisation–supportingteamwork

! Littlelossofafirm’sknowledge-basedcompetitiveadvantages

! BUT‘Lifetimeemployment’actuallyhasmostpeopleleavethefirmintheirmid-50s

! Generallyonlymedium&largefirmsofferit;andlay-offsmorecommonsincethelate1990s

Internalisation:disadvantages

! Lesslearningfromoutsidethefirm–fromotherfirmsinthesameindustryorotherfirms

! Anorganisationalculturecanbecomefixed,conservative,andprejudicedagainstnewideasandwaysofdoingthings

! Implicitorexplicitguaranteesofpermanentemploymentcancreatesevereadverseselectionandmoralhazardproblems

RecentHRMinJapan

! Japan’slifetimeemploymentandseniority-basedwagesworkedwellinagrowingeconomywithlabourshortagesbutisfacingsomepressuresforchange

! Olderemployeeprofilesareverycostly

! Useofcontractemployeesforflexibility

! Butincreasinglylabourshortagesareconstrainingbusinessgrowth(eg,inconstruction,services-healthcare,retail,restaurantsetc)

! specialistsinshortsupply(eg.ITprogrammers)workonproject-basisandchangeemployerseasily

! growthoftheheadhuntingbusiness&mid-careerhiring

Adverseselection&moralhazard

! Lifetimeemployment’presentstheseseriousrisks

! Adverseselection–peoplewhoknowtheyhavelittletalentandriskbeingfiredmayseek‘secureemployment’

! Riskadversepersonalitieswilljoinsuchfirms–perhapsreducingcreativity,innovationandinternalcriticism

! Moralhazard–thebehaviourofpeopleguaranteedajobmaychange…shirking

Attenuatingmoralhazard

Theshirkingriskcanbereducedthrough

! Incentivesystemssuchasbonusesforhighperformance

! Internalcompetitionssuchasthrough..

! Thepromotionsystem

! Accesstotraining..Increasingpromotionchances

! Accesstobenefitssuchascompanytrips,entertainmentallowancesetc

! Punishmentsthroughtransfers,ostracismviaperformanceassessmentsetc

Attenuatingadverseselection

Employersneedperformanceindicators:

! Academichistory–　henceindividualinvestments(effort,money)incompetitiveeducationmarketshaveasignallingeffectthatisoftenmoreimportantthantheknowledgeresourcesgained

! Personalprofiles–otheractivitiesetc(especiallybecauseoftheformer)

! References–fromteachers,pastemployers

! Companytesting–includingpersonalitytestingdoneforcompaniesbythirdparties

Recruitingstaff

! Hiringnewstaffisexpensive&veryhighriskforfirms

! Managers&otheremployeesinvolvedinhiringgenerallydonotwanttotakerisks

! Everybodyinvolvedinhiringneedsgoodreasonstojustifytheirhiringdecisions(hencestandardtestsetc)

! Henceformalqualifications(fromrespectedinstitutions)andproofofperformancemakesgettinghiredeasier

! Plus‘thedoIwantthispersonasacolleague?’criteriamustbemetbythecandidate

! Staffarehiredtoaddmorevaluethantheycost!