Core Knowledge Requirements for HR Professionals

THE HRCI CORE KNOWLEDGE REQUIREMENTS COVERED IN THIS CHAPTER ARE:

• Needs assessment and analysis
• Third-party or vendor selection, contract negotiation, and management, including development of requests for proposals (RFPs)
• Communication skills and strategies (for example: presentation, collaboration, sensitivity)
• Organizational documentation requirements to meet federal and state guidelines
• Adult learning processes
• Motivation concepts and applications
• Training techniques (for example: virtual, classroom, on-the-job)
• Leadership concepts and applications
• Project management concepts and applications
• Diversity concepts and applications (for example: generational, cultural competency, learning styles)
• Human relations concepts and applications (for example: emotional intelligence, organizational behavior)
• Ethical and professional standards
• Technology to support HR activities (for example: HR Information Systems, employee self-service, e-learning, applicant tracking systems)
• Qualitative and quantitative methods and tools for analysis, interpretation, and decision-making purposes (for example: metrics and measurements, cost/benefit analysis, financial statement analysis)
• Change management theory, methods, and application
• Job analysis and job description methods
• Employee records management (for example: electronic/paper, retention, disposal)
• Techniques for forecasting, planning, and predicting the impact of HR activities and programs across functional areas
• Types of organizational structures (for example: matrix, hierarchy)
• Environmental scanning concepts and applications (for example: Strengths, Weaknesses, Opportunities, and Threats [SWOT], and Political, Economic, Social, and Technological [PEST])
• Methods for assessing employee attitudes, opinions, and satisfaction (for example: surveys, focus groups/panels)
• Budgeting, accounting, and financial concepts
• Risk-management techniques

The HR Certification Institute PHR/SPHR Body of Knowledge (BOK) consists of six functional areas plus the core knowledge requirements. These core areas have been identified as knowledge and skill capabilities that are essential to competency as a human resources (HR) professional. Because each of these knowledge areas may have implications for practice in two or more of the HR functional areas, the basic concepts are introduced in this chapter. These introductions are brief and designed only to provide a refresher for each of the concepts. At the beginning of Chapters 3 through 8 is a cross-reference to the core knowledge requirements most relevant to that particular chapter.

Needs Assessment and Analysis

Needs assessment and needs analysis are terms used interchangeably to describe methods for obtaining the information necessary to make decisions that will best accomplish an organization's goals. These methods can measure needs in any area of business; in HR they're often employed in the areas of training and development, staffing projections, and benefit planning, but they can be used to gather information for any program.

There are many models for needs assessment. The common elements involve the following steps:

Step 1: Describe the objective. This step answers the question, “Where do we want to be?” and looks at the various elements necessary to accomplish that objective. It's important to obtain relevant information from all the possible stakeholders to ensure a full understanding of what is needed, as well as to ensure buy-in when recommendations are presented. In developing the objective, consider elements such as strategic business goals, department goals and objectives, budget constraints, available resources, and any other factors that impact the situation. These include the right people, skills, systems, and materials necessary to meet the objective.

Step 2: Define the current situation. This step answers the question, “Where are we now?” and looks at each element described in step 1 to determine what is already available in the organization and create an inventory of skills, people, equipment, technology, and other assets already in place.

Step 3: Conduct a gap analysis. A gap analysis compares the objective to the current situation and results in a list of people, actions, or items needed to attain the objective described in step 1. As part of this process, it's important to gather as much information as possible about the gaps so they're clearly understood and to identify any constraints that may inhibit efforts to close them.

Step 4: Set priorities. In a world of limited resources, it isn't realistic to expect to go out and obtain everything that is needed to fill all the gaps immediately. Prioritizing identifies the gaps most critical to achieving the primary objective and focuses on closing them first.

Step 5: Investigate and develop options. This step answers the question, “What is the most effective way to fill this gap?” Be as open-minded as possible when developing options, and collect data from as many sources as are available. Involve others in brainstorming sessions as appropriate, and look for ways in which similar needs have been met both inside and outside the organization.

Step 6: Evaluate options, and determine budget impact. Determine which of the possible options will be the most effective way to fill the gap. A crucial element of this step is the cost of implementation. It's important to consider both direct and indirect costs: the impact on the company's bottom line in the short term, as well as the return on investment (ROI) and long-term costs and savings. Another budgetary consideration is the cost of not implementing the option: in the long run, will it cost more or less to operate without it?

Step 7: Recommend solutions. Whether you or someone higher in the organization is the final decision maker, it's important to document the reasons for selecting a particular solution.

Third-Party Contract Management

A contract is a legally enforceable agreement between two or more parties in which all parties benefit in some way. Generally, one party makes an offer to do or provide something of value (a product or service), and the other agrees to do or provide something in return (payment). Contracts can be formal or informal, oral or written, and implied or explicit. Although oral and implied contracts can be legally enforceable, written contracts provide more clarity and protection for the parties involved.

In a third-party contract, some part of the transaction is provided by an entity other than those who have signed the contract. There are many examples of third-party contracts in business; perhaps the best known for HR professionals is an agreement with a temp agency in which the company agrees to pay the temp agency for services provided by an employee of the agency.

As an increasing number of HR functions are outsourced, the need for practitioners to understand the issues involved in effectively managing third-party contractors becomes more important. A critical factor for a successful contractor relationship is a clear understanding of the product or service to be provided, along with clearly defined expectations for quality and service levels. This information is best communicated through a process known as a request for proposal (RFP).

In many organizations, the RFP process is handled by a purchasing group or is outsourced to someone who specializes in preparing RFPs, but it's important to understand what information is needed to develop an RFP that satisfies both parties. A well-constructed RFP serves as the basis on which the product or service is obtained, a guide to ensure that the delivery meets the organization's requirements, and a means of evaluation at the end of the project. Although there is no standard RFP format for use in all situations, the elements for developing one are similar:

Conducting a Needs Assessment Whether you're requesting bids for a one-time project or an ongoing outsource relationship, you must be able to describe your objectives and budget clearly so that vendors will provide an accurate and appropriate proposal.

As part of the needs-assessment process, a client may conduct informal pre-proposal meetings with possible vendors. This is particularly useful when the client has little direct experience with the project or wants to learn more about the product or service in order to describe it more clearly in the RFP. This is sometimes known as scoping the project and can become a more formal process with the use of a scoping document that solicits information from a variety of possible vendors before the RFP is written.

Developing the RFP The format of an RFP varies with each organization. In general, the following components are included:

• A brief description of the organization, including information that will help vendors provide an accurate bid, such as number of employees, locations, and so on.
• An overview of the project summarizing what is needed.
• Administrative details about the process, including submission deadlines, how to request an extension, the format requirements for submissions, and what happens if there are errors or omissions in the RFP. Information about how the proposals will be evaluated should be included here as well (for example, will the project be awarded to the lowest bidder, or will other criteria be more important?). Any penalties for late delivery and how to handle work that is beyond the scope of the RFP are also included in this step.
• A clear, complete, and detailed project description (also referred to as the scope of work, technical description, or project specifications) that contains information significant to the ability of the vendor to prepare a bid and that can be measured during the evaluation phase.
• The name of the contact person for additional information about preparing the proposal.

Proposal Formats As per step 3, the RFP provides vendors with a format to follow when submitting proposals. This serves two purposes. First, it makes evaluating the proposals easier; and second, it ensures that vendors provide all the relevant information for an evaluation of the project. Although the format will vary between organizations and different projects, the following elements will make it easier to compare and evaluate the proposals:

Evaluating the Proposals Once the proposals have been submitted, the evaluation process can begin. There are many factors to consider, including the reputation of the vendor, the qualifications and experience of the project team, the size of the company and whether it has the capability to complete the project, how flexible the vendor can be in terms of schedule or other issues, the proposed cost, whether the schedule submitted meets the needs of the organization, and whether the vendor's approach to the project is compatible with the organization's culture.

Selecting a Vendor When the evaluation has been completed, notify the successful vendor, along with those whose proposals weren't accepted.

Negotiating the Contract Formalize the agreement, and sign a contract with the successful vendor. For more information on contract-negotiation techniques, see the discussion on negotiating collective-bargaining agreements in Chapter 7, “Employee and Labor Relations.”

Executing the Agreement Implement the project. Initially, gathering together all the members of the project team, both those who work for the vendor and those who work for the organization, is important to ensure that the project gets off to a good start. It's also important to maintain contact with the vendor during the implementation phase to ensure that it stays on track and meets your expectations.

Evaluating the Project Whether this is an ongoing outsource function or a one-time project, an evaluation ensures that the project continues to meet organizational needs and provides useful information for future projects.

Communication Skills and Strategies

HR professionals must develop expertise in communicating information to a variety of stakeholders, from top executives to production workers, customers, and vendors. This requires the ability to determine which strategies will most successfully communicate different types of information to these various audiences.

Employee Communication

An effective employee communication strategy provides opportunities for top-down communication by management and bottom-up communication from employees. It must balance management's need to ensure the confidentiality of sensitive company information with the need of employees to know, understand, and feel part of what is happening with the company. An effective strategy builds employees' trust in the organization during the communication process by sharing meaningful information with them. The more employees know about the company's vision, goals, and operations, the more engaged and productive they are. Employees who feel connected to the success of the organization become goodwill ambassadors, enhancing the company's reputation in the community and effectively referring qualified candidates for open positions.

There are many options for providing or exchanging information with employees; Table 2.1 lists some of them.

TABLE 2.1 Possible communication delivery methods

Top-Down Communication	Bottom-Up Communication
Intranet	Open-door policy
Public address system announcements	All-hands meetings
Posters	Staff meetings
Newsletters	Brown-bag lunches
Individual letters to employees	One-on-one meetings
Flyers	Email
Bulletin board postings	Webcasts

An effective communication strategy delivers the same information in several ways; determining the best mix of methods begins with a clear picture of what management hopes to achieve. Once the objective is clear, answers to the following questions determine which delivery methods are most appropriate for a particular situation:

• What information will be provided?
• Who is the intended audience?
• Who will provide the information?
• Is the information time sensitive?

To select the best delivery mechanisms for a particular organization and message, it's also important to consider the organization's culture. The most effective strategies are a reflection of the culture, whether it's very formal or informal and laid-back. Another consideration that guides the selection of communication methods is the employee base: is the workforce computer savvy, or are employees accustomed to receiving information from their managers in small group meetings?

Bottom-up communication methods help employees feel that their concerns are heard and addressed, which adds to their investment in the organization's success. There are, of course, many messages that are most appropriately delivered top-down as well, such as changes in policy or new operational directives. Mechanisms to enhance both types of communication will contribute to the effectiveness of the overall strategy.

Professional Communication

Because HR professionals must communicate a variety of messages to differing audiences, it's likely that multiple communication strategies will be developed to ensure that each audience receives necessary information in the way that best meets its needs and that gets the HR message across effectively. To achieve this, HR professionals need skills for a wide variety of purposes, including presentations, collaboration, influencing, diplomacy, and sensitivity.

Documentation Requirements

Documentation requirements fall into two basic categories. The first is the collection and maintenance of required employment records, such as application forms, tax documents, and benefit records. These requirements are described in the “Employee Records Management” section later in this chapter. In that section, Table 2.6 provides a detailed list of most employment documents that must be maintained for legal purposes along with the required retention period required by each federal law.

The second category is the maintenance of appropriate documentation for employment actions.

Documenting Employment Actions

Traditionally, the HR department has been charged with responsibility to ensure that all the “i's are dotted and t's are crossed” when it comes to documenting employment relationships. As the subject matter experts (SMEs), HR professionals are those most qualified to ensure the maintenance of proper documentation and to safeguard the privacy of personal employee information. The maintenance of these records is important for two basic reasons: some are required to be maintained to comply with federal, state, or local employment laws, and others provide information necessary for effective management of the organization. In some cases, the records are needed to meet both of those requirements.

Documenting Performance Issues

There are two key considerations in documenting performance concerns. The first is timeliness, which is the need for managers to address performance issues when they occur in order to effectively manage the employees who report to them. All too often, line managers are reluctant to confront employees about performance issues and neglect to advise them of any problems until either the annual performance review or the situation becomes so untenable that the manager's only thought is immediate termination of the employee. In either situation, the employee is taken completely by surprise at the seriousness of the situation and won't have had the opportunity to rectify the problem.

The other key consideration is creating and maintaining written documentation for disciplinary action taken as appropriate and warranted based on the seriousness of the performance issue. In keeping with the at-will policy, employers can exercise their judgment in administering disciplinary action based on the severity of the situation; however, the following are typical disciplinary actions that can be administered:

Step 1: Verbal Warning Although it may seem contradictory to state that a written record of a verbal warning should be maintained, it isn't. The verbal warning includes specific examples of the unacceptable performance or behavior and notice of the consequences if it doesn't change: that is, further disciplinary action, up to and including termination. The written record of this conversation can be as simple as a contemporaneous note by the supervisor that describes the date and time of the warning, the name of the employee involved, what was discussed, and any agreements that were made about future changes in behavior or performance.

Step 2: First Written Warning At this stage, the written record becomes more formal. In some companies, forms are provided for managers to fill in with the appropriate information. In companies without specific forms, the first written warning is a memo to the employee describing steps that have already been taken, exactly what the performance problem is, steps that need to be taken to avoid future consequences, and any agreements that have been made about performance changes. This document should be signed by the employee. When employees are reluctant to sign a warning with which they disagree, the supervisor can advise them that signing doesn't indicate agreement, merely that the warning has been discussed. If the employee still won't sign, the supervisor can make a note indicating the date and time of the discussion and the fact that the employee refused to sign the document.

Step 3: Final Written Warning A final written warning is similar to the first, with the addition of a statement advising the employee that a continued inability or refusal to make necessary performance changes will result in termination of employment.

Step 4: Decision-Making Day As a final step prior to termination, some companies provide a decision-making day. Employees are sent home, usually with pay, and asked to think about whether they're willing to make the changes and keep their jobs. If they are, they return to work the next day and make a commitment to make the necessary changes. It is made clear to employees that if the changes aren't made, immediate termination will result without additional disciplinary steps. If they indicate that they aren't willing to conform to the performance requirements, they're terminated without further disciplinary action.

Step 5: Suspension Some companies take an additional step prior to termination and suspend employees for varying periods of time depending on the seriousness of the offense and other considerations. A suspension is accompanied by a written document spelling out all the steps previously taken to resolve the issue, the reason for the suspension, and a statement that continued nonconformance may result in termination.

Step 6: Termination of Employment At this stage, employees are well aware of the issues leading up to the termination. Depending on the circumstances, prior to taking this step it may be advisable to have counsel review the existing documentation and provide guidance for the final termination letter.

Some of the additional documents that must be provided and maintained when employees are terminated include agreements for severance (with accompanying releases) or for compliance with the ADEA (discussed in Chapter 4, “Workforce Planning and Employment”), along with documentation of compliance with COBRA requirements (discussed in Chapter 6, “Compensation and Benefits”) and state unemployment documentation (if required).

Maintaining contemporaneous records as just described can make the difference between a summary judgment in the employer's favor and a large jury award to a former employee.

Adult Learning Processes and Learning Styles

The concept that adult learning processes were different from those of children was developed in the United States by Eduard Lindeman during the 1920s. Lindeman first promoted the idea that, for adults, the methods of learning were more important than what was being taught. His belief was that the most effective learning for adults took place in small groups where knowledge could be shared based on the life experience of the participants. Malcolm Knowles expanded on Lindeman's theories in the 1970s when he identified characteristics that set adult learning apart from the way children learn. The work of Lindeman and Knowles is the basis for the study of how adults learn known as andragogy. The definition of andragogy evolved as researchers sought to further define adult learning; today it has come to mean education in which the learner participates in decisions about what will be taught and how it will be delivered. This approach is in contrast to pedagogy, the study of how children learn, which is defined as education in which the teacher decides what will be taught and how it will be delivered.

Much of Knowles' work centered on identifying characteristics of adult learning that would make the process more productive for learners. Knowles promoted the idea that, with maturity, people grow into new ways of learning, described by the following five characteristics, which form the basis of andragogy today:

Self-concept An individual's self concept moves from dependency on others to autonomy and self-direction.

Experience An individual builds a wealth of knowledge that grows with each new experience. This information reserve can then be drawn on for further learning.

Readiness to Learn Individuals become increasingly interested in the relevance of information to specific needs and how directly it applies to their current situations.

Orientation to Learning The ability to apply information immediately to solve current problems is increasingly important to learners.

Motivation to Learn The motivation to learn is based more on personal needs and desires than on expectations of others.

When designing training, you must consider adult learning styles, which answer the question, “How do I learn?” There are generally considered to be three types of learners:

Auditory Auditory learners process information by hearing. Individuals who are auditory learners will, for example, recite a phone number out loud several times to memorize it.

Visual Visual learners depend on their visual processing of information. Often described as “thinking in pictures,” these learners will write down a phone number to see it, committing the image to memory for future recall.

Tactile/Kinesthetic Tactile/kinesthetic learners are physical learners; they rely on their sense of touch for memory recall. These individuals will “air dial” the phone number, tracing the pattern in the air for future recall of the proper sequence of numbers.

Because all learning styles are represented in the workforce, it's important to incorporate elements of each style when designing training. Other factors to consider include the following:

• These styles are often innate; you can train employees to use multiple styles, but their default method of learning will often yield the best results.
• Trainers often unintentionally discriminate. They design training to their own personal learning style instead of accounting for the blended needs of their audience.
• The study of these categories of learning styles continues to evolve, via the use of music, logic, words, pictures, and simulation.

These basic characteristics of adult learners are important concepts with implications beyond traditional training and development. Learning is, of course, the point of training, so understanding the best ways to provide information in work situations can enhance productivity and job satisfaction for the workforce.

Motivation Concepts

From the beginning of the industrial revolution, business owners have sought the key to improving productivity. This search prompted scientists to study the work environment, businesses, and the relationship of people to organizations. These studies led to many theories about work, some related to the physical environment or organization structures and others that looked at why people work and what motivates them.

The traditional theories of motivation discussed next center either on the need for employees to be self-motivated or on the need for managers to motivate them. They provide a basis for understanding what drives employees to perform at peak levels of productivity, which can help managers understand the reasons for lowered productivity. Each functional area of the BOK is impacted by whether employees are motivated or demotivated at work. Incorporating these concepts into the planning stage of HR programs and initiatives can increase the value of the end result.

Abraham Maslow: The Hierarchy of Needs (1954)

Maslow, a behavioral scientist, developed his hierarchy of needs to explain how people meet their needs through work. This theory describes needs that begin with the most basic requirements for life—food, shelter, and basic physical comforts—and progresses through stages of growth as people strive to fill higher-level needs. Maslow identified five levels of needs that motivate people:

Physiological Needs These are the most basic needs. Individuals striving to find enough food to eat or a place to live are motivated by attaining those things. People at this level are motivated by actions that provide the basic necessities of life.

Safety Needs Once people have food and shelter, they look for ways to ensure that they're safe from physical and emotional harm.

Social Needs At this level, people are motivated by the desire for acceptance and belonging in their social group.

Esteem Needs At this level, people are motivated by recognition for their achievements.

Self-actualization Needs When people are confident that their basic needs have been met, they become motivated by opportunities to be creative and fulfill their own potential. They don't look outside themselves for these opportunities but depend on themselves to find and act on them.

B. F. Skinner: Operant Conditioning (1957)

The results of Skinner's work on behavioral reinforcement are more commonly known as behavior modification. His basic theory is that behavior can be changed through the use of four intervention strategies:

Positive Reinforcement Encourages continuation of the behavior by providing a pleasant response when the behavior occurs.

Negative Reinforcement Encourages continuation of the behavior by removing an unpleasant response to a behavior.

Punishment Discourages future occurrence of the behavior by providing an unpleasant response when the behavior occurs.

Extinction Discourages future occurrence of the behavior by ceasing to reinforce it. For example, when a parent praises a child for doing his homework each night and the child starts doing it without being reminded, the parent may stop praising the child. If the child then reverts to the previous behavior of forgetting to do his homework, the behavior has become extinct.

Frederick Herzberg: Motivation/Hygiene Theory (1959)

Herzberg's motivation/hygiene theory (also known as the two-factor theory) began with a study on job attitudes that he conducted in Pittsburgh in the 1950s. He began the study believing that the causes of job satisfaction would be the opposite of the causes of job dissatisfaction. However, his review of several thousand books and articles on job attitudes didn't prove his premise; in fact, the results were so vague that it wasn't possible to draw any conclusions. This led Herzberg to conduct a study in which he asked the participants to identify the work experiences that resulted in positive feelings about their jobs and the ones that resulted in negative feelings.

The result, as Herzberg himself described it in an interview, was that “What makes people happy is what they do or the way they're used, and what makes people unhappy is the way they're treated” (“An Interview with Frederick Herzberg: Managers or Animal Trainers?” Management Review, 1971). Both factors can motivate workers, but they work for very different reasons. The satisfaction (motivation) factors motivate by changing the nature of the work so that people are challenged to develop their talents and fulfill their potential. For example, adding responsibilities that provide learning opportunities for a receptionist performing at a substandard level can result in improved performance of all duties assigned if the poor performance is related to boredom with repetitive tasks. The dissatisfaction (hygiene) factors motivate to the extent that they allow people to avoid unpleasant experiences. For example, as long as employees continue to perform their assignments at an acceptable level, they continue to receive a paycheck. Hygiene factors provide only short-term benefits to employers, whereas factors related to motivation lead to longer-term job satisfaction.

A result of Herzberg's theory is the concept of job enrichment in which the significance of the tasks in a job is increased to provide challenging work and growth opportunities.

Douglas McGregor: Theory X and Theory Y (1960)

McGregor expanded on Maslow's work to describe the behavior of managers in their relationships with their employees. McGregor identified two distinct management approaches, Theory X and Theory Y.

Theory X managers have a worldview of employees as lazy and uninterested in work and needing constant direction to complete their assignments. Theory X managers believe that employees don't want to take responsibility and are interested in job security above all else. Theory X managers are generally autocratic, utilizing a top-down management style.

In contrast, Theory Y managers believe that, given the opportunity, people will seek out challenging work and additional responsibility if the work is satisfying. Theory Y managers are more likely to invite participation in the decision-making process from their subordinates.

David McClelland: Acquired Needs Theory (1961)

The premise of McClelland's acquired needs theory is that experiences acquired throughout their lives motivate people to achieve in one of three areas:

Achievement Those motivated by achievement take moderate risks to achieve their goals, respond to frequent feedback, and generally prefer to work as sole contributors or with others interested in achieving at the same level.

Affiliation Individuals who need affiliation look for acceptance in the work group and need regular interaction with their co-workers or customers.

Power These individuals are looking for either personal power or institutional power. Those interested in institutional power are often effective managers who are motivated by coordinating work groups to achieve organization goals.

J. Stacey Adams: Equity Theory (1963)

The basic concept of Adams' equity theory is that people are constantly measuring what they put into work against what they get from work. If their perception is that it's a fair trade, they're motivated to continue contributing at the same level. When they perceive there is an imbalance and they're putting in more than they're getting back, they become demotivated and lose interest in their work, decreasing productivity and quality.

Victor Vroom: Expectancy Theory (1964)

Vroom's expectancy theory maintains that people are motivated by the expectation of the reward they will receive when they succeed and that each individual calculates the level of effort required to receive a particular reward to determine whether the reward is worth the effort that is required to attain it. Vroom uses the following terms to explain this theory:

Expectancy According to Vroom's theory, motivation starts with an assessment by individuals about their capabilities to successfully complete an assignment.

Instrumentality If individuals believe they're capable of completing an assignment, they next ask “What's in it for me?”—that is, will their effort to complete the work be the instrument for obtaining a reward for the work?

Valence This is the result of calculations as to whether the possible reward is worth the effort required to successfully complete the work.

Clayton Alderfer: ERG Theory (1969)

The ERG theory developed by Alderfer builds on Maslow's work as well. Alderfer identifies three levels of needs:

Existence This relates to Maslow's definition of physiological and safety needs as those that are required to maintain basic life needs.

Relatedness This is similar to Maslow's descriptions of social needs and the esteem we find from others.

Growth This is based on the self-esteem and self-actualization concepts Maslow described.

The premise for Maslow's theory was that people move sequentially through the levels one at a time. Alderfer's theory allows for the possibility that people can work on multiple levels simultaneously. It also describes the concept of frustration-regression, which occurs when an individual falls back to a lower level in frustration at the difficulty of a higher level.

Leadership Concepts

Much has been written about leaders and how they develop: are they born or made? There is little agreement in research about where leaders come from. Does the effectiveness of a leader depend on the situation? Which is more important as a function of leadership—the ability to develop structures or the ability to develop people? One thing is certain: however they do so, effective leaders are able to inspire the people around them to do their best work and influence people to follow them in achieving a common goal. This section introduces some of the theories researchers have developed to explain leadership. As you'll see, none of these theories are able to explain all its aspects. Although some theories are currently more popular than others, all of them are the subject of ongoing study as researchers continue to try to explain leadership ability.

The study of how leaders become leaders was first addressed during the nineteenth century when Thomas Carlyle suggested the “great man” theory: that is, that leaders are born with innate qualities that set them apart from other “mere mortals.” It was Carlyle's premise that leadership couldn't be learned but was instead the result of the superior qualities of a few men. Early in the twentieth century, this premise became the basis for trait theories of leadership that look to the personality, intellect, and physical traits of individuals to explain their ability to lead others.

Several drawbacks to trait theories became apparent over time. The first and most significant of these was that each researcher identified different leadership traits, which resulted in multiple lists of relevant traits. The second was that research showed there was little difference between the traits exhibited by leaders and those of followers. For example, traits such as courage and intelligence were found in followers as often as in leaders. Finally, trait theories didn't explain how leaders were successful in different situations using very different methods. As the limitations of early explanations for leadership development became clear, researchers turned to other areas for investigation, including behavioral, situational, and contingency theories of leadership.

Behavioral Theories

During the 1940s, researchers moved to a new area of research and focused on the ability of leadership to be taught: anyone could become a leader with the right information. This view of leadership moved the research focus from personality traits to what leaders did to inspire people to follow them. Two aspects of behavior became apparent in the research. The first was behavior that focused on the structural elements of the job, such as establishing rules and guidelines for employees. The second was behavior that considered the needs of employees, such as standing up for them and explaining decisions. Douglas McGregor's Theory X and Theory Y provide an example of a behavioral theory of leadership.

As with trait theories, there were leadership characteristics that weren't explained by behavioral theories, most notably, how or why a given behavioral aspect worked in one situation but not in others. This led to a new avenue for research: the impact of leadership in different situations.

Situational Theories

Situational theories of leadership seek to explain leader effectiveness in different situations. The elements that are considered in situational theories are how the leader and followers interact and how the work is structured. Several well-known theories fall into this category:

Blake-Mouton Managerial Grid (1968) Robert R. Blake and Jane S. Mouton developed a grid to explain the characteristics of different leadership styles. The grid considers two aspects of leadership: concern for people and concern for production, as shown in Figure 2.1.

FIGURE 2.1 Blake-Mouton managerial grid

The grid uses nine levels to measure each aspect. Leaders at the lowest extreme (1,1) show no concern for either people or production. At the highest extreme (9,9), leaders show maximum concern for both production and people and, according to Blake and Mouton, are the most effective leaders.

Path-Goal Theory (1971) The path-goal theory of leadership was developed by Robert House, a professor at the Wharton School of Business. This theory proposes that a leader can impact the behavior of a group by establishing goals and providing direction on reaching those goals. House describes four leadership styles that may be used to accomplish this, based on the specific situation:

• Directive, which specifies what is to be done
• Supportive, in which the leader provides encouragement for the group members
• Participative, in which the leader involves the group in the decision-making process
• Achievement, in which the leader establishes a difficult goal and encourages the group to accomplish it

Hersey-Blanchard Theory (1977) Paul Hersey and Kenneth Blanchard describe leadership in terms of the maturity level of the followers. In this theory, maturity refers to psychological maturity (or motivation) and job task maturity (or level of experience). The model provides four styles of leadership appropriate in different circumstances:

Although situational theories address issues that were missing in both the trait and behavioral theories, they're criticized for being two-dimensional and not allowing for multifaceted situations that occur in the real world of business. In addition, these theories don't account for differences in culture and gender in explaining leadership.

Contingency Theories

To address some of these criticisms, Fred E. Fiedler developed a model known as Fiedler's Contingency Theory to address the shortcomings of situational theories. Fiedler's theory begins with an assessment of the leader's style. Fiedler uses a method known as the least preferred co-worker scale to determine this. Leaders identify the co-worker, past or present, with whom they had the most difficulty working and rate this person on a scale of 1 to 8 on a series of measures such as the co-worker's level of cooperation and friendliness. The result is known as the least preferred co-worker (LPC) score. A high LPC score indicates that the leader has a greater concern for people than for tasks, and a low score indicates a greater concern for tasks. Fiedler proposed that the LPC score could be used to predict the situations in which a leader would have a better chance for success.

Fiedler then describes situations in terms of three aspects:

Leader-Member Relations The relationships leaders have with members of the group are the key factor in determining the level of influence the leader has in the group.

Task Structure Jobs that are highly structured provide a leader with greater influence than do those that require less structure.

Position Power Situations in which a leader has the discretion to assign tasks or to reward or punish members of the group provide the leader with a greater chance of success.

Each of these theories provides a different perspective on leadership and helps explain something about it. They're the basis for many of the discussions in subsequent chapters; in particular, Chapters 3, 5, and 7 consider different aspects of the interactions between employees and managers, and these theories may provide the basis for a deeper understanding of the ways in which managers and leaders are able to influence employees.

Leadership Styles

Everyone has experienced leaders with different styles: the authoritarian leader who tells employees what to do, the democratic leader who involves employees in the process, the laissez-faire leader who abdicates responsibility and leaves employees to figure things out without guidance or support, and the coach who prepares employees to take on additional responsibility. There are different situations when all these styles may be appropriate:

Authoritarian or Directive Authoritarian leaders are effective in situations requiring immediate action or those that are life threatening. When productivity is the highest concern, authoritarian leadership may be the best style.

Democratic Democratic leaders are most effective in environments of highly skilled professional employees who are self-motivated and accomplish tasks on their own. When relationships in the work environment are of primary concern, this style is most effective.

Laissez-faire Laissez-faire leaders allow group members to operate on their own. This leadership style provides no direction or guidance and can lead to chaos if members lack confidence in their abilities. For individuals who are highly motivated and can work independently, this may be an acceptable style. In general, it results in lower levels of productivity.

Coaching Coaches work with group members to develop skills and abilities so they will be able to operate independently.

There are two other leadership styles to keep in mind:

Transactional Transactional leadership focuses on getting the job done and seeks to do this by offering a reward in exchange for accomplishing organization goals. Transactional leaders manage by exception, either by seeking out areas where rules aren't being followed and making a correction or by taking action when the goal isn't met.

Transformational Transformational leadership focuses on the relationships in the group, building them to achieve organization goals. These leaders set the ideal for the group and act as role models, inspiring excellence in the group and stimulating new ideas and perspectives. Transformational leaders are coaches who work with individuals to develop their skills and abilities and improve their performance.

Project Management Concepts

Project management (PM) describes the process of initiating, planning, executing, controlling, and closing an assignment that is temporary in nature. The assignment may involve designing a new software program, constructing a building, implementing a new marketing strategy, or doing any other activity that isn't part of the ongoing operations of a business. In Project Management Jumpstart, Kim Heldman, a certified project management professional (PMP), describes the five phases of a project life cycle:

Initiation During the initiation phase, project requests are evaluated and selected for implementation. Those who will be affected by the project—the stakeholders such as the project manager, sponsor, team members, customers, and others—meet to discuss the proposed project. Once a project is selected, the sponsor creates a project charter to sanction the project and commit resources to its completion. The charter also identifies the goals and appoints the project manager.

Planning The planning phase is led by the project manager (PM) and lays out how the project will be accomplished. The plan describes the deliverables, budget, and scope of the project and then develops specific activities and identifies the knowledge, skills, and abilities (KSAs) required to execute the activities. Finally, a timeline for completing the project is created.

Executing During this phase, the project plan is implemented. A project team is created, and other resources are acquired. Activities identified in the planning phase are completed during this time, and the PM manages the timeline, conducts status meetings, and disseminates information to the sponsor and other stakeholders as needed.

Controlling The PM keeps the project on course and on budget by comparing accomplishments to the original plan and making course corrections as needed. As the project progresses, stakeholders may request changes to the original scope, and the PM will review and incorporate them into the project as appropriate.

Closing The closing phase is the point at which the sponsor/customer acknowledges achievement of the project goals. The PM collects information from stakeholders to improve future projects, stores documentation of project activities, and releases resources for use in other projects or activities.

For HR professionals, the ability to manage projects is critical to success. The following list shows how HR projects can occur in any of the functional areas:

Business Strategy and Management Integrating the cultures of two organizations after a merger

Workforce Planning and Employment Developing a new-hire orientation program

Human Resource Development Creating a career-development program

Compensation and Benefits Developing a stock-option program

Employee and Labor Relations Developing an employee handbook

Risk Management Developing an emergency response plan

Each of these activities is a short-term assignment that will result in a program that will become part of the organization operations when it's complete, but the process of designing the program isn't an ongoing operation.

The Project Management Institute maintains a website with additional information about projects and how they're managed at www.pmi.org.

Diversity Concepts

As businesses become global entities employing individuals with diverse cultural, racial, and ethnic backgrounds, understanding diversity in the workplace becomes more critical to organizational success. Organizations implementing programs to increase diversity realize benefits such as improved productivity and bottom-line results for shareholders. There are many other business reasons to make workplace diversity a priority:

A diverse workforce is more creative. Increasing the variety of perspectives available to an organization brings new points of view to decision-making processes, challenging conventional wisdom and creating an atmosphere that encourages the synergy of ideas.

A diverse workforce reflects the population. When businesses increase the diversity of their workforces, they increase their ability to attract customers. Customers are attracted to organizations when they feel comfortable with its representatives, and employees who understand and communicate well with customers help increase the customer base for a company's products or services.

A diverse workforce increases the candidate pool. The Department of Labor (DOL) predicts an increasing shortage of qualified candidates for available positions throughout the next decade. According to the U.S. Bureau of Labor Statistics, more than 25 percent of the working population will reach retirement age by 2012, resulting in a potential shortage of nearly 10 million skilled workers. Increasing the candidate pool by including a wide diversity of applicants will continue to be essential in filling open positions.

Workplace diversity presents challenges that organizations look to HR professionals to address, including the difficulty associated with change and the need to do things in new ways. It's challenging for individual employees to work with people who behave and communicate differently than what is perceived as normal. For example, something as seemingly simple as differences in the amount of personal space that are customary in different cultures can create uncomfortable situations, such as one person backing away from another to increase the space between them while the other moves closer seeking to decrease the space.

In addition, HR professionals should be familiar with cultural competence: the ability of a diverse group of people to achieve organizational aims, and a measure of a company's ability to work with individuals from multiple walks of life. Cultural competence is a necessary component of a corporate diversity management program and should focus not only on the operational needs of the workgroup but also on the more subjective realities of crosscultural needs. HR has a broad influence in developing and assessing an organization's cultural competence. Examples of this influence include addressing cross-cultural conflict, assessing the hiring patterns of managers, sensitivity training efforts, recruitment practices, leave policies, healthcare benefits design, and anti-harassment policy development.

Difficulties also arise for employees whose backgrounds are dissimilar to the group. They may feel uncomfortable in situations requiring them to make major adjustments in order to be accepted by a group whose culture or demographic is different from their own, such as when managing a multigenerational workforce, for example. The workforce of today spans more generations than at any other time in history, with an average age-span difference ranging between 20 to 30+ years and many older workers unable or unwilling to retire. Although this is a boon in terms of talent availability based on work and life experiences, the result is a generational division that plays out in the hallways of the corporate landscape. Differing values, expectations, and cultural identities are the hallmarks of the type of factors influencing a company's ability to manage a multigenerational workforce. Examples of the HR factors that must be considered include training design, benefits utilization, and diversity management programs.

The comfort level for all involved can be improved with diversity training, which seeks to educate all groups about the cultures, needs, and attitudes of other groups in the workforce to ensure the inclusion of all groups in workplace activities.

A diversity initiative seeks to increase the diversity of the workforce or to increase the effectiveness of an already diverse workforce. As with any company-wide objective, top management support is essential for success of the initiative, as is a clear picture of the challenges the initiative will address. Communicating the purpose of the initiative and providing feedback mechanisms for employees to ask questions will help ease any fears about the changes taking place in the organization. The initiative may begin with training designed to educate employees about the need for and benefits of diversity for the organization and to explain the benefits of diversity to them as individuals. As with any HR program, an evaluation of its effectiveness should be conducted at an appropriate time.

Human Relations Concepts

The concept of human relations covers a broad spectrum of ideas that concentrate on the importance of the human element at work, including interpersonal characteristics and organizational behavior.

This approach to workplace relationships, introduced in the 1920s, challenged traditional assumptions that people work only for economic reasons and that monetary incentives provided sufficient motivation for increased productivity. Human relations theories recognized that businesses are social as well as economic systems and looked at the impact of formal (management) and informal (work group) social connections in the workplace and the impact these connections have on work processes. For the first time, there was recognition that employees are complex individuals, motivated at different times by different factors, and that increased productivity could be tied to employee job satisfaction.

Human relations theories classify intelligence into several types; of interest here are the two types of personal intelligence: intrapersonal and interpersonal. Intrapersonal intelligence refers to self-knowledge or how well individuals know themselves. Interpersonal intelligence refers to emotional intelligence and social aptitude. Emotional intelligence (EI) is characterized by individuals who are aware of their emotions and are able to control how they react to them. Emotionally intelligent individuals are able to motivate themselves to achieve goals and are sensitive to the emotion of others and able to manage relationships with them.

Over time, a number of tests have been developed to identify how individuals react in different situations; for example, are they confrontational, or do they attempt to mediate situations? These tests are used in some organizations to help employees work together more effectively. For example, the Myers-Briggs Type Indicator inventory identifies personality types with four-letter codes; the explanation of the code provides a description of the individual's personality. These tests are used in organizations to improve organizational effectiveness and increase understanding between co-workers.

HR Ethics and Professional Standards

Both the Society for Human Resource Management (SHRM) and the Human Resource Certification Institute (HRCI) have developed standards for professional behavior for the human resource profession.

The SHRM Code of Ethical and Professional Standards in Human Resource Management consists of six core principles summarized here:

Professional Responsibility HR professionals represent their profession to their organizations. As such, they must hold themselves accountable for their decisions and ensure that their actions further the credibility of the profession.

Professional Development HR professionals are expected to continuously expand their knowledge of the profession and the organizations in which they work.

Ethical Leadership HR professionals are expected to model ethical behavior in their organizations and act as an example and guide to develop other ethical leaders.

Fairness and Justice HR professionals bear a responsibility to ensure that all those with whom they come in contact and all those in their organizations are treated with dignity and respect and afforded equal employment opportunities.

Conflicts of Interest To maintain trust in their organizations, HR professionals must avoid even the appearance of conflicts of interest and prevent situations where they appear to or actually do receive personal gain from their positions.

Use of Information HR professionals are privy to confidential information related to their organizations and the employees who work for those organizations. As such, HR professionals have a responsibility to protect this information from inappropriate uses.

The complete text of the SHRM Code of Ethics is available at www.shrm.org/about/Pages/code-of-ethics.aspx.

HRCI's Model of Professional Excellence sets a high standard of professional integrity and excellence for practitioners with expectations for honesty, reliability, fairness, and cooperation at all times. The complete text is in the PHR/SPHR/GPHR Certification Handbook.

Human Resource Technology

With the reams of paper generated during the course of an employment relationship, the advent of the human resource information system (HRIS) was a clear benefit for HR professionals. An HRIS serves two purposes: first, as a repository of information, and second, as an aid to effective decision making.

HRIS Systems

As a repository of information, the HRIS provides an electronic means of storing employment documents, thereby reducing the need to maintain physical files. In firms with multiple locations, both national and global, the ability for employees to access information through the company's intranet or via the World Wide Web reduces delays in payroll-processing tasks and ensures instant access to the information for those with the authority and need to access it. For companies required to produce reports for the Equal Employment Opportunity Commission (EEOC) or the Office of Federal Contract Compliance Programs (OFCCP), electronic access to the data needed to compile reports has increased accuracy and reduced the time required to produce them.

As an effective decision-making tool, the HRIS provides access to a wealth of information needed to make strategic decisions, such as analyzing turnover trends, creating succession plans, and projecting staffing needs.

Selecting an HRIS

As with any project, the first step in selecting an HRIS is to conduct a needs analysis and identify the following:

• What information will be converted to the HRIS, and how is it currently maintained? Table 2.2 lists some uses to consider for an HRIS.

TABLE 2.2 Uses for HRIS

Applicant Tracking	COBRA Administration
Automated benefit administration	EEO/AA reporting
Tracking recruitment efforts	Administering training programs
Eliminating duplication of data entry	Compensation administration
Tracking service awards	Tracking time and attendance
Sharing payroll information with the finance department

• Will the system need to integrate or share data with other company systems?
• Who will have access to the information, and how many levels of access will be needed (for example, to view and change individual records, view and change workgroup records, view payroll information, and so on)? Table 2.3 displays what a typical access hierarchy could look like.
• What kinds of reports will need to be produced based on the information?
• Will the HRIS be accessible via the intranet or the Web? If so, what security will be in place to protect the privacy of employees and prevent identity theft?

Once this information has been collected, research can begin on the availability and cost of a system that fulfills the requirements. This analysis should include the purchase cost for the system with a comparison to the cost of continuing to use the current system.

Implementing an HRIS

Once the HRIS installation project has been approved, some practical considerations need to be worked into the implementation schedule. If the HRIS software vendor or a third party will be handling the implementation phase, the RFP should include information about this phase of the project. If the implementation is to be done with internal IT staff, it's important to establish a timeline that works for both departments and allows the organization's HR information needs to be met during this stage.

TABLE 2.3 Typical HRIS access hierarchy

HR Access (Global Information)
Maintain employee records	Coordinate payroll administration
Administer employee benefits	Administer labor-relations programs
Post jobs	Administer safety programs
Administer compensation plan	Administer employee relations
Administer FMLA leaves	Manage recruiting
Track attendance/vacation time	Complete EEO/AAP reports
Track applicants	Administer training programs
Manage relocations
Payroll Access (Restricted Information)
View payroll information	Administer payroll
Management Access (Restricted to Work Group)
View budget/forecast reports	Manage performance
View succession plans	Administer service awards
Track attendance/vacation time	View compensation
Manage training needs	View recruiting status
Change emergency contact, address, telephone numbers, and family status	Change payroll tax withholding
View company policies	View attendance/vacation tracking
View benefit enrollment information	Open enrollment benefit changes
Bid for internal job openings	Obtain and view paycheck stubs

When implementation is complete and the system has been tested to ensure that it's functioning correctly, the new service can be rolled out to those who will be using it. If an employee self-service component is included, this means providing the necessary level of training for all employees. Using some of the training methods described in Chapter 5 could mean this happens via small group trainings with demonstrations, with self-study computer-based test (CBT) training, or by some other means that ensures those who will need to access the system are able to do so.

Employee Self-Service

Employee self-service (ESS) allows employees to access their own records through some type of automated system. This could be through a company intranet, the Internet, an automated phone system, or a computer kiosk. Providing employees with the ability to access and make changes to routine information frees HR staff to perform other mission-critical functions and gives employees 24/7 access to their information.

Table 2.3, shown previously, identifies the kinds of access typically provided in employee self-service applications. ESS systems are evolving as technical capability continues to improve and the workforce becomes increasingly knowledgeable about computer and Web use. Access to information such as skills profiles, learning opportunities, and goal-setting guidelines empowers employees and their managers to take charge of their personal development and career planning, and facilitates successful communication in these important relationships. Advances in ESS technology also reduce repetitive administrative HR tasks, freeing professionals to concentrate on other important tasks and projects.

Applicant Tracking Systems

An applicant tracking system (ATS) provides an automated method for keeping track of job applicants from the time they first apply to an organization to the point when the position is filled—and beyond, if the database is searched as new openings occur. These systems range from Excel spreadsheets to sophisticated database systems that track applicant qualifications, are easily searchable based on different criteria, and provide reports that can be used for annual EEO-1 reports or Affirmative Action Plans (AAPs). Table 2.4 presents the types of information typically captured in an ATS.

Hiring Management Systems

If ATS systems ease the administrative burden of the hiring process, hiring management systems (HMSs) take the technology to the next level. An HMS uses technology to carry the employer brand throughout the application process. It integrates with corporate recruiting websites to simplify the candidate's experience by moving data directly from candidate input to the database. This reduces errors and improves relationship management with faster response times. HMS systems can prescreen by providing questions that will help candidates self-screen out of the process if they don't meet minimum qualifications, thus reducing the time recruiters spend reviewing resumes of unqualified candidates.

An HMS also provides additional recruiter support with templates to standardize candidate communication and facilitate communication between recruiters in large organizations. Most HMS systems include customizable report writers that can be used to answer questions about specific jobs or the recruiting system in general.

TABLE 2.4 Typical ATS capabilities

Learning Management Systems

A learning management system (LMS) streamlines the administration of employee training programs. The components included in an LMS depend on organization size and the complexity of training needs. These systems can be used to automatically enroll students in required courses (such as safety trainings required by OSHA) and notify managers when employees don't attend. The programs can provide managers with access to approve training requested by employees and to identify skill-development needs in their departments or for individual employees. An LMS can maintain curriculum for required (or optional) courses and provide access on an individual, functional, or organizational basis. Other administrative functions performed by LMS programs include course calendars, facility assignments, pre- and post-testing, and report generation. An LMS can also include self-service functions that eliminate tedious administrative chores from daily HR tasks, such as registering employees, notifying participants, obtaining approvals, and maintaining waitlists. Table 2.5 summarizes the functions available in an LMS system.

TABLE 2.5 LMS system functions

An LMS is capable of managing the organization's learning tasks in a wide range of situations, from tracking attendance, maintaining training calendars, and generating reports to delivering Web-based content to participants, administering and scoring tests, and providing planning tools for managers.

The next step in LMS development seems to be Learning and Performance Management Systems (LPMSs) that incorporate functions for managing performance (including 360-degree assessments, self-evaluations, succession planning, and manager feedback) and that track individual rewards. These functions improve a manager's ability to assess performance, assign training to address areas of improvement, and prepare employees for the next level in their career growth.

Organizations that develop their own content use Learning Content Management Systems (LCMSs) to create, deliver, and modify course content. These systems allow trainers to develop content, often in a module format so a single module can be used in multiple training courses. For example, a geographically dispersed organization may create an orientation program with different modules for corporate information, employee benefit options, expense reporting, and other information common to employees throughout the organization, along with modules for each geographic location. This allows an HR professional in a regional office to provide a customized orientation that includes information specific to that office along with relevant information about the corporation at large.

Qualitative and Quantitative Analysis

Making business decisions requires accurate and reliable information; without it, for example, a decision can result in excess inventory rather than increased profits because demand for the product was less than projected. Because there are no crystal balls in the boardroom, business leaders must rely on the judgment of experienced managers and an analysis of historical data to predict possible future trends.

There are two types of research: primary and secondary. Primary research is original, meaning that the researcher has performed the research. Secondary research is based on information that has been collected or reported by others, such as books or articles by primary researchers, industry standards, or analysis of trends in an organization.

One very formal method of primary research is known as the scientific method, and although it isn't generally identified as such in analyzing business problems, the process is similar to the way in which business problems are analyzed prior to making decisions. There are five steps to the scientific method. Using a common business problem, absenteeism, the following analysis shows how these steps can be used in solving HR problems:

1. Identify a problem:

   Absenteeism is too high.

2. Create a hypothesis:

   The absentee rate is higher with new employees.

3. Decide how to test the hypothesis:

   A correlation analysis of length of employment and attendance data will confirm or not confirm the hypothesis.

4. Collect data to verify the hypothesis:

   Review employee files and attendance records. Correlate hire date and number of absences for each employee.

5. Draw conclusions/analyze the data:

   Does the correlation analysis verify or not verify the hypothesis?

The result of the analysis will either prove the hypothesis, that absences are higher among new employees, or disprove it. Sometimes, the process of analyzing data may shed light on other factors that contribute to the problem.

Another issue to consider is whether there will be a control group in the test. Using a control group tells the researcher whether the hypothesis being tested causes the result or whether the result is the same with both the group being tested and the control group.

In many situations, secondary research also provides valuable insights for HR professionals looking for ways to solve problems in their organizations. For example, the SHRM website offers a variety of white papers and toolkits created by practitioners to solve problems encountered in specific organizations. Accessing these tools provides insight into how other professionals have solved various problems common to many organizations and can be used to develop solutions without reinventing the wheel.

Data Collection

Collecting data is an important element of the analysis process; if the proper data isn't collected, any decision based on it, regardless of the method of analysis used, won't be an accurate decision. So, how do you find reliable data to use in analyzing HR problems? Here are some sources to consider:

Personnel Records Personnel records provide information used for analyzing trends. For the absentee example, personnel records describe how long each employee has worked for the company as well as how often the employee is absent from work.

Observations The hypothesis for the absentee example could have been based on the observation of a general manager who noticed that several new employees were frequently absent.

Interviews Interviews provide direct information about problems. The HR department can interview some new employees to find out how often they're absent and why. This data-collection method can provide more information than records, but its relevance depends on the frankness of the people being interviewed and their willingness to share information. In addition, interviews are time-consuming and may not be cost effective for that reason.

Focus Groups Focus groups are often used to find out how people feel about products or advertisements. They can also be an effective method for gathering information for HR analysis, but again, they're subject to the willingness of participants to open up. In a focus group, this willingness may be inhibited by the presence of co-workers or supervisors.

Questionnaires Questionnaires can be an effective means of gathering information from large groups of geographically dispersed employees but are limited in the types of data that can be collected.

Once data has been collected, there are two basic categories of data-analysis tools: quantitative analysis methods based on mathematical models and qualitative analysis methods based on the best judgment of experienced managers or SMEs.

Analysis Tools

A number of different tools are available for data analysis, and they fall into two basic categories: quantitative tools and qualitative tools. Both types of analysis have benefits and drawbacks; relying on a single method may not provide the most comprehensive analysis. Using several different tools helps minimize errors.

Quantitative Analysis

Quantitative analysis tools are based on mathematical models for measuring historical data. Several of these measures provide useful data for HR decisions. Some quantitative analyses commonly used to analyze HR and other business data include the following:

Correlation A correlation measures two variables to determine whether there is a relationship between them. For example, if the HR department posts a quarterly reminder of the referral bonus that is paid for new hires, a correlation analysis could be used to determine whether there is an increase in referrals in the weeks after the reminder.

Correlation Coefficient The correlation coefficient describes the relationship between two variables and is stated as a number between −1.0 and +1.0.

For example, say the HR department wants to find out what factors contribute to absenteeism in the company. One of the factors they decide to analyze is length of time at the company, so one hypothesis they might use is “The absentee rate is higher with new employees.”

To analyze this, they would collect two numbers for each employee: how many months employed and how many days absent. The numbers are then plotted on a graph for analysis.

If this hypothesis is correct, they would expect to see a negative correlation coefficient; that is, the shorter the length of time employed, the higher the absentee rate. This would be reflected by a negative number: for example, −.2. Figure 2.2 shows how this looks.

FIGURE 2.2 Negative correlation

A positive correlation coefficient would tell HR that the opposite is true—that the absentee rate is actually higher when employees have longer tenure with the company. This would be reflected by a positive number, such as +.8. Figure 2.3 shows what this would look like.

If there were no correlation at all—that is, if length of employment had nothing to do with absenteeism—the correlation coefficient would be 0.0, as shown in Figure 2.4.

FIGURE 2.3 Positive correlation

FIGURE 2.4 No correlation

The steeper the trend line (the higher the absolute number), the greater the connection between the two variables. In the absentee example, the positive correlation (+.8) reflects a stronger connection between a longer amount of time with the company and more absences than the example of negative correlation (−.2).

Measures of Central Tendency Central tendency is often referred to as the average. Several measures can be used in analyzing data:

Time-Series Forecasts Several time-series forecasts exist that can be used to measure historic data and provide a basis for projecting future requirements. One example of how HR uses these tools is in the area of staffing levels; but they're useful in analyzing many other areas as well, including benefit utilization, compensation trends, and the effectiveness of a recruiting system. For purposes of discussion, staffing-level analysis is used to demonstrate how each of the following tools is used:

Simulation Models Simulation models allow several possible plans to be tested in abstract form. For example, an organization that wants to know the predicted results of different staffing alternatives can use a simulation model to determine which is the most cost effective.

Ratios Ratios provide a benchmark based on the historic relationship of one variable to another. For example, the average HR staffing ratio is generally considered to be 1:100. As an organization's workforce increases or decreases, this ratio can provide an estimate of the number of staff required to provide services for the general employee population.

Qualitative Analysis

Qualitative analysis tools are subjective evaluations of general observations and information and include various types of judgmental forecasts. These tools can be as simple as an estimate made by a knowledgeable executive (for example, an experienced sales manager may be able to predict quite accurately by the end of the first month of a quarter whether the sales goal will be met). In other situations, the tools can be as involved as formalized brainstorming using a Delphi or nominal group technique.

The Delphi technique obtains input from a group of individuals who provide their expertise in succeeding rounds of questions about an issue or problem. After each round, the results are collated, prioritized, and returned to the participants in the form of additional questions for further analysis until a consensus is reached. An important factor of the Delphi technique is that the participants never meet but provide their input in written form. This technique has several benefits, including the fact that it's a viable alternative when participants are geographically separated and that it encourages a wide variety of ideas that might otherwise not be considered.

The nominal group technique is a structured meeting format designed to elicit participation from all members of the group in order to arrive at the best possible solution to the problem at hand. The process requires a facilitator and begins with a period of time for individuals to think about and write down all their ideas about the issue. After that, each participant presents one idea, which is recorded by the facilitator for later discussion. When all the ideas have been presented, the process of prioritizing and consensus building takes place until a resolution has been agreed on.

Choosing appropriate tools for data analysis provides the HR professional with a comprehensive view of what is needed to accomplish department and organization goals.

Metrics: Measuring Results

Metrics provide a standard of measurement that can be used to compare results over time. The value of this measurement for HR is that it can be used to quantify activities and programs to demonstrate the value added to the organization. The most important factor to consider in determining which metrics to use in a specific organization is a simple one: measure what is relevant and meaningful to management and what will add value to the decision-making process.

Determining which specific metrics will add value to any particular organization is best done by those who work in the organization and know how it operates and what metrics will be useful to assess past experience and project future needs. Two types of metrics are useful for HR professionals: those that measure business impact and those that measure tactical accountability. At the end of each of the following chapters, a section titled “HR Metrics: Measuring Results” provides some commonly used metrics for that functional area:

Business Impact Measures Business impact measures demonstrate how a particular HR program or activity adds value to the bottom line. Two metrics that are useful in measuring business impact are ROI and cost/benefit analysis:

Tactical Accountability Measures Tactical accountability measures provide relevant information for evaluating the effectiveness of specific HR programs. These measures identify how well programs for workforce management issues, productivity, and other HR activities are working. Some measures commonly used for this purpose include the following:

• Job satisfaction
• Organizational commitment and involvement
• Training cost per employee
• Cost per hire
• Turnover and retention
• Absenteeism and sick-leave use and frequency
• Grievance rates
• Terminations as a percent of population

Building a Business Case A business case is used to evaluate the possible consequences of taking (or not taking) a particular action, such as implementing an HRIS system, for example. A business case identifies what criteria will be used to determine success, proposes alternative ways to execute the action, and describes possible risks that could result from implementing or not implementing the proposal. An extended timeline demonstrates the impact of the program on cash flow, identifying where cost reductions or gains are to be expected. An important element is the description of the basis for quantifying benefits and costs so that those reviewing the proposal clearly understand the assumptions that led to the final recommendation or decision.

Change Management

Change management is another concept that will be more fully developed in Chapter 5. Its reason for inclusion as a core knowledge requirement is simple: change is everywhere. Processes change constantly to meet changing business needs. People change jobs. Economies change. Government regulations change. All these changes and many others must be addressed with HR programs that are flexible enough to take in the changes while continuing to serve the needs of people in the organization.

Major changes in an organization occur as the result of restructuring, mergers or acquisitions, “right-sizing,” and workforce expansions. All these changes require the workforce to adjust to new ways of operating.

For example, when mergers or acquisitions occur, two organizations, two sets of processes, two cultures, and two groups of people doing similar jobs must acclimate to each other to ensure the success of the business. The process is stressful for employees because, almost inevitably, some people will lose their jobs as the organization eliminates redundancy from its operations. Maintaining morale and productivity during this process often presents a monumental challenge for organizations and HR professionals.

A key element of managing change is ensuring that employees receive current information as soon as possible. Although management is often tempted to “wait until we have all the answers,” the absence of information creates added stress and apprehension that hinders the acceptance of change by employees. Keeping employees abreast of a situation in flux, even by telling them that all decisions haven't been made yet, builds trust that they won't be left in the dark about what is happening.

In general, people resist change for many reasons, some of which can be explained by the motivational theories discussed earlier in this chapter. Change removes the underlying sense of safety and impacts the social structures people create around them in organizations. This makes it difficult for them to accept change, particularly when there is a lack of certainty about the future. Balancing the organization's need to continually adapt to changes in the business environment with the employee's need for clarity and direction presents challenges for every functional area of human resources.

As with any other operational theory, change management is a process that can be mapped out in a logical sequence of events when working with the end in mind. Starting with the desired outcome, an HR professional can select and apply the appropriate change management theory (CMT) for their specific needs. Total quality management (TQM), business process reengineering (BPR), and Six Sigma are examples of CMTs that are explored in more detail in Chapter 5.

For the exam, it isn't enough to have some basic knowledge of these types of theories. The BOK specifies that the student will have an understanding of the theory, methods, and application of change management.

Job Analysis and Description

Job analysis and job descriptions provide the foundation for much of what happens in the employment relationship. The job description compiles all the information collected during the job analysis into a document that is used for multiple purposes in the organization, beginning with the hiring process:

• Based on the job description, the recruiter screens applicants to ensure that their KSAs are appropriate for the position.
• The applicants for the position use the job description to find out what they will be required to do if the position is offered to them.
• The job description is the basis for performance management and appraisal.
• The job description is the basis for determining the appropriate level of pay for the work that is done.
• The job description includes the essential job functions and provides a guideline for employees who request reasonable accommodation for disabilities.

Job descriptions are also used to determine competitive compensation, to classify employees properly for equal-opportunity and affirmative-action reports, and for many other aspects of employment. It's essential, therefore, that these processes produce full and complete information about the jobs in the organization.

Job Analysis

The purpose of job analysis is to define a job so that it can be understood in the context of accomplishing organizational goals and objectives. To do this, information that describes the work to be done must be collected. Information can be collected during the job analysis process in several ways:

• Interview the incumbent if available.
• Interview the supervisor or a group of co-workers.
• Complete a structured or an open-ended questionnaire.
• Complete a task inventory.
• Observe incumbents and make notes.
• Use work logs kept by incumbents.

The information gathered during the analysis is summarized in a job description that is used for the various purposes described previously.

Job Descriptions

Job descriptions are written documents that contain information about a job. The description includes the following information:

Identifying Information The job description is identified with the title of the position, department, supervisor's title, Fair Labor Standards Act (FLSA) exemption status, salary range or grade, and the date it was created.

Supervisory Responsibilities If the position has responsibility for supervising others, a description of those leadership responsibilities is listed in this section.

Position Summary The summary provides a brief overview of the job and its primary purpose, usually two to five sentences.

Essential Functions Essential job functions are the reason the job exists and must be performed by the incumbent. This information is required to comply with the Americans with Disabilities Act (ADA), to be discussed in Chapter 4. Each function should include a description of the level of complexity and the frequency of tasks. As appropriate, the functions describe relationships that the incumbent will have, including supervisory, with co-workers in the work group, with co-workers in other departments of the company, and any external relationships with vendors or customers, and the level of interaction that will take place in these relationships.

Nonessential Functions Nonessential job functions are those that could be performed as part of another job in the organization. For ADA purposes, these functions could be moved into other jobs as a reasonable accommodation for a disabled employee who is fully qualified to perform the essential job functions.

Equipment Operated This section lists tools or equipment that will be used and the frequency of use. This includes use of the computer, telephone, and production equipment; any hazardous equipment or tools that will be used; and protective gear or uniforms that will be required.

Job Specifications Job specifications state the minimum qualifications needed for successful performance. Depending on the job, some or all of the following may be required specifications:

Physical Requirements Any physical requirements must be described to comply with the ADA. The physical requirements must be related to the essential job functions.

Mental Requirements For ADA purposes, describe the level of mental acuity required to perform essential job functions.

Work Environment The work environment is described, whether it's in an office setting or includes any hazardous equipment or locations that will impact the employee. If stairs or ladders must be used or the job will require work in confined spaces, this must be included as well.

Approvals The job description should be signed by the manager to verify its accuracy.

During the job analysis process, it's important to keep in mind that the analysis focuses on the job, not the person. Particularly when a high-performing employee has been in a particular job for any length of time, it can be difficult to separate what the employee brings to the job from the job's main purpose.

Employee Records Management

Not surprisingly, mounds of paperwork are generated in the employment process; resumes, applications, references, government forms, and performance evaluations are just a few of the many documents created for each employee. In enacting employment legislation, Congress has mandated retention requirements for various documents that, unfortunately, aren't consistent. In addition, many state and local governments have retention requirements that differ from federal requirements.

Table 2.6 lists federal document-retention requirements for the PHR/SPHR exams; these may be different from the state and local requirements where you practice, so keep that in mind while you're studying. As with any other conflicting requirements, documents should be retained in accordance with the strictest requirement.

TABLE 2.6 Federal employment document-retention requirements

Interrelationships Among HR Activities

It has become increasingly important for HR practitioners to understand how individual HR programs, processes, policies, and functions interact with each other. Particularly for SPHR candidates, the ability to link together various aspects of best practices and legal requirements from a variety of functional HR areas, along with being able to evaluate the impact of these activities as a whole, is crucial to exam success. The Real World Scenario “Changing the Compensation Plan” demonstrates how the functions interact.

Probably the best example of the way HR programs and activities connect to each other is the area of talent management. This activity unites the HR functions that build, retain, develop, and manage a workforce capable of taking an organization into the future. The talent-management approach incorporates several human resource activities—planning for future workforce needs; recruiting, retaining, and developing employees; managing their performance; and creating a positive and supportive culture.

Chapter 4 describes how workforce planning, including recruitment and retention, is used to attract individuals with the right skills. One of the tools used to retain key employees is development, discussed in Chapter 5. Another element of talent management discussed in Chapter 5 is an effective performance-management program that provides ongoing feedback to employees so they can continue to improve their skills and knowledge. Chapter 7 discusses the importance of a positive organization culture and the impact it has on the retention of qualified, productive employees.

There are two schools of thought about which employees should be included in talent-management initiatives. Some organizations take a very narrow view, and talent management focuses on high-potential employees being groomed for leadership positions. Other organizations take a broader view, recognizing the need to retain talented individuals at all levels. Although it's crucial to have talented, effective individuals at senior organization levels, front-line employees are often more visible to customers, and the impact these individuals have in one-on-one interactions affects organization success. Management philosophy and budget constraints have an impact on which philosophy is embraced in different organizations.

Data collection is critical in assessing the need for HR activities across departments. Taking part in the strategic planning process allows HR to anticipate interventions, plan for training and development programs, and reallocate resources depending on the needs of the strategic initiative. For example, a company that plans to expand overseas will need the help of HR to consider offshoring business functions, remote talent-management plans, compensation structures, and cultural implications. The development of new products or services is another example of a strategic initiative that would require the aid of HR. Analyzing the new work, assessing the talent availability of the internal and external labor force, and reviewing potential safety issues are examples of how HR can influence the success of this type of organizational strategy.

Understanding the impact of individual programs on the HR function, as well as on the organization as a whole, is key to increasing the strategic value of HR to organizations. As you study the material in this book, keep in mind the possible impact of the various principles, theories, laws, and regulations on HR activities and programs. In this way, you'll gain a better understanding and appreciation of their role in HR.

Organizational Structures

Keeping a large group of people with different perspectives and assignments moving in the same direction is a challenge for organizations. Organizational structures were designed to provide a framework that keeps information flowing to the functions and employees who need it to keep the organization moving forward. Some structures are more successful at this than others, and over time, as the business environment changed, different structures were developed to solve the shortcomings of traditional structures. In some cases, organizations may use different structures in different business units. For example, the vice president of sales in an organization with a functional structure reports to the CEO, but the sales organization may be organized with a geographic or product structure for the most efficient management of the sales operation:

Functional Structure The functional organization structure is represented by the traditional pyramid-shape organization chart with which most people are familiar. It's a hierarchical structure in which communication moves from the top down and from the bottom up. These structures are more formal and rigid than some other structures and are appropriate for businesses with a single product line where specialization is an advantage. In this structure, each functional area reports to the CEO. Functional organizations are generally very centralized. Figure 2.5 depicts the traditional functional structure.

FIGURE 2.5 Functional organization structure

Product-Based Structure A product-based organization structure, also known as a customer-oriented structure, is organized by product line and is appropriate when the company has well-defined product lines that are clearly separate from each other. In this structure, each product line reports to the CEO; these structures lend themselves to either centralized or decentralized decision-making processes. Figure 2.6 displays a product-based structure.

FIGURE 2.6 Product-based organization structure

Geographic Structure In a geographic organization structure, executives of regional areas are responsible for all the business functions in their assigned region; the regional executives report to the CEO. Structuring an organization in this way is appropriate when there are common requirements in the region that are different from the requirements in other regions. Geographic structures are decentralized, with most decisions being made at the local level. Figure 2.7 depicts a geographic structure.

Divisional Structure A divisional organization structure has characteristics similar to that of the geographic structure, but the divisions may be based on criteria other than geography, such as the market or industry. Like the geographic structure, divisional structures are characterized by decentralized decision making. Figure 2.8 shows a sample division structure.

FIGURE 2.7 Geographic organization structure

FIGURE 2.8 Divisional organization structure

Matrix Structure In a matrix organization structure, employees report to two managers. Generally, one manager is responsible for a product line, and the other has functional responsibility. For example, the VP of marketing and the production manager for a specific product would both supervise the marketing coordinator who is creating collateral for the product. A matrix organization is advantageous because it encourages communication and cooperation; it requires a high level of trust and communication from employees at all levels to ensure that contradictory instructions are minimized. Figure 2.9 depicts a matrix structure.

FIGURE 2.9 Matrix organization structure

Seamless Organization A seamless organization is one in which the traditional hierarchies don't exist—it's a horizontal organization connected by networks instead of separated by the boundaries that characterize other organization structures. The purpose of this structure is to enhance communication and creativity. Seamless organizations wouldn't be possible without the technology that allows employees to connect with each other via email and the Internet from anywhere in the world. This technology enables employees to meet with co-workers who have specialized knowledge without the expense of traveling.

Environmental Scanning Concepts

To develop a strategic plan and set the future direction of a company or develop human resource programs to support its growth, leaders need to know what is going on in the organization, in the industry, and in the marketplace, and they need to know how technological developments will affect operations. An environmental scan provides the framework for collecting information about factors relevant to the decision-making process and can help management make decisions that take advantage of existing opportunities and avoid pitfalls. There are two elements to the scanning process: internal assessment and external assessment. A number of planning tools are available to collect the information.

Conducting a comprehensive environmental scan can be a challenge; a great deal of information is available from many sources, and finding the information that is relevant to the specific business can be time-consuming. In addition to the information available from industry associations, government agencies, and trade organizations, customers and suppliers are excellent sources of information for a specific business. Many business-focused cable television channels present in-depth program segments on pertinent topics such as unemployment and inflation (among others), and business publications also provide in-depth examination of some topics. A wealth of information is available—the challenge comes in finding what is most appropriate for a specific organization's needs.

Environmental Scanning Tools

A number of tools are available for use in the scanning process. Let's take a look at some that are commonly used:

Statistical Models A number of quantitative analysis models that can be used to identify trends were described earlier in this chapter. These are useful internally (to analyze turnover rates, for example) and externally (to analyze customer buying habits).

SWOT Analysis A SWOT analysis looks at the strengths, weaknesses, opportunities, and threats that are facing the organization. Strengths and weaknesses are internal factors that can be controlled by the organization; opportunities and threats are external factors that may impact an organization's plans:

PEST Analysis A PEST analysis (also sometimes referred to as a STEP analysis, depending on how the words are arranged) scans the external environment to identify opportunities and threats as part of the SWOT analysis. PEST is an acronym for political, economic, social, and technological factors. PEST is discussed in more detail in the “External Assessment” section.

Porter's 5 Forces Porter's 5 Forces is an analytical tool created by Michael E. Porter, PhD, a professor at Harvard Business School who has written extensively on business planning and strategy. In his book Competitive Strategy: Techniques for Analyzing Industries and Competitors, first published in 1980 by Free Press, he described five forces that are found in all industries. These forces include new competitors, suppliers, buyers, alternative products available to consumers, and the type and level of competition in the industry. The importance of these factors in strategic planning is discussed more fully in the “External Assessment” section.

Internal Assessment

Leaders need a firm grasp of the talent and resources currently available in the organization. Some areas to consider in an assessment of strengths and weaknesses include the following:

Credibility of executive team	Market penetration
Strength of management team	Customer service reputation
Organization culture	Market share
Workforce diversity	Customer loyalty
Current product quality	Level of sales
Time to market	Employee loyalty
State of technology	Turnover rate

The areas to be reviewed depend to a certain extent on the nature of the business but should include an assessment of performance in every function of the business.

This information can be collected in a number of ways: questionnaires, qualitative analyses, focus groups, surveys (of customers, suppliers, and employees), stakeholder interviews, and other information-collection techniques as discussed earlier in this chapter.

External Assessment

Scanning the external environment presents more challenges than does an internal assessment because the vast amounts of information available must be sought in a wide variety of locations. Tools such as the PEST analysis and Porter's 5 Forces analysis can assist in narrowing down what kind of information needs to be collected. The PEST analysis provides a guide for collecting information related to the general business environment:

Political The political environment includes such things as increased government regulations and events that influence them, such as massive business frauds. A recent example of this is the impact of the Sarbanes-Oxley Act of 2002 (SOX), enacted by Congress in response to the Enron and WorldCom scandals. Less spectacular but equally important considerations for business planning purposes include changes in employment regulations such as the changes to overtime regulations proposed by the DOL in 2003–2004 and changes to the FMLA regulations that took effect on January 16, 2009.

For multinational corporations, consideration must be given to political situations in each country of operation, including the stability of the government in some countries, restrictive trade policies, and the friendliness of the government to foreign investment.

All countries and businesses are now faced as well with the threat of terrorism that has negatively impacted sales in the travel industry; however, products related to security have a wider market in this situation.

Economic The most obvious example of economic concerns has to do with the strength of the economy—can customers afford the organization's products? The unemployment rate is a key factor here, along with interest rates, inflation, and changes in fiscal policy.

For investment and expansion purposes, the stock market impacts the ability of a business to raise capital, and the price of real estate can add to the cost of purchasing or leasing new facilities. The strength of the dollar and the rate of inflation must both be considered when creating a long-term strategy.

Social The demographics of the target market must be considered in long-term planning as well. If an organization's products are targeted at young adults, for example, and that population is static or decreasing, the organization must either change its products or find new markets for them. For multinational corporations, analyzing the social factors of widely diverse markets around the world can prove challenging, but it's essential to ensure that the long-term planning will result in a strategy that increases the success of the business.

Technological The rate of change in technology varies in different industries, as does the cost of purchasing new technology. Technology affects the level of automation in an organization, and that impacts the overall cost of products. From cell phones to handheld computers and robotics on production lines, advances in technology affect how work is done and must be considered in the environmental scanning process.

Although the PEST analysis provides a guide for scanning the general business environment, Porter's 5 Forces analysis hones in on issues specific to the industry in which the organization operates. It's critical to understand these industry-specific factors and address them during the planning process. The following questions gather the information necessary to conduct the analysis:

How likely is it that new competition will enter the market? A market with great demand for a product that is inexpensive to produce and requires little initial investment will encourage new competition. This puts pressure on the organization to maintain a competitive price or to differentiate its product on some basis to maintain market share.

How reliant is the organization on its suppliers? When an organization produces a product requiring a unique part that can be obtained from only one supplier, the organization may find itself at the mercy of the supplier should it decide to raise the price of the part, discontinue it, or change it substantially.

How diverse is the organization's customer base? A company reliant on one or only a few customers may find itself being pressured to lower prices, particularly if the product is easy to obtain from other sources.

Are comparable replacement products available to customers at a reasonable cost? A serious threat to the organization's customer base will be present if a product is generic and similar products made by competitors are easy to obtain at a similar or lower price.

What is the level of competition in the marketplace? The level of competition in the market will, to a certain extent, limit the strategies available to an organization wanting to enter that market. A market dominated by one or two large competitors holding the bulk of the market share presents quite a different challenge than a new, untapped market with a few small competitors.

You can find a more detailed discussion of Porter's 5 Forces at www.quickmba.com/strategy/porter.shtml.

Employee Attitude Assessment

Gathering information about employee attitudes and opinions provides insight into how well the organization is meeting employee needs and the level of engagement in the employee population. An employee attitude assessment also provides input for changes to a benefit package or other HR programs. Employee attitudes impact productivity, and conducting an assessment can help an organization diagnose what is causing low productivity or morale. Once problems are identified, programs can be designed to address the issues and improve productivity. Various methods are used to collect this information, including surveys, interviews, and focus groups:

Employee Surveys Employee surveys can be used to gather information on any number of issues and are effective for large numbers of employees. Surveys can be developed in-house or outsourced to companies that specialize in developing and conducting them regularly. Outsourcing a survey can result in more honest feedback because the identity of participants can be protected.

Interviews One-on-one interviews are used to gather in-depth information about individual attitudes and perspectives. This method of collecting information is best for collecting detailed information about, for example, a complex work process. When information must be gathered from large groups of employees, however, interviews are an inefficient and time-consuming method.

Employee Focus Groups When it's impractical to solicit input from all employees, a focus group consisting of a cross section of employees from various departments and levels in the organization can be used to solicit employee input.

Whichever method is selected, it's important to give all employees an opportunity to be heard and to collect information on a wide variety of topics, from the effectiveness of individual managers to organizational climate and specific policies. Employees must feel safe to provide honest feedback, and this is most often accomplished by making the survey anonymous. The most important result of employee attitude assessment is the ability to identify trends that are affecting morale and productivity.

Basic Budgeting and Accounting

The finance function is responsible for creating and maintaining accounting records and managing organization budgets. HR professionals at the management level are often expected to participate in the budgeting process not only for HR-specific expenses but also by providing compensation and benefit information that is incorporated in the overall organization budget. Although closely related, accounting and budgeting activities have different goals.

Accounting

The accounting function creates reports to summarize the results of business activity, including the balance sheet, income statement, and statement of cash flows. All accounting reports are produced at the end of accounting periods, which are generally monthly, quarterly, and annually. The annual reporting period can be defined as any 12-month period and doesn't necessarily coincide with a calendar year (January through December). An annual reporting period that is different from a calendar year is known as a fiscal year. Many companies, for example, have fiscal years that begin on July 1 and end on June 30 of the following calendar year.

The balance sheet is a picture of the financial condition of the organization on a specific day, usually the last day of the accounting period. Information on the balance sheet includes the company's assets, liabilities, and equity. This report is known as a balance sheet because the total of the liabilities and the equity must equal the total of the assets as represented by the balance sheet formula:

Assets = Liabilities + Equity

The income statement, sometimes referred to as the profit and loss statement (P&L), provides information about the financial results of operations during the reporting period. The report informs readers how much revenue was produced from various sources, how much it cost to produce the goods or services, what the overhead expenses were, and what the profit or loss for the period was.

The statement of cash flows provides important facts about the money that flowed through the business during the accounting period: where it came from and what it was used for. This statement shows how much cash was a result of sales, how much was spent to produce the products that were sold, how much money was borrowed or came in as a result of new capital investments, and how much was invested in assets.

HR professionals need to understand some basic accounting terminology and be able to read and understand financial reports in order to be effective strategic partners in their organizations. Table 2.7 provides definitions for some common accounting terms.

TABLE 2.7 Common accounting terms

Term	Definition/Description
Accrued expense	Expenses, such as vacation leave, that have been incurred but not yet paid
Accounts payable	Money owed by the business to its suppliers
Accounts receivable	Money owed to the business by customers
Assets	Tangible or intangible items of value owned by the business
Audited financial statements	Financial statements that have been examined by an independent auditor (not affiliated with the company) to determine whether they fairly represent the financial condition of the business
Budget	A projection of revenue and expenses used to control actual expenses
Cost of goods sold	Money spent on supplies and labor to produce goods or services
Equity	Value of the business to owners after all liabilities have been paid
Expense	Money spent to operate the business
Generally accepted accounting principles (GAAP)	Standards established by the Financial Accounting Standards Board (FASB) for recording financial transactions
Gross profit	Sales revenue less cost of goods sold
Liability	Money owed by the business to others, such as lenders or the government (for payroll taxes withheld), or to employees (for unused vacation time)
Net profit	Gross profit less operating expenses
Profit	Money earned by the business after all expenses have been paid
Retained earnings	Net profits that aren't distributed to owners but remain in the business as equity
Revenue	Money received from customers for products or services

Budgeting

The budgeting process determines how many and what kind of resources will be required to accomplish goals and objectives generated by the strategic plan. Whether the plan requires additional employees, funds to outsource elements of the plan, new technology, or new equipment, these elements determine how much cash is needed to achieve the goal. There are two basic ways to create a budget; the first is based on historical budget information, and the second is known as zero-based budgeting (ZBB):

Budgets Based on Historic Information A historic budget bases the current budget on the prior year's budget. Past budgets and expenditures are reviewed and the new budget is based on the historical trends. In some cases, the amounts in the budget are increased by a flat percentage rate, based on inflation or anticipated salary increases. This method assumes that operationally, nothing will change from the last budget.

Zero-Based Budgeting (ZBB) The concept behind ZBB is very simple: assume you're starting from scratch, and determine what is needed to achieve the goals. How many people will be required? How much will you need to spend on outsourcing? What will be the cost of new technology or equipment? Unlike the historic budget process, ZBB requires that the need for each expenditure be justified in terms of the new goals and action plans.

As part of a zero-based budget planning process, HR examines all the programs offered to employees to determine whether they're still adding value to the organization. Programs that no longer add value are dropped and replaced with those that do add value; or, if cost cutting is required, are dropped and not replaced.

Regardless of the way in which the budget is developed, it can be created from the top down, from the bottom up, or with a combination approach:

Top-Down Budgeting The top-down budget is created by senior management and imposed on the organization. Managers with operating responsibility have little input on how much money they will have to achieve their goals. This process is advantageous to senior management because they have complete control of how and where the money is spent. The disadvantage is that those creating the budget are generally far removed from actual operations and may not have full knowledge of what will be needed to achieve the goals they establish. This method often results in political battles as mid- and lower-level managers lobby senior management for additional funds for their particular departments.

Bottom-Up Budgeting The bottom-up budget includes all managers with budget responsibility in the budget-creation process. Managers with direct operating responsibility for achieving goals develop a budget based on their knowledge of operating costs and provide the information to senior managers who have a view of the big picture for the organization. One advantage of this process is the commitment of operating managers to a budget they helped to create. Disadvantages include the amount of time required, the lack of awareness of the organization's big picture on the part of operating managers, and initial budget requests that may be unrealistic.

Parallel Budgeting A parallel budget includes elements of both the top-down and bottom-up approaches: senior management provides broad guidelines for operating managers to follow in creating budgets for individual departments. This approach gives operating managers a context for developing individual budgets that are more realistic.

The end result of the budget process is a projection of expected revenue and costs needed to generate the revenue. Budget reports also include a cash flow projection that is used to prepare for short- or long-term shortfalls of cash, such as might occur in a seasonal business when the cash that comes in during the sales period (such as Christmas or Mother's Day) must support expenses that occur over a longer period of time. A separate report, known as a capital budget, is used to project asset purchases, such as buildings, machinery and equipment used in manufacturing, or computers.

Risk Management

Each day, business owners and managers take risks; some of the most successful businesses in existence today are the result of someone moving ahead in spite of an uncertain outcome. In some ways, business is all about taking risks of one kind or another. Some risks have positive results (Steve Jobs took a risk when he returned to lead Apple Computer after several years of absence and reinvented the Mac). Other risks have the potential to threaten not only business results but lives (a tire manufacturer that cuts corners during the production process, resulting in deaths when the tires fail at high speed on a freeway).

Businesses can choose to manage risk on an ad hoc basis, dealing with issues in a reactive way, sometimes known as the fire drill or crisis management method. In this situation, risks are either unrecognized or ignored until a problem occurs, and then they're dealt with by having employees stop other work to resolve the crisis. This lowers productivity and can create a stressful work environment for employees if it's a regular occurrence. Another reactive way that companies manage risk is to address risks as soon as they're recognized and before they grow into crises. This approach also disrupts workflow and can reduce productivity.

A proactive method for addressing business risks is a systematic approach known as risk management. There are four basic steps to managing risk:

Identifying the Business Assets Subject to Threats Risks to an organization come in many forms, including such events as accidents, product failures that harm customers, natural disasters, failure to comply with government regulations, inadequate internal controls, and others.

In the human resource function, risks are often in the form of liability for questionable employment actions. Liability is a legal term that refers to a duty or responsibility owed by one party to another. A liability can result from an agreement or a contract or can be created through a tort. A tort is another legal term that describes an action that injures someone. Torts aren't related to laws or contracts but can result in legal action: the party who has been injured is able to sue the wrongdoer and collect damages for the injury that has been done.

Other human capital related risks to the business may involve nonlegal issues such as high turnover of key talent, failure to plan for executive or key position succession, or lack of qualified talent to achieve strategic goals.

Assessing/Analyzing the Types of Possible Threats A risk analysis looks at each asset and the possible threats to it. For example, cash is subject to embezzlement, the assembly line could be negatively affected by equipment failure, or an HR policy could become noncompliant after a change to an employment law.

The risk analysis makes it possible for a risk assessment to take place. The risk assessment examines each risk identified in the risk analysis and considers the probability that each risk will occur and the consequences to the company if it does occur. The level of risk involved can be measured with the following formula:

Risks = Probability × Consequences

The formula expresses the level of risk as a function of how likely (probable) the risk will occur against the cost to the business (consequences) if it did occur.

For example, a typical risk for HR is the filing of an employee lawsuit because of noncompliance with an employment law that could lead to a judgment or settlement for the plaintiff. If an employment attorney reviews company policies on a regular basis, the probability of the risk occurring falls, and the consequences (amount of the possible settlement) are lowered.

Managing Threats Through Prevention or Mitigation When all asset risks have been identified and prioritized, company management can decide to manage the risks in one of four ways:

• Risk mitigation means steps are taken to reduce the risk. In the previous example, having employment policies reviewed on a regular basis mitigates the risk of an employee lawsuit.
• Risk acceptance means the company is aware that the risk could occur, but because there is a lower probability or consequence, management takes the risk that it either won't occur or will be easily managed if it does occur.
• Risk avoidance means the company takes steps to avoid the risk. For example, in a unionized environment during contract negotiations, the risk of sabotage to production equipment increases. This risk could be avoided by adding security guards to the facility until the new contract is accepted by both parties.
• Risk transfer is usually accomplished by purchasing insurance. With regard to HR risks, an important policy for businesses to maintain is employment practices liability insurance (EPLI). EPLI protects employers against lawsuits brought by current or former employees. During the application process, an insurance company evaluates the employer's human resource policies and any lawsuits or claims filed by employees or former employees. These factors, along with considerations of the employer's operations and size, are used to determine whether an EPLI policy may be issued and the amount of the premium to be paid.

A cost-benefit analysis for each risk provides a basis for deciding which risks will be mitigated, accepted, avoided, or transferred based on the resources available.

Review/Monitor With changing circumstances and operating processes, risk-management decisions need to be monitored on a regular basis to ensure that resources continue to be allocated appropriately to maximize risk-management benefits.

As will be discussed in Chapter 7, liability for wrongful actions in employment relationships costs businesses millions of dollars in judgments for many different types of torts, from wrongful termination to sexual harassment and discrimination. In their risk-management role, HR professionals inform managers of the legal exposure that may result from making adverse employment decisions. When senior managers understand the possible consequences, including the costs of defending a lawsuit, they can take steps to mitigate, avoid, or transfer the risk.

Many HR risks can be managed by educating managers about the exposure created by unlawful practices or inconsistent application of policy in an organization:

• Identify possible exposures to legal action (for example, inconsistent policy application).
• Audit the organization's employment practices.
• Educate managers on the possible costs that could result from unlawful employment actions or inconsistent policy application.
• Develop a plan to reduce the risks, and obtain top management support.
• If losses related to employment issues have occurred in the past, develop a way to present a plan to top management for reducing the costs of these losses.

Summary

This chapter provided an overview of the core HR knowledge requirements, which have implications in all the HR functional areas and are the basis for understanding responsibilities in those areas.

Each of these requirements is the subject of many books, articles, and seminars, and some are even the basis for entire professional associations or certification programs in their own right. If, after reading this chapter, you feel the need for additional information about any of these topics, the Internet or your local library will provide additional resources to enhance your knowledge. Appendix D, “Resources,” toward the end of this study guide also provides some resources that may be helpful.

Keep in mind that it's most important to understand the concepts introduced in this chapter and the way they apply to the functional areas of the body of knowledge.

Exam Essentials

Be able to describe how HR programs interact. It's important to understand the ways programs or policies developed for one functional area impact others. For example, the compensation policy will affect the quality of candidates attracted by the company, turnover rates, the ability of the company to maintain union-free status, and employee job satisfaction.

Be able to describe the needs assessment and analysis process. Needs assessment/analysis is a process used to obtain information about what a business needs to meet its goals. There are seven steps in a needs assessment: describing the objective, defining the current situation, conducting a gap analysis, setting priorities, developing options, determining the costs, and recommending the solution.

Understand the uses of a third-party contract. Third-party contracts are used for various functions in the HR department. Choosing a third-party contractor begins with a needs assessment to determine how best to serve the needs of the organization. The RFP process provides an organized way to select the best option for the needs of the business.

Be able to describe communication strategies. To ensure that the right information is provided to employees when they need it and that there is a mechanism for senior management to hear from employees, a communication strategy must be developed based on what information is needed, who needs to hear it, who will provide it, and when it will be delivered.

Understand the basic concepts associated with andragogy (adult learning theory) and adult learning styles. Andragogy, also known as adult learning theory, is built on concepts that say adults are autonomous, self-directed, goal-oriented, relevancy-oriented, and practical, and that they need respect. Also, adults build new knowledge on a foundation of life experiences. Adult participants react either positively or negatively to training as a result of the presence or absence of these characteristics. Adult learning styles include auditory, visual, and tactile/kinesthetic.

Be able to recognize and describe various motivation theories. Motivational theories help HR professionals and managers understand why employees behave the way they do and develop programs that result in highly motivated, productive workers.

Understand the uses for qualitative and quantitative analysis methods. Quantitative analysis is based on mathematical models, such as correlation and measures of central tendency. Qualitative analysis is based on more subjective judgments based on secondary research.

Be able to describe the benefits of workplace diversity. A diverse workforce is more creative and better reflects the customer population. Increasing diversity in the workforce provides access to more qualified candidates; this is important because of the projected shortfall of qualified workers over the next decade.

Understand the HR Code of Ethics. The HR Code of Ethics developed by SHRM requires HR professionals to maintain standards of professional responsibility and development, provide ethical leadership in their organizations, ensure fairness and justice in their organizations, avoid the appearance of conflicts of interest, and use confidential information appropriately.

Understand the difference between job analysis and job descriptions. Job analysis is the process used to identify and determine duties associated with a particular job; job descriptions are the end product. Typically, job descriptions document a job's major functions or duties, skill and physical requirements, and working conditions.

Understand metrics and how they're used in HR practice. Metrics provide a means for quantifying HR programs and activities to exhibit the value added to organizations. The best metrics are those that provide relevant information to management and add value to the decision-making process.

Review Questions

You can find the answers in Appendix A.

1. A department manager advises you that the productivity of his data-entry operators is unsatisfactory and asks you to develop a training program to improve their data-entry skills. What is your first step?
   1. Conduct a needs assessment.
   2. Develop a lesson plan.
   3. Talk to other managers to validate the situation.
   4. Select a training method.
2. For several months, the management team has been struggling to come to grips with the need for a formal succession plan. About 30 percent of the workforce will reach retirement age within 10 years, and little has been done to prepare for the loss of knowledge in key roles that will occur as employees begin to retire. The team has come to a consensus that what is needed is a comprehensive plan, one that includes a mentor program for each of the key positions, identification of key skills that will need to be replaced, a recruiting strategy that attracts qualified candidates who are looking for longevity, and creating a more open culture. Which of the following can be used to accomplish these goals?
   1. Create a succession plan.
   2. Create a knowledge-management program.
   3. Create a talent-management program.
   4. All of the above.
3. Based on an analysis of the industry and labor market trends, a VP of Human Resources has determined that the best course of action for her company is to change from a narrow to a broadband salary structure. The current structure has been in place for more than 15 years, and the VP is anticipating strong resistance to making the change. Which of the following tools should the VP use to convince the executive team to make the change?
   1. Calculate the return on investment.
   2. Build a business case.
   3. Calculate the cost-benefit analysis.
   4. Conduct a SWOT analysis.
4. Maslow's hierarchy of needs does not include the following need:
   1. Social
   2. Safety
   3. Growth
   4. Self-actualization
5. Rachel has worked in accounting for six years. She has always been a steady performer, but recently she has made several costly errors in her work. The accounting manager, Rachel's boss, has talked to her several times, but no improvement has taken place. What is the most appropriate action the manager should take?
   1. First written warning
   2. Verbal warning
   3. Decision-making day
   4. Coaching
6. What is the purpose of a diversity initiative?
   1. To educate all employees about other groups in the workforce
   2. To increase the diversity of the workforce
   3. To increase organizational creativity
   4. To increase the comfort level of employees
7. Which of the following is not an appropriate use of an HRIS?
   1. Tracking applicant data for the EEO-1
   2. Tracking time and attendance
   3. Tracking employee expense reports
   4. Maintaining employee records
8. The middle value when values are arranged in order from high to low is which of the following?
   1. Mean
   2. Median
   3. Mode
   4. Moving average
9. Which of the following is a basic principle behind job analysis?
   1. The analysis focuses on the job, not the person.
   2. The analysis focuses on the person doing the job, not the job.
   3. The analysis is limited to task inventories and questionnaires.
   4. The required qualifications should include everything the manager would like the employee to have.
10. After conducting a risk assessment, what can you do to protect the company against any identified risks?
    1. Identify policies that are applied inconsistently throughout the organization.
    2. Obtain employment practices liability insurance.
    3. Develop a plan to reduce the risks.
    4. Present management with a plan for reducing the risks.
11. Offering training in cross-cultural conflict management is one example of what?
    1. An industry best practice
    2. Generational diversity effort
    3. Cultural competence
    4. Qualitative analysis
12. The best way for HR to contribute to the development of an organization's strategic plan using internal business operational factors is to do which of the following?
    1. Interpret and apply internal operational information such as the relationships between departments
    2. Scan the legal and regulatory environment
    3. Analyze industry changes
    4. Stay informed of technological developments
13. Which of the following is not a benefit of hiring a multigenerational workforce?
    1. A multigenerational workforce increases the availability of different perspectives for use in management decision-making.
    2. Recruiting for a multigenerational workforce increase the applicant pool from which to choose employees.
    3. A multigenerational workforce is a reflection of the population, considering the large number of baby boomers who are reaching retirement age.
    4. A multigenerational workforce increases an organization's productivity.
14. Computer-based training, web-based training, and virtual learning are all examples of what?
    1. Mobile learning
    2. Self-directed learning
    3. Electronic learning
    4. Asynchronous training
15. Gathering information about employee attitudes and opinions through surveys and focus groups provides__________employee levels of engagement.
    1. Intuition about
    2. Instruction for
    3. Individual measurement of
    4. Insight into
16. Which of the following is another term for a profit and loss statement?
    1. Income statement
    2. Statement of cash flow
    3. Balance sheet
    4. Fiscal year summary
17. Which of the following organizational structures would be most effective for a company with three distinct commodities for sale?
    1. Functional structure
    2. Product-based structure
    3. Divisional structure
    4. Flat-line structure
18. According to the Toxic Substance Control Act, documentation of hazardous material exposures must be kept on file for how many years?
    1. 5
    2. 15
    3. 25
    4. 30
19. Why is a job analysis important?
    1. It provides the supervisory responsibilities necessary to accomplish organizational goals.
    2. It allows for proper training and development of key personnel.
    3. It provides the foundation from which all other HR activities are designed.
    4. It ensures compliance with EEO laws.
20. Which of the following methods of quantitative analysis would be most effective for an organization with data that is out of date?
    1. Trend analysis
    2. Weighted average
    3. Simple linear regression
    4. Mode