Stanford GSB: Stanford Business November 2000

Stanford Business

November 2000, Volume 69, Number 1

Human Resource Management
The Many Faces of Human Capital

With its mix of economists, psychologists, and sociologists, HR management covers a lot of territory at the Business School.

SINCE THE EARLY 1990s, the Business School has made a concerted effort to develop its research and teaching in human resource management and organizational behavior. "Some years it has been experimental, but it has worked out well because we're an interdisciplinary and eclectic group," says economist Edward Lazear. "One of the things we can say about the human resources curriculum at Stanford is that it has been a success."
Human resources covers a lot of territory, especially at the Business School, with its mix of economists, psychologists, and sociologists. Lazear's bailiwick is personnel economics, an area in which he has led much of the research. Developed during the last 20 years, personnel economics applies microeconomic principles to human resource issues. "The idea is to take formal analysis and back it up with evidence from the real world," says Lazear, who is the Jack Steele Parker Professor of Human Resources Management and Economics.

In one such study, Lazear found a natural experiment in Safelite, a windshield manufacturing company that had just switched from paying hourly wages to piece rates. Under the new system, a worker would still earn $88 a day by producing up to 4.4 windshields. But if the employee could produce six windshields a day, he or she could earn $120. Productivity leaped 44 percent in six months. Half the increase was in turnover. Unmotivated people tended to be replaced with people who wanted to earn more. "Here's a situation where turn-over was quite useful," says Lazear. "It's a quintessential form of personnel economics." Another case involved the rapidly declining age of retiring workers in the Netherlands. Simply by changing pension plans, says Lazear, it was possible to reverse that trend.

To get a sense of the variety of perspectives flourishing at the Business School, one has only to encounter Jeffrey Pfeffer, the Thomas D. Dee II Professor of Organizational Behavior, whose approach could not be more different than Lazear's quest for efficiencies through economics. For one thing, Pfeffer takes issue with the penchant for aggregating individuals. Companies are not simply a collection of individual abilities, he says. Some are filled with talented people and get nowhere.

He rankles at the notion that people are aggressively self-interested. "It's the Newtonian view: The presumption is that an employee will remain at rest unless impelled by rewards and sanctions," scoffs Pfeffer. What motivates a worker depends on how the employee was socialized-a process that continues when a person enters corporate life. "The organization does in fact shape you," says Pfeffer. The assumption that people are lazy is dangerous because it can be self-fulfilling. Adds Pfeffer: "If you treat someone like money motivates them, they will in fact become motivated by money."

In James Baron, the Walter Kenneth Kilpatrick Professor of Organizational Behavior and Human Resources, economics meets psychology and sociology. He agrees with both Lazear and Pfeffer, but notes there is something unsatisfying in pure economic models. He believes we can build more realistic psychological and sociological foundations in research. Baron leads the Stanford Project on Emerging Companies, a study of 173 start-up companies and their human resource strategies.

In another area rich in research, labor economist Robert Flanagan, the Konosuke Matsushita Professor of International Labor Economics and Policy Analysis, has focused his work on wage structure, labor market adjustments in transitional economics, and global human resource management. The School continues to build research among several other faculty who are studying the dynamics of negotiation, team building, diversity, gender issues, and corporate behavior.

— BARBARA BUELL