Scott Schaefer

Economist. Business Professor.

Food for Thought for Hiring Managers

Filed Under: Utah Economist Blog

I’m teaching at Kellogg this spring term, although it didn’t feel much like spring when I got out of a cab this morning at O’Hare…

The course is “Personnel Strategy” and applies economics to think through the link between a firm’s human resource decisions and its overall strategy.  Topics include hiring, human capital, turnover and retention, reward systems (promotions, career-concerns, benefits vs. wages), labor market discrimination, and more.  It’s designed for general managers and consultants, rather than people who want careers as HR administrators.

And here’s some food for thought (courtesty of David Brooks at the NYT), for students in the class and others who are interested in this topic.  Brooks is a bit critical of how firms hire, and paints what might be an attractive alternative.  But you might ask yourself… If the way we do it is so wrong, then why do we do it that way?  And what are the potential problems with the alternatives he proposes?

Specialized: Managing Human Resources in Distribution

Filed Under: Eccles Outdoor Industry Club Blog

specWhat did I enjoy most about our visit to Specialized’s SLC distribution center?  The rich discussion of human resource management issues.

Specialized is a bicycle company, and, as MBA1 Steve Nordstrom’s post illustrates, you certainly know it when you walk in the door of their SLC facility.  There are fancy bikes displayed in the lobby and panoramic photos of fit people out enjoying Specialized products.  But the distribution warehouse looks a lot like any warehouse you’d see in any industry across the country. Truckloads, direct from factory, are received on the west side of the building.  Inventory is stored on racks that seem to rise thirty or more feet above the warehouse floor.  Shipments go out the east side of the building.

The core of warehouse work is picking.  Picking is the process of taking an order — probably from a bike retailer that has anywhere between one and ten stores — pulling the right inventory, and getting it shipped out fast.  Why’s picking so important?  As Rick Peterson told us (and industry-vet/club-advisor/bike-retailer Riley Cutler confirmed), retailers typically sell bicycles on the weekends…  Which means they re-order Monday/Tuesday… Hoping to get restocked by the weekend.  Factor in a couple of days on a truck, and you can see that in order to have inventory on a retailer’s shop floor — which is a pre-requisite for actually making a sale — the distribution center must fill orders fast.  It’s an operational imperative, and it simply must be done well.

This presents a huge challenge, in part because picking is so labor intensive.  A person has to get the order, go to the right spot on the floor, fill the order, and get it out the door. Rick reports that orders are hard to predict — in stat-language, there’s a low R-squared in a regression of order volume on various calendar variables — which means the demands on his staff are also hard to predict.  A big part of Rick’s job, therefore, is managing the human resource buffers he needs in order to get shipments out.  He’s got to have pools of people he can call on when things get unexpectedly busy.  But figuring out ways to make temps productive can be tough.

Rick also talked about issues with measuring performance.  Picking isn’t a “team” project — one person gets one order, fills it, and repeats — so it’s feasible in principle to measure how quickly each employee is filling each order, whether an employee’s orders are filled accurately, etc.  Rick posts employee performance data regularly, and reports that it’s a big driver of employee motivation and effort.  Issues remain, however: it turns out that some orders need to be labeled for the customer while others don’t. And since the labeling is time intensive, raw measures of productivity that don’t account for labeling are problematic.  If, for example, Abe fills 10 orders in an hour but Betsy fills 8… Was Betsy less productive, or did she happen to draw more orders that required labeling?  This is an IT issue that feeds into an HR issue that feeds into an operations issue… and Rick’s working hard on resolving it and says he’s nearly there.

To tie this back to the MBA curriculum, we’d probably think of supply-chain work like distribution as being closely related to an operations class.  And, yes, Rick Peterson thinks hard about process improvement and applies tools from operations to measure his error rates.  But that’s by far not the only set of MBA tools that Rick needs on a day-to-day basis.  As I noted above, he’s using IT tools to boost the productivity of his human resources so he can solve operational problems…  A great example of the interconnectedness of the various topics covered in a quality MBA program.

 

Credence Goods and Incentive Compensation

Filed Under: Utah Economist Blog

Credence goods and incentive compensation….  The two just don’t mix.

I recently blogged over on the Eccles Outdoor Industry Club site about how IDFL — a local tester of down and feather products — sells a what economists call a credence good.

And here’s a link to an article from Saturday’s New York Times about another such firm: USIS, a provider of background checks for security clearances for the US government.   Why are they on the front of the NYT?  Here’s a quote:

In interviews this week, former and current USIS employees detailed how the company had an incentive to rush work because it is paid only after a file is marked “FF,” for fieldwork finished, and sent to the government. In the waning days of a month, investigations were closed to meet financial quotas, without a required review by the quality control department, two former senior managers said.

This is a credence good because the government never really finds out if USIS did a good job or not.  To see why, suppose USIS does a thorough background check on an individual with a solid background, and reports to the government that all is clear.  Now suppose USIS doesn’t do a thorough investigation on a shady individual — due to financial pressures, perhaps — and reports, again, to the government that all is clear.  In one case the firm did a good job and in the other it did a poor job, but the two cases are indistinguishable to the government.

If you’re selling a credence good, your customer’s trust is pretty much the most important asset you have.  So, putting in place incentives for your employees to violate that trust — as USIS did by tracking time spent on cases and imposing short deadlines on its investigators — is a bad idea.  Credence goods and incentive compensation just don’t mix…

 

 

 

Hiring: Radio Interview

Filed Under: Utah Economist Blog

I was on KPCW’s Monday business show Mountain Money yesterday, talking mostly about hiring and why it’s so hard.  I think hiring well is a big key to success in many businesses, but unfortunately it’s an area that economists and other management professors don’t have enough to say about.  We’re working on understanding it better.

You can listen to my conversation with hosts Pam Wylie and Doug Wells here, and I’ll try to write more about this important topic in the future.

Lawyers: Who Got Laid Off?

Filed Under: Utah Economist Blog

I don’t usually publicize my working papers. Prefer to wait until they’re published so I’m (reasonably) certain that all the kinks are worked out.

But if others are going to publicize for me, I guess I should at least link to it. Paul Oyer and I have a new working paper on which lawyers lost their jobs at the top 300 law firms during the recent recession. Here are three blog links to it:

Blog of the Legal Times

Above the Law

Business Insider

I’m happy people found the study interesting, but the authors of these posts didn’t summarize entirely right. A couple of quibbles/clarifications: First, it’s not at all the case that people at fancy law schools are worse off than those who went to lower-ranked schools. You’re much more likely to end up working for a big, fancy law firm making a lot of money if you go to a top school. (And Paul and I have another working paper that showing that.) It’s just that conditional on making it to a big, fancy firm, it seems you were a bit more likely to get laid off (at least early in your career).

Second, it’s not the case that hiring networks are associated with the likelihood of being laid off, just the likelihood of turnover.
That is, an associate is less likely to leave a job voluntarily if there are partners from the same school at the firm. But an associate is no less likely to be laid off when there are partners from the same school.

We don’t exactly know why the patterns in lawyer firings look like they do, but we’re working on some models that might explain it.