Chapter 01 - The Strategic Role of HRM (in Pak and Abroad)

The strategic role of HRM The strategic role of HRM {in Pakistan and abroad}{in Pakistan and abroad}

Human Resource Management (HRM) Topic No. 1

Shahnawaz AdilAssistant Professor Course advisor: Strategies & Advanced Management

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Learning outcomes Personnel Management versus HRM Influences of the development of HRM HRM Policy Goals Theories of HRM Characteristics of HRM The Harvard framework The context of HRM The ethical dimensions Four Competitive challenges that influence HRM Society for HRM Conclusion Important questions

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Difference between Personnel Management & HR Management

“Series of activities which: first enable working people and their employing organizations to agree about the objectives and nature of their working relationship and, secondly, ensures that the agreement is fulfilled”

Dserek Torrington and Laura Hall (1987) Personnel Management: A New Approach, p.49

Origins of the concept of HRMBakke, E.W. (1966) Bonds of Organizations: an appraisal of corporate human relations, Archon, Hamden

The concept of HRM was first defined by Bakke (1966) who wrote that:

The general type of activity in any function of management… is to use resources effectively for an organizational objective… The function which is related to the understanding, maintenance, development, effective employment, and integration of the potential in the resource of ‘people’ I shall call simply the human resource function. 4

Influences of the development of HRM

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Scientific Management• Selection of ‘best people’ for the job• Time and motion• Direction of efforts• Minimum of staffing• Performance management• Anti-union climate

Human Relations• People matter• Consultative management• Working conditions• Motivation other than pay• Team working• Informal organization• Group phenomena• Peer pressure

Human Relations• People matter• Consultative management• Working conditions• Motivation other than pay• Team working• Informal organization• Group phenomena• Peer pressure

Strategic Management• Long-term thinking• Missions and objectives• Values• Planned activities• Resource Management• Proactive, focused direction

Japanese Management• Commitment• Development• Organizational culture• Quality• Just-in time resourcing• Core-periphery (flexibility)• Continuous improvement

Hard H.R.M. Soft

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HRM defined…

HRM refers to the process of acquiring, training, appraising, and compensating employees, and attending to their labour relations, health and safety, and fairness concerns

".......those decisions and actions which concern the management of employees at all levels in the business and which are related to the implementation of strategies directed towards creating and sustaining competitive advantage" Miller (1987) The goal of HRM is to help an organization to meet strategic goals by attracting, and maintaining employees and also to manage them effectively. The keyword here perhaps is “Strategic Fit", i.e. a HRM approach seeks to ensure a fit between the management of an organization's employees, and the overall strategic direction of the company. (Miller, 1989)

Objectives of HRM

Organization is able to achieve success through people.

To increase organizational effectiveness and capability –the capacity of an organization to achieve its goals by making the best use of the resources available to it.

But HRM has an ethical dimension which means that it must also be concerned with the rights and needs of people in organizations through the exercise of social responsibility.

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HRM Policy GoalsDavid Guest (1987, 1989a, 1989b, 1991)

Strategic integration High (behavioral) commitment High quality (employees) Functional Flexibility and Agility /

Adaptiveness

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Theories of HRMDavid Guest (1997)

Strategic theories Hypothesis: Firms that have a fit between business

strategy, structure and HRM policy will have superior performance.

Descriptive theories These either list areas of HR policy and outcomes (Beer et

al. , 1984) or adopt a systems approach, describing the relationships between levels (Kochan et al., 1986). They are largely non-prescriptive.

Normative theories Normative in the sense that they establish a norm or

standard pattern in the form of prescribed best practice. These take a considerable risk in implying ‘one best way’.

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Contingency theory HRM is influenced by the organization’s environment and

circumstances (Legge, 1978) The Resource-based View (RBV)

HRM delivers added value through the strategic development of the organization’s rare, hard to imitate and hard to substitute human resources (Barney, 1991, 1995)

AMO theory The formula Performance = Ability + Motivation +

Opportunity to participate provides the basis for developing HR systems that attend to employees’ interests, namely their skills requirements, motivations, and th quality of their job (Appelbaum et al., 2000; Bailey et al., 2001; Boxall and Purcell, 2003) 10

Theories of HRMBoselie et al., (2005)

Characteristics of HRM

HRM was regarded by Storey (1989) as ‘a set of interrelated policies with an ideological and philosophical underpinnings’. He listed four aspects that constitute the meaningful version of HRM:

1. A particular constellation of beliefs and assumptions;2. A strategic thrust informing decisions about people

management;3. The central involvement of line managers; and4. Reliance upon a set of ‘levers’ to shape the

employment relationship. 11

Treating people as assets or Human Capital…

The notion that people should be regarded as assets rather than variable costs, in other words, treated as Human Capital, was originally advanced by Beer et al., (1984).

HRM philosophy as mentioned by Legge (1995), holds that ‘human resources are valuable and a source of competitive advantage (CA)’.

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Armstrong and Baron (2002) stated:

People and their collective skills, abilities and experience, coupled with their ability to deploy these in the interest of the employing organization, are now recognized as making a significant contribution to organizational success and as constituting a major source of competitive advantage. 13

Treating people as assets or Human Capital… (continued…)

Organization versus employee-centered outcomes

Kochan (2007) contended that: The HR profession has always had a

special professional responsibility to balance the needs of the firm with the needs, aspirations, and interests of the workforce and the values and standards society expects to be upheld at work…

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The Harvard frameworkBeer et. al., (1984)

The problems of historical personnel management can only be solved: When general managers develop a

viewpoint of how they wish to see employees involved in and developed by the enterprise, and of what HRM policies and practices may achieve those goals. Without either a central philosophy or a strategic vision –which can only be provided by general managers –HRM is likely to remain a set of independent activities, each guided by its own practice tradition. 15

Reservations about HRM

HRM promises more than it can deliver The morality of HRM

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The context of HRM

Contingency Theory It states that the relationship between

the relevant independent variables (e.g. HRM policies and practices) and the dependent variable (performance) will vary according to the influences such as company size, age and technology, capital intensity, degree of unionization, industry/sector ownership and location.

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Contextual Factors

The external environment Social Political Legal Economic development Technological advancements Competitive pressures

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The internal environmentThe following aspects of the internal environment will affect HR policy and practice:

The type of business or organization –private, public, voluntary sector, manufacturing or service

The size of the organization The age or maturity of the organization The technologies or key activities of the business will

determine how work is organized, managed and carried out The type of people employed The organization’s culture – the established pattern of values,

norms, beliefs, attitudes and assumptions that shape the ways in which people behave and things get done.

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Contextual Factors

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HR Department Organizational Chart (Large Company)

© 2005 Prentice Hall Inc. All rights reserved. 1–21

HR Organizational Chart (Small Company)

Figure 1–2

The ethical dimension Treat people equally in terms of opportunities for

employment (EEO), learning and development provided for them;

Treat people according to the principle of procedural justice (Adams, 1965 and Leventhal, 1980), that is the ways in which people are managed are fair, consistent, transparent and properly consider the views and needs of employees.

Treat people according to the principle of distributive justice (Adams, 1965 and Leventhal, 1980), i.e. rewards are distributed to them according to their contribution and they receive what was promised to them. 22

Treat people according to the principle of natural justice, i.e. individuals should know the standards they are expected to achieve and the rules to which they are expected to conform, they should be given a clear indication of where they are failing or what rules have been broken and, except in cases of gross misconduct, they should be given a change to improve before disciplinary action is taken;

Gross misconduct refers to an action so serious that it calls for the immediate dismissal of an employee. Examples include fighting, drunkenness, harassment of others and theft.

Avoid treating people as mere factors of production;

Be concerned with the well-being of employees as well as the pursuit of commercial gain;

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The ethical dimension (cont’d…)

Offer as much security (of employment) as possible;

Provide a working environment that protects the health and safety of employees and minimizes stress;

Act in the interest of providing employees a reasonable work and personal life balance;

Protect employees against harmful practices e.g. bullying, harassment and discrimination.

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The ethical dimension (cont’d…)

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Why HR Management is important to all managers?

It is easier to answer this by listing some of the personnel mistakes you don’t want to make while managing.

For example, you don’t want to: Hire the wrong person for the job; Experience high staff turnover; Have your people not doing their best; Waste time with useless interviews; Have your company taken to the court

because of discriminatory actions;

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Why HR Management is important to all managers? (Cont’d…)

Have your company cited under federal occupational safety laws for unsafe practices;

Have your employees think their salaries are unfair and inequitable relative to others in the organization;

Allow a lack of training to undermine your department’s effectiveness; and

Commit any unfair labour practices

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Four competitive challenges influencing

HRM

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Four competitive challenges influencing

HRM

1. Competing in the new economy 2. Competing through high-perform

ance work systems3. Competing by meeting stakehold

ers’ needs4. Competing through Globalization

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1. Competing in the new economy

Several changes in the economy have important implications for HRM.

For example: some key labour statistics about the economy and the workforce influencing HRM in US:

The economy is expected to add 20 million new jobs 70% of the fastest-growing occupations require post-secondary education

and training. There will be shortage of 4.6 million workers, of which 3.5 million will need

college-level skills. 38% of job applicants tested for basic skills lack the reading, writing, and

math skills needed for the job they are seeking. Immigration will add over one million persons to the workforce each year

through 2006. The projected median age of the labour force by 2010 is 40.

Reference: US Bureau of Labor Statistics website, http://stats.bls.gov

Back

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1. Competing in the new economy (cont’d…)

Changing in the new economy includes The changing structure of the economy; The development of e-business; and More growth in professional and service occupations.

Growth in these occupations mean: Skill demands for jobs have changed; Increased value placed on knowledge:

Intellectual capital – creativity, productivity, and service provided by employees

Knowledge workers – employees who own the means of producing a product or service. Such employees can’t simply be ordered to perform tasks; rather, they must share knowledge (with their managers e.g. information about customers) and collaborate on solutions. The term coined by Peter Drucker in 1959.

Empowerment – giving employees responsibility and authority to make decisions regarding all aspects of product development or customer service.

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1. Competing in the new economy (cont’d…)

Skill requirements Changes in the employment relationship

Psychological contracts – expectations of employee contributions and what the company will provide in return.

Alternative work arrangements – independent contractors, on- call workers, temporary workers, and contract company workers who are not full-time employed by the company.

Demanding work, but with more flexibility The globalization of the world economy and the

development of e-commerce have made the notion of a 40-hour work week obsolete.

As a result, companies need to be staffed 24x7. Side-effects: More demanding work results in greater

employee stress, less-satisfied employees, loss of productivity, and higher turnover – all of which are costly for companies.

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1. Competing in the new economy (Summary)

Two Key points Increased value is placed on

knowledge Development of e-business

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2. Competing through high-performance work systems

Definition: Work systems maximize the fit between the company’s social system (employees) and its technical system.

The main challenge is how to integrate technology and structure to gain a competitive advantage – that is, competing through high-performance work systems.

Technological advances in manufacturing, transportation, telecommunications, and microprocessors are changing how work is performed, managers’ and employees’ roles, and organizational structure.

Technology has made HR information databases more available and accessible and had created a need to develop HRM practices that integrate technology with people.

Major emphasis: Change in employees’ work roles and skill requirements Increase in the use of teams to perform work Changes in the nature of managerial work Changes in company structure. Increased availability of HRM databases (Human Resource Information

System - HRIS) e-HRM – “the processing and transmission of digitized information used in

HRM”

Back

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2. Competing through high-performance work systems (cont’d…)

Q. How HRM practices support high-performance work systems?

Teams perform work. Employees participate in selection. Employees receive formal performance feedback and are actively

involved in performance improvement process On-going training is emphasized and rewarded. Employees’ rewards and compensation relate to the company’s

financial performance. Equipment and work processes are structured and technology is

used to encourage maximum flexibility and interaction among employees.

Employees participate in planning changes in equipment, layouts, and work methods.

Work design allows employees to use a variety of skills. Employees understand how their job contribute to the finished

product or service.

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2. Competing through high-performance work systems (Summary)

Two Key points Change employees’ and managers’

work role Integrate technology and social work

systems

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3. Competing by meeting stakeholders’ needs

Key concept: Company effectiveness and competitiveness are determined by whether the company satisfies the needs of stakeholders.

Stakeholders include: Shareholders (who want a return on their investment); Customers (who want a high-quality product or service); Employees (who desire interesting work and reasonable

compensation for their services); The community (which wants the company to contribute to

activities and projects and minimize pollution of the environment);

and other stakeholders e.g. auditors, loan-donors, banks, government agencies, etc.

Back

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3. Competing by meeting stakeholders’ needs (cont’d…)

The Balanced Scorecard: measuring performance to stakeholders.

The balanced scorecard gives managers an indication of performance of a company based on the degree to which stakeholder needs are satisfied;

It depicts the company from the perspective of customers, employees and shareholders.

It is important because it brings together most of the feature that a company needs to focus on to be competitive.

These include: Being customer focused; Improving quality; Emphasizing team work; Reducing new product and service development times; and Managing for the long term.

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3. Competing by meeting stakeholders’ needs (cont’d…) The Balanced Scorecard

PerspectiveQuestions answered Examples of critical indicators

CustomerHow do customers see us?

Time, quality, performance, service, cost

InternalWhat must we excel at?

Process that influence customer satisfaction, availability of information on service and/or manufacturing processes

Innovation and learning

Can we continue to improve and create value?

Improve operating efficiency, launch new products, continuous improvement, empowering of workforce, employee satisfaction

FinancialHow do we look to shareholders?

Profitability, growth, shareholder value, etc.

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3. Competing by meeting stakeholders’ needs (cont’d…)

A) Meeting customer needs for QUALITY Total Quality Management (TQM)

A co-operative form of doing business that relies on the talents and capabilities of both labour and management to continually improve quality and productivity.

Six Sigma process A system of measuring, analyzing, improving, and then controlling

processes once they meet quality standards. ISO quality standards Malcolm Baldrige National Quality Award (MBNQA)

An award established in 1987 to promote quality awareness, to recognize quality achievements US companies, and to publicize successful quality strategies.

Charter Mark the UK Government's national standard for excellence in

customer service.

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3. Competing by meeting stakeholders’ needs (cont’d…)

B) Composition of the labour force Internal labour force (labour force of current employees) External labour market (persons outsides the firm actively seeking

employment) Managing Diversity

C) Legislation and litigation (5 main areas of legal environment) Equal Employment Opportunity (EEO) legislation Employee health, safety, and environment (HS&E) Employee pay and benefits Employee privacy Job security

D) Ethical consideration (HR managers must satisfy 3 basic standards…)

HRM practices must result in the greatest good for the largest number of people.

Employment practices must respect basic human rights of privacy, due process, consent, and free speech.

Managers must treat employees and customers equitably and fairly.

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3. Competing by meeting stakeholders’ needs (Summary)

Two key points Provide a return to shareholders Provide high-quality products,

services, and work experience for employees

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4. Competing through Globalization

Companies are finding that to survive they must compete in international markets. For this, businesses must need to do the following:

Development of global markets Competitiveness in global markets through HRM

practices Challenge: to understand cultural differences and

invest in human resources (e.g. ‘Investor in People’ (IiP)) Preparing employees for international

assignments Managing the change process

Back

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4. Competing through Globalization (Summary)

Two key points Expand into global markets Prepare employees to work in foreign

locations

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How HRM practices can help companies meet these four

competitive challenges?

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HRM Practices HRM Strategy is matched to business

strategy. Knowledge is shared. Work is performed by teams. Pay systems reward skills and

accomplishments. Selection system is job-related and legal. Flexibility is where and when work is

performed.

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HRM Practices (cont’d…)

Work attitudes of employees are monitored. Continuous learning environment is created. Discipline system is progressive. Customer satisfaction and quality are

evaluated in the performance management system.

Skills and values of a diverse workforce is valued and used.

Technology is used to reduce the time for administrative tasks and to improve HR efficiency and effectiveness.

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Three distinct functions of an HR

Manager

Key definitions

Implied Authority

The authority exerted by an HR manager by virtue of others’ knowledge that he or she has access to top management (in areas like testing and affirmative actions.

Functional Control

The authority exerted by an HR manager as coordinator of personnel activities.

Line AuthorityThe authority exerted by an HR manager by directing the activities of the people in his or her own department and in service areas (like the plant cafeteria)

Employee Advocacy

HR must take responsibility for clearly defining how management should be treating employees, make sure employees have the mechanisms required to contest unfair practices, and representing the interest of employees within the framework of its primary obligation to senior management.

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Three distinct functions of an HR Manager

1. A line function: The HR manager directs the activities of the

people in his or her own department and in related service areas (like the plant cafeteria).

In other words, he or she exerts line authority with the HR department.

While they generally can’t wield line authority outside HR, they are likely to exert implied authority. This is because line managers know HR has top management’s ear in areas like testing and affirmative actions.

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Three distinct functions of an HR Manager (cont’d…)

2. A coordinate function:HR managers also coordinate personnel activities, a duty often referred to as ‘functional control’. Here the HR manager and department act as the “right arm of the top executive” to ensure that line managers are implementing the firm’s HR objectives, policies, and procedures (e.g. adhering to the firm’s discrimination policies, etc.)

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Three distinct functions of an HR Manager (cont’d…)

3. Staff (assist and advise) functions:

Assisting and advising line managers is the heart of the HR manager’s job. The HR manager assists in strategy design and execution by helping the CEO to better understand the personnel’s aspects of the company’s strategic options. It administers the various benefits programmes such as health and accident insurance, retirement, vacation, and so on. It helps line managers comply with equal employment and occupational safety laws, and plays an important role in handling grievances and labour relations.

(to be continued…)

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Three distinct functions of an HR Manager (cont’d…)

It carries out an innovator role, by providing “up-to-date information on current trends and new methods of solving problems”-such as today’s interest in instituting systems for measuring HRM’s strategic impact.

It plays an employee advocacy role: it helps define how management should be treating employees, make sure employees have the mechanisms required to contest unfair practices, and representing the interest of employees within the framework of its primary obligation to senior management.

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Eight main functions of HRM

HR Planning, managing workflow & conducting job analysis

Understanding EEO and legal environment Establish relationship between corporate

strategies and Strategic HRM Recruitment and Selection Orienting, training and developing employees Performance appraisal and management Managing employees career Pay for performance, financial incentives,

compensation, benefits and services.

Home reading assignment

1. Explain HR Measurement.2. Why is it essential to use HR Metrics?3. Exemplify the following 5 metrics that matter:

3.1 Average Headcount3.2 Age Staffing Breakdown3.3 Average Workforce Tenure3.4 Termination Rate3.5 Employee Engagement Index

http://www.slideshare.net/sucipto_asan/hr-metrics

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Four descriptions of the HRM units

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Four descriptions of the HRM units

1. It is action-oriented: Effective HRM focuses on action rather than on record keeping, written procedure, or rules. Certainly, HRM uses rules, records, and policies, but its stresses action. HRM emphasizes the solution of employment problems to help achieve organizational objectives and facilitates employees’ development and satisfaction.

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Four descriptions of the HRM units (cont’d…)

2. It is people-oriented: Whenever possible, HRM treats each employee as an individual and offers services and programs to meet the individual’s needs.

3. It is globally-oriented: This is an activity which is being practiced efficiently and continuously in many organizations.

4. It is future-oriented: Effective HRM is concerned with helping an organization achieve its objectives in the future by providing competent and well-motivated employees. Thus, human resources need to be incorporated into an organization’s long-term strategic plans.

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Society for Human Resource

Management (www.shrm.org)

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Society for Human Resource Management (SHRM)

World’s largest HRM association with more than 225,000 professionals and student members throughout the world.

It is the primary professional organization for HRM.

It provides education and information services, conferences and seminars, government and media representation, and online services and publications (such as HR Magazine)

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Conclusion People limit or enhance the strengths and

weaknesses of an organization. The mechanized or routine-oriented workforce

is giving way to a more knowledge-based, information-rich workforce.

The HRM function today is much more integrated and strategically involved.

HRM and every other function MUST work together to achieve the level of organizational effectiveness required to compete locally and globally.

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Important Questions(from examination point-of-view)

Q.1 Why is the HR department playing a more significant role in organizational strategic planning processes today than it did 20 years ago?

Q.2 Why is it correct to conclude that all managers are involved in the HRM function and implementing HRM activities and programs?

Q.3 Why has the HRM function increased in stature and influence in many organization?

Q.4 What difficulties would an HRM executive face in assessing and then communicating the contribution of his/her area to the company profit margin?

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Important Questions (cont’d…)

Q.5 Why is it necessary for the HRM area to clearly communicate HR policies?

Q.6 Should line managers play an important role in HRM regardless of the size of the company? Explain.

Q.7 HR practice areas include managing the human resource environment, acquiring and preparing human resources, assessment and development of human resources, and compensating the human resources. Which area do you believe contribute most to helping a company gain a competitive advantage? Which area do you believe contributes the least? Why?

Q.8 Is HRM becoming more strategic? Explain.

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Important Questions (cont’d…)

Q. 9 What role do HRM practices play in a business decision to expand internationally?

Q.10 What disadvantages might result from outsourcing HRM practices? From increased involvement of line managers in designing and using HR practices?

Q.11 Discuss the four competitive challenges that companies face in terms of HRM.

Q.12 How HRM practices support high-performance work systems?

Q.13 How HRM practices can help companies meet four competitive challenges?

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Quote of the day!!!

“When we learn something from each other, we're formed by the experience.... we are authors of each other.” – Doc Searls

“The fact is: work-life balance concerns are actually a luxury – “enjoyed” largely by people who are able to trade time for money, and vice versa.” – Jack Welch, Winning, Page 320-21.