Strategic role of hr and practice

This article is in response to an article ‘picking over the bones of Human Remains, a resource that business do'(published in The Times October 5th 2009), it looks into the strategic role of HR and its main practices, describes the outcomes of the practices, HR’s contributions towards a successful business, and proposes a framework for assessing the HR. In addition it also looks into how particular HR practices correlate with superior business results; determine possible areas for investments, expansions, and reductions; justify budget allocations; and be more liable for each penny spent. This article is in response to an article by Ulrich, which thinks that HRM function is no more required and is dead. Traditionally, HR professionals could talk generally and conceptually about employee morale, turnover, and employee commitment being outcomes of HR efforts. Furthermore, the HR function is taken as an expense-generator and an administrative function and not as a value-added or a mandatory partner. Ulrich (1997) restates that to accomplish the business partner role of HR, concepts need to be replaced with evidence, ideas with results, and perceptions with assessments. Understanding the strategic role of HR, training & development and recruitment and selection seen as one of the most strategic and influential in understanding the strategic business objectives of the organization will be discussed. Hence, the conclusion negates the idea of HRM being dead and not required.

HR FUNCTION:

Armstrong (2006) explained the role of HR function is to take initiatives and provide guidance, support and services on all matters relating to the organization’s employees. The function ensures that HR strategies, policies and practices are introduced and maintained that cater for everything concerning the employment, development and well-being of people and the relationship that exist between the management and the workforce. CIPD research about HR function (2007) found that 80 per cent of HR functions have changed in last five years. Armstrong (2006) stated the activities of HR function can be divided into two categories:

1. Strategic (Transformational)

Alignment and implementation of HR and

business strategies

2. Transactional

Activities of resourcing, learning and development,

reward and employee relations

Source: Armstrong, 2006

According to CIPD research (2007) 57% of HR practitioners introduced some form of Ulrich model for their HR functions. Dave Ulrich divided the HR function into three parts. The following figure shows the Ulrich three-legged stool model

ULRICH THREE-LEGGED

STOOL MODEL (1990)

Centres of Expertise

High level of advise and services

The most common expertise areas were L&D, recruitment and employee relations

Strategic Business Partners

Work with line managers to help then reach their goals

Effective strategy formulation and execution

Embedded in business units and departments

Shared Service Centres

Focus on transactional services such as recruitment, absence monitoring and advise on employee isuues like discipline

The “Strategic Business partner” role of HR function is actually the most important way of HR contribution for the organizations. Academics, consultants and practitioners argue that, if HRM wants to create added value for the company, it has to become a full strategic partner with the business in achieving strategic goals (Buyens and De Vos, 2001). CIPD survey (2007) found that 38 per cent of HR practitioners have introduced business partner type roles. Reilly (2007) criticized Ulrich three legged stool model being very difficult to understand the roles and accountabilities.

HR’s Activities & Outcomes

Every business is reactive towards the challenges and opportunities faced by the environment. Its effected by the perception, understanding and actions of its people at different levels. Decisions taken by the company and their desired outcomes shows their response towards the dynamic environment.

Understanding the Strategic Role of HR

Today’s dynamic environment demands a constant evaluation of internal and external situations for challenges and opportunities to remain competitive and to sustain growth. Factors like technology, globalization, changes in workforce demographics, eliminating layers in organizational structures, and balancing work-family issues drive changes at the workplace. Understanding the prospective of an organization’s resources and optimizing the output of such resources given the changes, provides the drive for HR being the key source of creating the competitive advantage for the organization.

Globalization

Technology

Economic & political instability

Diverse workforce

Organization structure

Work/family balance

Organization

HRM

Managing HR’s Role in Driving Performance

HR’s roles in building a competitive organization include management of strategic human resources, management of transformation and change, management of firm infrastructure and management of employee contribution (Ulrich, 1997). Players, according to Ulrich & Beatty (1997), contribute to the profitability of the organization, they deliver results and they do things to make a difference. The roles of players are to a) coach b) design, c) construct, d) change the organization, e) creating followers, and f) playing by the rules. Another perspective on the role of HRM suggests that in leading-edge companies, HR professionals play four key roles: a) strategic business partners, b) innovators, c) collaborators, and d) facilitators (Schueler & Jackson, 2000). Functioning as an innovator, HR professionals face a constant challenge to search for value adding strategies and not merely function in a reactionary mode. Furthermore, HR professionals also serve as collaborators with senior leaders and all employees to execute business strategies forming the strategic link all over the organization. As facilitators, HR professionals function as change agent providing validation, support, and willingness for planned changes designed to support the business strategies.

The fundamental role of HRM is fundamentally to maximize profitability, quality of work life and profits through effective management of people (Cascio, 2003). Given this argument, it can be easily inferred that HR’s role is to help create value to the organization. HR’s impact on firms strategy is difficult to see is the very quality that also makes it a prime source of sustainable competitive potential. HR directors have gained a mandatory part in the business function in the past and will continue to do so.

Traditionally, it was seen mainly as an administrative and professional function. 1990’s, brought a new emphasis on strategy and the importance of HR systems. The impact of integrating those systems with the strategy and evaluating the quality of that fit was acknowledged.

‘In most industries, it is now possible to buy on the international marketplace machinery and equipment that is comparable to that in place by the leading global firms. Access to machinery and equipment is not the differentiating factor but it’s the ability to use it. A company that lost all of its equipment but kept the skills and knowledge of its workforce comes back in business relatively quick. A company that lost its workforce, while keeping its equipment, would never recover’ (McLean, 2005)

This quote captures the difference between physical and intellectual capital and reveals the distinctive advantages of the latter. The coca-cola’s company’s experience testifies to this reality. According to then-CFO James Chestnut, after transferring the bulk of its tangible assets to its bottlers, Coke’s $150 billion market value derived largely from its brand and management teams. (Stewart, 1998)

GTE (formerly General Telephone & Electronics Corporation now part of Verizon) has been a leader in efforts to develop measures of intangible assets such as human capital. According to Lawrence R Whitman (2002), deputy CFO at GTE :

A direct link between human capital and corporate financial results is not readily apparent in traditional accounting practices. Right now, we are only beginning to understand the potential of this tool, but it’s the measurement process that is important…once we are able to measure intangible assets more accurately, I think investors and finance professionals will begin to look at human capital metrics as another indicator of a company’s value.

Organizations and human resource planners make an essential contribution to strategic visioning. Sisson and Storey (2000) identify HR planning as ‘one of the basic building blocks of a more strategic approach’. There has been an increasing recognition of the need to plan for both hard and softer issues of employee behavior, organizational culture and systems; as they all have a major impact on business success. Integrating the process of planning for numbers and skills of employees; employee behavior and organizational culture; organization design and the make up of individual jobs; and formal and informal systems have become critical aspects in achieving the vision.

Training and Development

Greater assurance in the economy, along with fears of skills shortages, is leading to more intensive investment in training and development. Swanson (1995) defined employee training and development as the process of systematically developing expertise in individuals for the purpose of improving performance. The argument as to whether T & D helps to create a competitive advantage has shown that conceptually, yes, it can be a source of competitive advantage. T & D is an ongoing investment for an organization which considers its employees to be human assets. A survey on T & D Survey 2004 conducted by the Chartered Institute of Personnel and Development (CIPD) showed that:

There was little change in the size of training budgets between 2002 and 2003 but one in three private sector training managers expected to see an increase in their training budgets during 2004;

81% of organizations have a training budget – indicating an acceptance of the “training means business” case;

Almost a third (32%) of respondents said that people in their organization received, on average, more than five days training per year. But almost one in five (18%) received less than three days training per year.

(See Appendix)

Training involves employees gaining knowledge and learning skills which they are able to use immediately; employee development involves learning that will help the organization and the employee later in their careers.

Employee T&D is increasingly becoming a major strategic issue for organizations’ for several reasons:

Fast changing technology is a cause of skill obsolescence. Organizations need to continue training their employees to use the best and latest technologies available to remain competitive.

A broader skill base with the redesign of work into jobs having broader responsibilities requiring employees to take more responsibility, initiative, and developing interpersonal skills ensuring performance and success.

An increase in mergers and acquisitions requires employee integration. Its dependent mainly on people management systems rather than operational or financial management systems.

There’s a regular movement of employee from one employer to another than in the past. With less devotion to the employer and more to ones own careers, time must be spent on integrating new hires.

Globalization of business functions requires managers to gain knowledge and skills related to language and cultural differences.

Black & Deckers new training program has drastically reduced turnover, sent out more credible sales staff, enhanced the B&D name, and reported higher employee satisfaction and loyalty. (Henry, 2002)

Hewlett-Packard (HP) and Compaq faced a daunting task of integration. Training via e-learning was delivered in 60 countries communicating company’s new vision to the employees saving an estimated $50 million. The organization saved an estimated $10 million in the retraining of 3,000 HP/Compaq employees in a new agreement.

(Overman, 2004)

Sainsbury’s invests multi-millions on staff training. More than 5 per cent of the 153,000 employees participate in the training each year.

The employer posted impressive half-yearly results earlier this month with total sales up 7 per cent year-on-year and profit before tax up 36.3 per cent to £466 million ( www.j-sainsbury.co.uk)

Organizations can benefit from training beyond bottom line and general efficiency and profitability measures, creating more flexible workers who can assume varied responsibilities and have a more holistic understanding of their role towards success. Providing employees with broader knowledge and skills and emphasizing and supporting ongoing employee development makes them more accountable for results and also helps reduce layers of management.

Recruitment & Selection:

The literature and research on recruitment and selection is well established. Selection is then a process of two-way negotiation (Herriot, 1989a) in which both parties attempt to make sense of each other (Dachler,1994) to determine whether there is any mutually beneficial fit or accommodation (Hesketh and Robertson, 1993). This process approach, therefore, recognizes that applicants are also making decisions (Wanous et al., 1992) and that the impact of the selection process on these individuals may have a significant bearing on their future involvement with the organization (Illes and Robertson, 1997).

In the age of increasing globalization and the fight to generate sustainable competitive advantage, organizations are constantly evaluating their strategies to ensure that they have the expertise needed to help attain the mission. Gatewood & Feild (2001) define selection as a “process of collecting and evaluating information about an individual in order to extend an offer of employment.” Fitz-enz (2002) argues that to fully recognize the value and efficiency of the selection process, one has to examine the impact of the employee’s contribution to the organization not only from a cost factor, but the performance in the short-term and long-term. The process entails determining how many employees the organizations needs to be performing at its best and where the employees should be working in the organization given the external and internal challenges and opportunities. In addition, recruitment planning should engage the skills and competencies available within the organization and what other intellectual capital required in the future.

The ‘traditional’ or normal view regarding recruitment and selection is to stress that it is perhaps the most basic of personnel activities and one of the main contributions. Wrong selection of people brings problems bringing high labor turnover, absenteeism, disciplinary problems, disputes and low productivity. Having the ‘right’ people in the organization is, therefore, crucial without doubt. The idea of the ‘right’ people, by inference, means that there are ‘wrong’ people, and this indicates that differences between people is critical for organizational success.

Examples:

Staffing at St.Peter’s health care:

St. Peter’s health care, a New York-based hospital that, like many health care institutions suffered from a severe shortage of qualified nurses. To lessen this problem, the hospital launched an online bidding system. In 2002, St. Peter’s filled 43,400 available hours at an average pay rate of $37 per hour. In addition to the cost savings, turnover amongst nurses decreased from 11 percent to under 5 percent annually and both patient and employee satisfaction increased. (Robinson, 2003)

Outsourced recruiting at Kellogg’s:

With more than 14,000 employees worldwide, coordination of the recruiting function is cumbersome prompting Kellogg to outsource. The program saved Kellogg more than $1.3 million and reduced average cost per hire by more than 35 percent.(Martinez, 2002)

College recruiting via internships at Microsoft:

The software giant is clearly ’employer of choice’ for many applicants. After a rigorous screening process, fewer than 10 percent of applicants gets an internship receiving ‘competitive salaries’, subsidized housing, training and full benefits. With employee turnover at less than 6 percent hires as many as 45 percent of its interns for permanent positions. (Hirsh, 2003)

Summary of Framework for Assessing HR in Today’s Global Economy

With the significance of showing how HR contributes to the business strategy and understanding how to determine the level of HR’s effectiveness in contributing to the success of the organization, it is proposed that these strategies be used to improve the business in creating higher levels of value for organizations. The following summary lists and briefly describes the respective HR functions, its outcomes, and possible measurement to determine its effectiveness in creating value:

Outcomes Measurements

Strategic Planning

Analysis, decisions, and actions needed to create and sustain competitive advantages

Financial profitability

Social responsibility – viewed by society as ethical, moral, and a choice employer

Integration of all areas

Efficient resources utilization

Recruitment & Selection

effective employee contribution towards the business strategy implementation

The planning process, advertising and recruitment sources support the business strategy

Interviewers are effective in selecting the right candidates

Sufficient number of competent incumbents

Relatively short period of time to hire qualified candidate

Reduced cost per hire

Increased applicant pool

Reduced employee turnover ratio

Higher performance output from incumbents

Employee Training & Development

Positive change in participants attitude

Increased expertise in areas applicable to one’s job

Opportunities to perform newly acquired skills on the job

Support from peers, supervisors and others in utilizing knowledge learnt in training

Improvement in the performance of the individual, process, and the organization

Conclusion :

Dismissing HR as ‘Human Remains’ isn’t true, infact it has never been more necessary. As we have seen from the examples, the competitive forces that managers face today will continue to confront in the future demanding organizational excellence. A famous quote by Henry Ford states that:

‘I am looking for a lot of men who have an infinite capacity to not know what can’t be done’. HR’s emerging strategic potential center on the increasingly main role of insubstantial assets and intellectual capital in today’s economy. Persistent, superior business performance requires a firm to repeatedly work on its competitive edge. In the new economy, winning will come from organizational capabilities such as speed, responsiveness, agility, learning ability, and employee competence. Successful organizations will be those which are able to quickly turn strategy into action; to manage processes both intelligently and efficiently whilst retaining talent; hence maximizing employee contribution and commitment to create the conditions for seamless change. HR is a mandatory part in setting out the direction and scope of an organization over long term achieving competitive advantage through arrangement of resources within a changing environment and to fulfill stakeholders expectations. Its not time to pick up up the bones but to emrace HR as strategic business partner!.

Recommendations:

To create value and deliver results, HR professionals must begin not by focusing on the work activities or work of HR but by defining the deliverables of that work.

Human resources have a chicken-and-egg problem. If companies want their HR to contribute, they must invest in the training and development and let it work at a board level.

There is a critical need for employers to move beyond the strategic business partner role to players in the business.

In examining employee efforts, one has to see the effectiveness of the planning process, advertising and recruitment sources, effectiveness of the interviewers in selecting the right candidate, change in the pool of qualified candidates, and performance of the incumbent on the job.

Development is an investment not a cost. The single most important factor differentiating one company from another is the skills, knowledge and expertise of its people and is especially true in the increasingly technological world we live in, where peoples skills are often only the major resource. Most people have access to similar ranges of equipment, technology and other facilities. Therefore it is how well these facilities are used that makes the difference. The service sector especially relies heavily on the skills and attitudes of people to show commitment to the efficient delivery of a quality service.

The real challenge for HR in the upcoming years would be to predict the demand for their products and services and then to determine the need for labor. Nevertheless, one still has to be able to reasonably predict labor demands and determine if employees have to be laid off or how many employees have to be recruited within a specific period.