THE COSTS AND BENEFITS OF MANAGING HR
The Costs and Benefits of Managing HR
The ultimate goal of every company is to achieve a competitive advantage over its competitors. A company’s competitive advantage is its ability to create more economic value than its competitors
How to achieve competitive advantage?
- By providing greater value to the customer relative to the costs of making a product or providing a service
Traditional Ways of Achieving Competitive Advantage
• By holding protected assets
• Having extensive financial resources
• Competing based on price
• Benefiting from economies of scale
Employees were never considered a competitive advantage but simply as a cost to minimize
What are the Costs Incurred on HR?
• Compensation costs• Costs as a result of time and effort needed for activities
such as- Recruiting- Hiring- Training- Evaluation- Mentoring- Coaching- Disciplining- Legal costs, if any
Benefit Aspect of Managing HR
• If employees have the right skills – achievement of company goals
• If employees feel valued by their company – greater level of commitment, loyalty, morale
• If employees feel motivated – more productivity, responsiveness to customer needs
• If employees feel equitably treated – no law suits for the company
• If employees are managed well – low levels of absenteeism, turnover and sabotage, so low direct and indirect costs for the organization
• If employees are properly trained – less mistakes, more efficiency and effectiveness
Framework for Strategic Management of Employees
Strategic management of employees centers around three primary HR activities
1. Work design and workforce planning2. Managing employee competencies3. Managing employee attitudes and behavioursThree primary HR activities carried out in the
context of three main HR challenges1. The internal organizational demands2. The external environmental influences3. The regulatory issues
Framework for the Strategic Management of Employees
Work (Job) Design
• What employees will do on day to day basis• How jobs are to be carried out• How jobs are interconnectedSimilar jobs can be designed in different ways in different
companiese.g. job of a marketing manager in a service firm and a
manufacturing firmWhy job designing?• If jobs designed to align tasks with company objectives
– increased company success• Increases job satisfaction hence retention
Workforce Planning
Why workforce planning?
To maintain the necessary number of employees
To allocate employees through promotions , demotions and transfers - to areas where they can contribute significantly
Some Important Decisions in Workforce Planning
1. How should you address a labour shortage? A labour surplus?
2. When should you require current employees to work overtime vs hire additional full time staff?
3. When should you outsource work rather then hire new employees?
4. What can you do to minimize negative effects of downsizing?
The ‘effectiveness’ of each option differs in each company’s unique situation
Managing Employee Competencies
Managing employee competencies means recruiting and selecting the right people and training them to succeed in their jobs
Recruitment: A process of generating qualified pool of potential employees for
your company – from within and withoutRecruiting strategy should address the following issues:1. For what competencies do you recruit?2. What groups do you target with your recruitment message?3. Do you recruit internally, externally or both?4. How do you ensure that you offer an employee value
proposition that will attract the right applicants
Selection
• Selection focuses on choosing the best person from the pool of qualified candidates generated by the recruitment process
• Most critical issue in selection – does the candidate possess the competencies that you have identified as the most important for a particular job?
Some Key Issues in Making a Selection Decision
• Getting the right information to make an effective and legal hiring decision
• Deciding on tests that will be most effective for identifying employees with high potential
• Deciding on questions to be asked during the interview
• Deciding who will make the ultimate hiring decision
Training
• Even the ‘right people’ selected by the company may still need ‘training’
• Depending on company needs• To learn about the company itself, its culture and
working style• To learn to use new technology effectively and
safely• To learn new procedure in case of
merger/acquisition• To develop future positions
Important Issues in Training
• To decide which employees need training
• To design an effective training programme
• To decide on need specific training methods
• To evaluate the training efforts
Managing Employee Attitudes and Behaviours
Building employee competencies only part of the equation
Encouraging right employee attitudes and behaviours important for improving employee performance
Major tools for guiding employee efforts on the job:
• Compensation
• Incentives
• Performance management programmes
• Employee benefits, health and wellness programmes
Compensation and Incentives
• Compensating the employees at a fair level for the job they perform – motivation for better performance to meet organizational goals
Rewards and Incentives
• Rewards and incentives show to employees how managers expect them to focus their time and energy. e.g. (i) Lincoln Electric’s incentive system geared towards rewarding productivity (ii) 3 M’s incentive system which places greater emphasis on creativity and new product design
Size of incentive an important indicator of how a firm values a particular activity or level of performance
Key Issues in Designing Compensation and Incentive System
• To decide on factors which should be considered when determining salary range for a job
• To decide the best way to determine how much employees should be paid
• To decide how much pay should be guaranteed and how much should be based on incentives
• To decide on the type of incentives to encourage the employee attitudes and behaviours
Performance Management
• Focuses on providing employees with feedback (positive and negative) and on using employee development activities to improve current and future performance
• Thrust on continuous improvement – by praising good performers and disciplining poor performers
Important Issues in Performance Management
• To decide the best way to measure employee performance
• To decide ways of communicating the information to employees
• To give employees developmental feedback to improve their performance
• To manage poorly performing employees
Employee Benefits, Health and Welfare
• Helpful in recruiting and retaining employees
• Ensure the health and welfare of company’s workforce
• Helps to ensure that employees are able to work effectively over time
Some benefits – required by law: e.g. workers’ compensation, family and medical leave, employee safety
Some benefits – voluntary: e.g. paid time off, health care, retirement programmes
Some Issues when Considering Employee Benefits, Health and Wellness Programme:
• To decide which benefit programmes are most appropriate for the workforce
• To find out the legal requirements regarding benefit programmes
• To decide on safety measures for the employees
HR Activities Alignment (I)
Internal Alignment
• If employees know the goals of the organization, and are motivated to work towards the goals, but do not possess all the competencies to do so – the result – poor employee performance and reduced organizational productivity
• If employees possess the competencies, know the goals, but lack motivation, the result – employee contribution to company success will be limited
• If employees are capable and motivated, but are shorthanded due to inappropriate or poor job design and workforce planning, their ability to contribute to the organization will be limited
HR Activities Alignment (II)
External Alignment
Alignment with HR challenges that companies face
HR Activities Alignment (III)
Challenge I : Meeting Organizational Demands
• Strategy
• Company characteristics
• Organizational culture
• Employee concerns
Challenge II: Environmental Influences
• Labour force trends
• Technology
• Globalization
• Ethics and social responsibility
Challenge III: Regulatory issues
Strategic Challenges
Company’s strategy influences types of jobs needed
• Low-cost leader, example: Wal-Mart
• Differentiation, example: Nordstrom
• Four-star restaurant vs. fast food
Company Characteristics
• Size
• Resources available
• Degree of autonomy and discretion
• Differences in job tasks
• Employee attitudes and behaviors
Organizational Culture
• Set of underlying values and beliefs employees share
• Unwritten yet understood
• Represents beliefs of company’s founders and key leaders
• Influences how employees do their jobs
• Can assist in attracting and retaining employees
Employee Concerns
• Single parents; caring for aging parents
• Dual career; balancing demands of work and personal lives
• Attracted by flexible scheduling, family-friendly benefits and telecommuting
Labor Force Trends
• Diverse in race, gender and age
• Number of women expected to grow 9% from 2006 to 2016
• Fastest-growing group: Hispanics and Asians
• Size of group 55-and-older increasing dramatically
• Influences how companies recruit/select
Technology
• Requires many employees to possess basic computer proficiency
• Challenges privacy issues and potential misuse by employees
• Broadens access to recruit employees from larger market
• Enables virtual workforce
Globalization
• Blurs country boundaries in business activities
• Enables international joint ventures and partnerships
• Challenges companies with differences in values and beliefs
• Encourages offshoring—sending work once performed domestically to other countries for lower costs
Ethics and Social Responsibility
• Companies and their management being held accountable for ethical behavior
• Corporate policies and procedures spell out ethical behavior
• Annual training required of employees
• Social Responsibility takes ethics to a new level
Regulatory Issues
• Federal, state, and local legislation as well as executive orders
• Employment and the rights of individuals
• Title VII of the Civil Rights Act of 1964
• Americans with Disabilities Act of 1990
• OSHA
• Civil Rights Act of 1992