Analyse The Impact Of Human Resources Management Commerce Essay
The purpose of this study is to analyze the impact of human resources management on the bottom-line (which is also regarded as organisational performance). Recently, organisations have been advised to adopt a range of progressive human resource management practises in order to enhance their competitiveness in the global market. Such advices provide that researchers, professionals and academicians have long contended that the means in which a firm manages individuals can influence its performance. Also, HR units are developing from playing a simply administrative role to becoming "strategic partners" responsible for contributing to the attainment of business objectives (Ulrich, 1998). Peter and Waterman’s (1982) assessment and description of outstanding organisations, the previous decade has provided many testimonials to the value of progressive human resource management practices and systems of such practices. Specifically, elements like employee participation and empowerment, job redesign, involving team based production systems, wide employee training, and performance-contingent incentive compensation are extensively believed to enhance the performance of organisations (Pfeffer, 1994). Besides, a developing body of research had shown the positive relations between organizational-level measures of human resource management systems and organisational performance (Huselid, 1995; Huselid & Becker, 1994).
Dalaney & Huselid (1996) found positive relations in 590 profit and non-profit organisations from the National Organisations Survey between human resource management practices, like training and recruitment selectively, and perceptual organisational performance measures. Also, similar to Huselid (1995) findings is Ichniowski et al. (1999) specific prototypical bundles of human resource management practises that they explored as determinants of organisational performance. MacDuffie (1995) in his studies also found that bundles of inter-related human resources management practises had more influence on performance than individual practises working in isolation
Furthermore, measurement of human resources should assist in recognising and defining problems (Brummet et al, 1968).Trends in ratio of investments in human assets to total assets may be a useful predictor of future profit performance (Brummet et al, 1968). There are some evidence to indicate a degree of meaningful correlation between profitability in organizations and their expenditures on acquisition, and retention of human resources (Brummet et al, 1968). This suggests that firms with high human asset investment ratio will ultimately generate high profits, while firms with low ratio may experience profits decline (Brummet et al, 1968)
According to a report on Evaluating Human Capital from people management specialists, the Chartered Institute of Personnel and Development (CIPD) study’s one of the most essential intangible assets (human resources) in today’s economy, this include the knowledge, skills and ideas owned by employees (CIPD, 2002). However, company accounts presently record the costs related with individuals, but not the profits they contribute. This is as a result of the fact that many organizations now agree that individuals represent the main driver of value in organizations (CIPD, 2002).
According to (CIPD, 2002), it is important for companies to measure and report on the value their employees bring as this would allow stakeholders to formulate better-informed decisions about the long-term viability of an organization and its capability to create value in a fast changing world. In addition, Chartered Institute of Personnel and Development (2002) contended that companies need to have better knowledge and put in place important measures of the value which individuals bring to the organization, such as labour turnover rates, skills and qualifications, levels of innovation, the extent of team-working and vital employees statistics in areas such as employee behaviour and demographic structure (CIPD, 2002). Bartel (1994) stresses that investments in the human capital of the workforce may increase the productivity of workers. In view of this, certain terms relating to this topic need to be defined and examined; such as Human resource management, human resource accounting, human resource planning, and human resource forecasting and human resource evaluation.
2.2. THE CONCEPT OF HUMAN RESOURCE MANAGEMENT
The term ‘human resource management’ has been frequently used over the last ten to fifteen years. As regards to that, the subject was commonly known as ‘personnel management’ (Legge, 1999). Torrington and Hall (1998) described the differences between personnel management and human resource management by asserting that personnel management is regarded as workforce-centred while human resource management as resource-centred. Guest (1987) on the other hand, contended that the concept of human resource management is not as an alternate to personnel management but viewed as a particular way of personnel management which emphasized the strategic issues of employee commitment, flexibility, quality and integration.
Furthermore, many definitions of human resource management have been provided. The term ‘human resource management’ is about managing the workforce of a firm. For all organizations, irrespective of their size, presume that human resource management involves activities to select, develop, motivate and retain employees with required features (Compeer et al., 2005; Jackson & Schuler, 1995; Deshpande & Golhar, 1994). Beer et al. (1984) in Armstrong (2006) stated that human resource management consists of all management decisions that affect the relationship between the firm and the employees – its human resources. According to Armstrong (2006) human resource management is defined as a strategic and coherent approach to the management of a firm’s most valued assets – the employees who personally and collectively add to the attainment of the business objectives. For Storey (1995), human resource management is a distinctive approach to employment management which tries to attain competitive advantage through the deployment of a highly committed and skilled workforce, using a range of techniques.
2.2.1. HUMAN RESOURCE AS A SOURCE OF COMPETITIVE ADVANTAGE
Scholars and practitioners have regarded human resource as the source of competitive advantage for companies operating in a global economy (Ferris et al. 1999), and they have asserted that traditional methods of getting competitive advantage have to be supplemented with organisational capability, that is the organisation’s capacity to manage people (Ulrich and Lake, 1991). Pfeffer (1994) suggests that organisations wishing to thrive in today’s global business environment must make proper human resource investments to acquire and develop employees who possess better skills and capabilities than their competitors. Indeed, enhancing a talented workforce is vital to sustainable competitive advantage (Kundu & Vora 2004).
Barney (1995) contended that much of the human resources and theoretical and empirical work has been positioned in the resource-base view (RBV) of the organization. Delery (1998) asserted that the resource-base view suggested that an organisation can gain a competitive advantage from the resources it possesses. The theory holds that they can be heterogeneity or organisation-level differences among organisations that permit some of them to sustain competitive advantage. It emphasises strategic choice, transforming the organisation’s management with the essential tasks of identifying, improving and deploying important resources to maximise returns. Therefore, in order to develop a sustained competitive advantage organisations must enhance resource in a way that is rare, valuable, imperfectly imitable and non-substitutable (Barney, 1991). Also, it is has been argued by Youndt and Wright (1996) and Wright and McMahan (1992) that because the resources that have historically offered firms with competitive advantage are simply and speedily imitated, the human resources of the firm may be a great significant source of sustained competitive advantage. The resource-base view of an organisation is a theoretical paradigm derived from the field of strategic management. It presumes that resources and features of the organization are more essential to sustained competitive advantage than industry structure and competitor’s actions (Barney, 1997). Barney (2001) defined the term ‘resources’ as the tangible and intangible assets that an organization employs to choose and implement its strategies. This consists of organizational, human, financial and substantial resources. Also, the framework for determining if a resource can be regarded as a source of sustained competitive advantage has been summarised by Barney (1991) and Teece, Pisano and Shuen (1997). The main components of the framework expect resources to be valuable, uncommon, unique and non-substitutable. Factors such as technology, natural resources and economics of scale can generate value, resource-base view argued that these factors of value are highly available to almost everyone everywhere and they are simple to imitate, while human resources which is defined as ‘the pool of employees under the organisation’s influence in a direct employment relationship (Wright & McMahan, 1992) can offer the organization with a source of competitive advantage as regards to its competitors.
The key criteria are the value added to the organisation’s production processes, each employee’s contribution having its effect on the outcome of the organisation’s performance as a whole. In addition, as employees are different, their attitudes are in limited supply in the labour market and often make it difficult to imitate. As it is not easy to recognise the specific source of competitive advantage and repeat the essential conditions necessary for it to take place. More so, human resources can not be easily replaced; although short-term substitutes may be established, it is doubtful that they will result in a sustainable competitive advantage such as the type provided by human resources. Barney (1991) argued that firms may not acquire the maximum utility from their workforce because the employees are not adding to their fullest potential. On the other hand, it was argued that firms, through the impacts of their HRM practises could maximise the knowledge, abilities and skills of employees.
2.2.2. HUMAN RESOURCE MANAGEMENT AND PERFORMANCE
Much of the previous studies have as their aim to confirm the relationship between human resource management practices and organizational performance. In spite of this, various approaches to these investigations have emerged. Also, an important focus within human resource management research during 1990s has been on the multivariate analysis of large-scale quantitative data sets to test the relationship between human resource management policies and performance (Hoque, 1999). Pfeffer and Veiga (1999) states that high performance work practices offer several important sources of improved organizational performance. Human resource systems have essential, practical effects on the survival and financial performance of organisations, and on the productivity and quality of work life of the individuals (Cascio, 2006). Also, several studies have either focused on manufacturing sectors (for example Arthur 1994, focused on steel mini-mills), or alternatively, or have not treated the service sector as a variable, but have viewed the HRM and performance relationship across the entire economy (Hoque, 1999), using different ideas or approaches. Guest (1997) and Wood (1999b) have correspondingly offered a better summary of the theoretical perspectives and empirical studies that have become known in the area.
Strategic synergy, fit and integration are the main ideas running in the human resource management theory in which one or more of the following fits are stressed if the human resource strategy that an organization adopts is to be effective. Individual practices are presumed to have a limited impact on managing a workforce properly. The reason is that several practices can improve the impact of other practices (and vice versa) by a formation of synergy (Wright & Boswell, 2002; Dyer & Reeves, 1995). The internal fit perspective includes the concept of some practices having a complementary status and the capability to reinforce the effectiveness of each other practices (Purcell, 1999). According to Becker & Gerhart (1996), the perspective builds upon a collection of practices that all fit into, making synergy and thereby handling a better workforce, than summing up the parts. But, there is still not enough understanding concerning the nature of synergy. Delery (1998) stated that even without synergy it appears better to have additional practices, because it means an achievement of the concept of human resource management and additional opportunities to manage a workforce better. For Wood (1999a), first, different human resource practices should be consistent and complement each other. Secondly, there should be a fit between the coherent sets of human resource practices and other systems within the firm. Thirdly, the human resource systems should be in line with the business strategy of the firm. And fourthly, the human resource system adopted by the firm should be compatible with its operating environment. However, in spite of the debate of internal versus external ‘fit’, these framework of human resource management propose a symbolic relationship between human resource practice, policy, strategy and performance.
Arthur (1994) adopted a contingency approach in relation to this intra-industry examination of the human resource management practises of thirty American steel mini-mills. Adding to the impact of human resource management practices on organizational performance, the contingency approach has to do with congruence or fit between different policies and practices adopted by firms. He used an empirical taxonomy identifying two kinds of human resource management systems (control and commitment) to test the level to which the specific grouping of practices utilized by firms could forecast differences in organizational performance. His results showed that mini-mills using the commitment systems of human resource management had higher productivity, lower scrap rates, and lower turnover than mini-mills using control systems. Also, Huselid (1995) studied the effects of the use of thirteen human resource management practises on organisational performance. Two measures of human resource management practices were noted. The first of these were specific employee skills and organisational structures, with practises improving skills, role performance and abilities, and the second was identified ‘employee motivation’, with practices aimed at evaluating and reinforcing desired employee attitudes. His results showed when these two measures were reverted on productivity, individually, both measures were positive and important, but when they were entered concurrently, only the motivation measured stayed significant.
2.3. THE CONCEPT OF HUMAN RESOURCES ACCOUNTING
Today, people in the business world view human resources or individuals as the organization’s greatest asset. However, the employee’s worth is infrequently reported on the balance sheet (Ebersberger, 1981). Thus, human resource accounting attempts to solve this problem. Also, social scientists have picked interests in the concept of human resources accounting which have captured the imagination of a significant group of accounting academician and practitioners. This work has been considered as a true challenge to accountants, a challenge as regards to preparing financial statements, which will include human resource.
Human resource accounting denotes accounting for individuals as organizational resources (Flamholtz, 1974). Similarly, it signifies the measurement of the cost and worth of individuals to organizations (Flamholtz, 1974). According to Flamholtz (1974) the term human resource accounting is not only a process of reporting the cost and value of individuals to organizations, it is also a method of thinking about the management of people in formal organizations. Walker (1980) defined the term as the management process of analysing a company’s human resource requirements under changing conditions and enhancing the necessary activities to satisfy these needs. Broadly speaking, in the human resource accounting approach, expenses associated to human resources are accounted as assets on the balance sheet as opposed to the traditional accounting method which treats costs associated to an organization’s human resources as expenditures on the income statement that decrease profit (Bullen, 2007). Human resource accounting proposes that in addition to the measures themselves, the means of measurement is essential in decision-making involving organizations (Flamholtz, 1974).
Organizational psychologist ‘Rensis Likert’, in his book: ‘Human Organization’ asserted that perhaps the most perplexing problem relating to human resources accounting is measuring the effect of managerial decision on what he called ‘intervening variable and interpreting these into changes in human asset valuation’. He further stated that essentially, intervening variable are those forces that have impact on individual satisfaction and productivity. They include ‘The loyalties, attitudes motivation, performance goals and perception of every members and their collective capacity for effective interaction, communication and decision making. In addition, he concluded that the action of management that influences these variables would be translated into capacity for future earning. These values he said could in turn be used to help determine the current worth of human resources (Likert, 1967).
Also, one of the major objectives of human resources accounting is to improve ways of measuring human resources cost and worth (Flamholtz, 1974). He stated further that these measurements are intended to offer a quantitative foundation for decision-making by managers and investors. For management; it would serve as a means for decisions including the acquisition, development, allocation, compensation and replacement of human resources on a cost-value basis (Flamholtz, 1974). A second objective of improving the ways of measuring the human resource cost and worth is to examine the effectiveness of management’s utilization of human assets. Another ultimate aim of human resource accounting is to develop a theory describing the nature and determinants of the worth of individuals to formal organizations (Flamholtz, 1974). Bose (2010) contended that the objectives of human resource accounting is to assist in evaluating the return on investments in human capital, helping in communicating the worth of human resources to the firm and the general public, providing information if the human resources to the organisation have been properly utilized or not and it provides information on human resources which will assist managers and investors in decision making.
2.3.1. HUMAN RESOURCE ACCOUNTING AND GLOBAL FINANCIAL REPORTING STANDARDS
Recently, there has been a shift in the United States General Accepted Accounting Principles (GAAP) in adopting a more complex measurement methods as regards to financial reporting compared with the traditional historical cost approach to asset measurement, including concentration on the measurement of time value of money and present value calculations.
Accountants have become more familiar with complex measurement approaches, some of the approaches are similar to the approaches taken in improving human resource accounting value measures, it appears reasonable that non-traditional human resource accounting measures may become more accepted in future financial reports. Also, there has been growing concern in accounting for intangible assets in financial reporting between the Financial Accounting Standards Board and the Securities and Exchange Commission. Flamholtz, Bullen and Hoa (2002, p.948) contended that since human resources are a primary element of intangible assets, the status is being established for a renewed interest in human resource accounting from a financial accounting viewpoint.
More so, in November 2007, the Security and Exchange Commission announced that non U.S organizations listed on the U.S stock exchanges could use International Financial Reporting Standards (IFRS) as an alternative of U.S GAAP (SEC, 2008).
Furthermore, based on the shift toward fair value reporting seen over the years between U.S GAAP and international standards, denotes a more sophisticated approach to the measurement of assets, tangible and also intangible. This might propose a willingness to identify the need for and take into account the measurement and use of human resource accounting in future external financial reporting.
2.3.2. HUMAN RESOURCE ACCOUNTING IN DECISION-MAKING AND MANAGERIAL REPORTING
As regards to external financial reporting requirement, Human resource accounting may be a vital managerial tool to assist in managerial decisions making that will be beneficial to the long-run strategic goals and profitability of the organization. Bullen (2007) asserted that in contrast to external financial reporting, managerial reporting does not demand adherence to a strict array of GAAP in particular financial statements in agreed format reported to the public. Nevertheless, still if human assets are not accounted for on the face of external financial statements, human resource accounting can play a significant role in internal managerial decision making, and human resource accounting measures can be applied to explain that investments in an organisation’s human resources may lead to long-term profit for the organisation (Bullen, 2007, p.89).
2.3.3. HUMAN RESOURCE ACCOUNTING MEASUREMENT MODELS
Research in human resource accounting has also concentrated on the difficulty of improving valid and reliable ways of measuring the cost and value of individuals to organization (Flamholtz, 1974). Flamholtz’s attempts to develop and assess the validity of a model of an individuals value to an organization. . The model is based on the principle that an individual value to an organization is a product of the attributes he brings to an organization and the features of the organization itself (Flamholtz, 1974).
However, human resource accounting may be measured in terms of human resource cost or in terms of human resource value (Bullen, 2007). According to Flamholtz model, for measurement of human resource costs, three different approaches have been suggested: Original costs, Replacement costs and Opportunity costs (Flamholtz, 1974). The Original costs may be described as the actual, historical outlay incurred as an investment in human resources (Flamholtz, 1974). In addition, Flamholtz’s model for measurement of original human resource costs may be described in terms of the two main groups of acquisition costs and learning costs. Acquisition costs include the direct costs of selection, recruitment, hiring and placement, and the indirect costs of promotion or hiring from within the organization. Learning costs consist of the direct costs of formal training and orientation and on –the-job training. In a human resource accounting system these costs are recorded in asset accounts with future economic benefits rather than as expenditures. Replacement cost is the cost that would have to be incurred at the moment in order to replace an organization’s human resources. Opportunity costs is described as the maximum amount that human resources could get in an alternative use (Flamholtz, 1974).
On the other hand, Flamholtz (1999, p.160) asserted that the concept of human resource value is originated from general economic value theory, and like every resources people hold value because they are able to provide future service. Therefore, as Flamholtz stated, a person’s value to an organization can be defined as the present value of the future services a person is expected to render for the period of time the individual is expected to remain in the organization. Likert (1967) contended that the model recognizes the determinants of the productive capability of the human organization; therefore it reflects the value of individuals to the organization.
Over the years, The Stochastic Rewards Valuation model, that was developed by Flamholtz (1971) for valuation of human resource, and further described in Flamholtz (1999), provides a five phase process that starts with defining the different service states or organizational positions that a person may occupy in the organization. The next phase is to ascertain the value of each state to the organization, the service state values, which can be calculated either by using a number of ways such as the price-quality method or the income method. Then the individual’s expected tenure or service life in the organization is calculated and the individual’s mobility probability or the probability that an individual will occupy each possible state at a particular future period is derived from archival data. Next the expected future cash flows that the individual makes are discounted so as to ascertain their present value. According to Flamholtz (1999, pp 160-161) there is a dual aspect to an individual’s worth. First, the person’s ‘expected conditional value’, is the amount the organization could possibly realize from his or her services if the individual maintains organizational membership during the time of his or her productive service life. Second, the individual’s ‘expected realizable value’, is the amount actually expected to be derived, taking into consideration the individual’s likelihood of turnover in the organization. Similar to the Flamholtz model, is another earliest model of human resource value, it measures human capital by estimating the present value of an individual’s future earnings (Lev and Schwartz, 1971). Also, Dobija (1998) suggested an alternative model for capitalization, where the proportion of capitalization is determined in the natural and the social conditions of the atmosphere. Utilizing a compound interest approach, this method takes into consideration three factors for valuing the human capital embodied in an individual. These consist of the capitalized value of cost of living, the capitalized value of the cost of professional education, and the value achieved through experience. Turner (1996) refers to the model provided by the International Accounting Standards Committee and recommended the use of the present value of the value added by enterprise, and measures assets by the four methods of historical cost, current cost, realizable value and present value. Cascio (1998) suggested a method for measuring human capital based on signs of human capital of innovation, employee attitudes and the inventory of skilled employees. In addition to this method, innovation commands a premium and thus needs to be measured, for instance by comparing gross margins from new products to the profit margins from old products. Employee attitudes predicting customer satisfaction and retention are an essential indicator of human capital and thus need to be measured, also measures of tenure, turnover, experience and learning. Toulson and Dewe (2004) , conducted a research study utilizing component analysis and observed two reasons why human resource measurement is essential. The first provides that measurement reflects the significance of strategic and competitive of human resources, and the other provides that to gain credibility, human resources must be communicated in financial terms (Toulson and Dewe, 2004).
2.3.4. PROGRESS IN HUMAN RESOURCE ACCOUNTING IN UNITED KINGDOM.
Human capital is one of the intangible assets that investors seek for in valuing a company, together with structural capital (processes, information systems, patents) and relational capital (connection with customers, suppliers, and other stakeholders) (Wagner, 2007). According to a research of more than 600 manufacturing and service organizations that was led by Dr. Chris Hendry, Centenary Professor of Organizational Behaviour and Human Resource Management at the Cass Business School, City University of London, Wagner states that annual reports now overemphasize the role of relationship capital in organization performance and minimize the role of human capital, giving a skewed view of organization’s future performance.
2.4. HUMAN RESOURCES PLANNING
In this period of global economy with increasingly sophisticated information technology the request for professional services is growing (Hwang and Kogan, 2003). Given the type of the operations, the quality of services an organization can provide ultimately depends on the quality of its employees. Thus, it is obvious that corporate management has to focus its attention to human resources planning affairs (Hwang and Kogan, 2003). Boxall and Steeneveld (1999) asserted that a well- designed and carefully executed human resource system, involving recruitment, hiring and retention, can not only improve an organizations profitability, but can also sharpen its competitive advantage.
Human resource planning analyses and identifies the importance for and availability of human resources for a firm to meet its objectives (Mathis and Jackson, 2004). Bramham (1994) defined human resource planning as a vital planned approach to the management of individuals, linking practice to a company’s strategic objectives and planning responses to prevail labour market conditions. Taylor (2005) asserted that human resource planning is mainly concerned with assessing an organization’s position as regards to its labour markets and forecasting its likely situation in the future. It only gives consideration to skill auditing within organization but additionally requires that human resource goals give attention to labour market condition in the environment of the organization. Similarly, it is based on the idea of assessing the environment and putting together the data required to plan the path the organization needs to follow if it is to achieve its objectives (Taylor, 2005). In addition, Bramham (1987, pp.56-57) highlighted some of the major objectives of human resource planning, there include recruitment, training and development, staff costing, redundancy, collective bargaining and accommodation.
According to Wendell F. French human resource planning is important to organization as planning the procurement and utilization of finances, material, capital equipment, and market resources. Also, the absence of human resource planning could lead to not having the right individuals in the right jobs at the right time, and any of the important management processes can become so inefficient and may cause threats about the existence of the organization (Jain and Murray, 1984).
Human resource planning is infrequently integrated with strategic business planning (Jain and Murray, 1984). According to the 1978 survey of the largest 200 companies in the USA and its 1980 update show that none of the companies reported any communications between the chief corporate planner and the personnel/human resource management function. Likewise, in their case-by-case carefully study six mid-western organizations, Kendrith M. Rowland and Scott L. Summers report that only one of six organizations integrated human resource planning with strategic business planning (Jain and Murray, 1984).
2.4.1. HUMAN RESOURCE PLANNING IN PRACTICE
In recent years, few studies have preferred to view directly at the application or lack of application of specific human resource planning techniques, instead of looking at wider issues (Taylor, 2005). A survey conducted by Cowling and Walters (1990) for Chartered Institute of Personnel and Development, asked several questions to ascertain whether or not specific activities related to systematic human resource planning were carried out. Respondents where asked to declare if the activity was undertaken on a formal and regular basis, as an ad hoc activity or not at all. The outcome provides that only three operations where undertaken formally and regularly by a greater part of respondents: the recognition of future training needs, analysis of labour costs and productivity, and a consideration of the need for structural change resulting from business plans. Also, fewer than half, thus, carried out formal forecasts of demand and supply of labour, and below 20 percent formally examined human resource planning practices. Though, the figures rose considerably when the amount of respondents claiming to perform these activities on an ad hoc basis was included.
Based on this research it was now difficult not to conclude that a vast majority of UK employers view human resource planning activities as a low priority for their organizations. Marchington and Wilkinson (2005, pp. 278-279) stated that there are number of reasons why human resource planning techniques have been neglected by employers in the United Kingdom. These involve the following:
There is hostility to the application of statistical techniques in place of managerial judgement.
-It is considered that human resource planning, while desirable, is not important to organizational effectiveness; funding thus tends to be channelled elsewhere.
-The occurrence of a short-termist outlook in UK organization brings a belief that individual managerial careers are unlikely to be improved by long-term activities like human resource planning.
-There are practical difficulties associated with insufficient historical data on which to base forecasts.
- There is lack of knowledge of the existence of human resource planning techniques and their prospective advantages for organizations.
-Similarly there is a more general unawareness or fear of mathematical methods.
Furthermore, it has been argued that the traditional way of practising human resource planning that many employers often desire no longer suits the approach to personnel and development (P&D) and to management as a whole (Taylor, 2005). Another argument put forward by some scholars about human resource planning is based on the simple proposition that it is impossible to forecast the demand for and supply of labour with any accuracy (Taylor, 2005). Mintzberg (1994) asserted that most forecasts come out to be wrong and as a result of this, the process of planning is likely to hinder the achievement of competitive advantage. In retrospect, Mintzberg (1994) terminology on the amount of obstacles to successful planning, in the form of discontinuities has been disputed, as he contended that changes in the environment infrequently occur suddenly. Taylor (2005) stated that Mintzberg arguments are based on business planning as a whole and are not only associated on the management of individuals. Thus while it is vital from a general management point of view, it may have little importance to the management of people. In addition, the major problem with forecasting is that it relies on past experience in order to predict future growth (Taylor, 2005).
2.5. HUMAN RESOURCES FORECASTING
Human resource forecasting allows organisations to match the requirements and the availability of employees. It is important because of several external pressure and future contingencies. Therefore, management need to forecast the demand and supply of human resources as part of the firm’s business and planning processes. Alpander (1982) maintained that long-term business requirements, promotion policies, and recruitment (supply) possibilities need to be matched in order for human resources requirements and availability estimates (from both external and internal sources) to correspond sufficiently. According to Sutanto (2000), establishing long-term human resources requirements is nearly associated with strategic business plans. Alpander (1982) emphasises that management should consider labour availability when they establish strategic business plan because current and prospective available human resources affect the viability of strategic business plans.
2.5.1. HUMAN RESOURCE FORECASTING TECHNIQUES
Various techniques exist in forecasting human resource. There is qualitative and quantitative forecasting technique (Duane, 1996). Duane (1996) provides that qualitative forecasts are primarily educated guesses or estimates by people who have some knowledge of past HR availability’s or utilisation. On the other hand, the quantitative forecasting techniques for determining labour supply and demand, includes regression model, time-series model, economic model, linear programming model and Markov model (Duane, 1996). Meehan and Ahmed (2002) contended that the human resource forecasting techniques has four broad categories, this include judgemental, stock-and-flow models (mainly Markovian), demand forecasting models, and integrated models. Qualitative techniques, unlike the other categories that use quantitative techniques is regarded as judgemental and is viewed as the most common type of human resource forecasting technique employed (Meehan and Ahmed, 2002). There involve supervisory estimates, rules of thumb, replacement charts and the Delphi technique (Meehan and Ahmed, 2002). The stock-and-flow models deal with supply issues. Its aim is to project employee’s movement through the organization over time, and to forecast the amount of employees in several jobs and skill classifications in the future (Meehan and Ahmed, 2002). This technique is based on Markovian models. According to Bartholomew (1982), the models are meant for explanatory purposes, and also investigating reforms in the mix of employee population. The integrated models combine the multiple aspects of the planning process in such complex environment. Finally the demand forecasting models, it forecasts future demand for human resource on the basis of the relationship between staffing levels and indicator variables like sale or production volume (Meehan and Ahmed, 2002). Duane (1996) stated that it depends mainly on variations in external factors.
2.6. HUMAN RESOURCE EVALUATION
Human resources evaluation is the process of assessing the value of individuals to an organization. It includes measuring the productivity (performance) and promotability of individuals. Human resources accounting can be used in the human resource evaluation process by enhancing valid and reliable means of measuring the value of individuals to an organization (Flamholtz, 1974). These means or methods will consist of both monetary and non-monetary measurement (Flamholtz, 1974).
Human resources evaluation will also have an effect on the administration of human resources reward systems, such as compensation, promotion and symbolic reward like performance appraisals. These systems are intended to motivate and reinforce the best possible performance of individuals in attaining organizational goals. Human resources evaluation will allow reward to be administered in relation to an individual’s value to an organization.
Recently, new approaches to human resource evaluation have been established (Cabrera, 2003). Boudreau and Ramstad (1997) asserted the need of separating the effect that human resource practises have on internal process efficiency from the impact that human resources have on employee attitudes and strategic results. They suggest a model involving the following three levels of human resource evaluation: first, what human resource does, secondly, what human resource makes happen and finally business success. Therefore, adding to traditional functioning measures of human resource activities, they argued that measures are required which show the direct impacts human resource practices have on employee attitudes and behaviour and that explain how these collective changes create strategic results. Also, in their suggestions for enhancing human resource evaluation, they highlighted the significance of improving explicit models that state the links between human resources practices, employee behaviours, and firm results.
Furthermore, in spite of the increasing concern in the strategic impact of strategic human resource management, Cabrera and Cabrera (2001) research shows that many organizations may still be limiting their assessment of human resource to activity and efficiency numbers and that little attempt is being paid to evaluating the effectiveness of human resource with respect to vital business objectives. Walker (1999, p.12) contended that organizations too frequently set their sights too low and finish up with human resource strategies that are too useful, too functional, too narrow and too common. Therefore, it is becoming more obvious that the human resource function should play a vital role as a strategic partner in organizations (Ulrich, 1997b). Additionally, Cabrera (2003), states that the success of human resource in realizing this responsibility can simply be determined through a non-traditional approach to human resource evaluation.
This chapter analyses the impact of human resources management on the bottom-line, which is also regarded as the impact of human resources management on organisational performance by viewing the concept of human resource management, human resource as a source of competitive advantage, human resources management and performance, the concept of human resource accounting, human resource accounting and international financial reporting standards, human resource accounting in managerial reporting and decision-making, human resource accounting measurement models, development in human resource accounting in United Kingdom, human resource planning, human resource planning in practice, human resource forecasting, human resource forecasting techniques and human resource evaluation.
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