With the advent of the IT revolution all over the world and globalization being the new mantra across the corporate sector, the Human Resource Management practices and policies have undergone severe changes. The challenges that are faced by the HRM today are totally new to what has been few years ago. This paper highlights the importance of HRM in meeting the new challenges. Our paper focuses on these challenges that are impacting the organizations all over the world.
Setting the uniform culture across the organization which has expanded all over the world
HRM in defining the career progression and development for its employees
HRM in handling the gender diversity and cultural differences
Addressing the issue of employee turnover
HRM and its role in implementation of the strategy with respect to the vision and mission of the organization
Setting the Right Culture
With most of the companies raring to expand in the international market, it has become a tough task to set the right culture within the organization. With the hiring of employees from the global workforce, there is always a threat of diffusion of cultures and thereby losing the homogeneity in the culture of the organization. The biggest challenge for an organization is preserving its culture or maintaining the right culture for the 21st century. Therefore Storey defines HRM with respect to this aspect as: “a distinctive approach to employment management which seeks to achieve competitive advantage through the strategic deployment of a highly committed and capable workforce, using an integrated array of cultural, structural and personnel techniques”. (Deanne N.Den Hartog, 2004). According to the HRM specialists a combination of “High Performance work practices” and “High Involvement work practices” improve the performance of the organization. To determine the right mix of “High Performance Work Practices” and “High Involvement Work Practices” the focus model of the organizational structure can be used (Exhibit 1).
Exhibit 1: FOCUS Model on Organizational Culture (Deanne N.Den Hartog, 2004)
The above model divides the organizational culture into two dimensions.
Dimension 1 is based on the organizational focus. It varies between extreme poles of Internal to External. In internal focus of organization the stress is laid on organization, its internal processes and people’s skill sets and attitudes etc. In external focus of the organization the emphasis is laid on the relation of the organization with the external environment.
Dimension 2 focuses on the amount of flexibility and control within the organization.
Based on the above dimensions four orientations of the organization can be determined. They are:
Support Orientation: The concepts like co-operation, trust, cohesion amongst the group members and colleagues and growth of an individual are given the utmost importance. For such kind of orientation of organization high performance work practices which aim to the development of an individual are needed.
Innovative: This kind of orientation is characterized by self-motivated, accepting and willingness to accept change, creativity, and risk taking kind of environment. From the management perspective it needs employees who are self-motivated, who are willing to lead, and highly flexible. Therefore the work practices should be structured which emphasize flexibility, empowerment and openness
Goal Orientation: This kind of orientation emphasizes on rationality, objectives, productivity and functionality. Most of the emphasis is on the efficiency and also the accomplishment of the associates or the employees.
Rules: This orientation emphasizes more on the procedure, division of work. Most of these organizations have taller hierarchies. Compliance is given the utmost importance. Most of the practices in this organization tend to emphasize more on the following of the procedure because there is always a constant monitoring of the employees. The decision making in the organization is mostly centralized. Therefore the performance of these organizations is not high and there is a high delay in decision making.
Therefore based on the kind of organization that is necessary the above model can be used to inculcate the culture within the organization.
Relation between Culture, HRM Practices and Labor Productivity:
In any organization especially when there is a high competition amongst the organizations in the world the role of culture and implementation of HRM practices have a direct impact on the labor productivity. Exhibit 2 clearly explains the role of culture and HRM practices in improving the labor productivity during the high competition in the market.
Exhibit 2: Relation between Group Culture and the HRM intensity in improving the labor productivity.
With the increase in competition in the market, the need for reducing the costs is more felt by the organizations. This can be done by improving the labor productivity. HRM intensity is the degree to which an organization adopts the HRM practices in improving the productivity of the organization. HRM intensity refers to the configuration of best practices that companies adopt across seven HR domains like: Selection, training, career development, rewards, appraisal, compensation, and employee participation. These practices are designed to manage the competencies and behaviors of employees to manage the competencies and behaviors of employees to maximize the labor productivity. But adoption of the new HRM practices is not very easy in an organization always. It is because the adoption of the new practices requires structural changes which may affect employee turnover, affect motivation, increase stress etc. due to the changes and approach. This is felt much more within the smaller organizations because these changes along with the above mentioned obstacles also demand grater time from the entrepreneur and also establishes new formal controls which might be undesirable. Even the financial costs associated with the changes might outweigh the benefits obtained from the system. So as to ensure the smooth changes in HRM practices the culture plays a major role.
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Role of Group Culture and Productivity: The various types of culture depending on the type of organization have already been explained by the FOCUS model. The organizations which face intense competition require support or innovative type of model. Both these cultures lay high emphasis on building the culture based on trust, co-operation and also willingness to change. If the culture of support and innovation can be developed within the organization then it has high impact on the productivity of the employees.
Relation between Culture and Adoption of HRM practices: The group culture which emphasizes on interpersonal relationships will have positive effects on employees’ commitment and job satisfaction; will in turn lead to greater labor productivity (CARDON, 2010). When employees feel they are part of a team with common shared goals they develop a sense of mutual trust. Therefore the group culture plays a major role in reducing the co-ordination costs within the employees thereby increase productivity.
Career development is one of the most important elements of developing the professional career of an employee in an organization. The main objective of career development is the professionalization of individuals and their personal careers.
In an organization, employees’ career management is a very basic process related to planning of the human resources, and it puts more force to development programs. The main objectives of the career development are:
Addressing the basic needs of the organization and develop the positive image for it.
Identifying personal needs of individuals, with emphasis on intellectual and professional needs, for organizational progress.
Identifying the indifferences or lack of motivation regarding career management
Helping employees take the right decision for long term future and career growth.
Super’ theory related to career development and management is as follows:
Super theory takes into account the individual differences related to interests, abilities, and personality.
In an organization, the professional preferences and/or qualifications change with time, and helping employees choose the right career is a continuous process.
In an organization, professional development passes through three stages:
Orientation stage: In this stage one of the most important things is individual professional guidance. Information plays an important role in this stage because people want to take the right steps to meet their career objectives.
Development stage: This stage creates the employment opportunity through mentoring in new programs, job rotation and many kinds of training programs.
Evaluation stage: This stage involves self-evaluation or evaluation by others. The main objective of this stage is identification of the strengths and weaknesses of the person.
The most important component in career management is right development activity related to human planning. Human career planning is the one of the best ways of an evaluation of employee performance. (Palade)
Some of the problems that arise in career development are mentioned below.
In an organization, planning career development is done by the human resource department of the company. The right strategies, plans and programs to development of the human resource within the company are very important. In an organization, many employees analyze their own interests and qualities. Self-evaluation is one of the most important starting points of career development. Self-evaluation must be followed by periodic evaluation of the employees’ performance in order to confirm their promotion.
In an organization, individual career is affected by an array of subjective and objective factors. Some of the factors depend on the individual and many others depend on the social and economic environment.
In an organization the subjective factors that directly affect the career of an individual are his or her attitude and personality. Subjective factors also influence the personal opinion, which in turn, influences self-evaluation.
Diversity in an organization can be defined as differences among individuals in terms of age, sex, ethnicity, values, culture, qualification, professional experience, income level, designation, knowledge, etc. These parameters can themselves be categorized into demographic, organizational and socio-cognitive factors leading to diversity. While the demographic factors include age and sex, the socio-cognitive factors include knowledge, values, religion, ethnicity and culture and the organizational factors include educational qualification, work experience, income and designation. All these sources of differences help in the human capital building of an organization.
This in-depth classification of differences helps in understanding, appreciating and capitalizing the benefits of diversity. These, in turn, lead to a significant improvement in boss-subordinate relationship and processes related to managerial decision making, recruitment, training, motivation, appraisal, exit and other management functions.
The three main strategic human resource management approaches followed by an organization are
Individual control approach
Group development approach
Group management approach
The individual control approach emphasizes on hiring the best talent from outside the organization and controlling their performance by means of strict adherence to processes, procedures, rules, etc. The group development approach, on the other hand, gives a lot of flexibility in decision making to employees who are internally developed for leadership roles. Lastly, the group management approach is a middle-of-the-ground approach where the advantages of both individual control and group development approaches are tried to be captured. All these three approaches face the need to manage different types of diversity and hence different organizations follow different diversity management techniques. (MartÄ±´n-Alca´zar, Romero-Ferna´ndez, & Sa´nchez-Gardey)
A case in point is the variation in diversity as companies expand. While domestic organizations are ethnocentric in terms of labour and customer base, multi-domestic and multinational firms are polycentric and try to localize their workforce and customer base according to the host country and global and transnational organizations are truly geocentric as they hire the best talent from across the globe to cater to a global customer base. Thus the diversity challenges facing an expand organization change with the organization’s reach and so do the diversity management techniques.
While the techniques may be different, the outcomes are universal. They include successful strategic alliances, capitalizing on synergies leading to competitive advantage and more number of resources for organizational learning. Singapore, which has realized the benefits from a diverse workforce, tries to enlarge its workforce through human capacity building programmes for women, youth, the disabled, the old and the unemployed as a policy. (Choy)
One important aspect of diversity management is diversity training. This is an activity that some global conglomerates follow to ensure that its employees interact effectively with colleagues who are not similar to them in some way or the other. The skills and tactics taught to sensitize and control the behaviour of employees, with respect to diversity, will bear fruit only if they are supported by the culture, systems and policies of the organization. The outcome of such a corporate training activity should be aligned with the managerial goal of quality decision making.
The diversity training offered by organizations is different from the diversity education offered by academic institutions. While diversity education focuses on the concepts and principles that justify egalitarianism, diversity training focuses on the skill sets required to tackle diversity issues. Corporates have progressively understood the importance of the top management being both educated and trained rather than just being trained to ensure long term and sustainable diversity management practices in the organization. (Johnson)
Diversity management is also beyond the representation policies of the pre-1980s era which included well defined processes to recruit minorities, bringing them into the mainstream and getting along with them. Diversity management, on the other hand, focuses on achieving the right balance between integration and differentiation between different groups of individuals in order to meet the business objectives effectively.
A case in point is the rise of women in the human resource management domain of European and American firms over the past one hundred years.
In the early 1900s, HR was seen as a welfare function which meant taking care of people. Hence there was high representation of women with none of them being in high ranks as HR itself was a lackluster domain. This trend of high representation and low status continued even in the 1960s when HR became a predominantly administrative/legal compliance function.
In the 1970s, when labour relations came to the forefront, men took the top HR jobs and the representation of women within HR plunged. This trend continued in the 1980s when introduction of scientific testing instruments changed the image of HR from a welfare function to a professional function, making HR more alluring to men. At this stage, women held a major chunk of HR roles but at lower ranks compared to their male counterparts. Also HR was a standalone function with no participation in strategy formulation of the organization.
Change happened in the 1990s, especially in the European and American organizations, when the status of women in HR roles started surging with no compromise on representation. Around the same time, strategic integration of HR with the rest of the domains also started increasing.
This escalation in women’s status and responsibilities which was earlier thought of to be impossible due to gap in their qualifications and work experience, sexual stereotyping of capability, horizontal segregation within functions and burden of families has now been made real by diversity management techniques, enabling social practices like paid maternity leave and childcare, rising gender egalitarianism in the society, external pressure from civil society and media for diversity in top management and the trend of increasingly more number of women getting educational qualifications as HR specialists.
While the Equal Opportunities legislation of different countries has had limited impact due to inherent shortcomings, diversity management has risen not just as legal compliance but also as a competitive advantage to organizations across the globe. (Faugoo)
HRM is becoming complex field with time as earlier the employee was only concerned with his/her economic survival but now employees seek a more balanced work and family life. Career prospects and pay is increasingly becoming more important as we don’t really see an employee sticking to one company for his life like the earlier days. Hence, it becomes imperative for a HR manager to consider several factors for management and understand the reasons for employee turnover. A manager needs to be aware of the reasons why an employee leaves a company and whether it could have been prevented. This study is increasingly becoming popular in research papers as the organizations are now realizing cost implications and the soft issues attached to employee turnover. A high turnover is expensive as the recruitment process has high cost involved with it. There are indirect costs as well involved with turnover like decrease in productivity and missed opportunities per se.
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One of the major issues companies face nowadays is the effect of personal turnover. It means that the employee voluntarily leaves the company. HRM plays a vital role in realizing the issue related for personal turnover and how it can be reduced. In the developed economies there attempts to reduce this factor by creating new practices to gain a strategic advantage in the market but the case in developing countries is a little different, the focus is not given to personal turnover which leads to inefficiencies and less productivity, hampering the organizational performance. The trend noticed in developing country is that they often realize the problems connected with personal turnover quite late (Sohail, Muneer, Tanveer, & Tariq).
Studies show that there are various HRM practices that influence an employee’s decision but not all practices have the same impact on job satisfaction or employee turnover. An interesting result of the research done by Viara (Slavianska, 2012) on employee turnover is that the dissatisfaction from various HR practices not necessarily leads to stimulation of personal turnover. On the contrary it is important to understand that personal dissatisfaction is the major reason for employee’s personal turnover.
Employee turnover can also differ regionally. We see a peculiar trend in China; generally it is assumed that less pay leads to employee dissatisfaction, which in turn leads to turnover. In China, the employees who feel they get low salary with adverse working conditions dint have any turnover intentions (Wyld & Maurin). The reason behind it was the good human resource practices of any organization, which made the employee more obliged and increased tolerance levels towards their organization.
We will look at the below HRM practices and how they influence an employee turnover intention (Long, Perumal, & Ajagbe):
Compensation and benefits
Compensation and benefits:
Compensation is an integral part in understanding employee turnover. Compensation provided by the organization gives the employee a message on what management believes about the employee. An organization using strategic compensation with lead to more organizational effectiveness as the employees built a psychological contract with the employer and hence decreasing the employee turnover.
Training is a vital part for understanding the employee turnover. Training in an organization helps the employees to build their competencies and tells them that the company cares for them and is actively involved in helping the employees build their skills. Another advantage of training is that it helps employees’ meet organizational goals and objectives. It also ensures a satisfactory performance and provides employees with knowledge to help them perform higher tasks.
It basically comprises of the performance reviews that take place in an organization. This play a vital role as the performance appraisals rely on the performance reviews, which in turn affects the employee’s motivation and the intention to personal turnover. It is vital to share the review details with the employees so that it will result in high-level performance.
Managers fail to understand that career development is a two way street. It is a manager’s responsibility to encourage employees, provide continuous assistance and provide feedback so that employees can take responsibility of their own careers in order to grow. Hence career development can be viewed as a dynamic process, which tries to meet the needs of organization, subordinates and managers.
Employee retention is simply employee turnover from a different angle. We see a shift in balance of power from employer to employee. This shift is there because the organizations are now moving towards more efficient ways to manage and retaining an employee is highly cost effective. Studies show that if an employee quits the job, it’s not mainly because of the pay he/she receives. The major reasons for personal turnover are environment, culture, recognition, policies of the organizations and the employee relation that is maintained by the organization. In order to retain the employees organizations needs to give more importance to employees’ career plans and recognize them as per merit.
HRM and Strategy
Business strategy is a series of systematic and related decisions that give a business a competitive advantage over other businesses (Schuler & Jackson, Linking Competitive Strategies with Human Resource, 1987).
In an article in Human Resource Planning, Schuler proposed that for successful implementation of different strategies, different set of HRM practices are needed (Schuler R. , 1987). HRM policies should thus vary across or within organizations depending on the type of strategy adopted. For e.g. during the growth stage of a product cycle, there is high need of technical skill and attracting talented employees is of the highest priority. Salaries for such high-skilled resource are already very attractive, and an organization needs to attract such talent by differentiating itself from competitors; and such differentiation can be created by non-traditional or innovative HRM practices. The same firm, when moves into the maturity stage, hiring of new talent does not form the crux of strategy; the focus is more on retention of the internal talent. The immediate effect will be on the pay system, which should now be designed to retain employees, mostly depending on experience, job classification etc. Again during decline stage, to reduce work strength, strong performance appraisal system will be the key factor. These business characteristics of a strategy are indicators of employee characteristics essential for successful implementation of the strategy. Thus HRM practices should be aligned with business strategy and should vary with varying strategy.
Feng-Hui Lee et al (Lee, Lee, & Wu, 2010) proposed four hypotheses relating HRM practices, business strategy and firm performance. They are:
HRM practices will be positively related to perceived firm performance.
There is a close linkage between business strategies and HRM practices.
Business strategies will be positively related to perceived firm performance.
Integrating HRM practices with business strategies will be positively related to perceived firm performance
(Lee, Lee, & Wu, 2010)
The study also identified six key HRM practices that are likely to be positively associated with organization performance, product cost, quality, and delivery, and production flexibility. The six practices are:
Training and development
Compensation or incentive
(Lee, Lee, & Wu, 2010)
Challenges: Firms have realized the importance of HRM and business alignment and have started to select manpower of varying characteristics but different HRM practices for different strategies. A significant implication of this is employees face ever-changing employee relationships; employees of a single firm are exposed to a varying set of HR practices during a single tenure of employment. Organizations having multiple businesses divisions face another major issue of trying to match HR with strategy. Different businesses imply multiple HRM practices thus posing the challenge of making treating employees equitable across business divisions. Similar challenges exist within a division across organizational levels. According to Thompson (1967), effects of strategy for HRM practices will be stronger for higher level employees and weakens down the hierarchy, and especially weaker for non-management employees. Though it is inconclusive whether such small differences in HRM practices due to difference in organization levels impact effectiveness, it is important to note that high-performing technology firms or Japanese firms have fewer hierarchical differences (Schuler & Jackson, Organizational Strategy and Organizational Level as Determinants of Human Resource Management Practices).
HR Initiatives and Business Strategy – an Indian Context:
Most studies have been focused primarily on developed countries. The major HR initiatives of Indian firms to support innovation-oriented business strategy are:
Learning and Development: This is the most prevalent initiative, supported with knowledge management initiatives. Most firms have a structured, mandatory training program for new recruits. Some firms offer company sponsored higher educational courses such as MBA.
Employee Involvement: This is the second most adopted initiative. There are various forms of employee involvement that require employees to actively participate and contribute ideas for business improvement. Quality initiatives like kaizen, total quality management (TQM), problem solving teams, quality circles etc. are widely used as tools for employee engagement. Suggestion schemes, often incentivized, are a big initiative for many firms to promote employees to contribute their ideas.
Performance management: The third most used HR initiative to support business strategy. Performance management includes performance appraisal, performance based promotion and pay, profit sharing, recognizing and rewarding of good performance, self-evaluation etc.
Employee Welfare and Engagement: Employee welfare initiatives are taken to boost employee morale and commitment. Family is paramount in Indian scenario, and thus regular events and engagement activities are held to promote work-life balance and develop a bond between employees’ families and the company.
(Cooke & Saini, 2010)
Areas for Improvement: HR department or personnel are perceived as not being sufficiently professional, being remote from business realities, lacking business understanding and slipping behind dynamic business needs. These act as a stumbling block for successful implementation of HRM practices. On the other hand, the entire blame cannot be put on HR department. Many HR initiatives are implemented without sufficient inputs from HR personnel, as line managers do not tend to give due importance to people management.
Four areas have been identified for HR to improve on to provide better effective support to the firm’s business strategy.
Need for greater democracy and fairness in workplace management. This includes greater empowerment in making decisions, quicker and more transparent feedback, more communication, greater transparency in rewards etc.
A better rewarding scheme. Performance based pay is preferred, with better incentives for good performance and suggestions.
The third front is about job satisfaction through job enrichment. Job rotation or cross-functional responsibilities should be encouraged to understand the totality of the business unit and work better as a team.
The fourth area, often given less attention than the above three, deals with better recruitment of creative or talented employees, provide better career development opportunities, and more effective deployment of talent.
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