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This report is to provide a practical set of recommendations concerning human resource management to the top management of Fitright Limited, an auto parts supply organization, locating in Beijing, China.
The reader can firstly understand the relationships between internal resource, strategy and firm performance. Based on the resource-based approach, we would highlight how four basic criteria to apply to Fitright Limited.
With basic idea of the discipline of human resource management and the process of organizational development, we would develop strategies to strengthen the company competency by practicing guidelines relating to recruitment and selection, training and development, pay and reward, and employment relations.
Recruitment and selection
The first part of strategies is how to recruit and select the local managerial and operational personnel. As, Fitright is a private companies that have emerged from state owned enterprises, "guanxi", which includes but not limited to networking, long-standing cultural tradition of exchanging favours, reciprocity, family and intimate relationship, plays an important role in hiring managerial positions. Therefore, this part also highlights how we adopt the new strategies with the consideration of guanxi's influence on recruitment and selection practices.
Training and development
Human resource is an important asset for an corporation. It is a critical activity to train up Fitright's new employees by identifying learning and training needs, which is linked to the corporate business strategies. We would introduce people development model with four critical steps.
Leading and organizing
The top management is the key factor affecting the company performance, in which Chief Executive Officer (CEO) plays the most significant role in the leading and organizing process.
In this part, we would introduce some important knowledge and skills CEO must possess in order to manage industrial relations effectively
Performance is a key issue for all corporations. The process of how to evaluate and measure the corporate, team and individual performance are important to top management to understand if the strategies applied are successful or not. With reference to the performance cycle, we would explain three key aspects of managing individual performance with examples.
Compensation (pay and reward strategy)
Teams with quality operational and managerial personnel are important to a corporation development. Fitright's CEO and human resource manager should pay attention how to retain the quality people. An Appropriate pay and reward strategy for their employees are critical. In this part, we would provide three considerations and actions in coming up with a quality compensation strategy.
Fitright, an auto parts supply organization, is a private corporation. Like most private corporations in Mainland, it is emerged from state owned enterprise. These private corporations have their special corporate culture, which is totally different from the western counter-parties. Therefore, before introducing the western knowledge of human resource management, we should understand the history in Mainland.
In order for a resource to result in sustained competitive advantage, it must meet four criteria, namely valuable, rare, in-imitable, and non-substitutable. (Jay Barney). VRIN is a term usually being used to represent these four elements. In this part, we focus on human resources.
When testing if a resource (a specific employee) is valuable, we ask if the resource is in demand and if some of that demand can be appropriated by the company as profit. For example, internally, if a employee possesses good analytical skills and comprehensive auto parts product knowledge, and externally, a employee (like sales manager) possesses the capability to develop new business, excellent presentation skills and interpersonal skill, they can be regarded as valuable employees.
However, whether Fitright can profit from that capability varies because these soft skills are trainable and be learnt. This leads us to the second test. A resource or capability that is not rare is not a competitive advantage precisely because it is not an "advantage."
Instead of merely having good personal skills, for sales and marketing personnel, we should consider the ability to connect the important government officials, and quality clients by establishing a range of lucrative contracts through the employees' personal network. When a resource or capability is valuable and rare, Fitright will make a profit-at least in the very short term. Wang Lam Kai, the CEO, is a good example demonstrating how to create business through his Guanxi.
But as microeconomics shows, where there is a profit to be made there is a competitor ready to be born. In other words, the success of Fitright would attract more market players to copy what Fitright did in these 25 years. This is why we should consider if a capability or resource is Inimitable.
Internally, if the personnel, responsible for product development, can facilitate Fitright to get the patent. It is inimitable. Externally, if the personnel, responsible for sales and marketing, can get the exclusive contracts with clients or governments, it is inimitable. However, it is not uncommon that the competitors can develop similar products with low price strategies. Also, it is not difficult for the competitors to approach the Fitright's existing clients by offering sales promotion. And what's important, the competitor can recruit the Fitright employees by offering better compensation. Therefore, human resources are moderately inimitable.
Finally, it is absurd to claim that any specific employee is non-substitutable. There are substitutes for any personnel, no matter which roles and responsibilities they hold. What's more, it is unwise to let any employee, even the CEO, become non-substitutable. It is better for Fitright to develop an systematic organizational workflow by which the company needs not heavily rely on any individuals.
In conclusion, we suggest that Fitright should firstly, develop a series of planning mechanism covering long-term, mid-term and short-term business strategies, in which consists of both directional and operational plans, secondly, designing an organizational structure which facilitate both top-down, and bottom up communication, and finally, set up an internal control and performance review mechanism. Therefore, Fitright can have a valuable, rare, in-imitable, and non-substitutable team, but not a VRIN individual.
Recruitment and selection - Competency based approach
The purpose of recruitment and selection is to match people to work. We can adopt competency based approach.
An competency is an underlying characteristic of a person which enables him/her to deliver superior performance in a given job, role or a situations. They consist of clusters of knowledge, attitudes and skills that affect an individuals' ability to perform. According to Hayes (1979), competencies are generic knowledge, motive, trait, social role or a skill of a person linked to superior performance on the job.
A competency model is a valid, observable, and measurable list of the knowledge, skills, and attributes demonstrated through behavior that results in outstanding performance in a particular work context. Typically A competency model includes competency titles, definitions of those titles and key Behavior indicators.
Moreover, a competency is described in terms of key behaviors that enable recognition of that competency at the work place.
Practice -step 1 (Listing out generic, managerial and technical competencies)
The Fitright CEO and HR manager need to list out three competencies including 1) generic competencies, which are considered essential for all employees regardless of their function or level. - communication, initiative, listening etc. 2)managerial competencies, which are considered essential for employees with managerial or supervisory responsibility in any functional area including directors and senior posts and 3)Technical / Functional (specific competencies), which are considered essential to perform any job in the organisation within a defined technical or functional area of work.
Practice - step 2 (Defining behavior indicators)
In recruitment and selection process, we should firstly define behavior indicators. for example, the managerial personnel should possesses the ability to Independently researches for information and solutions to issues, ability to know what needs to be done or find out (research) and take steps to get it done, to ask questions when not sure of what the problem is or to gain more information, to identify the underlying or main problem, to shows willingness to experiment with new things and to develop a list of decision making guidelines to help arrive at logical solutions.
Practice - step 3 (Relying on different reference)
In recruiting and selecting staff, relying on several points of reference/bases of information rather than one, will most often allow for a better and clearer picture of a candidate's suitability for a position within your organisation.
Below are listed several types of reference points
Competency Based Interview
Competency Based Referee Report
Work Sample Tasks
Verbal Comprehension Test
Numerical Computation Test
Customer Contact Styles Questionnaire.
In conclusion, the competency model of human resource management is an integrated one which can be applied to all components of human resource management, including compensation and benefits, performance management, learning and development, succession planning, job design and analysis, as well as staffing and recruitment.
However, guanxi is still a significant factor on recruitment and selection process; so, the Fitright management should conduct the above approaches in a subtle way. For example, they may conduct the interview in an informal setting, like dinner, instead of formal meeting. They may invite the candidates to give some ideas how to improve the company management in causal conversation, instead of group discussion.
Training and development - People development strategy
A people development strategy typically consists of the following factors:- "Best fit" and "best practice"
It means that there is correlation between the people development strategy and the overall corporate strategy. As people development as a field seeks to manage human resources in order to achieve properly organizational goals, an organization's people development strategy seeks to accomplish such management by applying a firm's personnel needs with the goals/objectives of the organization.
As an example, Fitright, selling auto parts, could have a corporate strategy of increasing car sales by 20% over a five year period. At the same time, the management would like to retain its competitive advantage both in terms of products and people.
Accordingly, the people development strategy would seek to facilitate how exactly to manage personnel in order to achieve the 20% figure. Specific human development functions, such as recruitment and selection, reward/recognition, an HR plan, or learning and development policies, would be tailored to achieve the corporate objectives.
This part would highlight four steps to link the people development strategy to corporate objectives. Generally speaking, we can divided into
Step 1: ERFORM A "GAP" ANALYSIS,
Step 2: DENTIFY PRIORITIES AND IMPORTANCE,
Step 3: IDENTIFY CAUSES OF PERFORMANCE PROBLEMS AND/OR OPPORTUNITIES
Step 4: ENTIFY POSSIBLE SOLUTIONS AND GROWTH OPPORTUNITIES.
But in academic fields, according to Wright, McMahan, and McWilliams' (1994) proposed that it is through the human resource capital pool and employee behavior that human resources can constitute a sustained competitive advantage. Thus, managers can implement human resource practices that can positively impact the knowledge creation process and as a result the strategic goals of the firm with four propositions.
Step 1: Socialization activities (such as teaming and developmental assignments) aid in developing tacit knowledge as a source of sustained competitive advantage.
Step 2: Formal training practices aid in developing explicit knowledge, indirectly leading to new tacit knowledge as a source of sustained competitive advantage.
Step 3: After having nurtured the creation of tacit knowledge within the firm, the next aim of the human resource practices is to encourage individuals to behave in a way that supports the organization.
Step 4: Formal training is another method for transferring knowledge, from one individual to another. In formal training codified (explicit) knowledge is transferred during the combination phase (explicit-to-explicit) of the knowledge creation process. Explicit knowledge is then converted to tacit knowledge through the internalization process. Therefore, human resource practices that promote combination such as formal training can be the foundation of creating and sustaining a competitive advantage after the explicit knowledge is converted to tacit knowledge through internalization.
In conclusion, by definition, knowledge and skill is a fluid mix of framed experience, values, contextual information, and expert insight that provides a framework for evaluating and incorporating new experiences and information. It originates and is applied in the minds of knowers (Davenport & Prusak, 1998). Thus the potential for people development is realized only to the extent that individuals possessing the knowledge choose to help the firm benefit from the knowledge through their behavior.
CEO Knowledge and skills
All CEOs including Wang Lam Kai, the CEO of Fitright, should acquire both leadership and management knowledge and skills.
First, he should acquire three types of management skills. The first one is conceptual skill, which enable managers to perceive and understand complicated ideas and abstract perspectives. Secondly, it is interpersonal skill, by which enable managers to work with, understand and motivate their subordinates. And thirdly, it is technical skills, which enable managers to direct and monitor their subordinates to perform their tasks.
Of course, among them, conceptual skills are important in decision making and problem solving, and are most important for top management. Managers with good conceptual skills are more creative and are able to see problems from different perspectives.
Interpersonal skills are equally important to Mr Wang because he has to work with people all the time, both internally and externally.
Though technical skills are fundamental to first line managers, Wang still need to understand the product knowledge and daily operation.
Apart from the basic management skills, CEO should understand principles of effective management: division of labor, unity of command and unity of direction, authority and responsibility. Moreover, it is important for Mr Wang to develop a leadership style, like participative leadership, which encourages the subordinates to contribute more ideas in the business plan.
Overseeing performance and providing feedback is not an isolated event, focused in a performance assessment or evaluation. It is an ongoing process that takes place throughout the year. The Performance management process is a cycle, with discussions varying year-to-year based on changing objectives.
The cycle includes Planning, Checking-In, and Assessment.
To begin the planning process, Fitright management and their employee review an overall expectation, which includes collaborating on the development of performance objectives. Individual development goals are also updated. The management then develops a performance plan that directs the employee's efforts toward achieving specific results to support organizational excellence and employee success.
Goals and objectives are discussed throughout the year, during check-in meetings. This provides a framework to ensure employees achieve results through coaching and mutual feedback.
At the end of the performance period, the management assess the employee's performance against expected objectives, as well as the means used and behaviors demonstrated in achieving those objectives. Together, the top management establishes new objectives for the next performance period.
Pay and reward strategy
Compensation Strategy is one of the most important strategies in the HRM Function as it influences the costs of the organization and potential bad decision can lead to very serious damages to the organization.
Types of Rewards
There are two types of rewards, monetary and non-monetary. Monetary rewards include salary, bonus, commissions, medical and health benefits, holidays, and retirement benefits. Among the non-monetary rewards are meaningful and challenging works, recognition and career advancement, safe and healthy working environment, and fair treatment.
In this part, we highlight three consideration in coming up with an appropriate pay and reward strategy, including compensation legislation, effects of market forces and corporate transformation and compensation strategy.
Compensation Legislation and Compliance
It is necessary for people in HR and those in managerial positions at Fitright to know and understand that the law affects your compensation and benefits system.
In the public sector, practically every aspect of employee compensation is governed by legislation. In most cases, there is not much room for innovative ideas in formulating compensation strategy. On the other hand, organization in the private sector are "free" to determine the levels and components of their compensation package. They are "free" to determine their own compensation strategy subject to legislation.
But for Fitright, as it is a private corporation transferred from state owned enterprises. It is clearly that private entities are not free to follow their whims and fancies in compensation matters. Mainland governments may enact laws forcing private organizations to change their compensation system and practices. This can happen during times of economic recession when sensitive matters such as compensation come under close public scrutiny. This will also happen in response to sensible public opinion. If this happens private organizations, Fitright, may not have much choice but to follow. Minimum wage policy is an good example.
Another real possibility in Mainland where government may intervene is when employees, unions, community leaders, commentators and others believe that the cost of living (COLA) is getting exceptionally high and they appeal for government intervention.
Effects of market forces
Organizations operate in a dynamic market environment. If the top management in Fitright wants to continue in existence, especially during economics downturn. The easiest way is to reduce the headcount and quickly reduce the overheads. However, they need people in order to survive. But if they maintain the same number of employees can lead to lower profit margin and even bankruptcy.
Further, the managements need to ensure that the organization does not lose talent and needs to engage talent that they need to help during the hard times. They also need to pay attention to the retained employees so that they remain committed and focused. Thus, the importance of preparing a compensation strategy.
Fitright can consider the following:
Differentiate between top performers and non-performers and even average performers. And reward them accordingly.
Reward top performers only. This may motivate mediocre performers to contribute more.
Check the market whether your compensation system is competitive.
Clearly communicate to employees what their compensation package is worth. Then negotiate on possible reduction for certain heads such as non-cash compensation. Don't say de-motivating words like "You are lucky you still have jobs."
Make plan to achieve continued employee motivation at least in the short-term.
Terminate non-performers, not good performers in sectors that are no longer profitable due to the downturn.
Corporate Transformation and Compensation Strategy
It is clearly that Fitright undergo corporate transformation. They not only have to have sustainable development, but also keep the competitive advantage. Therefore, they should set four strategic elements in a closed loop, or continuous process. These are:
translating business issues into compensation or HR interventions
designing and delivering them with key objectives
leading the resultant change process, and
reviewing or evaluating the outcomes.
By integrating the business strategy into the HR pay and reward system, Fitright should have better business results, more effective performance, stronger capability, higher staff attraction and retention levels, heightened motivation, and employee satisfaction.
After 1949, all business entities in China were created and owned by the government. In the late 1980s, the government began to reform the state-owned enterprise, and during the 1990s and 2000s, many mid-sized and small sized state-owned enterprises were privatized and went public. There are a number of different corporate forms which result in a mixture of public and private capital.
In PRC terminology, a state-owned enterprise refers to a particular corporate form, which is increasingly being replaced by the listed company. State-owned enterprises are governed by both local governments and, in the central government, the national State-owned Assets Supervision and Administration Commission.
Therefore, even Fitright is a private corporation, the business practice is still affected by the culture of state-owned enterprise, in which, guanxi is critical.
According to wikipedia, at its most basic, guanxi describes a personal connection between two people in which one is able to prevail upon another to perform a favor or service, or be prevailed upon. The two people need not be of equal social status.
Guanxi can also be used to describe a network of contacts, which an individual can call upon when something needs to be done, and through which he or she can exert influence on behalf of another.
In addition, guanxi can describe a state of general understanding between two people: "he/she is aware of my wants/needs and will take them into account when deciding her/his course of future actions which concern or could concern me without any specific discussion or request"
With this macro-business environment in Mainland China, this report not only focus on the theories of human resource management and organizational development, but also take Guanxi's influence as a basis, and elaborate how to apply the concepts into realities.