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In order to define this concept, it is first important to actually explain what is meant by human resources in general. Appleby & Mavin (2000) explain that Human resources are the efforts, skills, and capabilities that people contribute to an employing organization which enable it to continue in existence. Although difficult to define, SHRM is generally perceived as a distinctive approach to managing people which seeks to achieve competitive advantage through the strategic development of a highly committed and capable workforce.
The definition that is provided here explains that human resources is really about the skills that the people of an organization bring together in order to keep in business. In addition, SHRM is about managing the human capital of an organization in such a way as to achieve some type of competitive edge. Having not only a committed workforce, but also having a workforce that is highly trained for the job that must be performed achieves the competitive edge. Moving in this direction is where human resources become SHRM.
Van Donk (2001) takes this idea one step further by explaining where in the planning process of a company the human resource management role must fit in order to make it strategic in nature. He also explains number of author's approaches to the achievement of what is called Strategic Human Resource Management. These approaches place the human resource management policy formulation at the strategic level. In these approaches to Strategic Human Resource Management it is claimed that: (1) human resource problems are problems solved by linking HRM and strategy formulation at an early stage; and (2) problems with strategy implementation are solved by early adjustment of the HRM to these strategies (Van Donk 2001).
In the end, what Van Donk adds to the definition of SHRM is that human resources cannot be called in at the last minute to fix a hiring problem. Instead, human resources must be involved from the very early planning stages in terms of the type of human resources that are needed. This early involvement allows human resources to understand exactly what is needed. It also allows human resources to be able to adjust so that the decisions that are made about the people that are needed can be adjusted immediately to fit new or changed strategies for the company.
Further, Mueller (1996) illustrates an additional piece to the information for SHRM. He explains that:
Management is active, not reactive
high integration between policies
An orchestration role is played by senior management
Articulation of policies by senior management.
The outline of all these concepts means that the human resource department and its leaders are not simply consider as the people who are given the task of hiring employees. Instead, they are an important part of the strategy formation of a company. They are a part of the process from the very beginning, and they are given the authority by company management to be taken serious to provide ideas about the strategic planning of the company in terms of the role that employees will play, and the skills that need to help achieve those goals.
In addition, SHRM is more than just about the role that the human resource department of a company plays in the strategic vision of an organization. It is the role of senior management that helps to actually make SHRM work. Senior management must actually give the authority and respect that is needed to make the human resource department a vital part of any strategic vision. This must be more than simply saying that human resources are important for the company. Instead, it means that senior management must act upon it, and they must take an active approach to human resource needs to fulfill those strategic plans. They must communicate with human resource managers, and they must also listen to human resource managers. In the end, it could be easily explained that strategic human resource management is about adjusting the role of human resources. Rather than having a department that reacts to the needs of the company, SHRM is about having a department that is on top of the planning that goes into deciding the human resource needs of the company (McMahan, Bell & Virick 1998).
A Case Study Organization: FEU Insurance Company
In order to evaluate the extent to which human resource management in an organization can be termed strategic, we must first understand some of the basic models that apply to the organization that is being discussed in lectures. We must also have an organization that we can discuss in the first place. With all of this in mind, the company that is going to be used as an example to determine how it has implemented, or needs to implement, SHRM is a big insurance company FEU, a large multinational insurance company with branches in Australia, South East Asia, America and Europe. It employs 42,000 people worldwide; with over half of its employees being based in countries other than Australia.FEU consists of nine interlinked companies. In Pakistan, the Company has a growing branch network of over 100 branches throughout the country with employee strength of 150 personnel at its main offices in Karachi and Lahore. The company employs 4 full time actuaries and also has an active involvement of one of the leading actuarial firms in the country. In the last 2 years, FEU has placed an increased importance on the Human Resource function. First, it reorganized the HR function so that the senior HR professional was at the chief general manager level. This resulted in this person being a member of the senior executive group. FEU recruited outside specialists and formed a group human resource section. Included in the specialists was a manager of research and analysis whose role was to identify and establish HR best practices within the organization.
FEU Life has a comprehensive range of products which has been developed after extensive research of financial services in western countries such as the United Kingdom. These products are designed to meet the varying needs of FEU Life's clients and offer the best in financial services. FEU Life is the pioneer in introducing the products and features in Pakistan are; Unit-linked products, Critical illness products, Education planning product, Inflation protection benefit, Pension Plans and Islamic Fund Products. FEU Life's product range is the most competitive in the market in terms of value for money. The Company continuously reviews its product range to ensure that it remains at the leading edge.
Strategic Model for FEU Insurance Company
In order to determine how the company's human resources are already strategic in some ways, it is important to look at some of the models that explain SHRM. One of these models is known as the open systems theory. The open systems theory states that a company receives inputs from the environment, such as from customers and even other companies, and then uses that information to change how it operates. Wright & Snell (2001) explain the concepts behind the open systems theory: "It emphasizes two important characteristics of organizations: the system character, so that the movement in any part of the organization leads to movement in other parts, and the openness to environmental inputs".
In terms of human resource management at FEU, the company is very much strategic in this regard. The company is constantly looking for feedback from customers as mentioned in mission statement" our client are the reasons for being in business, deliver flawless services to win loyalty". This feedback, unlike at some companies, is taken very seriously. When a customer complains about the way in which an employee has done his or her job, this information is analyzed to determine where the problem took place. If the problem lies with the employee's training or motivation, human resources takes actions immediately to improve or correct the problem.
A second theory that easily applies to FEU is the universalistic perspective. Colbert (2004) explains that under a universalistic approach, strategic HR practices are those that are found to consistently lead to higher organizational performances, independent of an organization's strategy. Examples are such practices as formal training systems, profit sharing, voice mechanisms, and job definition. Regardless of what some might think about the universalistic perspective, the ideas behind the theory can led a company to SHRM. In the case of the company, FEU, the organization is very definite about defining job duties and providing formal training to employees. However, the company does lack in profit sharing with the employees. In addition, the company also lacks in actually listening to its employees and giving them a voice in real decision-making which is opposed company vision statement that states, "people want to excel and if given the right support and work climate".
This shows that the company has moved from simple human resource management to strategic human resource management in some ways. However, it also shows that the company is not yet fully involved in the SHRM process practically.
In terms of the information about FEU at this point in the analysis, it can only be deemed to have SHRM management in the way in which it takes information from the environment that it operates. When customers and others have issues with the services and support that are provided by employees, the company takes this information very seriously. The result is that training or even firings take place. In addition, when people are hired into the company, they learn very quickly that excellent customer service and attention to customer needs is the key to the vision and strategy of the company. This means that these ideas and objectives are going to be key to the way in which employees operate. At the same time, the company is very much about defining job duties and explaining the place that everyone holds in the company in relation to the vision of the company. The company is promoted the culture of teamwork and develops the workforce as good human being for achieving company objective.
However, the company, simply based on the information that we have discussed so far, lacks SHRM in other ways. For example, the company does not give employees a voice in helping to set strategy and goals for the company. In addition, communication between manager and employees is often very much one-sided. The company also does not give incentives and freedom that might keep the specialized and trained employees that they need to work in a skilled environment.
Problems and Opportunities of Becoming Strategic change
A transition from simple human resource management to strategic human resource management is not going to be something that is going to result in just opportunities for human resource departments. Instead, there are also going to be problems and areas of concern along the way. All of these areas must be addressed and dealt with HR departments if they are going to be part of the strategic process in companies in the future.
First, HR departments are going to be held accountable for the work that they perform. This means that they cannot simply sit on the sidelines and expect to reap the benefits of being treated like part of the management team without gaining some of the pressures and responsibilities that come with actually being part of the management. They are going to have their own goals and objectives that will have to be met. Even more, they are answerable to the senior management of the companies for which they work, as well as the stakeholder of the companies about their strategies relating to employees. They are also going to be expected to communicate problems and concerns more openly, rather than waiting to be noticed by the management.
Another area of opportunity or problem, depending on where you stand, is that everyone who works in the HR department is going to have to be trained not only in how to interview and hire employees, but also how to develop plans to deal with strategies that will move a company forward. In fact, it does not seem far-fetched at all to assume that more time will be spent by those in HR departments developing strategies and analyzing what is working and what is not as it relates to employee operation and performance.
The change from human resource management to SHRM will mean that employees will be recruited with the idea that they are truly valuable, and how they are treated is important for the future of individual companies. Of course, for employees and potential employees, this will also spell added responsibility. Employees will have to show that they have the skills and qualifications that are necessary for the specific job or task; they will play within the company. However, they will also need to show that they can learn and expand as the strategic plans and goals for the company change. Just as HR managers will have to adjust, the move to SHRM means employees will be affected, and they will have to change as well. However, if all of this comes together, the end result should be a great improvement in how companies operate. Further, change will not affect on FEU's employees because they will become parts of the strategic process, and free to perform but accountable by the leader. Today, companies that are involved with SHRM are performing at a higher level to provide world-class services to its clients keeping highly motivated workforce.
Performance Management has become increasingly important due to a variety of economic and social pressures. Williams (2002) identifies globalization, increased competition and the increasingly individualistic rather than collective employee relationship as some of the major drivers contributing to the increased visibility of performance management systems (PMS). Faced with fast moving and competitive environments, companies are constantly searching for unique ways in which to differentiate themselves from their competition and are increasingly looking to their "human resources" to provide this differentiation. This has led to much interest in the performance of employees, or more importantly, how to get the most out of employees in order to sustain competitive success. Line managers play a crucial role in managing the performance of their teams, and therefore are critical to the successful implementation of a PMS.
Concept of Performance Management
HM Treasury (2001) explains Performance Management as "Managing the Performance of an organization or individual". According to the CIPD fact sheet (2010), Armstrong and Baron define performance management as "a process which contributes to the effective management of individuals and teams in order to achieve high levels of organizational performance. As such, it establishes shared understanding about what is to be achieved and an approach to leading and developing people which will ensure that it is achieved". They relate it to the every activity of the organization like human policies, culture, and style and communication system. The term in Human Resources, performance management is often associated with the management of the performance of people. However even in the HR field best practice emphasizes the contribution of people to the achievement of organizational performance. CIPD (2010) suggested performance management should be strategic (long term objective), integrated (various aspect of business), concerned with performance improvement, development and managing behavior within organization.
The size of the subject area and lack of a concise definition make it difficult to identify the boundaries of what is and isn't performance management. The area which is most indicative of the evolution of performance management, and the area perhaps has the most identifiable stream of literature is that of performance measurement, and in particular that of the Balanced Scorecard, with which in many people's eyes it has become synonymous. Other tools highlighted by the CIPD (2010) are: Performance Appraisal and development reviews, Learning and development, Objectives and performance standards, performance-related pay (PRP) and 360 degree feedback. Implemented correctly, these processes should enhance the individuals confidence in themselves and their company creating an environment where employees "want to" perform rather than feeling like they "have to" perform.
Processes and Systems for Managing Performance
The People Process Framework
Gratton (1996) designed a "People Process Framework" to identify which HR practices related to performance management processes, are essential in linking organisational goals with performance. The key concept is setting the goals down the organisation from board level, translating organisational objectives into team and individual objectives (Williams 2002). This provides a strong relationship between the business and people. Every employee within the organization can clearly see how their contribution is impacting on company success. Beardwell et al (2004) suggests that individuals who know exactly what is expected of them will perform better than those who are unsure of their goals and objectives. London et al (2004) argue that: "goal setting is likely to be more effective when people participate in setting goals than when goals are assigned to them". Although the use of goal setting is primarily used to improve performance, there are other benefits such as: to clarify expectations, to improve job satisfaction, to enhance self-esteem through attainment of goals and to improve quality of work (Locke and Latham 1984). London et al (2004) evaluates the importance of goal-setting and conclude that line managers and employees need more training on how to set goals ensuring they are aligned to the overall company objectives. This is a major role of the line manager who has the responsibility to review the performance of their staff.
According to the CIPD (2005) performance management survey, the most popular method to achieve this is performance appraisal. Fletcher (2001) defined term as "Performance appraisal â€¦..a variety of activities through which organisations seek to assess employees and develop their competence, enhance performance and distribute rewards". Appraisal provides the mechanism to provide effective feedback on achievement of which is an important factor in improving performance (Williams 2002). The feedback is: "one of the quickest and easiest ways of improving performance, relationships and motivation (CIPD 2006)". Despite this, appraisal has often been viewed as a mechanism to control employeesâ€Ÿ action at work (Newton and Findlay 1996) and is widely criticised in literature. Hendry et al (2000) suggest that appraisal is a "misused" process, designed to control employees' activities. Coates (1994) cited in Torrington et al (2005) suggests that the appraisal is used as a device to establish: "the extent to which the individual conforms to the organisation"
Appraisal has changed in recent years from a purely paper-based exercise to being an aspect of a continuous performance management process with formal review performance once or twice a year (Armstrong and Baron 2005). There has been an increase in popularity of self-appraisal, team and peer appraisal as well as 360 degree feedback (CIPD 2005).
Performance Related Pay
Many organisations have looked to improve performance by linking it to pay. Performance related pay (PRP) can take many different forms (Williams 2002) and the type of reward and how it is linked to performance management varies by organisation (IDS 2003). There are many differing views on the effectiveness of PRP (Williams 2002) and whether or not it contributes to improved performance. Hendry et al (2000) has been argued that PRP is a process of control, rather than contributing to real development. Reward is not just about pay, many organisations are recognising that non-financial rewards are as powerful and motivating as money (Armstrong 2002). Non-financial rewards can include awards (employee of the month for or year), advanced career opportunities, autonomy, flexibility of working hours and training and development opportunities (Williams 2002). Total reward systems incorporate both financial and non-financial rewards and can be instrumental in encouraging job satisfaction and commitment to the business (Armstrong and Baron 2005). It is important however, to establish what type of reward will be valued by the employees, not to implement a system based on senior management experiences of what they themselves value (Hendry et al 2000), as well as recognising that: "different people are motivated by different things" (Torrington et al (2005). Brown (2001) discusses the: "era of the talent war" and how important it is to implement the most appropriate reward strategies, and make them flexible, which will retain the best people within the business.
Training and development
There has been a change in scope of the appraisal process in recent years, with an increasing focus on employee development, as more and more businesses focus on how targets are achieved rather than just the achievement itself (Gratton 1996). This has directed towards a combination of both objectives (outputs) and competencies (inputs) (Taylor 2005). Further, the recognition that personal development planning (PDPs) are a fundamental part of a PMS. By offering employees the opportunity of enhancing their skills through training, levels of self-confidence will improve and performance will be enhanced (White 1999). Beardwell et al (2004) suggesting that: "staff management and development will become the primary weapon available to managers to generate success".
Armstrong and Baron (2002) perceive training as a key process for gaining commitment to the organisation which in turn should encourage "discretionary behaviour". IDS (2005) support this view when reporting that investment in training and development can not only improve financial performance but also have a positive effect on employee satisfaction and commitment. The success of training and development initiatives again lies with the line manager and their approach to their role as "people managers" (CIPD 2005) as well as their ability to provide meaningful "on the job" training in the form of coaching. Harrison (2005) suggests that more companies are offering career development programmes which involve as upward movement within a business.
Learning Organization and Performance Culture
Pedler cited in Armstrong and Baron (2002) describes a learning organisation as: "an organisation which facilitates the learning of its members and continually transforms itself". The concept of performance management emphasizes the philosophy of the learning organisation, promoting continuous improvement, focusing on the accumulation of skills and competencies in the short term to meet the organisations long term requirements. Harrison (2005) argues that: "learning and individual performance will never make a positive contribution to performance management where organisational context is unfavourable". Understanding the structure and culture of an organisation is of vital importance, as it could contribute to performance (Hartog et al 2004) as well as encouraging it. Williams (2002) sees performance management as: "a mechanism for inculcating a particular culture, that is, a `performance culture'". The values or mission statement of an organisation often reflect the way in which employees are expected to behave, or as organisational culture is often described: "the way we do things here" (Buchanan and Huczynski 2004). Hailey cited in Armstrong and Baron (2002) believes that organisations should focus on identifying the most appropriate behaviour which will meet their organisational objectives and use tools and processes such as performance management to develop those behaviours in the workforce. In this way, the desired culture will grow "achieve human capital advantage" (Armstrong and Baron 2005).
Ongoing Performance Management
Franco and Bourne (2003) identify the most significant factors are heavily influenced by the change management and to manage the implementation of a performance management system are: Corporate culture, Alignment, Review and update, Communication and reporting, Involvement of employees, Management understanding, Compensation link, Management leadership and commitment, Clear and balanced framework - as already discussed, Agreement on strategy and success map, Data processes and IT support. Performance is an outcome of both organizational and human activities. Positive performance outcomes only arise when the behavior of employees is aligned with strategy, when employees are motivated and when integration of other compensation system with performance management system. As a result it is crucial that performance management activities integrate culture, process, procedures and the management of people to generate learning and continually improve.
Performance Management at FEU Insurance Company
There are a number of issues that have emerged from this study. First, is that the term performance management is met with some scepticism and negativity and there is a lack of understanding in parts as to its purpose. It seems unlikely that those viewing it as an exit plan use the system to enhance the performance of the majority of employees. This may arise as a result of a lack of training, most skills being acquired on the job, and points to a need to communication and training of managers by FEU insurance. While objective setting, as reported by the managers in any case, seems to work well, the frequency of review is less favourable and it appears that again the opportunity to feedback and motivate is often missed. Even where reviews take place, the focus is mostly on outputs rather than inputs, a major weakness being the lack of commitment of setting developmental goals and conducting a developmental discussion. Reward processes are also mixed, PRP working only in certain areas and there being missed opportunities to provide non- financial reward through, for example, feedback in performance appraisal. In summary, FEU insurance company appears to have not a well designed system, one which is only partially implemented by managers. This appears to arise from a lack of understanding of what the system is designed to achieve, lack of training and a focus on results rather than development.
For ongoing performance FEU Insurance should follow following factors proposed by Franco and Bourne (2003) given as below:
â€¢ Corporate culture - need of a corporate culture, encourage team working, ownership of problems and risk-taking or entrepreneurship. So, corporate culture is very important for achieving the objective of the company.
â€¢ Alignment - the integration and linkage of individual strategies and goals and also all the different system working in the organization, because it helps the manager to manage the performance in no time.
â€¢ Review and update - a continuous review of the strategy and systems, instead of firing and controlling the workforce, developing updated strategies to closer the difference between performance measures and goals and review their progress periodically.
â€¢ Communication and reporting - timely feedback through two way communication.
â€¢ Involvement of employees. Involvement in the selection and definition of measures can reduce employees and managers' resistance to performance management.
â€¢ Management understanding. Management should be willing to implement and change; support from management is first step towards achieving objective.
â€¢ Compensation link - awarded the best performer with financial and nonfinancial rewards and compensation.
â€¢ Management leadership and commitment - Management should have clear accountability and responsibility of measures and results.
â€¢ Clear and balanced framework -
â€¢ Agreement on strategy and success map.
â€¢ Data processes and IT support. Trust while data handling, develop system to kept confidential information secret.
In this way they can secure a differential position in the eyes of their stakeholders and this is often all that is needed to get priority of attention and support in times when this is critical. The fact of the matter is that the firm is stronger and healthier if its particular suppliers, distributors, and customers are robust and competitive.
Application of SHRM on FEU Insurance Pakistan
Now that we have analyzed the research leading to SHRM, it is time to turn back to FEU Insurance company Pakistan and the ways in which it can improve upon SHRM in its operation. First and foremost, the research shows that HR departments must communicate clearly and accurately the expectations to new employees. At FEU, new employees are not always give the full range of their duties until they have already been on the job. It is true that they are given the specific duties of the job for which they are hired. However, they are often not told that they will be cross-trained to handle duties of other employees with those employees are not available to help customers or are on vacation. This sometimes leads to employees who are not happy with the job once they are hired.
A move to SHRM at the company will mean that the full range of expectations and duties will be provided to employees from the beginning and freedom of work. In fact, a move to SHRM would mean that he HR department would seek out employees who enjoy the challenge of actually having to take on duties that are outside of their specific roles within the company. Instead of hiring people who are only skilled at one job, and only want to be skilled in that job, those who make hiring decisions would work to gain employees that want to be well-versed in many duties within the organization.
At the same time, a move to SHRM would make the company realize that having skilled employees who are motivated by the strategic plans for the company have to be compensated and treated with respect and dignity. Currently, the company shows it's somehow respect for employees in basic ways, such as freedom of setting the goal, participation in decision and leadership by heading the teams. However, when it comes to listening to employee concerns about working conditions, the company is not becoming responsive and developing good relationship with workforce via two way communication. But it has some deficiency and organization needs to show more openly that it takes employee concerns seriously, and that it realizes the employees are trained and skilled enough to know when to provide feedback about working conditions that should be taken seriously by management (McMahan, Bell & Virick 1998).
Of course, it must be understood that moving closer to full SHRM is not going to be something that can occur in a short amount of time. The reason for this is that the company has dozens of employees that have been with the company for years. Adjusting to a way of doing business that focuses more on employee skills may be something that is not taken seriously by existing employees. The result is going to be some who are on board with the SHRM measures, and some who are not. All employees will have to be brought up to speed with the new plans, or some employees will have to be informed of the consequences of not getting on board with the new strategic plans for the company.
In the end, the research and actual application of SHRM shows that moving in this direction is good for companies. However, the research should leave no doubt that the transition is difficult, and it does require changing well-established attitudes and roles. These are attitudes that have existed for decades, and they are not going to change quickly but true leadership can do it. On the other hand, as with many things that occur in the world of business, as companies realize that advantages that come with SHRM, more will move in that direction and require acceptance of the policies that come with it (Siddique 2004).