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Many words are used to describe of how much people are of importance to an organization in any country across the globe. 'Human resources', this term, implies that people have capabilities that drive an organizations performance, as well as other types of resources such as information, material, and money. Such other terms that they all have in common such as 'human capital' and 'intellectual assets' is that they have the idea that people make the difference in how an organization performs. What successful organizations have in common is that they are very adept at bringing together different kinds of people. It can be said that these successful companies have the essence of human resources management.
The simple definition of human resources management is the process of obtaining, managing, and training human talents to achieve an organisation's objectives (Snell & Bohlander, 2007). Human resource management (HRM) can also be defined as the strategic and coherent approach to the management of an organization's most valued assets - the people working there who individually and collectively contribute to the achievement of the objectives of the business (Armstrong, Michael (2006)). The terms "human resource management" and "human resources" (HR) have largely replaced the term "personnel management" as a description of the processes involved in managing people in organizations (Armstrong, Michael (2006)).
An extended definition of human resources management can be defined into goals, as Malcolm Tatum writes in an article. Tatum explains that human resource management is based in the efficient utilization of employees in achieving two main goals within a corporation or other type of organization. The first goal is to effectively make use of the talents and abilities of employees to achieve the operational objectives that are the ultimate aim of the organization. Along with realizing the goals of the organization, Human Resource management also seeks to ensure that the individual employee is satisfied with both the working environment and the compensation and benefits that he or she receives. He continues in the article saying that at times, the two main functions of Human Resource management (HRM), seem to be at odds with one another. There are certainly instances where it is impossible to arrive at solutions that are in line with both the aims of the company and the desires of the employee. When this happens, effective Human Resource management is faced with the task of finding a resolution that protects the interests of the company, but at the same time provides and acceptable level of satisfaction to the employee.
Importance of Human Resource Management
Leo Lingham (en.allexperts.com), an expert in human resources management explains that "It costs approximately three times more to recruit and train a new employee than it does to retain and develop an existing employee. And this doesn't even take into account the hidden costs associated with misdirected management time spent on recruiting activities rather than effectively managing existing staff."
What Lingham is trying to explain is that, employees are an asset, the lifeblood of every organization. The more qualified, trained, and managed they are, the more effective and profitable an organization will be. Good human resourcesÂ management solutions are able to help an organization manage their employees for greater profits.
The importance of HRM as stated by Lingham are as follows:
HRMÂ is able align itself with the organization objectives/strategies.
HRMÂ is able to make contribution to the organization's effectiveness
HRM is able make contribution to the organization's efficiency
HRM is able make contribution to the organization's productivity improvements
HRMÂ is able to help set up/ manage the succession planning program.
HRMÂ is able to help set up/ manage the talent management program.
HRM is able to help set up/ manage the career planning/ development program.
HRM is able to manage the organization development programs
HRMÂ is able manage the organization change management programs.
HRM is a vital role in mergers/acquisitions programs of the company.
HRMÂ is able to offer a market oriented compensation advice.
HRM is able develop the organization's core competencies.
HRM is able to help set up/ manage the organization's performance management programs
HRM is able to lead the way in changing the organization culture
HRM is able to help set up / manage the organizations training/ management development programs
Planning Strategically and Human Resources Planning
In every organization, human resources managers and directors must bring together and fuse strategic planning and human resources planning. Strategic planning functions to set major objectives for an organization, and to develop comprehensive plans in order for them to reach those objectives. Both strategic planning and human resources planning relates to each other in several ways. At a fundamental level though, it focuses on two issues, which are, strategy formulation and strategy implementation. Human resources planning makes available a set of inputs into the strategic formulation process in terms of what is possible: that is, whether the types and numbers of people are available to pursue a given strategy. In terms of strategic implementation, once the strategy is devised, executives must make primary resource allocation decisions, including those pertaining to structure, processes, and of course, human resources. There are many evidence that suggests that the integration of HRP and strategic planning leads to the most effective when there is a reciprocal relationship between the two processes such as in large organizations such as IBM and CIGNA. There are steps to show how the two processes of planning can be integrated. These steps are (in order), mission, vision and values, external analysis, internal analysis, strategy formulation, strategy implementation, and evaluation.
3.1 Mission, vision, and values
A mission is the basic purpose of the organization, as well as its scope of operation (Snell & Bohlander, 2007). This 'mission' signifies the reason of the organization's existence. Usually the mission is written in terms of general clients it services. The mission may be either broad or narrow, depending on the scope of the organization.
The strategic vision of the organization moves beyond the mission statement to provide a perspective on where the company is headed and what the organization can become in the future (Snell & Bohlander, 2007). Although these two terms, mission and vision are often used interchangeably, the vision statement usually is used to clarify the long-term direction of the company and its strategic intent.
Organizational core values are the strong enduring beliefs and principles that the company uses as a foundation for its decisions (Snell & Bohlander, 2007). For example, multinational corporation, Starbucks, has the following core values:
Provide a great work environment and treat each other with respect and dignity.
Embrace diversity as an essential component in the way we do business.
Apply the highest standards of excellence to the purchasing, roasting, and fresh delivery of our coffee.
Develop enthusiastically satisfied customers all the time.
Contribute positively to our communities and our environtment.
Recognize that profitability is essential to our future success.
3.2 External/environmental analysis
The analysis of external opportunities and threats, which is the second part of the strategic management process is driven by the mission, vision, and values. The way organizations are run and how people are managed can be affected by the changes in the external environment. These changes that do happen may represent opportunities, and some changes actually do in fact represent real threats to the organization. Resulting from this, successful strategic management depends on an accurate and thorough evaluation of the environment. There are many changes in the environment that can affect an organization and by scanning the environment for changes, managers are able to anticipate their impact and make adjustments early. While there are many factors in the general environment that may influence strategic decisions, analysis of the firm's competitive environment is central to strategic planning. The five forces of competitive environment are customers, rival firms, new entrants, substitutes, and suppliers. The rule of thumb is: The more power each of these forces has, the less profitable (and therefore attractive) the industry will be (Snell & Bohlander, 2007).
One assessment that is important to a firm is identifying the needs of its customers. Strategy focuses on customer value, and different customers have needs for different things. There is a saying, "one size does not fit all" and firms have to know how to provide value to customers. In a firm, this is the foundation of strategy, and it influences the skills and behaviour that will be needed from employees.
In addition to customer analysis, another element of industry analysis is examining the nature of competition. In the nature of competition, the question that is usually asked is, "who is the competition?" Usually, the answer is clear to everyone, but sometimes, it is just not. A good example of a firm to use would be Toys "R" Us. For many years Toys "R" Us have viewed their main competitors to be FAO Shwarz and KB Toys, who are also toy stores. However, very soon other large firms such as Wal-Mart and Target moved into this space very successfully. This occurrence made a direct effect on human resources planning for Toys "R" Us. As a result, Toys "R" Us had to modify their strategy to compete more on customer service and the expertise of its employees.
New companies can sometimes also enter an industry to compete with well established firms. In order to protect their position, firms often try to establish barriers of entry to keep new firms out of the industry. But when new firms do however enter the industry, it is because they often have a different or better way to provide value to customers. For example, when AirAsia entered the airline industry, it distinguished itself by providing low-cost air fares to holiday goers.
Sometimes also however, the biggest opportunity or threat in an industry is not from direct competition, but because of substitution. Take for example, the telephone industry. In the present era, cellular technology is rapidly substituting for land-line phone systems. Some firms today are using new technology to offer telephone service over the internet, also known as 'voice-over-ip' (VOIP). Such as these substitutions offer the same service or function as traditional firms, but through different methods. As a result, firms may need to adjust their skill base to support even the new technology, or they might need to think about how to compete in different ways.
Usually, organizations don't really create everything on their own, but instead have suppliers that provide them with key inputs. Such inputs may be raw materials for production, information and people. People or also called labour, has direct implications for strategic planning and human resources planning.
3.3 Internal analysis
Organizations not only conduct external analyses of environmental opportunities and threats, they also have to analyze their internal strengths and weaknesses. The reason why organizations make internal analysis is because it gives strategic decision makers an inventory of organizational skills and resources as well as their performance levels. An organization gains a competitive advantage when many resources are combined. Internal analysis focuses especially on what is called as "the three Cs". They are culture, competencies, and composition.
In the industry today, employee-oriented culture is very important to a firm. As a result, managers routinely conduct cultural audits to examine the attitudes and beliefs of the workforce as well as the activities they engage in. Through this analysis, management are able to see if whether critical values are embraced and demonstrated by employees throughout the organization. Usually, cultural audits involve discussions among top-level managers of how the organization's culture reveals itself to employees and how it can be influenced or improved. Through the use of interviews and observation, managers are able to learn about the culture of their organization and the attitudes of its employees. It is important that managers have to have a clear idea of how employees view their organization before any HR planning can take place.
More and more experts today argue that the key to successfulness of a firm is establishing a set of core competencies (Snell & Bohlander, 2007). This is the integrated skills and knowledge that is set within an organization that distinguishes it from its competitors and delivers value to customers. Core competencies usually are limited in number, but they do provide a long-term basis for technology innovation, product development, and service delivery. In many cases, labour is the key resource that underlies a firm's core competencies. This is especially important to knowledge-based industries such as in software and information services. Organizations are able to achieve a sustainable competitive advantage through people if they are able to meet the following criteria:
The resources must be valuable
The resources must be rare
The resources must be difficult to imitate
The resources must be organized.
A related element of internal analysis for firms that compete on competencies is determining the composition of the workforce (Snell & Bohlander, 2007). Managers need to make sure that whether or not people are available, internally or externally, to execute a firm's strategy. Managers usually have to make hard decisions on whom they need to employ internally, whom to contract externally, and also how to manage different types of employees with different skills who contribute in different ways to the organization.
Managers today must also continually forecast both the needs and capabilities of the firm for the future in order to do an effective job at strategic planning. Managers must focus on at least three key elements which are:
Forecasting the demand for labour.
Forecasting the supply of labour.
Balancing supply and demand considerations
3.4 Formulating Strategy
When managers of firms have analyzed the internal strengths as well as weaknesses of the firm, external opportunities and threats, they have the information which is required to formulate corporate, business, and HR strategies for the organization. The comparison of strengths, weaknesses, opportunities, and threats is usually known as a SWOT analysis.
In any industry, firms have to decide where or which industry they want to compete in, in the market (Snell & Bohlander, 2007). This is called corporate strategy. As companies do experience growth in the market, their growth hinges on three elements which are related. These three elements are, increased productivity, a greater number of employees, and developing or acquiring new skills. When companies diversify into new businesses, managers must make decisions if they should develop the capabilities in-house or should they contract externally. Besides growth and diversification, some firms will merge with other firms or maybe even acquire another firm for the sole purpose of expanding in the market. While it is true that merging and/or acquiring will boost sales and profits for firms, there have been many mergers that have gone sour and cause firms to lose money. At times, firms do not merge or acquire other firms, but instead form strategic alliances and joint ventures with other firms.
What is different about business strategy compared to corporate strategy is that business strategy focuses on how the firm will compete against rival firms in order to create value for customers. Think about it this way, corporate strategy is a domain selection, whilst business strategy is viewed in terms of domain navigation. In a nut shell, firms can compete on productivity and efficiency by lowering the cost to customers or by increasing customer benefits (value added). Sometimes firms do not necessarily have to choose one, but they can have a combination of both.
Besides formulating corporate strategies and business strategies, managers in firms also need to translate strategic priorities into functional areas. HR policies and practices have to achieve two types of fit, which are external fit and internal fit. Managers need to ensure that these two are aligned with one another to establish a configuration that is mutually reinforcing.
3.5 Strategy Implementation
Formulating a strategy is only half of what effective managers must do. The other half is implying the strategy effectively. To do this, managers will apply the 7-S model which consists of, strategy, structure, systems, shared values, skills, style, and staff. The structure of an organisation is the framework for all the activities in the organization while strategy builds the route where the organization will take in the future (Snell & Bohlander, 2007). HR will only be involved when strategy requires redeployment or reorganization of employees. Related to structure are systems and processes. They consist of procedures that govern everyday activities whether formal or informal. As mentioned before, shared values is a guiding parameter for strategic planning. Shared values is also a vital issue in implementation as well. Another vital role that plays in implementation is skills and staff. These two relates to HR on reconciling human resources demanded and human resources available.
3.6 Evaluation and assessment
After carrying out all of the five steps mentioned, a firm will have to evaluate and assess their performance. Benchmarking, this is the process of identifying various aspects of a company such as productivity, logistics, and brand management, and then comparing their performance with other companies in the same industry. Besides that, in order to ensure strategic alignment, a firm may use a tool called the Balanced Scorecard (BSC). The BSC acts as a performance measurement framework that helps managers translate strategic goals into operational objectives (Snell & Bohlander, 2007).
In the world today, human resources management is very important to a firm. With the proper know-how of human resources management, an organization would have a competitive edge in the market. When managers have put in to play the proper use of human resources management, as well as fully utilizing it, employees would strive for excellence and as a result, boosting the performance of the firm. With so much competition in the market today, it can be seen how vital human resources management is. Without human resources management, a firm might lose out to competition, or even worse, go bankrupt.