Significance Of Human Resource Management Commerce Essay

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According to Gunnigle, people are "the lifeblood of organization" (Wendy 2003), they provide its survival. In particular, "employing people, developing their capacities, utilizing, maintaining and compensating their services in tune with the job and organizational requirement" (Human resource management 2010) is necessary for an economic object's viability. So, this paper is devoted to the problem of Human Resource Management.

The importance of Human Resource Management (HRM) as "a key accelerant for a successful business strategy in order to face the challenges of a rapidly changing business environment" is presented. Besides, the significance of HRM in a time of crisis and the current state of HRM worldwide are discussed. Also, the impact of the global financial and economic crisis on HRM is marked. So, due to these materials, the author shows the significance of HRM and its practices within organizations.

Nowadays, organizations function in the complex environment. This environment can be characterized by such features as dynamic; the presence of negative (damping) and positive (amplifying) feedback; a large number of "systems that contain nonlinear feedback networks with various time delays and transient behavior" (Bennet et al. no date), openness, emergent behavior, and etc. So, these features make it impossible to comprehend and predict the behavior of such systems (Complex system 2010).

It is seems that "only people can make decisions and take actions in a highly uncertain environment", so, "there will be increasing emphasis on individual worker competency and freedom in terms of learning, decision-making, and taking actions" (Bennet et al. no date). That is why in recent years, researchers have become increasingly interested in the problem of Human Resource Management that can be defined as the strategic approach to the management concerned with (1) strategies, functions, and etc, related to the management of employees; (2) "all the dimensions related to people in their employment relationships, and all the dynamics that flow from it; (3) adding value to the delivery of goods and services and to the quality of work life for employees" (Wendy 2003, Human resource management 2010).

So, "HRM means employing people, developing their capacities, utilizing, maintaining and compensating their services in tune with the job and organizational requirement" (Human resource management 2010).

According to C.Scholz and H.Böhm, people management and development, people competences and leadership has become an integral part of the real world of economy and work, since Lisbon Strategy was adopted by the European Union Council in March 2000. The strategy has stimulated the creation of competitive and dynamic knowledge-based economy.

(Peiseniece et al. no date, Scholz et al. 2008). As it was noticed in (Wendy 2003) "the new sources of sustainable competitive advantage in the new economy have people in the centre - their creativity and talent, their inspirations and hopes, their dreams and excitement".

As to the literature review, such scholars as Harmanson, William C. Pyle, Rensis Lykert, Hekimian and Jones, and etc., focus on measurement of human resource cost and value (Measurement of Human Resource Cost and Value no date). Another scholars offered numerous proposals and suggestions for HRM in economic crisis and undertook investigation and studies in the enterprise HRM. Among them there are Oded Palmon, Huey - Lian Sun, Alex P, Charlie O. Trevor, Anthony J. Nyberg, Isabel Suarez-Gonzalez; Zhao Xinhua, Kou Jialun etc. (Duanxiang no date). Besides, the analysis of HRM, as the one of the most sensitive and important fields of action for the future success, was presented in the works of L.Pickett, P.Sparrow, R.Schuler, S.E.Jackson; P.Evans, V.Pucik, J.Barsoux,J.C. Hayton. (Peiseniece n. d.).

So, it should be noted that when HRM is concerned, researchers are unanimous about its effectiveness.

Despite the importance of the problems that was investigated by scholars, little research has been undertaken to study the problem of the connection between HRM and knowledge management. It would be thus of interest to investigate the influence of these directions on the creation of viable organization in a time of crisis. So, the major task for this study is to provide the information about the significance of HRM and its practices within organizations.

Firstly, the importance of HRM as "a key accelerant for a successful business strategy in order to face the challenges of a rapidly changing business environment" will be presented. Secondly, the significance of HRM in a time of crisis and the current state of HRM worldwide will be discussed. Finally, the impact of the global financial and economic crisis on HRM will be marked.

As to the methodology, the research was conducted by using the analysis of academic literature, in particular, primary sources: scientific journals, reports; and secondary sources: review journals and books (Peiseniece no date, Academic publishing 2010).

From mentioned above, it is clear that the current world is complex and changeable. According to (Bennet et al. no date), five fundamental forces provide organizational survival in such conditions. These are: connectivity; data, information, and knowledge; speed; access; and digitization. All these aspects are analyzed in (Bennet et al. no date), but, regarding to the theme, only data, information, and knowledge will be discussed in this paper.

Data, information, and knowledge are kept in technology system and belong to employees. So, due to the ability of employees to validate the information, categorize it, identify the context, develop the best interpretation, to create and apply knowledge faster than the environment can change, it is possible for organizations to meet their objectives (Bennet et al. no date).

In other words, the organization solves problems (or takes on opportunities) through available resources - people, ideas, technology, funds, facilities, etc. So, as the contemporary age is information, thus, knowledge becomes the most valuable resource. It can be defined as "the capacity (both potential and actual) to take effective action in varied and uncertain situations" thanks to expertise and skills acquired by a person through experience or education (Bennet et al. no date, Knowledge 2010).

Moreover, knowledge helps the organization to become creative and generate innovative ways of solving problems and developing new opportunities. Thus, exactly well organized HRM brings together "diverse knowledge located anywhere in (or beyond) the organization to solve problems and take advantage of opportunities" (Bennet et al. no date).

So, the result of well organized HRM is the increase of human capital (competences, knowledge and personality attributes (Human capital 2010)) that is the part of intellectual capital of organization (relational capital, human capital, organizational capital). This link between HRM and company's human capital was analyzed by Scholz, Stein and Bechtel in "Human Capital Management" (Scholz et al. 2008).

In turn, intellectual capital "is typically used to produce a "snapshot" of an organization's annual subjective valuation of its intangible assets". The elements of intellectual capital influence on the flow of knowledge and, in turn, this flow impacts on one or more of the three Capitals that leads to its increase (Smith 1998). So, the interaction between intellectual capital and knowledge management is presented.

According to (Gan et al. 2008), knowledge management can be defined as "a process that effectively creates, captures, shares and uses organisation-wide knowledge to improve the organisation's performance".

It seems that this interaction between knowledge management and intellectual capital leads to the creation of viable organization, which "organised in such a way as to meet the demands of surviving in the changing environment" (Viable System Model 2010).

Viable organization can be described as viable system model, which consists of five functions (systems). Each function provides the creation of specific sort of intellectual capital. For instance, the task of system 2 is to provide urgent information, so, the intellectual capital is presented in web sites and brochures. System 3 distributes the resources between the components of system 1, optimizes the organizational processes. "It includes protection of intellectual property by designing control systems". System 3* provides audit function. In turn, system 4 supports the communication with environment (customers, suppliers, consulting companies, competitors etc.), so, it increases relational capital. Finally, system 5 maintains a balance between system 3 and system 4 (Leonard 1999).

So, the link between knowledge management and intellectual capital leads to the creation of viable organization. Thus, among the essential conditions to create such organization are well organized human resource management and the development of human capital.

As to the role of HRM in a time of crisis, it is necessary to notice its main topics: (1) the reduction of enterprise cost; (2) the guarantee of operating efficiency of enterprise; (3) the support of enterprise competitiveness; (4) the prevention of core employees from drain, and etc. So, HRM plays a strategic role in the survival of an organization (Duanxiang et al. no date).

In particular, according to Jim Collins ("Good to Great") "right" employees are the most important asset of the company. So, HR managers must develop a strategy that "will keep the most talented employees in the organization and at the same time, discourages the "not-so" talented employees from hurting the company's operations" (Role of Human Resource Management During Crisis no date).

In contemporary kind of economic conditions, "efficiency is the key to the survival of any company. In order to achieve that, companies must keep a pool of competent employees that will help the organization in pushing their sales, expanding their market, innovating new products, reduction costs and in keeping the operations efficient as possible" (Role of Human Resource Management During Crisis no date).

The current state of HRM depends on the country. The comparative analysis of HRM in the European countries is presented in (Scholz 2008). In particular, HRM in Austria, e.g. in electricity company Verbund, directs on the reduction in personal expenses and the increase in productivity per employee. The quality of HRM is high: HR planning, personnel development, training/further training and personnel controlling. A significant attention is devoted to new employees. The personnel development program is worked out and a mentor from specific department is assigned for each new employee.

As to Hungarians, in comparison with Slovakians, they tend to use reactive strategies (postponement of investment, cost reduction and a wage freeze) more radically (Fodor 2009).

Other differences between the approaches of HRM in these two countries are in bonus systems and workforce reduction. In particular, Slovakian firms are willing to emphasis more on individual performance, and they are more willing to dismiss employees. So, Hungarians are "stronger in the strategic "dismissal" category" (Fodor 2009, pp. 87-88).

Quite different situation is observed in Latvian companies, which do not pay sufficient attention to HRM (Peiseniece no date).

So, cultural, political and economic differences between European countries lead to the differences between the states of HRM. However, according to (Scholz 2008), it is possible to define the groups of European countries with similar approaches to HRM.

Regarding another parts of world, it seems that Australian companies will reflect specific information about HRM. It is known that "during the last 20 years organisations in Australia have been managing their people in a more competitive, global and deregulated environment". The research of HRM approach is supported by practitioners of Australian companies but the integration of the results of research with corporate strategy is uneven. "It appears that HR practitioners are still regarded as operational managers, rather than as business partners. It is also difficult to generalize about the work done by HR specialists, with particular practices being emphasized in the public sector, and different ones in the private sector. The future of these specialists will be influenced by the way work, organizational structure and contractual relationships change" (Michelson 2003).

Finally, we will discuss the impact of financial and economic crisis on HRM. The survey that was conducted by Taihe Company and Taorui Consultant Company showed the influence of economic crisis on compensation management, welfare policy, performance management, training management, personnel promotion, and recruitment of staff in the enterprise (Duanxiang no date).

Also, the analysis of the impact of crisis was presented in (Fodor 2009), according to which a great deal of steps was made in this field. The general tendency of all companies is: the reduction of working time or lay-offs; the reduction of costs; the freezing of salaries; the postponing of investment; the freezing of hiring; the reduction of wages. Besides, according to the research that was conducted by (Fodor 2009), half of the respondents plan to take no steps in this field.

Regarding the aspects that were presented above, companies can keep to different strategies. Among them are (Fodor 2009): (1) cost-cutting strategies (save costs in HR operations); (2) differentiated cost-cutting strategies in different HR fields; (3) concentrate on short-term financial solutions, introducing flexible HR solutions and outsourcing some HR activities; (4) looking for optimal HR solutions implement total compensation and competency development systems.

As it was noticed, the competitiveness of companies depends on their key employees. Thus, dismissing employees can offer short-term survival, but bring long-term problems, as companies jeopardize the innovativeness. Instead of cut-backs, organizations should take a more strategic approach to costs and retain key employees (Fodor 2009, pp. 78) For instance, it is reasonable to mechanize or outsource repetitive, mechanical tasks and keep expensive human resources for constantly changing tasks (Fodor 2009, pp. 81).

So, in general, this analysis shows the significance of HRM and its practices within organizations. The problem of the connection between HRM and knowledge management and the influence of these directions on the creation of viable organization in a time of crisis was presented. The significance of HRM in contemporary kind of economic condition and the current state of HRM worldwide was discussed. The impact of the global financial and economic crisis on HRM was marked.

The weakness of the research is the choice of some countries to represent the state of HRM worldwide. It is connected with the differences of the level of HRM development in companies of various countries. So, the most representative data was chosen.

Further research is suggested to determine the main conditions of creation the effective system of human resource management. Thus, to realize it, the questionnaire should be making up. The example of such questionnaire is presented in appendix (Sample Questionnaire no date, Questionnaire on Information about HRD/HRM Current and Future Needs and Priorities in a Converged, Competitive Telecommunication/ICT Environment no date, Questionnaire for Human Resource Professionals no date).


Anon 2003, 'Questionnaire for Human Resource Professionals' The Acorn Centre,

Anon 2010, Academic publishing [online]. Updated 5 November 2010 [accessed 9 November 2010],

Anon 2010, Complex system [online]. Updated 9 November 2010 [accessed 9 November 2010],

Anon 2010, Human capital [online]. Updated 24 October 2010 [accessed 7 November 2010],

Anon 2010, Human resource management [online]. Updated 3 November 2010 [accessed 7 November 2010],

Anon 2010, Knowledge [online]. Updated 9 November 2010 [accessed 9 November 2010],

Anon 2010, Viable System Model [online]. Updated 7 November 2010 [accessed 7 November 2010],

Anon n.d., 'Questionnaire on Information about HRD/HRM Current and Future Needs and Priorities in a Converged, Competitive Telecommunication/ICT Environment' Union International and Telecommunication,

Anon n.d., 'Role of Human Resource Management During Crisis' Human Resources Development,

Anon n.d., 'Sample Questionnaire',

Anon n.d., Measurement of Human Resource Cost and Value [online] [accessed 9 November 2010],

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Duanxiang, F., Meixia, S. 'The Researches on Enterprise Human Resources Management in Economic Crisis',

Fodor, P. 2009, 'The Impact of the Economic and Financial Crisis on HRM and Knowledge Management in Hungary and Slovakia - Empirical Research 2008-2009' Acta Polytechnica Hungarica, Vol. 6, No 3,

Gan, G., Ryan, C., Gururajan, R. 2006, 'The Effects of Culture of Knowledge Management Practice: a Qualitative Case Study of MCS Status Companies' Kajian Malaysia, Vol. 24, No. 1&2,

Leonard, A. 1999, 'Viable System Model: Consideration of Knowledge Management' Journal of Knowledge Management Practice, August,

Michelson, G., Kramar, R. 2003, 'The State of HRM in Australia: Progress and Prospects' Journal of Human Resources, August,

Peiseniece, L., Volkova, T. n.d., 'Necessity to Evaluate Human Resource Management in Companies of Latvia' Economica ir Vadyba,

Scholz, C., Bohm, H. 2008, Human Resource Management in Europe: comparative analysis and contextual understanding,

Smith, P. 1998, 'Systemic Knowledge Management: Managing Organizational Assets for Competitive Advantage' Journal of Systemic Knowledge Management,

Wendy, H.R. 2003, The Role of Human Resource Management and the Human Resource Professional in the New Economy. Magister Commercii dissertation. Pretoria: University of Pretoria,