HRM as a Value to Shareholder

7/29/2019 HRM as a Value to Shareholder

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HR as a

Source of

Shareholder Value

Companies with thebest peoplemanagement deliver nearly twiceas much valuetoshareholders as their averagecompetitors

-Watson Wyatt Consultants


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Human resource management is the management of an organization'sworkforce, or human resources. It is responsible for the attraction,selection, training, assessment, and rewarding of employees, while alsooverseeing organizational leadership and culture, and ensuring compliance

with employment and labour laws. In circumstances where employeesdesire and are legally authorized to hold a collective bargaining agreement,HR will typically also serve as the company's primary liaison with theemployees' representatives.

The human resource management traditional approach focuses on

personnel functions such as recruitment, performance appraisals, payroll

administration, and the like, with some employee-centric development

initiatives such as training and development interventions, motivation

initiatives

What is HRM ?


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Traditionally HRM was considered as Salariedmodel. The traditional approach the humanresource management was designed according toindustrial environment, applicable to blue-collaredfactory workers, is a controlled work atmosphere

marked by narrow, rigid job definitions anddetailed workplace rules and procedures.

Workers have much autonomy and deviating fromthe written policy and procedure attract

disciplinary action, with discretion remaining anexclusive prerogative of management. The tradeunion dominates collective bargaining settlementsdefine pay scales, and seniority decides promotionopportunities.

Traditional View of HRM


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Focus on Functional Activities and Process Orientation

Human resource management traditional approaches focus on functionalactivities such as human resource planning, job analysis, recruitment andselection, maintaining employee relations, performance appraisals,

compensation management, and training and development.

The traditional approach toward human resource management also focuseson establishing policies, procedures, contracts and guidelines, and attempts todrive employee performance and achieve organizational goals by makingemployees adhere to such carefully crafted documents.

Control Activities

A major activity of a traditional human resource management approach ismonitoring and supervision of the workforce to ensure compliance to theestablished rules, procedures, guidelines, and contracts.

Traditional View of HRM


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Reconciliation Between Management and Workforce

A major role of traditional resource management is reconciling the

interests of management and the workforce. The traditional approach

presumes management and workers having distinct and conflicting goals

and needs, with the goal of human resource managers being to effect areconciliation to drive the organization.

Traditional human resource management remains a staff function, and

the exclusive responsibility of the human resource department

HRM was considered as mainly a cost to the organization rather than

any value adding function.

Traditional view of HRM


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Current view point on HRM

With the return to real-worldeconomics after the unwinding ofthe 1990s and bursting of the'tech' bubble HRM gained ground

and considered as strategicfunction for the organization

New approach it is the quality of acompany's people managementthat determines its real success orfailure.

HRM develops and manages thesepeople it can transform the crisisinto opportunity.


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Work Environment:

A safe and happy workplace makes the employees feel good about being there.

Each one is given importance and provided the security that gives them the

motivation and incentive to stay. This is usually achieved through internal surveys

to find out whether they are satisfied and if not what they think needs to bechanged.

Open Management:

Employees dont like the feeling of being kept in the dark about what is happening

in the company. They feel motivated and develop enthusiasm only when the

management opens up to them and discusses the company policies, sales, clients,

contracts, goals and objectives. This encourages participative management. Asking

them for ideas on how to improve will get their creative juices flowing. Being open

about everything related to the company will help in building trust and motivating

the employees. This open management policy can be practiced using several tools.

Current view point

on HRM


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Performance Incentives:

Pat on the back, bonuses or giving some other compensation

Keep up with the attrition rate

Individual as well as the team level

Getting the best out of the employees

Performance Feedback:360 degree feedback

Fair and fast

Employee Evaluation:

Apart from being done by the boss, should be done by another person at ahigher level. This ensures a fair and accurate rating of each and everyemployee

Sharing of Knowledge:

Knowledge sharing is a wonderful strategy that helps in the betterment of theemployees and their work. Keep all the knowledgeable information in centraldatabases that can be accessed by each and every employee.

Publicize Good Performances:

Motivation

Current view point on HRM


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HRM as competitive advantage to the

organization Earlier patent, economies of scale,

market regulation all are consideredas competitive advantages, Butthese are not relevant in currenteconomic environment.

Instead , the core competencies arecapabilities of employee to developnew product, provide more betterservices to the customer andimplement the strategies of the

organization. HRM manage develop and sustain

these kind of invisible asset of theorganization and become acompetitive advantages.


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HUMAN CAPITAL MANAGEMENT

Human capital management (HCM) is an approach toemployee staffing that perceives people as assets (humancapital) whose current value can be measured and whosefuture value can be enhanced through investment.

An organization that supports HCM provides employeeswith clearly defined and consistently communicatedperformance expectations.

Managers are responsible for rating, rewarding, andholding employees accountable for achieving specificbusiness goals, creating innovation andsupporting continuous improvement.


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Two competencies required for

Human Capital Management1. Professional HRM Capabilities-these are

related to the delivery of traditional HR

activities such as recruiting ,selection and

compensation

2. Business related capabilities reflect the

understanding of business and

implementation of competitive strategy.


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SPECIFICALLY

HR must focus on business level outcomes rather thanHR level inputs

HR must become a strategic core competency ratherthan a market follower.

Strategic competencies are more important thanfunctional competencies.

The most important missing element in HR functionalexpertise is a systems perspective.


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Architecture for

IntangiblesLevel Area of focus Action outcome

1 Keep promises Build reputation among

stakeholders for delivering

what you promise to deliver.

2 Anticipate future whileinvesting in present

Define growth strategy ,manage trade offs in customer

intimacy, geographic expansion

to achieve growth

3 Put money where strategy is Provide full support to current

capabilities , build

competencies in R&D, salesand alike.

4 Build value through

organization and people

Develop capabilities of shared

mindset, talent, leadership and

alike throughout the

organization.


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Why HPWS ?

High Performance Work Systems adopted by HRfunctions across organizations as a means to contributeto the strategic goals of the organization .

Is specific combination of HR practices, workstructures, and processes that maximizes employeeknowledge, skill, commitment, and flexibility.

Systems composed of many interrelated parts thatcomplement one another to reach the goals of an

organization, large or small.

Success of an HPWS lies in its inimitable nature whichbecomes a source of major competitive advantage.


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Principle of Shared Information

Creation of culture of information sharing amongst employees as well

as higher level executives , both ways .

Requires a shift from traditional mentality of central command and control.

Principle of Knowledge Development

Requires people who are multi skilled and are also able to learn real time and solve problemsusing new approaches .

Principle of Performance-Reward Linkage

Helps in aligning employee and organizational goals. When rewards are connected to

performance, employees will pursue outcomes that are mutually beneficial to themselves and the

organization.

Principle of Egalitarianism

Egalitarian work environments eliminate status and power differences and, in the process,

increase collaboration and teamwork.

When this happens, productivity can improve if people who once worked in isolation from (or

opposition to) one another begin to work together.

Elements of HPWS


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Evaluating the HPWS

To determine if the HPWS program is succeedingin reaching its goals, managers should look at

finding answers to questions:Are desired behaviors being exhibited on the job?

Are quality, productivity, flexibility, and customerservice objectives being met?

Are quality-of-life goals being achieved foremployees?

Is the organization more competitive than in the past?


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Accounting of HRM

Unlike conventional assets human resource

can not be seen in the balance sheet of the

firm. It is the present value of future cashinflow of the firm.

There is no scientific method to measure thisintangible assets of the firm.


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Watson Wyatt's Global

Human Capital Index Human Capital Index(HCI) - methodology ofWatson Wyatt used to

calculate the correlation of human capital and shareholder value

Human Capital Index shows that the better an organization is doingin managing its human capital, the better its returns for

shareholders

Calculated based on the following

1. Recruiting Excellence

2. Clear Rewards and Accountability

3. a Collegial and Flexible Workplace

4. Communications Integrity

5. Prudent Use of Resources


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BENEFITS OF HR SYSTEM

Recruitment and Training

Major responsibilities of the humanresource team.

HR managers come up with plans andstrategies for hiring the right kind ofpeople

And if any missing skill is required - atraining program is designed.

These help in increasing the revenuefor the company


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Performance Appraisals

HR encourages the people, to workaccording to their potential

Gives them suggestions that canhelp them to bring aboutimprovement

When taken on a regular basis,motivate the employees --> Resultsin improved performance for theemployee and the employer


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Maintaining good Work Atmosphere

Vital aspect of HR, because this effects the individual work atmosphere orwork culture

Good working condition will help bring out the best in an employee ---> JobSatisfaction --> Increase in the output of an individual

Managing Disputes

In an organization, there are several issues on which disputes may arisebetween the employees and the employers.

The human resource department acts as a consultant and mediator to sortout those issues in an effective manner



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Developing Public Relations

Organize business meetings, seminarsand various official gatherings on behalf

of the company in order to build uprelationships

HR department plays an active role inpreparing the business and marketingplans for the organization

Good Public Relations improve thechance to attract new talent, newinvestors and improve relationship withthe existing employees and investors



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HR as a Value to Shareholders


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Linking HR Strategy to Shareholders

ValueAre the decision-makers in the organization

aware of the link between human resourceplanning and profits ?

Some firms in negative growth choose to

layoff thousands of employees so that profitsand share price increase immediately.

Slash and burn tactics do not always workand can lead to irreversible damage to thecompanies performance.

Remaining employees cannot compensatefor the loss of productivity and at least 7% ofthe remaining employees quit in the 6months following a layoff.


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Loosing valuable employees to layoffs can lead to loss ofclients because the level of expected services may decrease,giving the competitors to cut deals to steal the business.

In the study HR as a source of Shareholder Value: Researchand Recommendations, it was found out that combining HRinitiatives with strategies like performance managementsystems has a 50% larger effect on firms performance thanimplementing single policies alone.

In the research, Becker and his colleagues focused on strategicimpact of HRM system on both market-based and accounting-based measures of firms performance.

Linking HR Strategy to

Shareholders Value


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Use of market-based measures of firms performance is appropriate in this

line of research because they reflect the present value of the firms future

cash flows which is net of any additional costs associated with

implementing these systems.

Thus organizations which fix their objective on share price, may achieve

short term success but they are bound to encounter long term costs if

their objectives are achieved at the expense of productivity and

customers.

Employee and customer needs frequently change, due to which an

integrated workforce development strategy helps the organization adapt

to shifting goals.


Shareholders Value


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An HR strategy should translate business goals into individual

accountability, thus creating long term value for the organization. This is

because engaged employees are able to drive customer loyalty as well as

corporate profits through their consistency and quality of service.

Investing in employees performance confirms to the shareholders that

you are concerned with growth and not minimizing costs, which provides a

much smaller competitive advantage

Thus the number one priority for the value-creating HR function is to point

to human capital problems that limit the ability of the firm to achieve

important business priorities and can provide solutions to those problems.


Shareholders Value


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HR Factors affecting Profits

Management participation

Open management style

Taking some risks, but not too many

Top managers spending 20% of the time with

customers

Around 20% of top management should be

outsiders

Management training is deemed important

Top managers should be effectively incentivized

Succession plan is done

A good appraisal plan is in place

Employees should get regular feedback


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HR Factors affecting Market

Value Use of knowledge and contract

workers

Recruiting excellence

Good union-managementrelationship

Teamwork and 360 degreesfeedback

Customer focused environment

Remuneration

Sharing information withemployees


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Date post:	04-Apr-2018
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HRM as a Value to Shareholder

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