THE COSTS AND BENEFITS OF MANAGING HR

The Costs and Benefits of Managing HR

The ultimate goal of every company is to achieve a competitive advantage over its competitors. A company’s competitive advantage is its ability to create more economic value than its competitors

How to achieve competitive advantage?

- By providing greater value to the customer relative to the costs of making a product or providing a service

Traditional Ways of Achieving Competitive Advantage

• By holding protected assets

• Having extensive financial resources

• Competing based on price

• Benefiting from economies of scale

Employees were never considered a competitive advantage but simply as a cost to minimize

What are the Costs Incurred on HR?

• Compensation costs• Costs as a result of time and effort needed for activities

such as- Recruiting- Hiring- Training- Evaluation- Mentoring- Coaching- Disciplining- Legal costs, if any

Benefit Aspect of Managing HR

• If employees have the right skills – achievement of company goals

• If employees feel valued by their company – greater level of commitment, loyalty, morale

• If employees feel motivated – more productivity, responsiveness to customer needs

• If employees feel equitably treated – no law suits for the company

• If employees are managed well – low levels of absenteeism, turnover and sabotage, so low direct and indirect costs for the organization

• If employees are properly trained – less mistakes, more efficiency and effectiveness

Framework for Strategic Management of Employees

Strategic management of employees centers around three primary HR activities

1. Work design and workforce planning2. Managing employee competencies3. Managing employee attitudes and behavioursThree primary HR activities carried out in the

context of three main HR challenges1. The internal organizational demands2. The external environmental influences3. The regulatory issues

Framework for the Strategic Management of Employees

Work (Job) Design

• What employees will do on day to day basis• How jobs are to be carried out• How jobs are interconnectedSimilar jobs can be designed in different ways in different

companiese.g. job of a marketing manager in a service firm and a

manufacturing firmWhy job designing?• If jobs designed to align tasks with company objectives

– increased company success• Increases job satisfaction hence retention

Workforce Planning

Why workforce planning?

To maintain the necessary number of employees

To allocate employees through promotions , demotions and transfers - to areas where they can contribute significantly

Some Important Decisions in Workforce Planning

1. How should you address a labour shortage? A labour surplus?

2. When should you require current employees to work overtime vs hire additional full time staff?

3. When should you outsource work rather then hire new employees?

4. What can you do to minimize negative effects of downsizing?

The ‘effectiveness’ of each option differs in each company’s unique situation

Managing Employee Competencies

Managing employee competencies means recruiting and selecting the right people and training them to succeed in their jobs

Recruitment: A process of generating qualified pool of potential employees for

your company – from within and withoutRecruiting strategy should address the following issues:1. For what competencies do you recruit?2. What groups do you target with your recruitment message?3. Do you recruit internally, externally or both?4. How do you ensure that you offer an employee value

proposition that will attract the right applicants

Selection

• Selection focuses on choosing the best person from the pool of qualified candidates generated by the recruitment process

• Most critical issue in selection – does the candidate possess the competencies that you have identified as the most important for a particular job?

Some Key Issues in Making a Selection Decision

• Getting the right information to make an effective and legal hiring decision

• Deciding on tests that will be most effective for identifying employees with high potential

• Deciding on questions to be asked during the interview

• Deciding who will make the ultimate hiring decision

Training

• Even the ‘right people’ selected by the company may still need ‘training’

• Depending on company needs• To learn about the company itself, its culture and

working style• To learn to use new technology effectively and

safely• To learn new procedure in case of

merger/acquisition• To develop future positions

Important Issues in Training

• To decide which employees need training

• To design an effective training programme

• To decide on need specific training methods

• To evaluate the training efforts

Managing Employee Attitudes and Behaviours

Building employee competencies only part of the equation

Encouraging right employee attitudes and behaviours important for improving employee performance

Major tools for guiding employee efforts on the job:

• Compensation

• Incentives

• Performance management programmes

• Employee benefits, health and wellness programmes

Compensation and Incentives

• Compensating the employees at a fair level for the job they perform – motivation for better performance to meet organizational goals

Rewards and Incentives

• Rewards and incentives show to employees how managers expect them to focus their time and energy. e.g. (i) Lincoln Electric’s incentive system geared towards rewarding productivity (ii) 3 M’s incentive system which places greater emphasis on creativity and new product design

Size of incentive an important indicator of how a firm values a particular activity or level of performance

Key Issues in Designing Compensation and Incentive System

• To decide on factors which should be considered when determining salary range for a job

• To decide the best way to determine how much employees should be paid

• To decide how much pay should be guaranteed and how much should be based on incentives

• To decide on the type of incentives to encourage the employee attitudes and behaviours

Performance Management

• Focuses on providing employees with feedback (positive and negative) and on using employee development activities to improve current and future performance

• Thrust on continuous improvement – by praising good performers and disciplining poor performers

Important Issues in Performance Management

• To decide the best way to measure employee performance

• To decide ways of communicating the information to employees

• To give employees developmental feedback to improve their performance

• To manage poorly performing employees

Employee Benefits, Health and Welfare

• Helpful in recruiting and retaining employees

• Ensure the health and welfare of company’s workforce

• Helps to ensure that employees are able to work effectively over time

Some benefits – required by law: e.g. workers’ compensation, family and medical leave, employee safety

Some benefits – voluntary: e.g. paid time off, health care, retirement programmes

Some Issues when Considering Employee Benefits, Health and Wellness Programme:

• To decide which benefit programmes are most appropriate for the workforce

• To find out the legal requirements regarding benefit programmes

• To decide on safety measures for the employees

HR Activities Alignment (I)

Internal Alignment

• If employees know the goals of the organization, and are motivated to work towards the goals, but do not possess all the competencies to do so – the result – poor employee performance and reduced organizational productivity

• If employees possess the competencies, know the goals, but lack motivation, the result – employee contribution to company success will be limited

• If employees are capable and motivated, but are shorthanded due to inappropriate or poor job design and workforce planning, their ability to contribute to the organization will be limited

HR Activities Alignment (II)

External Alignment

Alignment with HR challenges that companies face

HR Activities Alignment (III)

Challenge I : Meeting Organizational Demands

• Strategy

• Company characteristics

• Organizational culture

• Employee concerns

Challenge II: Environmental Influences

• Labour force trends

• Technology

• Globalization

• Ethics and social responsibility

Challenge III: Regulatory issues

Strategic Challenges

Company’s strategy influences types of jobs needed

• Low-cost leader, example: Wal-Mart

• Differentiation, example: Nordstrom

• Four-star restaurant vs. fast food

Company Characteristics

• Size

• Resources available

• Degree of autonomy and discretion

• Differences in job tasks

• Employee attitudes and behaviors

Organizational Culture

• Set of underlying values and beliefs employees share

• Unwritten yet understood

• Represents beliefs of company’s founders and key leaders

• Influences how employees do their jobs

• Can assist in attracting and retaining employees

Employee Concerns

• Single parents; caring for aging parents

• Dual career; balancing demands of work and personal lives

• Attracted by flexible scheduling, family-friendly benefits and telecommuting

Labor Force Trends

• Diverse in race, gender and age

• Number of women expected to grow 9% from 2006 to 2016

• Fastest-growing group: Hispanics and Asians

• Size of group 55-and-older increasing dramatically

• Influences how companies recruit/select

Technology

• Requires many employees to possess basic computer proficiency

• Challenges privacy issues and potential misuse by employees

• Broadens access to recruit employees from larger market

• Enables virtual workforce

Globalization

• Blurs country boundaries in business activities

• Enables international joint ventures and partnerships

• Challenges companies with differences in values and beliefs

• Encourages offshoring—sending work once performed domestically to other countries for lower costs

Ethics and Social Responsibility

• Companies and their management being held accountable for ethical behavior

• Corporate policies and procedures spell out ethical behavior

• Annual training required of employees

• Social Responsibility takes ethics to a new level

Regulatory Issues

• Federal, state, and local legislation as well as executive orders

• Employment and the rights of individuals

• Title VII of the Civil Rights Act of 1964

• Americans with Disabilities Act of 1990

• OSHA

• Civil Rights Act of 1992