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Part 3

Human Resources
Contextual factors
There are three main contextual
factors that influence HR policies and
2) Competitive pressures.
3) Responses affecting people.

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The technology of the business exerts a
major influence on the internal
environment how work is organized,
managed and carried out. The
introduction of new technology may
result in considerable changes to
systems and processes. Different skills
are required and new methods of
working are developed.

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The result may be an extension of
the skills base of the organization
and its employees, including multiskilling (ensuring that people have a
range of skills that enable them to
work flexibly on a variety of tasks,
often within a team working
environment). But it could result in
deskilling and a reduction in the
number of jobs (downsizing).

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New technology can therefore present a
considerable threat to employees. The
world of work has changed in many
ways. Knowledge workers are employed
in largely computerized offices and
laboratories, and technicians work in
computer integrated manufacturing
systems. They may have to be managed
differently from the clerks or machine
operators they displace.

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Global competition in mature
production and service sectors is
increasing. This is assisted by easily
transferable technology and
reductions in international trade
barriers. Customers are demanding
more as new standards are reached
through international competition.

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Organizations are reacting to this
competition by becoming customerfocused, speeding up response
times, emphasizing quality and
continuous improvement,
accelerating the introduction of new
technology, operating more flexibly
and losing cost.

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The pressure has been for
businesses to become lean
organizations, downsizing and
cutting out layers of management
and supervision. They are reducing
permanent staff to a core of
essential workers, increasing the use
of peripheral workers
(subcontractors, temporary staff)
and outsourcing work to external

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The aim is to reduce employment
costs and enable the enterprise
easily to increase or reduce the
numbers available for work in
response to fluctuations in the level
of business activity. They become
the so-called flexible firms.

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Responses affecting
The responses to the increased use
of technology and to economic and
competitive pressures have changed
the nature of people management in
a number of ways.


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These include slimmer and flatter
organization structures in which
cross-functional operations and team
working have become more
important, more flexible working
patterns, total quality and lean
production initiatives, and the
decentralization and devolvement of

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The challenge to HRM


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Professor Ulrich suggests that
environmental and appropriate
changes present a number of
competitive challenges to
organizations that mean that HR has
to be involved in helping to build
new capabilities. These comprise:


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Globalization, which requires
organizations to move people, ideas,
products and information around the
world to meet local needs. New and
important ingredients must be added
to the mix when making strategy:
volatile political situations,
contentious global trade issues,
fluctuating exchange rates and
unfamiliar cultures.


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Profitability through growth the
drive for revenue growth means that
companies must be creative and
innovative and this means
encouraging the free flow of
information and shared learning
among employees.


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Technology the challenge is to
make technology a viable,
productive part of the work setting.
Intellectual capital this is the
source of competitive advantage for
organizations. The challenge is to
ensure that firms have the capability
to find, take on board,

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compensate and retain human
capital in the shape of the talented
individuals they need who can drive
a global organization that is both
responsive to its customers and the
growing opportunities of technology.


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They have also to consider how the
social capital of the organization
the ways in which people interact
can be developed. Importantly,
organizations have to focus on
organizational capital the
knowledge they own and how it
should be managed.

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Change, change and more change
the greatest challenge companies
face is adjusting to indeed,
embracing non-stop change. They
must be able to learn rapidly and
continuously, and take on new
strategic imperatives faster and
more comfortably.

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Human capital management


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Human capital management (HCM)
is concerned with obtaining,
analyzing and reporting on data that
informs the direction of value-adding
people management, strategic
investment and operational
decisions at corporate level and at
the level of front line management.


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The defining characteristic of HCM is
this use of metrics to guide an
approach to managing people that
regards them as assets and emphasizes
that competitive advantage is achieved
by strategic investments in those
assets through employee engagement
and retention, talent management and
learning and development programmes.

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The Accounting for People Task Force
Report stated that HCM involves the
systematic analysis, measurement and
evaluation of how people policies and
practices create value. The report
defined HCM as an approach to people
management that treats it as a high
level strategic issue rather than an
operational matter to be left to the HR

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HCM is defined by Professor Kearns
as The total development of human
potential expressed as organizational
value. He believes that HCM is
about creating value through people
and that it is a people development
philosophy, but the only
development that means anything is
that which is translated into value.

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The essential difference between
HCM and HRM is that the former
treats people as assets while the
latter treats them as costs.
Various Professors believe that in
HCM people are value adders, not
overheads while in HRM people are
(treated as) a significant cost and
should be managed accordingly.

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HR is based around the function and
the HR team performs a distinct and
separate role from other functions. On
the other hand, HCM is clearly seen
and respected as an equal business
partner at senior levels and is holistic,
organization-wide and systems-based
as well as being strategic and
concerned with adding value.

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Both HRM in its proper sense and
HCM as defined above treat people
as assets. You cant simply treat
people as assets, because that
depersonalizes them and leads to
the danger that they are viewed in
purely financial terms, which does
little for all-important engagement.

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However, there is more to both HRM
and HCM than simply treating people
as assets. Each of them also focuses
on the importance of adopting an
integrated and strategic approach to
managing people, which is the
concern of all the stakeholders in an
organization, not just the people
management function.

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So how does the concept of HCM reinforce
or add to the concept of HRM?
The answers to that question are that HCM:
Draws attention to the importance of
management through measurement, the
aim being to establish a clear line of sight
between HR interventions and
organizational success.

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Strengthens the HRM belief that
people are assets rather than costs.
focuses attention on the need to
base HRM strategies and processes
on the requirement to create value
through people and thus further the
achievement of organizational goals.

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Reinforces the need to be strategic.
Emphasizes the role of HR
specialists as business partners.
Provides guidance on what to
measure and how to measure.


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Underlines the importance of using
the measurements to prove that
superior people management is
delivering superior results and to
indicate the direction in which HR
strategy needs to go.


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The concept of HCM complements
and strengthens the concept of HRM.
It does not replace it. Both HCM and
HRM can be regarded as vital
components in the process of people


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Human capital management is
concerned with measurement,
reporting measurements and
drawing conclusions about the
significance of the outcomes of
measurement as a guide to future

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There is more to HCM than
measurement. Human capital
management focuses the attention
of an organizations leadership team
on the strategies it should adopt as
outlined below to increase the added
value they obtain from people.


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It identifies those aspects of people
management that evidently have the
greatest bearing on business
performance. It clarifies the returns that
can be obtained in terms of increased
profitability, productivity and overall
effectiveness arising from the
deployment, development and
engagement of the people the
organization needs to achieve its goals.

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HCM points the way to achieving
human capital advantage by
highlighting where and how
investments in people generate the
highest returns. It ensures that HRM
policies and practices are developed
to attain this end.


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These policies include knowledge
management, resourcing, talent
management, performance
management, learning and
development programmes, and
reward and recognition processes.
From an organizational perspective,
an HCM approach generates the
following practical questions :

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What are the key performance
drivers that create value?
What skills have we got?
What skills do we need now and in
the future to meet our strategic
How are we going to attract,
develop and retain these skills?

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How can we develop a culture and
environment in which organizational
and individual learning takes place
that meets both our needs and the
needs of our employees?
How can we provide for both the
explicit and understood knowledge
created in our organization to be
captured, recorded and used


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To provide guidelines for action a
human capital strategy can be
developed making use of the data
provided by human capital
measurement and reporting. The
Mercer HR consulting organizational
performance model describes a
firms human capital strategy as
consisting of six interconnected


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1. People who is in the organization,
their skills and competencies on
hiring; what skills competences they
develop through training and
experience; their level of
qualification; and the extent to which
they apply firm-specific or
generalized human capital.

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2. Work processes how work gets
done; the degree of teamwork and
interdependence amongst
organizational units; and the role of
3. Managerial structure the degree
of employee discretion, management
direction and control; spans of
control; performance management
and work procedures.


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4. Information and knowledge how
information is shared and
interchanged between employees
and with suppliers and customers
through formal or informal means.
5. Decision-making how important
decisions are made and who makes
them; the degree of decentralization,
participation and timeliness of


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6. Rewards how monetary and nonmonetary incentives are used; how
much pay is at risk; individual versus
group rewards; current versus
longer-term career rewards.


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The human capital strategy of an
organization can be regarded as
complementary to its human
resource strategy.


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Measuring human
The points that should be borne in
mind when measuring human capital
Identify sources of value including
the competencies and abilities that
drive business performance.

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Analyze the relationships between
people management practices and
outcomes and organizational
Keep measurements simple
concentrate on key areas of
outcomes and behavior.
Only measure activities if it is clear
that such measurements will inform
decision making.


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Remember that human capital
measurement is concerned with the
impact of people management
practices on performance so that steps
can be taken to do better. It is not just
about measuring the efficiency of the
HR department in terms of activity
levels. It needs to be value-focused
rather than activity-based.

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Analyze and evaluate trends rather
than simply record actuals
compare the present position with
baseline data.
Focus on readily available and
reliable quantified information;
however, although quantification is
desirable it should not be based on
huge, loose assumptions.

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Remember that measurement is a
means to an end, not an end in itself.
Do not get so mesmerized by the
process of collecting data as to
forget that the data is there to be
used to support decision-making and
generate action.


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Role of the HR function


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HR functions are concerned with the
management and development of
people in organizations. They are
involved in the development and
implementation of HR strategies and
policies and some or all of the
following people management

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organization development, human
resource planning, talent
management, knowledge
management, recruitment and
selection, learning and development,
reward management, employee
relations, health and safety, welfare,
HR administration, fulfillment of
statutory requirements, equal
opportunity and diversity issues, and


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2015 surveys of HR roles and
responsibilities found that HR
functions were spending 20 per
cent of their time on strategic
activities, 40 per cent on
administration, 30 per cent on
providing a consultancy service, and
10 per cent on other activities.

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The role of the HR function is to
enable the organization to achieve
its objectives by taking initiatives
and providing guidance and support
on all matters relating to its


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The basic aim is to ensure that the
organization develops HR strategies,
policies and practices that cater
effectively for everything concerning
the employment and development of
people and the relationships that
exist between management and the

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The HR function can play a major
part in the creation of an
environment that enables people to
make the best use of their capacities
and to realize their potential to the
benefit of both the organization and


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Essentially, the HR function provides
the advice and services that enable
organizations to get things done through
people. It is in the delivery business.
Ulrich points out that: The activities of
HR appear to be and often are
disconnected from the real work of the
organization. He believes that HR
should not be defined by what it does
but by what it delivers.

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The more sophisticated HR
functions aim to achieve strategic
integration and logic in the
development and operation of HRM
policies and employment practices.
Strategic integration could be
described as vertical integration
the process of ensuring that HR
strategies are integrated with or fit
business strategies.


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The role of the HR function and the
practice of human resource
management vary immensely in
different organizations.


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Professors have identified four
approaches to the role of the
function, each of which can be seen
as representing a kind of scale of
increasing degrees of
externalization, understood as the
application of market forces to the
delivery of HR activities:

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1. The in-house agency, in which the HR
department is seen as a cost centre and
the activities are cross-charged to other
departments or divisions.
2. The internal consultancy, in which the HR
department sells its services to internal
customers (line managers), the implication
being that managers have some freedom
to go elsewhere if they are not happy with
the service that is being provided.

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3. The business within a business, in
which some of the activities of the
function are formed into a quasiindependent organization that may
trade not only with organizational
units but also externally.
4. External consultancy, in which the
organizational units go outside to
completely independent businesses
for help and advice.


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The common feature of all these
approaches is that the services
delivered are charged for in some
form of contract, which may
incorporate a service level


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The approach to the provision of services
and their externalization will vary between
different organizations because of
contextual factors such as the way in which
the business is organized and the type of
people employed, the values and beliefs of
top management about the need for HR and
the extent to which it will make a
contribution to the bottom line, and the
reputation and credibility of the HR function.