Human Resource Management under Disruptive Change - Example

Human Resource Management under Disruptive Change 2010 Table of Content Page Executive Summary 3 Introduction 3 Disruptive change and organizational change 4 Strategic HRM 6 Employment cycle 7 HRM accounting 9 Communication 9 Skill Development 10 International HRM 11 HRM analytics 12 Conclusion 13 Works Cited 14 Executive Summary In order to deal with disruptive changes, companies have to align human resources with the corporate strategy. For the purpose, the HR department has to first consider people as assets and capital so that it can take a resource-based view of utilizing the capital. In the perspective of strategic HR management, the mission and vision of the company has to percolate down the line so that the companies’ strategies become successful. The entire employment cycle, including recruitment, training, skill development, employee retention, successor planning and exit have to be monitored. Since knowledge is a key resource in the business environment which undergoes disruptive changes, knowledge management and training forms the most important part of employment cycle. Since businesses operate under different cultures as a result of globalization, international HR management and cross-cultural communication are increasingly becoming more critical. Technology-driven HR accounting and HR analytics form the backbone of the system. Introduction Present-day organizations have to live through a continuous process of disruptive changes because of various factors like globalization, new technologies, electronic connectivity, e-commerce, connected financial markets, deregulation in various economies, political instability and the emergence of stronger economies in various parts of the world. As a result, organizations need to adjust to changing situations at the individual, group and leadership levels. For the organization to adjust to such changes, a company needs to develop strategic management capabilities on the basis of the industry and the competition. It also has to secure commitment to the strategy down the line of executives so that it can be successfully executed. A wide array of managerial skills needs to be garnered to make a strategy successful. It is most important to integrate different types of skills across different management levels in a coordinated manner. According to Thompson, Stickland and Gambler (2007), a winning strategy may be executed by uniting the entire organization towards the strategy, generate commitment and enthusiasm and fit the organization towards the strategy for which the role of the Human Resource (HR) team is crucial. This paper will develop a strategic HRM policy for an organization undergoing change. Disruptive Change and Organizational Behavior In the new millennium, knowledge is seen as a strategic resource to gain competitive power in the face of disruptive changes in the business environment. Through knowledge management practices, firms are increasingly acquiring competitive advantage through knowledge. Besides other intangible attributes like brands, stakeholder relationships, reputation of the firm and organizational culture, knowledge has increasingly been considered as an asset distinct from tangible physical assets that have traditionally been viewed as drivers of competitive advantage in resource-based view. Knowledge-based theories of strategic management develops on the resource-based theories by incorporating knowledge integration and coordination of knowledge through rules and directives, sequencing, routines, group solving and decision-making for which HR plays an important role (Halawi et al, n.d). As an organization develops its knowledge resources through a complex process of “knowledge lifecycle” and “knowledge claims”, Firestone and McElroy (2005) develops a three-tier process of knowledge management learning, problem-solving, self-organization and dynamic interaction. KM leads to organizational learning and product innovation (Nonaka and Takeuchi, 1995), operational improvements and reduces product and market ambiguity (Baumard, 1999, all cited in Jimes and Lucardie, 2003). Firms acquire knowledge and technology but the latter finds it difficult to decode tacit knowledge existing in the organization (Polanyi, 1996). Organizational tacit knowledge is defined as employment skills, mental models and problem-solving skills present in the firm while explicit knowledge is in terms of instructions, product blueprints and so on (Nonaka and Takeuchi, 1995). Knowledge management is a consolidation of theories ranging from resource-based theories, core competencies, information resource management, ‘balanced scorecard’, total quality management, business process reengineering, and networked firms (Halawi et al, n.d). This view theorizes that knowledge is a difficult-to-copy attribute of a firm that becomes a competitive advantage as this is the source of business returns and superior performance. Among all human and non-human, tangible and intangible resources, knowledge is the most crucial parameter in a knowledge-driven firm and hence this provides a lasting competitive advantage (Prahalad and Hanel, 1990). Strategic HRM Strategic human resource management implies aligning the HR function with the mission and vision of the organization so that there is a strong relationship between the HR department and the management. The HR contributes to the mission of the organization and the management is accountable for HR decisions (US Office of Personnel Management, 1999). Strategic HRM has alternately been defined as a cause and outcome, in the sense that it is both considered as “the process of linking HR practices to business strategy” and “an organizational system designed to achieve sustainable competitive advantage through people” (Bratton, 2002). In the strategic approach, the HRM aligns to the organization’s mission through a hierarchy of accountability. At the base, the HR department needs to be accountable for legal compliance and then successively with HR processes, HRM programs and the strategic goals of the organization. In the early days of the organization, the HR department’s role was limited to compliance with laws, rules and regulations. Although these compliances are still necessary, the HR’s role is now much more exhaustive than before. In a typical organization planning process, the organization head sets the strategic direction within which the mission is defined. The top level goals and strategic measures that define the long run performance of the company are transmitted successively down the top management and the line management. The strategic management issues depend on the values of the senior management, the environment and the resources (Bratton, 2002). Employees and stakeholders provide the necessary inputs at each stage of the strategic planning process. The planning office then coordinates the tracking of the organization goals and measures. To integrate human resource with the strategic planning process, each stage requires the inputs from HR regarding the availability of skills, requirement of training and so on (US Office of Personnel Management, 1999). Employment cycle In terms of the employment cycle, the HR department of any company involves the intake of inputs – people – transform them into employees and take them along through their career with the organization till they leave. This typically involves the process of recruitment, orientation, performance management, training & development, transfers or promotions and finally termination or attrition or retirement and the exit interviews (Second, 2003). This employment cycle may need to be supported intensively by a customer focus in a changing business environment. The key role of the HR department is to identify the points in the employment cycle that are likely to result in deviations or provide strategic strength of the company. In service industries like retailing, for example, customer service provides the crucial differentiation. High level of servicing not only leads to cost reduction but also higher profitability and market shares (Park, Robertson and Wu, 2006). The HR department needs to quantify service quality by gauging it in terms of customer perception related to the company’s product quality, reliability of its customer service and personal interaction. HRM accounting For organizations, it is not just the technological or financial capital that provides them with the competitive edge. According to some scholars, technological competitiveness erodes faster than human capital competitiveness (Bratton, 2002). It needs to attract and retain the right people with the right skills for the right jobs and provide them with adequate continuous training. Hence, people are considered the organization’s most valuable assets. Human capital, which is so vital in the organization, is also enhanced through the creation and sharing of knowledge by forming social relationships within and outside the organization. The role of the HR department comes in to provide the right atmosphere for employees to learn, grow, evolve and educate each other. Like return on financial capital that the finance department publishes, the return on human capital is as crucial, particularly in a knowledge-driven economy. In the knowledge-driven world of globalization, employees are the most valuable resource or asset that adds value to the company. Yet, unlike physical assets that are measurable in terms of physical or monetary units, people assets are difficult to value and enhance. As a result, people assets, or human resources, are usually under-valued, under-trained, under-utilized, poorly motivated and able to perform less than their capability (Accel Team). To begin with, the human resource department needs to identify the human resource assets, or what may be termed as “human capital assets” since people too add value to the circumstances of our lives (Thomas). Human capital assets are able to enhance value by the ability to create, gather and retain knowledge, form social relationships and utilize the knowledge and relationships to grow, evolve, learn, develop and educate others. The HR department should concentrate on improving the quality of the processes of work so that the stages of knowledge management and utilization, relationship building and the processes of creation and value addition. For this, the HR department needs to understand the motives of the employees and the ways that they may be inspired as well as their capacity to improve their capabilities, competencies, performances and knowledge. It is a common practice to undertake and publish capital and financial accounts of the company but in a knowledge-driven economy, there is also the need to calculate the human resource accounting. The HR department needs to measure and report the cost and value of the organizational resources, that is, the liabilities and assets in terms of human resources. Like return on investment in physical capital, IT companies are increasingly reporting “return on knowledge” (Jasrotia). This involves accounting for investment in people, replacement costs and the economic value of people in the organization. For example, the strategy of Dell Computers Inc. was to capture market share through the direct selling and build-to-order mechanisms (Govindarajan and Lang, 2002). For this, the company decided to sell directly through order-taking on telephone or internet, without involving dealers and to place orders to for assembling of computers only after it booked the order from the customer. This requires a high level of productivity, time management and alertness of all employees at all levels, from the marketing to assembling and production of each part of the computer. Hence, it is essential that Dell employees and the HR managers design the measurement of productivity and work patterns in accordance with the strategy of the company. In many companies, skills of employees are measured on a case-to-case basis for each employee and by each trainer. However, these measurements become ineffective when the company aims to drive productivity in accordance with the strategy. On the other hand, the company should design the enterprise metrics depending upon the best practices. This would enable the company to undertake assessment of employees before and after each promotion, develop a skill inventory and ultimately achieve business results in terms of cost reduction and best performance. This would eliminate redundant training and education, optimize assignments, facilitate successful change management, improve hiring and human capital management (Brain Bench, 2003). International HRM The main areas of international human resource management (IHRM) in the future will be managing a cross-national staff. There are cultural differences across the staff in different locations in a multinational company. Besides, IHRM would also involve managing the composition of the international staff, training & development, compensation and performance management and knowledge management. Besides, in the future, IHRM would have to deal with differences in employment practices in different countries and the variety of industrial relations involved (Harzing and Ruysseveldt, 2004). Although global corporate partnerships in the form of joint ventures and strategic alliances have for long been practiced, there is an increasing trend of global strategic alliances, like customer-supplier alliance and competitor alliances. Such partnerships bring together complementary skills and knowledge that work to benefit the partners equally. These result in faster product development, distribution, opening up new markets, cost reduction and international market penetration (Buerger, 1995). Communication development Communication within an organization or a group is essential to bring the best out of the employees of the organization or the members of the group. Communication is necessary to familiarize new employees with the organization, the group to operative in a cohesive manner so that there is maximum output with minimum wastage. Besides, with communication, the operations of the organization may be streamlined to make it most productive. The business environment is today continuously changing with the transformation of global economic output and employment models. Globalization and outsourcing have altered the job scenario in all countries as more jobs, particularly of the routine types, migrate from the developed to the developing world. As a result, the job requirements have also changed, with greater interaction with clients and colleagues across regions, working across different time zones and with people of different cultures and the changing organization structures. Communication across the organization, therefore, plays an important role in motivating employees and organizing the various activities. Increased communication and career management have grown critical for both employees and employers. In these times of changing business environment, where downsizing, cost reductions, performance related incentives and employment sustainability are crucial, employees need to be constantly communicated about the changes. The human resource (HR) management department as well as the organization leaders needs to communicate with the employees so that the latter may realign their goals and capabilities with the business needs of the hour. Left to themselves, employees may be prone to find themselves misfit in the changing atmosphere, resulting in low self-esteem, frustration and stress, which in turn affect their work output harming the companies’ business performance. Skill development Skill development of employees depends on both the organization and the individuals. The HR department and the group leaders need to assess the skills and competencies of the employees on a regular basis and communicate their strengths and deficiencies. In particular, more companies are taking succession planning seriously. It is no longer the case that the next in line will necessarily take over the mantle of succession. But someone from lower the line may be found to be more capable as a successor. Meticulous succession planning and communication by the personnel department is therefore necessary on a continuous basis (Career Management Guide). The benefits of creating a learning environment enables employees to enhance skills as well disseminate knowledge from first generation learners, that is, those who have the knowledge within the organization, to second generation learners through a social learning process. The HR department has a role in transforming the technology tools from the realm of the organization to the individuals within the organization for this purpose. The continuous learning mechanism, problem solving, self-organization and dynamic interaction between individuals within the organization involve the active participation of the HR department. However, depending on technology for the purpose of knowledge dissemination has its associated costs of not being able to capture tacit knowledge. Knowledge is a precursor to organizational learning and it is not possible to codify all knowledge that is inherent within the domains of individuals. While explicit knowledge can be organized within the framework of technology through systems and documents, the tacit knowledge that exists within the experience of individuals often remain out of the ambit of social learning. The principal barriers to such a transformation of the organization as well as the employees come from the employees themselves. The personal and the organizational values often come to clash. In such a situation, it would be very difficult to inculcate the values of the organization when the perceptions do not match. While the primary objectives of the organization are to maximizing profits by maximizing revenues and minimize costs, employees may often perceive that the strategic aims of the organization are in conflict with that of the employees hence the HR department, which is supposed to be the link between the two, fails its purpose (Bratton, 2002). HR analytics The use of technology is increasingly becoming a key determinant of the performance of HR. Besides HR analytics, which involves the use of HR for the purpose of payroll management and other HR issues, which even non-HR personnel can also access, the use of technology to create a learning environment is becoming increasingly useful. Especially with e-learning technology, it is possible to simulate the application environment that eventually becomes a cost saver in training (Shramm, n.d). For the purpose of analyzing the training needs of an organization, the HR officers need to undertake a requirement analysis, task and knowledge, skill and ability analysis at the personal and organizational level. However, to create a learning environment, it is essential to manage the explicit and tacit knowledge that is available within the organization. In addition to the HR analytics technology, a number of other technological tools like data warehousing, business intelligence, enterprise resource planning and so on are required to create a learning environment in the organization. Since knowledge is increasingly becoming a globalized resource, continuous learning and knowledge acquisition is a critical element of competitiveness (Nowe, 2003). The quality of learning process crucially depends on the organizational structure since knowledge depends on communication, which in turn depends on the level of organizational communication. The HR officials, in this respect, play a crucial role in encouraging organizational communication, that would enable knowledge acquisition and learning through the explicit and tacit use of technology. Conclusion Thus, the HR strategy in a situation of disruptive changes involves aligning the entire HR operations with the mission and vision of the company. Especially since knowledge has become the key element driving change in the age of globalization, knowledge management, skill development and continuous training are the most serious elements of HR operations besides acquiring the right people for the right job. The primary strategy for HR in a continuously changing business environment is to consider people as a resource and to account for the human capital like in financial accounting through technology-driven analytics process. Works Cited Accel Team (n.d) Human Resource Management, http://www.accel-team.com/human_resources/hrm_00.html Barney, J B and D N Clark (2007) Resource-based theory: Creating and Sustaining Competitive Advantage, Oxford University Press Brain Bench (2003). Addressing Business Issues: Skill Measurement Report, December. http://www.brainbench.com/pdf/STG_BusinessIssues.pdf Bratton, John (2002). Strategic Human Resource Management, http://www.palgrave.com/business/brattonandgold/docs/bgcha02.pdf Buerger, David (1995). 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