The Changing Role of HR in Real World Organisation - Case Study Example

Please just send a message if you need anything. Thanks! Managing People The Changing Role of HR in Real World Organisation Executive Summary Analysis of HRM and SHRM suggest that there are a number of factors contributing to their increasing vital role in the 21st century. These include the need of many global businesses to achieve organisational excellence and maintain competitive advantage, the ability of SHRM to reduce labour cost and increase productivity, motivate and empower employees, encourage high level of commitment among employees, provide organisations with information regarding internal strengths and weaknesses, and ability to scan the business environment for opportunities and threats. Moreover, it enable organisations to focus on managing people, maintain satisfaction in all levels of the organisation, and create committed and better performing employees. However, HR strategies should be aligned with business objectives, integrated in business plans, and realistic in order to succeed. Moreover, it must ensure that human capital is the source of competitive advantage. Komatsu’s experience in managing its UK plant is a good example of how alignment of HR strategy with business needs result to high productivity and competitive advantage. However, Komatsu will benefit more if its core HR functions such as recruitment, training and development, performance appraisal, and reward management are close link to each other as such linkage create and maintain desirable psychological contract between employees and employer. Table of Contents Contents Contents 2 1. Introduction HRM or Human Resource Management is basically a management function that deals with acquisition, development, maintenance, and remuneration of employees in traditional organisations (Awathappa, 2005:5). It is part of the process that assist organisations in achieving their goals and objectives by determining what kind of employees are required, ways to use them effectively, the means of acquiring such employees, and the manner they will be managed (Kaila: 2005:13). SHRM or Strategic Human Resource Management on the hand is a branch of traditional HRM which is more closely associated with goal-setting, policy, resources formulation and allocation, and often performed by top management (Pravin, 2010:25). According to Armstrong (2008), SHRM is an approach focusing on HR strategies and integrated HR policies and practices. It is a branch of HRM that specifically view employees as strategic resource necessary for achieving competitive advantage (p.34). It produces employee competencies and behaviours advantageous to the organisation in achieving its strategic aims (Pravin, 2010:24). However, although strategic HRM creates a mindset aligned with business strategies, it is only useful when HR professionals working alongside line managers act strategically and recognise the fact that generating competitive organisational capability is not all about skills but active, committed, and well-motivated employees (Armstrong, 2008:63). The following sections discusses the increasing vital role of HR in modern organisations of the 21st century, an evaluation the organisation applying modern principles of SHRM in order to align business strategies with HR practices, critical analysis of how HRM can actually help the organisation achieve competitive advantage and the factors limiting the ability of HR professionals to act strategically, and elaboration of HR strategies that can be implemented in different HR areas to meet employees’ psychological contract. 2. The increasingly vital role of HR in the 21st century Decades ago, HR managers according to Regis (2008) were often treated poorly in terms of business planning and strategies as they play reactive role and only become involve when such business strategy is implemented (p.13). However, achieving organisational excellence in the 21st century is not easy as it demand high-degree of competence and performance throughout the organisation. For instance, liberalisation and globalisation requires changes in formerly fixed and rigid internal organisation policies and adaption of organisational way of thinking that is more focus on internal and external customers (Regis, 2008:13). For this reason, leaders of modern organisations acquire strategic mindset, a do less with less attitude contrary to the do more with more mindset of the 1990s, and consider changing their individual perspective towards HRM as a source of competitive advantage (Ahmad, 2004: 158). The role of HRM today is increasingly becoming vital for a number of reasons and one of them is the effect of global competition in labour cost and demand for high levels of productivity. According to Kumar (2010), researchers in the United States found that hiring high-potential computer programmers can save organisations million of dollars per year. Similarly, lowering the number of employees and then taking steps to maintain the morale of the remaining employees as in the case of IBM and Citicorp reduced labour cost without significant side effects. The strategic HR implemented by Merck & Company where HR trains employees to prioritise task and reduce job stress is another example how the effects of downsizing can be minimised (p.30). Another important factor contributing to the role of HR in 21st century organisation is the need for organisations to be more responsive to product innovations and technological advancement. Along with downsizing, empowering employees and organising work around teams facilitate better communication and decision-making enabling quick response to customer needs and competitor’s innovation. For instance, Levis Strauss, an American jeans company through its HR department create a team-based manufacturing system where team goals is tied to compensation incentives resulting to flexible but more efficient production process (Kumar, 2010:31). Commitment is an important employee characteristic and in the presence of intense global competition, the need for such employee is critical. However, this cannot be assured through hiring but building employee commitment on the job. Here, HR plays the central role of creating a mixture of employees’ and employer’s goals so the former work as if they also own the company. Two-way communication for instance help foster commitment as in the case of Federal Express and Toyota implementing HR programmes encouraging two-way communications, fair treatment of grievances and disciplinary matters, and use of all skills at work resulting to high-levels of commitment (Kumar, 2008:31). However, the most important of all these factors contributing to the role of HR today is the increasing importance of HR in the development of corporate business strategy. Note that HR as mentioned earlier seldom sits in corporate business strategy meeting. According to Kumar (2008), the change in perception was actually brought about by the need to maintain competitive advantage that only HR can provide. This is particular is balancing the internal strengths and weaknesses with external opportunities and threats (p.31). This HR capacity according to Deb (2006) lies in its ability in scanning the business environment and in particular identifying and analysing external opportunities and threats that may hinder organisational success. Along with this knowledge, HR can effectively supply competitive intelligence, reliable information about internal strengths and weaknesses, and recommend on the feasibility of the organisation’s strategic plan (p.45). Moreover, since traditional capital and resources can be easily copied by another organisation doing the same business, creating competitive advantage demand unique set of resources such as those people with innovative skills and perform way beyond normal workers (Ribiere, 2011: 2). Contrary to traditional perception, the role of HR in the 21st century is active and strategic. According to Rao (2007), HR becomes a strategic partner not only in the implementation of organisational activities but in formulation of overall business strategy as it has the ability to identify and analyse both internal and external threats and opportunities. For instance, HR can offer information about competitor’s strategy, data about customer satisfaction and complaints, and other information that may be helpful in shaping the company’s strategic plans. IBM’s decision to acquire Lotus Development Corporation in 1995 was partly due to recognition of the inadequacy of its own workforce to make IBM an industry leader. Other software companies downsized their composition based on HR strategies supporting the use of smaller but exceptionally talented and well-motivated employee teams. Some built their strategic and operating plans around HR-based competitive advantage strategies supporting outsourcing of people from different parts of the world so they can fully exploit employee skills and capabilities (p.7). Strategic HR enables companies to focus on managing people rather traditional employee relationship. The current focus according to Rao (2007) is more systemic in the sense that it now recognises the myriad of factors affecting employees and the organisation. It is now aware that effective management of multiple relationship help in ensuring satisfaction at all levels of the organisation and facilitate rapid adoption, learning, and action particularly during change initiatives that are aimed to create better performing employees, implement new technology, and reducing cycle time for innovation (p.8). The shift from manufacturing to a knowledge based economy intensified the need for human assets such as skills, knowledge, behaviour, and attitudes which HR translate into shareholder values, profitability, and value for company’s customers (Society for Human Resource Management, 2006:5). In reality, even automated and highly advanced machineries requires skilled and motivated employees thus absence or inadequacies in human assets matters particularly in the ability of a company to fulfil its mission. The importance of HR today according to the Society for Human Resource Management (2006) comes from the fact that efforts, dedication, focus, and job satisfaction increase when human assets understand what the company is trying to achieve. HRM can turn this requirement into reality by defining and carrying out high-level employee-related strategies that can make the organisation’s human capital unique from other competitors (p.5). 3. The Organisation – Komatsu UK Globalisation is the most important reason why many companies are realising the importance of strategic human resources management and in India for instance, the focus on competitiveness and operational efficiency made HR managers the most important person in the development of corporate business strategies (Pravin, 2000: 25). For instance, Dabur India, one of the country’s largest consumer goods company, align its HR policies with corporate strategies by introducing structured employee-referral programmes, key performance indicators based on balance score cards, assessment and development strategies aimed at ensuring availability of equitable growth and opportunities for employees (Pravin, 2000:25). Similarly, the globalised Japanese company selected for this study and doing business in the North East of England has number of HR-related problems as it tries to compete globally. Komatsu is a Japanese earth moving equipment manufacturer that came to County Durham in December of 1985 when Caterpillar, a competitor, was about to close its troubled plant. Caterpillar was paralysed by bad industrial relations with eleven competing trade unions and forced to sell its plant to Komatsu for £3 million (Lundy & Cowling, 1996:368). Unfortunately, Komatsu encountered almost similar human resource problems such as the traditional work attitudes of British workers – limited production, disregard to company rules, and no interest in improvements. According to Lundy & Cowling (1996), Komatsu wanted to implement their Japanese inspired employment policies that include greater emphasis on quality, cost reduction, reliable delivery, safe working, and technical development. However, because of cultural differences these policies were met with opposition and implementation of HR strategy becomes necessary (p.366). 4. Ensuring alignment between business and HR strategies Aligning business strategy to HR strategy is undoubtedly necessary and to ensure this alignment, Bohlander & Snell (2009) recommend that HR translate strategic priorities into functional areas of the organisation and create an external and internal fit. For instance, establishing a strong connection between the business objectives and the major initiatives in HR create an external fit. Similarly, aligning HR practices such as job design, staffing, training, performance appraisal, and compensation with workforce objectives create an internal fit (p.75). For Armstrong (2008), attaining an alignment requires three important elements such as ensuring that human capital of the organisation is central and major source of competitive advantage, HR strategies integrated with business plans, and linking individual HR strategies to each other in order to provide mutual support. However, these elements should not be considered a technique as strategic HRM is a mindset underpinned by useful concepts rather than mere set of procedures and requirements (p.35). The delivery of real competitive advantage is highly dependent on the alignment between HR and corporate strategy thus some experts in the field the use of SWOT analysis in order to find out if HR is capable of supporting the corporate strategy. These include diagnostic of HR’s strengths and weaknesses, assessment of external and internal development implications, visualising the kind of organisation that company needs to be, assessing the gap between an ideal organisation and the present situation of the organisation, and defining the human resources changes required in order to close the gaps. However, completing a SWOT analysis does not necessarily mean success as according to the Society for Human Resource Management Staff (2006), HR strategy should meet two important criteria to succeed – strategy is implementable and strongly supports the corporate strategy. In order to ensure compliance with these criteria, HR should consider the availability of resources, funding, time, personnel, space, and technology. Another is considering company values or whether the propose HR strategy fit the type of organisation, its operation practices, and the people working with organisation. For instance, if the corporate strategy demands outsourcing, off shoring, or downsizing, HR strategy should go along with them. Similarly, the financial and legal implications must be carefully considered as an HR strategy that strongly supports the corporate but insensitively expensive is useless. For instance, acquiring information system software to improve efficiency of recruitment and hiring processes is acceptable but if the acquisition of this software is not legal then an HR strategy will be more comfortable without it. As detailed in the following section, the case of Komatsu is a good example how HR developed a strategy aligned with corporate needs and achieves high productivity despite conflicting priorities, culture, and often hard to achieve managerial consensus. 5. Critical analysis of how HRM achieves competitive advantage and factors limiting HRM to act accordingly As mentioned earlier, Komatsu inherit Caterpillar’s problem as the plant is located in an area with history of management-worker conflict, poor industrial relations, and frequent business failures. However, although possibility of success in such economic and social environment may be considered low and a great challenge to HRM professionals, Komatsu overcome the difficulties and succeed. Based on the facts presented in earlier, the primary problem with Komatsu was achieving the right culture and high productivity with emphasis on quality, cost reduction, reliable delivery, and so on. These goals undoubtedly require aligning HR strategies with corporate production target and adoption of total quality culture. However, in order to do this, HR must first confront the three basic problems mentioned earlier which is generally about British working attitudes. Since Caterpillar was completely shut down before Komatsu both it in 1983, Komatsu’s HR was fortunate enough to select new employees that has favourable working attitudes which in essence make formulation of subsequent human resource strategy easier and straightforward. As expected Komatsu’s HR strategy incorporate the need to recruit selectively based on working attitudes, systematic training for those who lack the necessary skill levels, and rewarding those performing well (Lundy & Cowling, 1996: 366). Details of this strategy are in Table 1. Komatsu HRM Strategy (Lundy & Cowling, 1996) Objective Policy Method High Quality Best employees development/TQC Thorough selection/Training/Quality Circles/Motivation Cost Reduction Continuous improvement/Reduce Inefficiencies Involvement/ “Bottom up” ideas Reliable Delivery Uninterrupted production/Constructive supervision Single-union agreement/Authority and Responsibility Safe Working Safety is responsibility of each person Good protection/ Awareness and Education Technical Development Close to Customer/Design development High-tech engineering/Close communications Komatsu’s HR succeeds in emphasizing team working that subsequently enables total quality culture. According to Lundy & Cowling (1996), Komatsu has been successful with its team working approach despite the area’s history of disputes because they only hire workers that are team oriented, flexible, and willing to undergo training, appraisal, and strictly supervised. From then onwards, problems with attitudes of employees was significantly low and the only difficulty noted are slight problems associated with cultural differences affecting mostly British managers. For instance, since Japanese managers are somewhat careful and slow in presenting their final decisions, British managers who are used to quick decision making were often frustrated by the time consuming Japanese style decision making by consensus (p.366). Analysis of Komatsu’s 2007 report suggests that it has indeed defined the values of all Komatsu employees not only in North East England but around the world. In Figure 1 below, the term “monozukuri” is Japanese for manufacturing competitiveness that is based on teamwork. Here, the HR identified seven core values namely commitment to quality and reliability, customer oriented, defining root cause, workplace philosophy, policy development, collaboration with business partners, and human resource development. The core value regarding human resource development is about giving importance to employees that support sustainable corporate growth. Here, as in the strategic human resource management principles, employees are considered the most valuable corporate asset deserving educational programmes and continuous development. In fact, Komatsu conducted worldwide promotional and educational activities for all employees in 2006 just to ensure effectiveness of human resource development efforts (Komatsu, 2007:3). In Komatsu, HR strategies are way beyond traditional as evidence by its close-knit teamwork activities of assembly and manufacturing people, offers employees 12 to 13 week training to facilitate growth of candidates for key managerial positions while human resource department conduct global management seminar every year (Komatsu, 2007:5). Figure 1- Manufacturing competitiveness at Komatsu 6. HR strategies to meet or exceed employees’ psychological contract in HR Planning, Reward Management, Performance Appraisals, and others Work for compensation is social reality recognised around the world but the meaning of this exchange depends on the different factors being experience by the worker such as personal values, upbringing, workplace situation, employer relationship history, and the society which the work belongs (Rousseau & Schalk, 2000:1). These factors according to Rousseau & Schalk (2000) constitute to a psychological contract which in essence is a belief system of individual workers and employers concerning their mutual obligations at work. For instance, when the employer promises certain compensation, the worker is expected to render equal services for that compensation. Therefore, psychological contract is started and sustained from hiring to completion of the work (p.3). In a large scale, HR strategies should consider the presence of psychological contract between the company and employees. According to George (2009), human resources practices often shape the psychological contract as business and employment strategy affects HR practices which in turn affect the psychological contract of employees. For instance, if the employment strategy is based on cost, the subsequent practices will be relatively fixed and stable job description and results-oriented performance appraisal. The psychological contract on employee side will be transactional rather than relational. In contrast, if the employment strategy is to enhance quality and encourage innovation then HR practice is expected to promote flexibility at work while psychological contract becomes relational (p.130). In other words, the type of treatment that an employee received partly determines his expectations or perceived psychological contract. Similarly, the output that an employer received from an employee determines employer’s side of psychological contract. For instance, if the employee is being paid for eight hours a day to operate a machine then employer expectation is to see him work efficiently during entire shift. Similarly, if the employee expects that employer will provide safety equipment while at work but he received nothing then his psychological contract is breached and may stop work or sleep away his eight hour shift. In terms of HR practices such as performance appraisal and reward management, studies conducted about human resource strategies in organisations suggest that superior performance is closely associated with jobs that are open-ended, allows participation in decision-making, and offers comprehensive training and high degree of job security. Similarly, employee rewards are closely linked to high-degree of commitment as in tends to create relational psychological contracts (Petersitzke, 2009:97). According to Armstrong & Murlis (2007) psychological contract is an important consideration in reward management because it is associated with employees’ expectations not only about pay but employers’ expectations about eventual development and application of competence and skill (p.50). Moreover, performance appraisal and reward management strategies must coincide with the context within which they will be applied (Greene, 2010:9). By analysis, this involves considering the psychological contract and the expectations in the mind of employees as these will play a critical role in guiding the HR and employer’s formulation of strategies and programs. In Komatsu, HR strategies may include enhancing both ability and motivation to improve employee performance and meet or exceed psychological contract. However, since HR practices according to Robert (2009) are more effective as a package, it is important to note that performance enhancement should be aligned with other related core HR functions such as recruitment, performance appraisal, reward system, training and development as they have critical interdependencies (p.228). For instance, performance appraisal must inform the recruitment which criteria to use in selecting employees otherwise such appraisal will often yield lower scores resulting to disappointed employees. Requirements in training and development should be dependent on performance goals and the level of performance expected during performance appraisal. Similarly, rewards management should have strong relationship not only with performance appraisal but recruitment and training development as the real benefit of reward strategies lies in the intricate connection with other HR functions (Armstrong, 2007:49). For instance, performance appraisal is linked to reward decisions while training and development is linked to performance goals (Harzing & Ruysseveldt, 2004: 318). In meeting or exceeding psychological contract Komatsu HR may consider intensifying training and development particularly those employees working in their overseas plants. This is because as discussed earlier, Komatsu’s main problem overseas is working attitude. For instance, workers in the North East England plant have psychological contract or expectations that they “will only produce a given amount and no more” (Lundy & Cowling, 1996:368). Moreover, they seem to have a strange expectation that they should not be involve in improving working practices and productivity (Lundy & Cowling, 1996: 368) which in essence is detrimental to an organisation emphasizing quality and reliable delivery. Employees’ psychological contract with Komatsu can be altered and improve through HR practices that ensure hiring of desirable employees (which they already did) and provide continuous training and development. This strategy will not only enable Komatsu to maintain a desirable psychological contract but provide opportunities for growth that most employees will certainly appreciate. Moreover, since performance appraisal is linked to other core HR functions such as recruitment and reward management, training and development will enable employees to get higher performance appraisal and opportunity for reward. Overall, these HR practices will not only meet employees’ psychological contract but exceed their expectations and work in manner similar to Komatsu’s own expectation. 7. Conclusion HRM is an important management function but was previously ignored and treated poorly in terms of business decisions. However, due to increasing global competition, business organisations now recognised the vital role of HR in reducing cost and enhancing productivity. HR is now strategic and plays a central role in the development of corporate business strategy. Strategic HR enables businesses to systematically manage people and create better performing employees. Like many other companies, Komatsu’s overseas operation was also confronted with human resource problems but its strategic HR policies enable it overcome difficulties and survive global competition. Komatsu succeeded in emphasizing team working and enable total quality culture in its UK plant. This is because its HR strategy is closely linked with its business strategy and performance goals. Its seven core values are undoubtedly centred on human capital and consider employees as the most valuable asset deserving training and development. Although there still difficulties in higher management level regarding culture and creating consensus between Japanese and British managers, the overall impact of strategic HR is beneficial to the company. However, Komatsu may benefit further if it could maintain alignment between HR strategy and business strategy and sustain its desirable psychological contract with employees by creating a strong link between recruitment, training and development, performance appraisal, and reward management. 8. 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