1. Human Resource Management: Gaining a Competitive Advantage
Chapter 16
Strategically Managing the
HRM Function
Most HR executives now see the function’s major role as being much more strategic. However, this evolution has resulted in a misalignment between the skills and capabilities of members of the function and the new requirements placed on it. Virtually every HRM function in top companies is going through a transformation process to create a function that can play this new strategic role while successfully fulfilling its other roles. This transformation process is also going on globally. Managing this process is the subject of this chapter. The chapter discusses the various activities of the HRM function, examines how to develop a market- or customer-oriented HRM function, describes the current structure of most HRM functions and explores measurement approaches for assessing the effectiveness of the function.
McGraw-Hill/Irwin
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2. Learning Objectives
Discuss roles that HRM plays and categories of HRM activities.
Discuss how HRM function can define its mission and market.
Explain approaches to evaluating the effectiveness of HRM practices.
Describe new structures for HRM function.
Describe how outsourcing HRM activities can improve service delivery efficiency and effectiveness.
Relate how process reengineering is used to review and redesign HR practices.
Discuss types of new technologies that can improve HR efficiency and effectiveness.
List competencies HRM executive needs to become a strategic partner in the company.
Learning Objectives:
Discuss roles that HRM plays and categories of HRM activities.
Discuss how HRM function can define its mission and market.
Explain approaches to evaluating the effectiveness of HRM practices.
Describe new structures for HRM function.
Describe how outsourcing HRM activities can improve service delivery efficiency and effectiveness.
Relate how process reengineering is used to review and redesign HR practices.
Discuss types of new technologies that can improve HR efficiency and effectiveness.
List competencies HRM executive needs to become a strategic partner in the company.
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3. Introduction
HRM practices can help companies gain a competitive advantage.
Virtually every HR function in top companies is going through a transformation process to create a function that can play this new strategic role while fulfilling its other roles.
Human resource management practices can help companies gain a competitive advantage. Virtually every HR function in top companies is going through a transformation process to create a function that can play this new strategic role while successfully fulfilling its other roles.
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4. Categories of HRM Activities
Transformational
Knowledge Management
Cultural Change
Strategic Redirection & Renewal
Management development
Traditional
Recruitment and Selection
Training
Performance Management
Compensation
Employee Relations
Transactional
Benefits Administration
Record Keeping
Employee Services
To understand the transformation going on in HRM, one must understand HRM activities in terms of their strategic value. One way of classifying these activities is depicted in figure Transactional activities (the day-to-day transactions such as benefits administration, record keeping, and employee services) are low in their strategic value. There are three categories of HRM activities. These are transactional, traditional, and transformational.
Traditional activities such as performance management, training, recruiting, selection, compensation, and employee relations are the nuts and bolts of HRM. These activities have moderate strategic value because they often form the practices and systems to ensure strategy execution. Transformational activities create long-term capability and adaptability for the firm. These activities include knowledge management, management development, cultural change, and strategic redirection and renewal. Obviously, these activities comprise the greatest strategic value for the firm
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5. Categories of HRM Activities
Transactional activities - day-to-day transactions
Low strategic value.
Traditional activities - nuts and bolts of HR such as performance management, training, recruiting, selection, compensation and employee relations.
Moderate strategic value.
Transformational activities create long-term capability and adaptability. Activities include knowledge management, management development, cultural change and strategic redirection and renewal.
- Greatest strategic value
Transactional activities are the day-to-day transactions a company makes. These activities are low in their strategic value.
Traditional activities are the nuts and bolts of HR such as performance management, training, recruiting, selection, compensation, and employee relations. These activities have moderate strategic value.
Transformational activities create long-term capability and adaptability for the firm. These activities include knowledge management, management development, cultural change, and strategic redirection and renewal. These activities comprise the greatest strategic value for the firm (Text Figure 16.1).
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6. Strategic Management of HRM
For HR to become truly strategic in its orientation, it must view itself as a separate business entity.
Customer orientation is one of the most important changes in HR's attempt to become strategic.
Products of HR must be identified.
Technologies through which HR meets customer needs vary depending on the need being satisfied.
For the HR function to become truly strategic in its orientation, it must view itself as being a separate business entity and engage in strategic management in an effort to effectively serve the various internal customers.
A customer orientation is one of the most important changes in the HR function’s attempts to become strategic.
The products of the HR department must be identified.
The technologies through which HR meets customer needs vary depending on the need being satisfied. HR executives need to (1) develop a strategy for the HRM function, (2) assess the current effectiveness of the HRM function, and (3) redesign, reengineer, or outsource HRM processes to improve efficiency and effectiveness.
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7. Customer-Oriented Perspective
Customers
Line managers
Strategic planners
Employees
H R M
Figure 16.2 depicts the basic process for HR strategy. HR executives in more progressive U.S. companies have begun to view the HRM function as a strategic business unit and have tried to define that business in terms of their customer base, their customers’ needs, and the technologies required to satisfy customers’ needs. ( Figure 16.2 )
Technology
Staffing
Performance Management
Rewards
Training & Development
Customers’ Needs
Committed Employees
Competent Employees
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8. Basic Process for HR Strategy
Scan
external
environment
Identify
strategic
business
issues
Identify
people
issues
Develop HR
strategy
Communicate HR
strategy
Figure displays the function first scans the environment to determine the trends or events that might have an impact on the organization (e.g., future talent shortage, increasing immigrant population, aging of the workforce). It then examines the strategic business issues or needs (e.g., is the company growing, expanding inter- nationally, needing to develop new technologies?) From these issues, the HR strategy team needs to identify the specific people issues that will be critical to address in order for the business to succeed. Finally, the HR strategy is communicated to the relevant parties, both internal and external to the function.
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9. Involving Line Executives
Involving those in charge of running the business can increase quality of information from which HR strategy is created.
Involvement can occur 4 ways:
Line executives could provide input.
Line executives could be members of a team that develops HR strategy.
Once strategy is developed, line managers could receive communications with HR strategy information.
Line managers could formally approve a strategy.
Because the HR strategy seeks to address business issues, involving those in charge of running the business can increase the quality of information from which the HR strategy is created. Involvement can occur in a few ways:
Line executives could simply provide input.
Line executives could be members of a team that develops HR strategy.
Once strategy is developed, line managers could receive communications with the HR strategy information.
Line managers could formally approve a strategy.
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10. Characterizing HR Strategies
HR-Focused
People-Linked
Business-Linked
Business-Driven
People issues/
outcomes
HR strategy
People issues/
outcomes
HR strategy
Business issues/
outcomes
People issues/
outcomes
HR strategy
Characterizing HR Strategies – Four categories of the HR-business relationship can be identified (Figure 16.6):
1. HR-focused HR functions
2. People-linked HR functions
3. Business-linked HR functions
4. Business-driven HR functions
Business issues/
outcomes
People issues/
outcomes
HR strategy
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11. Measuring HRM Effectiveness
Marketing the function – evaluation is a sign that HR cares about the organization as a whole and supports operations, production, marketing and other functions.
Providing accountability – evaluation helps determine whether HRM function is meeting its objectives and effectively using its budget.
Having good measures of the function’s effectiveness provides the following benefits:
Marketing the function – evaluation is a sign that the HR function cares about the organization as a whole and is trying to support operations, production, marketing, and other functions in the company.
Providing accountability – evaluation helps determine whether the HRM function is meeting its objectives and effectively using its budget.
Approaches for Evaluating Effectiveness - There are two commonly used approaches for evaluating the effectiveness of HRM practices.
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12. Audit & Analytic Approaches Evaluating HRM Effectiveness
Audit Approach
Focuses on reviewing various outcomes of HR functional areas.
Both key indicators and customer satisfaction measures are collected.
Employee assessment.
Surveys of top executives.
Analytic Approach
Focuses on either:
(1) determine whether introduction of a program or practice has intended effect or
(2) estimate financial costs and benefits resulting from HR practice.
More demanding than the audit approach because it requires detailed use of statistics and finance
The audit approach focuses on reviewing the various outcomes of the HR functional areas. Both key indicators and customer satisfaction measures are typically collected (see Table 16.2). One important source of effectiveness data can be the customers.
The analytic approach focuses on either (1) determining whether the introduction of a program or practice has the intended effect or (2) estimating the financial costs and benefits resulting from an HR practice.
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13. Restructuring to Improve HRM
3 Divisions of HRM:
Centers for Expertise - functional specialists in traditional areas of HR who act as consultants in development of state-of-the-art systems and processes for use in the organization.
Field Generalists - HRM generalists assigned to a business unit.
Service Center - ensure that transactional activities are delivered throughout the organization.
The HRM function effectively is divided into three divisions:
The Centers for Expertise usually consist of the functional specialists in the traditional areas of HR such as recruitment, selection, training, and compensation. These individuals ideally act as consultants in the development of state-of-the-art systems and processes for use in the organization.
The Field Generalists consist of the HRM generalists who are assigned to a business unit within the firm.
The Service Center consists of individuals who ensure that the transactional activities are delivered throughout the organization.
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14. Outsourcing
Outsourcing - Contracting with an outside vendor to provide a product or service to the firm.
2 Reasons to Outsource:
Outsourcing partner can provide the service more cheaply
Outsourcing partner can provide it more effectively.
Firms primarily outsource transactional activities and services of HR such as payroll, pension and benefits administration.
Outsourcing entails contracting with an outside vendor to provide a product or service to the firm, as opposed to producing the product using employees within the firm.
Usually outsource for one of two reasons: Either the outsourcing partner can provide the service more cheaply than it would cost to do it internally, or the partner can provide it more effectively than it can be performed internally.
Firms primarily outsource transactional activities and services of HR such as pension and benefits administration as well as payroll.
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15. Reengineering
Reengineering is a complete review of critical work processes and redesign to make them more efficient and able to deliver higher quality
4 Steps of The Reengineering Process :
Identify
process
to be
reengineered
Understand
process
Redesign
process
Implement
process
Reengineering is a complete review of critical work processes and redesign to make them more efficient and able to deliver higher quality. The reengineering process, shown in Figure has four steps:
Identify the Process – Managers who control the process should be identified and asked to be part of the reengineering team.
Understand the Process – A variety of techniques are available to help with this step, such as data flow diagrams (Figure 16.12), data-entity relationship diagrams, scenario analyses, surveys or focus groups, and cost-benefit analyses.
Redesign the Process – During this phase, the team develops models, tests them, chooses a prototype, and determines how to integrate the prototype into the organization.
Implement the Process—The company should try out the new process in a controlled setting before introducing it widely.
Understanding the Process
Several things need to be considered when evaluating a process:
Can jobs be combined?
Can employees be given more autonomy?
Can decision making and control be built into the process through streamlining it?
Are all the steps in the process necessary? ･
Are data redundancy, unnecessary checks, and controls built into the process?
How many special cases and exceptions have to be dealt with?
Are the steps in the process arranged in their natural order?
What is the desired outcome?
Are all of the tasks necessary?
What is the value of the process?
Feedback
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16. Improving HRM Effectiveness through New Technologies
New technologies - Applications of knowledge, procedures, and equipment that have not previously been used.
Transaction Processing—Computations and calculations used to review and document HRM decisions and practices. These include documenting employee relocation, payroll expenses and training course enrollments.
Decision Support Systems—Systems designed to help managers solve problems.
usually include a "what if" feature.
Expert systems - Computer systems incorporating decision rules of people deemed to have expertise in a certain area.
New technologies are current applications of knowledge, proce­dures, and equipment that have not previously been used.
Transaction processing is the computations and calculations used to review and document HRM decisions and practices. These include documenting employee relocation, payroll expenses, and training course enrollments. Summarized information can be provided for government reports such as EEO‑1.
Decision Support Systems are systems designed to help managers solve problems. They usually include a "what if" feature.
Expert systems are computer systems incorporating the decision rules of people deemed to have expertise in a certain area.
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17. Network and Client Server Architecture
A Network is a combination of desktop computers, computer terminals and mainframes or minicomputers that share access to databases and a means to transmit information throughout the system.
Client-server architecture is a common form of network that provides the means of consolidating data and applications into a single system.
A network is a combination of desktop computers, computer termi­nals, and mainframes or minicomputers that share access to data­bases and a means to transmit information throughout the system.
Client‑server architecture is a common form of network that provides the means of consolidating data and applications into a single system (the client).
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18. Relational Database, Imaging and Groupware
Relational database – Information is stored in separate files that look like tables and can be linked by common elements such as name.
Imaging – Process for scanning documents, storing them electronically and retrieving them.
Groupware (or electronic meeting software) – software application that enables multiple users to track, share and organize information and to work on same document simultaneously.
Information is stored in separate files that look like tables and can be linked by common elements such as name (text Figure 16.13).
Users of relational databases have the ability to file and retrieve information according to any field or multiple fields across databases. Relational technology allows databases to be established in several different locations, and users in one plant or division can access data from any other company location.
Imaging is the process for scanning documents, storing them electronically, and retrieving them. This is particularly useful because paper files take a large volume of space and are difficult to access.
Groupware (or electronic meeting software) is a software application that enables multiple users to track, share, and organize infor­mation and to work on the same document simultaneously.
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19. Software Applications for HRM
Improving HRM Effectiveness through New Technologies–E-HRM – Speed requirements of
e-business force HRM managers to explore how to leverage technology for delivery of traditional and transformational HRM activities.
Recruitment and Selection - Technology monitors hiring processes to minimize potential for discriminatory hiring decisions.
Compensation and Rewards - Leveraging technology may allow firms to better achive compensation goals with less effort.
Training and Development - Technology allows firms to deliver training and development for some skills or knowledge faster, more efficiently and possibly more effectively.
Since the mid 1990’s, HRM functions sought to play a more strategic role in organizations. The first task was to eliminate transactional tasks in order to free up time to focus on traditional and transformational activities (Figure 16.9).
The speed requirements of e-business force HRM managers to explore how to leverage technology for the delivery of traditional and transformational HRM activities.
Traditional recruitment and selection processes have required considerable face-to-face communications. Technology has transformed these processes.
Compensation systems in organizations probably reflect the most pervasive of bureaucracy within HRM.
Many firms deliver training via the Web. Some types of training can be done effectively via the Internet or an intranet, while others might not. Technology allows firms to deliver training and development for at least some skills or knowledge faster, more efficiently, and possibly more effectively.
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20. The Future for HR Professionals
The future for HRM careers brighter than ever.
HR leaders need knowledge of the following:
- business, change processes, integration competence and people’s role in competitive advantage
- HR issues, tools, processes and technologies, policies and programs
- HR practices in areas such as staffing, development, rewards, communication and organizational design
The future for HRM careers seems brighter than ever. HR leaders need knowledge of business and HR issues, tools, processes and technologies. HR managers need to possess and use knowledge of how people can and do play a role in competitive advantage as well as the policies, programs, and practices that can leverage the firm’s people as a source of competitive advantage. This leads to an entirely new set of competencies for today’s strategic HR executive. In the future, HR professionals will need four basic competencies to become partners in the strategic management process (see Figure 2.7 ). First, they will need business competence- knowing the company’s business and understanding its economic financial capabilities. This calls for making logical decisions that support the company’s strategic plan based on the most accurate information possible.
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21. Summary
HRM functions must consist of individuals who view themselves as businesspeople who work in HRM.
With the opportunity to impact the way organizations compete through people, comes serious responsibility and accountability.
Firms need balance attracting, motivating and retaining the best talent and keeping costs low.
HR leaders need knowledge of the business combined with knowledge of HR issues, tools, processes and technology.
The future for careers in the HR profession seems brighter than ever. Firms need to seek the balance between attracting, motivating, and retaining the very best talent and keeping labor and administrative costs as low as possible. Finding such a balance requires HR leaders who have a deep knowledge of the business combined with a deep knowledge of HR issues, tools, processes, and technology.
The new strategic role for HRM presents both opportunities and challenges. HRM has the chance to profoundly impact the way organizations compete through people. On the other hand, with this opportunity come serious responsibility and accountability. HRM functions of the future must consist of individuals who view themselves as businesspeople who happen to work in an HRM function, rather than HRM people who happen to work in a business.
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