Business issues and the context of HR
Business issues and the context of HR
The organisation is the background within which the HR function works. Understanding the deep nature of the organisation has to be the main goal for HRM as the nature of the organisation has a huge impact on how people are managed in the business.
The organisation is defined as the planned coordination of the activities of a number of people for the achievement of some common, explicit purpose or goal, through division of labour and function, and through a hierarchy of authority and responsibility (Schein, 1980).
Historically, there have been many definitions of organisations, depending on whether they focus on: •Their size: SMEs, Large and Public Sector. (Curran and Stanworth, 1988); •Their prime beneficiaries: members, shareholders, users, the public. (Blau and Scott ,1962 – Maltby, 2003); •The degree to which they are mechanistic (highly structured organisation with centralised policies, rigid hierarchical ranks, a strong emphasis on administration and clear boundaries between departments) or organic (a flattened structure, colleague, rather than command and control relationships as the predominant mode, short lived and flexible administrative systems and mobile departmental boundaries (Burns and Stalker ,1966); •Their structure meant as the relationships between employees at vertical and horizontal level (tall or flat/lean, hierarchical, matrix, flexible, virtual) (Leatherbarrow et al., 2010).
Thinking about a mixed economy such as UK, organisations can be classified in: •Public organizations, generally providing essential services such as health, education, social services, policing. They are responsible to central government and those who run them are accountable to the public (Taylor and Wilkinson, 2012). The nature of their funding (taxpayers) requires them to prove their responsibility with the public money. Their HR department tend to be large and able to provide HR specialist support in different areas. Because of the accountability to the public, HR tend also to be bureaucratic and inflexible. •Private organizations are those owned by private individuals/families/stakeholders (Taylor and Wilkinson, 2012).
These are industrial and commercial companies that respond to the demands of the market and exist to make a profit for their shareholders. In the private sector, HR tend to be a small department with more room for innovative strategies. •Third sector organizations are understood to be non government and non profit. Non distribution of profits to shareholders is a defining feature, as is a degree of volunteerism. They tend to fill in the gaps in areas of state and market deficiencies, and are nowadays growing in global significance (Crampton et al, 2001). They are typically a mix of government funding, gifts, grants and earned income. Examples of third sector activities are found in international aid, culture, recreation, social services, education, religion and health. Staff is frequently very mission-focused and gains a lot of job satisfaction by just being committed to the cause. Large organisations in the third sector are likely to have specific HR departments while smaller organisations are unlikely to have specific HR departments and HR functions may be ‘tagged’ on to the role of managers or staff more generally (Venter and Sung, 2009)
The nature of organisations and the style used to manage the people in it are strictly related, as the management style highly depends on the particular business. However, as seen for the definition of organisation, the definition of management and its classification have long been debated.
At the beginning of 19th century the most important of the classical Management theories was the scientific approach or Taylorism which involved breaking down the components of manual tasks in manufacturing environments, timing each movement so that there could be a scientifically proven “best” way to perform each task. Employees could be trained to be ‘first class’ within their job by their managers.
In the 60’s, there was a new approach focused on the “human factor”. In “The Human Side of Enterprise” by McGregor, he distinguished between: •Theory X, that adopts the authoritarian view that people normally abhor working and must be forced to work with punishment for failing to meet the objective. These people actually prefer to be directed and lack ambition. •Theory Y, adopts the participative management style, which operates on the idea that people are inherently motivated to work if they find the job fulfilling
The System Theories focused attention on organizations as ‘systems’ and on the complexity and interdependence of relationships of their inter-related sub-systems. This approach attempted to synthesize the classical approaches (organizations without people) with the later human relations approaches that focused on the psychological and social aspects (‘people without organizations).
The Contingency theory, developed in 1950s, argues that there is no ‘one best way’ to structure an organization and we face different possibilities when determining how it should be structured and how it should be managed. Successful organizations adopt structures that are an appropriate response to a number of variables, or contingencies (Enoch, 2006).
Practically speaking, management is the act of getting people together to accomplish desired goals and objectives using available resources efficiently and effectively. There are several different resource types within management, such as: Human, Financial, Technological and Natural resources.
HRM BACKGROUND AND ROLE OF HR
HR is part of the overall management of an organization, but again, providing a conclusive definition of contemporary HRM is quite challenging. “There is no generally agreed framework for understanding and analysing the HR function; there are only competing models. In practice, the HR function within organisations is infinitely flexible, organisationally contingent over time and driven principally by the external contexts of the age; and these often change within short periods of time”. (Farnham, 2010, pg 4). During the years, we assisted to an evolution from what have been traditionally labelled as ‘personnel management’ to a distinctive HRM. The HRM was characterised by a different philosophy and approach to the management of ‘people at work’ (Storey, 1989) and was putting an emphasis on performance, workers’ commitment, and rewards, based on individual or team contribution.
Figure 1: From Personnel Management to HRM: a Summary (Farnham, 2010, pg. 7)
The two main developments in the HRM have been the continued delegation of some HR activities to line managers and the outsourcing of large areas of the traditional personnel management. These changes have had particular consequences in the HRM and HR roles, increasing the need of highly specialised HR, technical experts who act as consultants either internally or externally. On the other side, these developments required more investment in training for Line Managers (also coaching) in order for them to be able to face HR issues and communicate with HR specialists.
Changes in HRM have led to change in the structure of HR especially in large organisations in both private and public sector. It has been noticed that many organisations adopted the Ulrich’ ‘s ‘Multi-legged model’ (Ulrich, 1997) of HR structures in which HR functions become more focused on outcomes, rather than processes, more specialised and divided in Strategic partners, Expert, Champion for employees and Agent of continuous transformation. (details in appendix 1) This model has been reviewed by Ulrich in the ‘Three – legged model’ with HR divided in: •HR business partners (or strategic partners) – senior or key HR professionals working closely with business leaders or line managers, usually embedded in the business unit, influencing and steering strategy and strategy implementation; •Centres of excellence –small teams of HR experts with specialist knowledge of leading-edge HR solutions. The role of centres of excellence is to deliver competitive business advantages through HR innovations in areas such as reward, learning, engagement and talent management. •Shared services – a single, often relatively large unit, which handles all the routine ‘transactional’ services across the business such as recruitment administration, payroll, absence monitoring and advice on simpler employee relations issues. The responsibility of shared services is to provide low-cost, effective HR administration. (Ulrich and Brockbank, 2005)
Behind the division in the HR roles, experts recognise organisations’ request for an HR more involved in the business and able to contribute to the business strategy with a tangible and cost effective results.
In the CIPD’s 2001 ‘Next Generation HR: Insight driven’, it is explained that where the ‘Three-legged stool model’ is used, HR’s sphere of influence can be narrowed and there may be less opportunity for teams and individuals to be insight-led.
The report highlights that while the main HR role is to maintain people and performance strengths, HR needs to be more integrated to the business. HR needs to speak the business language and need to have a full knowledge of it (of both internal and external factors) only in this way HR will be able to deliver deep organisational insight. Basically, HR needs to understand and fully use the ‘business savvies’: •understanding the business model at depth
•generating insight from data and evidence
•connecting with curiosity, purpose and impact
•leading with integrity, consideration and challenge
Finally, the report highlights that while the ‘Three-legged stool model’ is more appropriate for larger organisations, the ‘Business savvies’ it is appropriate for all sizes and shapes of organisation. (CIPD, 2001)
BUSINESS STRATEGY AND HR STRATEGY (details in appendix 6)
If the HR objective is to be integrated into the Business, it is then crucial for HR having a clear data sources, a strong competence in interpreting the information and presenting them to the business. HR can find data from internal and external sources. Examples of Internal sources in COMPANY NAME are: Employees (listening and talking to them), Focus Group, Climate Surveys, Employees Data Base, KPIs, Budget, Performance and Leadership Management System, Payroll data. Example of external sources are: Customers’ reports, Customers’ surveys, Recruitment agency reports, CIPD Magazine, Employment law updates, Industry Magazines, Census Information, EHS Magazine.
Once an organization has analysed its mission, identified all its stakeholders, and defined its goals, it needs a way to measure progress toward those goals: KPIs are those measurements. Key Performance Indicators KPIs, also known as Key Success Indicators (KSI), help an organization define and measure progress toward organizational goals. (Reh, 2005)
The role and use of KPIs is crucial in COMPANY NAME. Here, every month a meeting is held during which every department presents its KPIs and discusses any progressions or need to improve them. Also HR has its own KPIs which are related to: hours worked, overtime hours (to be kept at 20% maximum level) and sick days (in order to monitor long sick periods). (details in appendix 6)
Performance & Leadership Management (PLM)
In addition to the KPIs, COMPANY NAME has adopted a specific system in order to measure, develop, evaluate and reward people’s performance: the Performance & Leadership Management system. This system is a management process that aims to establish a transparent and a bi-lateral communication with the employees to define together how they can contribute to the organization results, if they are working effectively towards achieving the agreed objectives and finally providing them with adequate support to improve and develop.
The PLM process consists in 5 main phases:
2. Half Year Review
3.Self – Assessment
4.Evaluation and Calibration
The PLM cycle is annual and at the end of it, the company may decide to assign a PLM Bonus to employees. Finally, the PLM is also uses to identify Talents, employees with high level of P&L skills, able and willing to accept positions of growing responsibility. This assures continuity to the business and a draw up succession plans for all key positions (details in appendix 7)
SWOT and STEEPLE
In addition to KPIs and the performance measurement, HR can also collect data and plan for its strategy by using two particular technics: The SWOT analysis and the Steeple Analysis.
The SWOT analysis, developed by Ansoff in 1987, it is a data capture exercise which focuses on organisations Strengths, Weakness, Opportunities and Threats (for an example of SWOT analysis in COMPANY UK, see appendix 8).
The STEEPLE analysis is like an audit of the external environment which is focused on the external factors than can influence the organization and affect its long-term survival. If the organization has a full understanding of the environment and all its factors, it has the possibility to take advantage from potential opportunities and minimize possible risks.
Below an example of STEEPLE analysis in COMPANY NAME realised in June 2013 during a Focus Group meeting: •SOCIOLOGICAL: Changes in culture, Cultural Barriers, Language barriers, Lack of educated people, Lack of technical skilled people, Immigration; •TECHNOLOGICAL: New Payroll System, SAP System, Skype, Conference call System, Computer Software, Blackberries, Outlook; Company Intranet; •ECONOMIC: Financial Crisis, Recession, Globalisation, Prices, Employment rate, Unemployment Rate, Banking Crisis; •ENVIRONMENTAL: Carbon footprints, Sustainability Report, Sustainability Plan; •POLITICAL: Government changes, Pension Reform, Sector regulation, EU regulations; Local regulations; •LEGAL: Employment law, European Law, European Court of Justice, Local authority; •ETHICAL: Local Community Interest, Stakeholders Interests, Anti-corruption Law, Equal opportunities, Human rights, Promoting employees welfare, Well working environment.
HOW HR CAN RESPOND TO EXTERNAL PRESSURE?
As shown in the STEEPLE analysis, the Lack of technical skilled people, it was perceived as a big external risk for the business. The role of HR in facing this problem was crucial and requested lots of curiosity, research and resourcefulness.
The HR department had to concentrate on a short term need, which basically was focused on finding candidates with the right skill-set for the (many) uncovered positions, but they also had to think about a long term plan able to strengthen the presence and knowledge of COMPANY NAME in the Midlands area.
After some research, the HR department found out that, the lack of high qualified people in the Midland, it was due to the fact that the particular skills required were either absent in the area or the few people who have them had already a job. Therefore, HR had to concentrate on different ways to recruit candidates. They then started to: •Using social network to advert company positions (in order to reach people in all over the world); •Using Skype for first and second interview stage;
•Increasing the use of relocation and sponsorship for candidates coming from other countries; •Advertising all the uncovered position internally first, this in order to give to all employees the possibility to apply personally or to propose someone they knew (Word of mouth)
The long term plan to create more visibility and awareness about COMPANY NAME and its business in the Midlands was achieved by: •Taking part in Colleges and Universities open days – this in order to attract the future generation of engineers; •Use of a work experience program – open to students from technical colleges who can spend one month in one of COMPANY ’s departments; •Selection and sponsorship of four graduates to be sent to the COMPANY Business School in Detroit or Shanghai for three months.
It is important to highlight that some of the above initiatives, in particular the ones in recruitment, made COMPANY save money. In 2012, COMPANY spent in recruitment (using agencies) £30,000; in 2013, the cost for recruitment (using social network and word of mouth) dropped to £22,000 with a saving of almost the 30% in budget resource.
Recently, HR had to deal with another issue coming from the external context: The Pension Reform in UK.
HR was particularly involved in designing an effective communication plan in order to spread to the UK team information about the changes.
The communication plan was quite a delicate step as it was not only about the legal changes but also about the COMPANY UK’ s decision to change the pension provider (moving from Legal & General to Scottish Widows) and the contributions level (starting from January 2014).
The first thing HR did, it was to select two champions among the most senior and influencing employees, trained them on the reform and invite them to share the news with the team. This approach was useful to create a good feeling about the reform and all the changes related to it. Then, during the sixty day consultation period, HR organized workshops during which, financial expert from Capita, presented and explained the reform and its consequences and gave personalized advice to the employees. Finally, HR provided employees with brochure, leaflets and posters.
It is important to highlight that, behind the COMPANY’s decision to change Pension provider and level of contributions (well above the minimum required by law) there was the HR idea not to use the Pension Scheme as a compensation and benefit tool anymore, but to consider it and use it as a powerful tool to retain current employees and to recruit more of them by increasing the appeal toward COMPANY UK.
Finally, as a consequence of the introduction of the new scheme, in less than one month, the number of enrolled employees has almost doubled, increasing from 34 (enrolled in L&G) to 60 (in SW) on a total of 72 COMPANY UK
employees. This was a great result for both the business and HR.