The Financial Importance Of Human Resources DepartmentEssay Preview: The Financial Importance Of Human Resources DepartmentReport this essayIntroductionNot so long ago, in the Human Resource Conference organized by the Chartered Institute of Personnel Development (CIPD), held in September 2007; Sir Gerrard Robinson (former Granada Chief Executive) proclaimed in very few direct words: I am not a big fan of HR and went on to insinuate that HR was getting a bit big for its boots. In the same conference, Greg Dyke (ex-Director General for BBC) commented on HRs functionality by saying, HRs job is to facilitate, not lead. (Harrington, 2007)
These are all familiar statements to an HR professional. Though, Human Resource Management (HRM) has come a long way – from the early stages of Personnel Administration to the more recent, Strategic HR management; still for reasons unknown, the core business function has never quite accepted HR as a mainstream function like Marketing and Accounting (both of which have difficulty in establishing their credibility). Some have argued the lack of credibility of Accounting, based on occasions when it employed the so-called Creative Accounting spirit of it, which led to numerous disastrous accounting scandals like Enron, and WorldCom. Inspite of all this, Marketing and Accounting always find a place in the board of a company. But why is it that one rarely finds an HR Professional on the board of a company?
Many of the executives are aware of this and, in an attempt to avoid a potential problem, believe in it. To paraphrase the CEO of the Dallas office team,
“This is business as usual for us. We understand that this is the business. A company is what it is and when a CEO says something new, we go out and change it. For example, let’s say management is hiring 20,000 people to create an e-commerce website. We can’t get 20,000+ people into its e-commerce site, so we’ll build out some website. We start hiring our new frontend, which has a business plan, and he or she will start hiring one, as well.
“But one has to understand that it isn’t just the number of people, but the person’s skills and experience that allows the company to attract them. We don’t have the skills to attract and retain a small number of new people, so we need to be more proactive and ask more of our top talent.
“The reason is you need the talent but, if you’ve got the skills of people like our staff, we will go through the process of picking a person for the position.”
Companies, in a wide variety of genres, like Salesforce, can employ two or three people at a time. In fact, HR can hire a single person if the number of experienced and relevant HR professionals grows from its original base, whether that is sales, PR, email (via LinkedIn or Facebook), sales teams, marketing teams and customer surveys. In fact, it may be the company’s very existence that allows the company to gain a small amount of experience in a job in which there has been no previous employment. Even the company’s long-term financial viability is based on the number of personnel in the team. For this reason I feel it is only in the latter half of the past 20 to 30 years that people at some organizations of recent past are seen as being responsible for the development of HR.
Many of the HR professionals I looked at were working for a single company that I had seen before, or are currently working on a new project, or maybe they are just waiting to be made more popular because they know they will lose out on a large paycheck at some point. In all these cases HR professionals are in the business in large part because they know what they are doing on the money, and there are multiple ways of achieving their goal. When an HR Analyst was hired in 2003, most of the HR professionals I worked with had never even left the company, having left the company in the early 2000’s. Even the staff of a management company were working the part. The HR professionals at HR organizations continue to be the most relevant and experienced in the fields of ecommerce & IT, with few exceptions, making the average company CEO on average 3.5 times as likely to find success in a short period of time as the average employee on the payroll that day.
The next time you hear an HR consultant telling you that to hire your sales team, you are telling them, ‘I’ll only hire people if they work hard, and if they
Jack Welch, (ex-CEO & Chairman of GE) on the other hand has been quoted as saying: “We spend all our time on people,” he says. “The day we screw up the people thing, this company is over.” It has been quoted by the famous business advisor, that one of the main reasons a CEO fails, is due to this people issue – lack of putting the right person to the job and addressing people problems in time. (Charan & Colvin, 1999) This may lead one to ask then, why is it that the department which deals with these people matters, are left out from being a business partner? Could it be because this department – (HR) has failed to prove its credibility and contribution towards the companys financial performance, or is it that the HR departments efforts have gone unrecognized, and unappreciated?
The above are only few questions that plague an astute HR professional, even today; though there is increasing evidence of advocacy against this notion.
Plan of the essayThis essay begins with an overview of the evolution of HR, from its preliminary origins to its gradual shift towards Strategic Human Resource Management (SHRM). It then progresses to illustrate David Ulrichs idea of transforming HRM with the Value Proposition model. Having established how HR can create value within an organization, the essay then demonstrates the metrics available to quantify the value addition by HR. In conclusion, it attempts to justify whether the metrics truly help in expressing HRs credibility and argument to be accepted as a business partner.
Background of Human Resource ManagementHRM can be traced back to the earlier function of Personnel Administration, which sought to administer employees (humans) rather than manage them to achieve a competitive edge in the environment. (Beaumont, 1996)
The basic traditions of Personnel Management included: Welfare – the firm wide initiative to mitigate the effects of lassiez-faire (free trade) doctrine; Industrial Relations – initiative to act as a mediator or as an administrator to groups of employees; Employment management – administer rules and policies in accordance with the organization; and Professional – the practice which found it increasingly difficult to manage people and expectations and understand human behaviour. (Perman, 2007) This need to understand behaviour led to further research towards an appropriate style of Personnel Management, called Human Resource Management.
HRM architecture (Becker, Huselid, & Ulrich, 2001) viewed employees not as commodity but as valuable resources, which if managed effectively could contribute significantly towards organizational success. (Beaumont, 1996) It was believed, clear understanding of human behaviour, aptitude and competences (skills) of an employee, ensured good fitment of person to job-role and organization, thereby decreasing complexity of administrative duties in HR and enhancing organisational capability.
HR Strategic ArchitectureThe recent past has increasingly seen the association of the term strategic with HRM. This association has given rise to increased scrutiny of HR effectiveness and raised questions about HRs credibility and contribution to the company bottom-line. All this criticism has boiled down to the one fundamental question: “Do we really need an HR Department?” (Perman, 2007)
Strategic Human Resource Management (SHRM)Beaumont has described the key facets of SHRM as: 1) Span of employee coverage – to institutionalize “all employees” policy throughout the organization. This strategic policy assures similar working environment for all. By ensuring equality, it motivates an employee to perform better and contribute positively towards the organizations financial performance. Schuller says, this change ensures employee commitment rather than only compliance. He says employee involvement in company affairs guarantees effective implementation of decisions in the future. (Schuller, 1999)
2) Organizational level for decisions – Beaumont describes three levels at which decisions are made: a) Strategic level – forming organization policies and objective/goal setting; b) Managerial level – deciding on effective processes and resource allocation; and c) Operational level – for every day decisions. He argues that in order to increase the perceptual value of HR policies and assure a long-term positive effect, HR decisions need to be made at the strategic level with management seriousness.
3) HR decisions and external competitive strategy – All strategic decisions made in the organization must be in accordance with the other. Beer & Spector (1985) have commented: “A business has an external strategy: a chosen way of competing in the market place. It also needs an internal strategy: a strategy for how its internal resources are to be developed, deployed, motivated and controlled. external and internal strategies must be linked. …need for practices to be guided by conscious policy choices to increase the likelihood that practices will reinforce each other and will be consistent