1. HR as a
Source of
Shareholder Value
Companies with the best people management deliver nearly twice as much value to
shareholders as their average competitors
- Watson Wyatt Consultants
3. What is HRM ?
• Human resource management is the management of an organization's
workforce, or human resources. It is responsible for the attraction,
selection, training, assessment, and rewarding of employees, while also
overseeing organizational leadership and culture, and ensuring compliance
with employment and labour laws. In circumstances where employees
desire and are legally authorized to hold a collective bargaining agreement,
HR will typically also serve as the company's primary liaison with the
employees' representatives.
• The human resource management traditional approach focuses on
personnel functions such as recruitment, performance appraisals, payroll
administration, and the like, with some employee-centric development
initiatives such as training and development interventions, motivation
initiatives
4. Traditional View of HRM
• Traditionally HRM was considered as Salaried
model. The traditional approach the human
resource management was designed according to
industrial environment, applicable to blue-collared
factory workers, is a controlled work atmosphere
marked by narrow, rigid job definitions and
detailed workplace rules and procedures.
• Workers have much autonomy and deviating from
the written policy and procedure attract
disciplinary action, with discretion remaining an
exclusive prerogative of management. The trade
union dominates collective bargaining settlements
define pay scales, and seniority decides promotion
opportunities.
5. Traditional View of HRM
Focus on Functional Activities and Process Orientation
Human resource management traditional approaches focus on functional
activities such as human resource planning, job analysis, recruitment and
selection, maintaining employee relations, performance appraisals,
compensation management, and training and development.
The traditional approach toward human resource management also focuses
on establishing policies, procedures, contracts and guidelines, and attempts to
drive employee performance and achieve organizational goals by making
employees adhere to such carefully crafted documents.
Control Activities
A major activity of a traditional human resource management approach is
monitoring and supervision of the workforce to ensure compliance to the
established rules, procedures, guidelines, and contracts.
6. Traditional view of HRM
Reconciliation Between Management and Workforce
A major role of traditional resource management is reconciling the
interests of management and the workforce. The traditional approach
presumes management and workers having distinct and conflicting goals
and needs, with the goal of human resource managers being to effect a
reconciliation to drive the organization.
Traditional human resource management remains a staff function, and
the exclusive responsibility of the human resource department
HRM was considered as mainly a cost to the organization rather than
any value adding function.
7. Current view point on HRM
• With the return to real-world
economics after the unwinding of
the 1990s and bursting of the
'tech' bubble HRM gained ground
and considered as strategic
function for the organization
• New approach it is the quality of a
company's people management
that determines its real success or
failure.
• HRM develops and manages these
people it can transform the crisis
into opportunity.
8. Current view point
on HRM
• Work Environment:
A safe and happy workplace makes the employees feel good about being there.
Each one is given importance and provided the security that gives them the
motivation and incentive to stay. This is usually achieved through internal surveys
to find out whether they are satisfied and if not what they think needs to be
changed.
• Open Management:
Employees don’t like the feeling of being kept in the dark about what is happening
in the company. They feel motivated and develop enthusiasm only when the
management opens up to them and discusses the company policies, sales, clients,
contracts, goals and objectives. This encourages participative management. Asking
them for ideas on how to improve will get their creative juices flowing. Being open
about everything related to the company will help in building trust and motivating
the employees. This open management policy can be practiced using several tools.
9. Current view point on HRM
• Performance Incentives:
Pat on the back, bonuses or giving some other compensation
Keep up with the attrition rate
Individual as well as the team level
Getting the best out of the employees
• Performance Feedback:
360 degree feedback
Fair and fast
• Employee Evaluation:
Apart from being done by the boss, should be done by another person at a higher
level. This ensures a fair and accurate rating of each and every employee
• Sharing of Knowledge:
Knowledge sharing is a wonderful strategy that helps in the betterment of the
employees and their work. Keep all the knowledgeable information in central
databases that can be accessed by each and every employee.
• Publicize Good Performances:
Motivation
10. HRM as competitive advantage to the
organization
• Earlier patent, economies of scale,
market regulation all are considered
as competitive advantages, But
these are not relevant in current
economic environment.
• Instead , the core competencies are
capabilities of employee to develop
new product, provide more better
services to the customer and
implement the strategies of the
organization.
• HRM manage develop and sustain
these kind of invisible asset of the
organization and become a
competitive advantages.
11. Architecture for
Intangibles
Level Area of focus Action outcome
1 Keep promises Build reputation among
stakeholders for delivering
what you promise to deliver.
2 Anticipate future while Define growth strategy ,
investing in present manage trade offs in customer
intimacy, geographic expansion
to achieve growth
3 Put money where strategy is Provide full support to current
capabilities , build
competencies in R&D, sales
and alike.
4 Build value through Develop capabilities of shared
organization and people mindset, talent, leadership and
alike throughout the
organization.
12. Why HPWS ?
• ‘High Performance Work Systems’ adopted by HR
functions across organizations as a means to contribute
to the strategic goals of the organization .
• Is specific combination of HR practices, work
structures, and processes that maximizes employee
knowledge, skill, commitment, and flexibility.
• Systems composed of many interrelated parts that
complement one another to reach the goals of an
organization, large or small.
• Success of an HPWS lies in its inimitable nature which
becomes a source of major competitive advantage.
13. Elements of HPWS
• Principle of Shared Information
Creation of culture of information sharing amongst employees as well
as higher level executives , both ways .
Requires a shift from traditional mentality of central command and control.
• Principle of Knowledge Development
Requires people who are multi skilled and are also able to learn ‘real time’ and solve problems
using new approaches .
• Principle of Performance-Reward Linkage
Helps in aligning employee and organizational goals. When rewards are connected to
performance, employees will pursue outcomes that are mutually beneficial to themselves and the
organization.
•Principle of Egalitarianism
Egalitarian work environments eliminate status and power differences and, in the process,
increase collaboration and teamwork.
When this happens, productivity can improve if people who once worked in isolation from (or
opposition to) one another begin to work together.
14. Evaluating the HPWS
• To determine if the HPWS program is succeeding
in reaching its goals, managers should look at
finding answers to questions:
Are desired behaviors being exhibited on the job?
Are quality, productivity, flexibility, and customer
service objectives being met?
Are quality-of-life goals being achieved for
employees?
Is the organization more competitive than in the past?
15. Accounting of HRM
• Unlike conventional assets human resource
can not be seen in the balance sheet of the
firm. It is the present value of future cash
inflow of the firm.
• There is no scientific method to measure this
intangible assets of the firm.
16. Watson Wyatt's Global
Human Capital Index
• Human Capital Index(HCI) - methodology of Watson Wyatt used to
calculate the correlation of human capital and shareholder value
• Human Capital Index shows that the better an organization is doing
in managing its human capital, the better its returns for
shareholders
• Calculated based on the following
1. Recruiting Excellence
2. Clear Rewards and Accountability
3. a Collegial and Flexible Workplace
4. Communications Integrity
5. Prudent Use of Resources
17. BENEFITS OF HR SYSTEM
Recruitment and Training
• Major responsibilities of the human
resource team.
• HR managers come up with plans and
strategies for hiring the right kind of
people
• And if any missing skill is required - a
training program is designed.
• These help in increasing the revenue
for the company
18. BENEFITS OF HR SYSTEM
Performance Appraisals
• HR encourages the people, to work
according to their potential
• Gives them suggestions that can
help them to bring about
improvement
• When taken on a regular basis,
motivate the employees --> Results
in improved performance for the
employee
19. BENEFITS OF HR SYSTEM
Maintaining good Work Atmosphere
• Vital aspect of HR, because this effects the individual work atmosphere or
work culture
• Good working condition will help bring out the best in an employee ---> Job
Satisfaction --> Increase in the output of an individual
Managing Disputes
• In an organization, there are several issues on which disputes may arise
between the employees and the employers.
• The human resource department acts as a consultant and mediator to sort
out those issues in an effective manner
20. BENEFITS OF HR SYSTEM
Developing Public Relations
• Organize business meetings, seminars
and various official gatherings on behalf
of the company in order to build up
relationships
• HR department plays an active role in
preparing the business and marketing
plans for the organization
• Good Public Relations improve the
chance to attract new talent, new
investors and improve relationship with
the existing employees and investors
22. Linking HR Strategy to Shareholders
Value
Are the decision-makers in the organization
aware of the link between human resource
planning and profits ?
• Some firms in negative growth choose to
layoff thousands of employees so that profits
and share price increase immediately.
• Slash and burn tactics do not always work
and can lead to irreversible damage to the
companies performance.
• Remaining employees cannot compensate
for the loss of productivity and at least 7% of
the remaining employees quit in the 6
months following a layoff.
23. Linking HR Strategy to
Shareholders Value
• Loosing valuable employees to layoffs can lead to loss of clients
because the level of expected services may decrease, giving the
competitors to cut deals to steal the business.
• In the study “HR as a source of Shareholder Value: Research and
Recommendations”, it was found out that combining HR initiatives
with strategies like performance management systems has a 50%
larger effect on firm performance than implementing single policies
alone.
• In the research, Becker and his colleagues focused on strategic
impact of HRM system on both market-based and accounting-based
measures of firm’s performance.
24. Linking HR Strategy to
Shareholders Value
• Use of market-based measures of firm’s performance is appropriate in this
line of research because they reflect the present value of the firm’s future
cash flows which is net of any additional costs associated with
implementing these systems.
• Thus organizations which fix their objective on share price, may achieve
short term success but they are bound to encounter long term costs if
their objectives are achieved at the expense of productivity and
customers.
• Employee and customer needs frequently change, due to which an
integrated workforce development strategy helps the organization adapt
to shifting goals.
25. Linking HR Strategy to
Shareholders Value
• An HR strategy should translate business goals into individual
accountability, thus creating long term value for the organization. This is
because engaged employees are able to drive customer loyalty as well as
corporate profits through their consistency and quality of service.
• Investing in employees’ performance confirms to the shareholders that
you are concerned with growth and not minimizing costs, which provides a
much smaller competitive advantage
• Thus the number one priority for the value-creating HR function is to point
to human capital problems that limit the ability of the firm to achieve
important business priorities and can provide solutions to those problems.
26. HR Factors affecting Profits & Market
Value
• Management participation
• Open management style
• Taking some risks, but not too many
• Top managers spending 20% of the time with
customers
• Around 20% of top management should be
outsiders
• Management training is deemed important
• Top managers should be effectively incentivized
• Succession plan is done
• A good appraisal plan is in place
• Employees should get regular feedback
27. HR Factors affecting Profits & Market
Value
• Use of knowledge and contract
workers
• Recruiting excellence
• Good union-management
relationship
• Teamwork and 360 degrees
feedback
• Customer – focused environment
• Remuneration
• Sharing information with
employees