Human Capital Management Theory

Module 8: Organizational Development and Human Resource Factors

PROGRAMME

: EXECUTIVE

DIPLOMA in PROJECT MANAGEMENT

MODULE

: MODULE

FACILITATOR

: Mr.

MATRIX ID :

JX78946HP702

8: Organizational Development and Human Resource Factors

DATE OF SUBMISSION :

Vigneshwaran

October 9, 2008

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Module 8: Organizational Development and Human Resource Factors

Table of Contents 1 Introduction Summary...................................................................................................3 2 Human Capital Management........................................................................................4 2.1 Basic Functions of Human Capital Management......................................................4 2.2 Human Capital Management as a growing importance factor in an organization’s growth 5 2.2.1 Adhering and adapting to employee’s needs.......................................................5 2.2.2 Increasing responsibility in the evolution of a Manager.....................................6 2.2.3 Legal matters.......................................................................................................6 2.2.4 Consistency.........................................................................................................7 2.2.5 Expertise.............................................................................................................7 2.2.6 Increasing cost of Human Capital Management ................................................8 3 Human Capital Management moves from operational to strategic...........................8 3.1 Human Capital Management Challenges................................................................10 3.1.1 Economic and Technological Change...............................................................11 3.1.2 Workforce Availability and Quality..................................................................11 3.1.3 Demographics and Diversity.............................................................................12 3.1.4 Organizational Restructuring............................................................................13 4 Human Capital Management and the Organizational Culture ...............................13 4.1 Organization/ Industry Life-Cycle Stages and HCM Strategy explaining Appendix 1 15 5 HCM as a strategic business contributor to improve the organization...................17 5.1 Strategies to improve the organization....................................................................19 5.2 Linking the HCM Strategies and Plans to the Organization for Effective Strategic Contribution...................................................................................................................22 6 Final Summary..............................................................................................................24 7 Appendixes.....................................................................................................................26 8 Bibliography (information not used directly but used to supplement information) 27 9 References (text you actually used but not entirely)..................................................28

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Module 8: Organizational Development and Human Resource Factors

1 Introduction Summary Human Capital Management is regarded as an important function in your organization. How would you use the theories learnt to improve this resourcecapital management in your organization? There are three key enablers to have an effective management: people, process and technology. Out of these key three enablers, the most important component is people. With people, your organization’s key strategic capital would always be its human capital because people capital defines the organization as well as it is also a reflection of either a performance of positives or negatives. In focusing this enabler called people capital to excel in organizations, organizations endure high budgetary expenditures to ensure success which does not necessarily guarantee success. However, the combination of an effective strategy and sound investment of human capital management does serve as the catalyst of an organization’s positive market competitive performance.

Human capital management is regarded as important in an organization because without it, a company would cease to exist. This paper on Human Capital Management which we will cover on at matters of recruitment, compensation, training and development, will show how HCM has moved from an administrative role to a strategic contributor to an organization. Weak human capital management can be caused by many factors such as hierarchical management, focus intensive on processes, and too inward organizational focused.

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Module 8: Organizational Development and Human Resource Factors

In ensuring the competitive success of an organization, Human Capital Management must look beyond the administrative activity role and more into contributing as a strategic role in an organization. By formulating strategies, you would then have a formalized design of a human capital management system that is meant to manage effectively the use of human talent from the aspect of recruitment, compensation, training and personnel development. Having a formalized human capital management system, an organization is then able to bring in the necessary human capital resources for the work required by the organization and compensate them for their task. In addition, should problems arise, they would be able to meet the challenges in managing human capital with the proper planning and measure put in place as a result of proper strategic planning.

2 2.1

Human Capital Management Basic Functions of Human Capital Management Human Capital Management is a set of strategies or a formalized system that

focuses on the policies and practices in managing the people resource activity in a work environment. Within the organization, the Human Capital Management functions as a internal organization that focuses on the policies and strategies in managing people resource activity. Their functions cover these roles: • Staffing (human resources planning, recruitment and selection) • Human resource development • Compensation and benefits • Safety and health 4

Module 8: Organizational Development and Human Resource Factors

• Employee and labor relations • Records maintaining • Research (providing a human resources information base, designing and implementing employee communication system) • Interrelationship of human capital functions. (Virtual University of Pakistan 2006)

2.2 Human Capital Management as a growing importance factor in an organization’s growth Human capital management is viewed today as becoming more and more critical to an organization’s success in today’s corporate world. They play an important role in creating the organization because human capital management talks about the management of human resources in terms of recruitment, compensation, training and development. Success of an organization today is dependant on its people because without it, no organization can provide competitive advantage in today’s business world.

The factors below will illustrate the dynamic growing importance of human capital management in today’s organization:

2.2.1 Adhering and adapting to employee’s needs The employee today faces a lot of personal responsibilities like health care, family care including child and elderly care as well as family vacation planning. The today’s worker also seeks to balance between the working life and individual personal pursuits. As such, the HCM is central to planning, controlling and executing such policies designed to

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accommodate the demands of the employee’s needs as well as balancing the employer’s needs and requirement. 2.2.2

Increasing responsibility in the evolution of a Manager

The role of management today has evolved from not only just managing the work activity of the human capital and processes but has gone beyond. The today’s manager looks at the complexities and demands in challenges to businesses such as local and foreign enterprise competition, evolving new technologies and new major improvement in scientific research and development. As a result, HCM is tasked with developing and executing strategic business decisions relating to the organization’s objectives and matching that with the competency of the human capital. This results in strategic decisions being made with concern to matters of recruitment, compensation, training and personnel development.

2.2.3

Legal matters

The introduction of fair and proper legislation has increased the importance of human capital functions today. Some policies are listed below: •

Social Security benefits (employee’s provident fund and social medical security)

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Observance to a country’s national holiday

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Family and sick leave

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Labor relations

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Compensation

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Work safety 6

Module 8: Organizational Development and Human Resource Factors

The points above are some of the policies that has entrenched the importance of having a proper HCM in not performing administrative but also in a strategic role in managing today’s human capital. However, should these policies be infringed, this would result in costly back-pay awards, class action legal suits, and legal penalties. 2.2.4

Consistency

Managers need to be consistent when making certain decisions such as compensation, because it can be viewed as either unfair or uneven. Without the consultation of the HCM, the compensation structure can be viewed as uneven and unfair. HCM keeps the level of consistency equal because they ensure the stability of fairness when it comes to matters of promotion, compensation and personnel development. 2.2.5

Expertise

In today’s organization they face many challenges, many of which are external in nature, for example, competition. As a result, HCM is tasked with coming up with new ideas in response to those challenges. Challenges such as compensation and candidate selection are one of those responses. Compensation packages developed with attractive benefits such as allowances on transport travel, meals, entertainment and gadget, telecommuting and bonuses, and organization’s stock purchase plan or given stock options to employees, loans for housing, academic and training. HCM also looks into the employee matching and selection process. They have to look into subjective and objective interviews, providing tests to potential candidates such as psychometric testing (the measurement of knowledge, abilities, attitudes, and personality traits). This is for HCM to evaluate a

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Module 8: Organizational Development and Human Resource Factors

candidate’s ability to solve problems under pressure must have team spirit, logical analytical thinking, excellent communication skills, negotiation skills and creativity.These methods have added on the commonplace traditional matching and selection of potential employees. With this regard, the knowledge base of the skilled human capital department is needed to ensure the ongoing advancement in human capital management. 2.2.6 Increasing cost of Human Capital Management The largest contributor of organizational cost today is the cost of human capital. With the increasing demand for businesses globally and advancement in technology, the highly skilled employee today has become a valuable asset. As a result, budgetary expense for managing human capital is considered the highest in budgetary expenditure of an organization. (Virtual University of Pakistan 2006)

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Human Capital Management moves from operational to strategic The traditional role of HCM has today been increased to not look only at

administrative and daily operations but to a more strategic role. HCM has now moved to being a strategic partner in contributing to the success of an organization by developing and executing the human capital management strategies and practices. For HCM to execute the new role in strategy, they must look into developing their skills and attitudes. As such, the human capital development would be able to lead change, facilitate business growth and enhance innovation across the organization. In doing so, the human capital department would start a changes process strategically executing at the same time the role of a strategic partner and change agent. (Norman and Powell 2004)

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Module 8: Organizational Development and Human Resource Factors

The role of the change agent here is to manage the transformation of the employee. HCM is regarded as the vanguards and the vehicle of an organization’s culture and are also the main contributors to identification and implementation of change processes. In Figure 1, Ulrich (Ulrich 1998) differentiates four roles for the up-to-date HCM derived from two dimensions. The first dimension represents the focus of HCM and it ranges from operational to strategic. The second dimension reflects the human capital activities and distinguishes between managing human capital processes and managing people. Crossing these axes we arrive at the four roles of HCM: strategic partner, change agent, administrative expert and employee champion.

Figure 1 : Human Capital role framework (Ulrich 1998) 9

Module 8: Organizational Development and Human Resource Factors

For HCM to excel in a new role, strategy, the HCM professional has to be developed and be transformed. Not only will HCM take on the operational role but they will also undertake a strategic role in leading change, augment innovation and assist the organization growth and success. Thus, the change transformation happens for HCM at a strategic level enabling HCM to be a change agent as well as a strategic partner. For example, in Accenture, a technology management consulting company, the HCM professionals have to develop new skills such as guiding and supporting. These skills are then used to add value to building the competence skills at senior director level. This program is called “High impact Program for HR People”. Central to this program are coaching, mentoring, problem sharing, networking and exchanging support (Norman and Powell 2004).

3.1 Human Capital Management Challenges In today’s competitive business world, the role of HCM has become very challenging as well. Not only does the HCM professional have to play an operational role, the person has to be able to contribute at a strategic level towards the organization’s growth and success. According to a study by the Hudson Institute, entitled Workforce 2020, the study has indicated issues concerning the labor workforce. (Judy and D’Amico 1997) In that study, the challenges facing HCM are: •

Economic and technological change 10

Module 8: Organizational Development and Human Resource Factors

•

Workforce availability and quality concerns

•

Demographics and diversity issues

•

Organizational restructuring

3.1.1

Economic and Technological Change

Economic changes can alter employment patterns due to increasing demand in a particular occupational skill or an industrial shift. For example, Malaysia’s current industrial focus has moved from manufacturing and agriculture to service and information communications technology industries. As a result of this shift, organizations have had to lay off a number of employees. At the same time, with a growing global marketplace, organizations have been forced to also increase productivity and decrease labor costs in order to become more competitive. With the growing influence of information communications technology related to the global commerce, organizations now faced with a different set of challenges to recruitment and retention of employees.

3.1.2

Workforce Availability and Quality

In most parts of the world today, there is significant labor demand due to the lack of supply of workers with the necessary skills. This is a result of the growing use of information communication technology and 11

Module 8: Organizational Development and Human Resource Factors

its correlation to global business because with technology, this decreases the challenges to global commerce. As a result, HCM is being challenged to recruit and train new employees. At the same time, the quality of hiring of an employee is also a concern because employers in many organizations today seek to recruit employees who have technical competencies in engineering or information communications technology, skills which are considered niche. 3.1.3

Demographics and Diversity

In the past where men were supposed to work with retirement package, now it is not the case. Today, the workplace is a more diverse environment with peoples of different ethnic background, both male and female as well. HCM today has had to adapt to a different working environment. In the current workplace today, you would have dual-career couples and working single parents. With the decline of the traditional family, where there is only a single income earner and usually male, the concept of balancing family and work poses a challenge to human capital management. For example, matters relating to employment relocation and transfer which some employees maybe less than willing to accept. Also, the balance of work and family life comes to a challenge especially for employees who have families as the employee faces a decision between child rearing and employment. In order to alleviate this situation, important HCM legislation are put in place that 12

Module 8: Organizational Development and Human Resource Factors

ensures that employers provide up to 2 weeks of unpaid parental/ family leave to employees. 3.1.4

Organizational Restructuring

Organizations today are differently structured than it was the past few years as it strives to achieve market competitiveness. Today with mergers and acquisitions of organizations, organizations seek to become more competitive to succeed in business. However, this could result in drastic and sudden organizational changes, which could sometimes have a negative effect. Examples of negative effects are employee redundancies, facilities closing and out-placing workers. As a result, jobs are redesigned and this affects the employee. As an agent of change, the HCM professional has to manage this human consequence of change.

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Human Capital Management and the Organizational Culture The culture of an organization is based on the professionally

accepted norms and common values the working place in an organization. Basing firmly on the on the vision and mission objective of the organization, the employees would be able to share values and beliefs which allows the employee to be able to define the necessary work opportunities and plan strategies. In doing so, the organizational culture would be defined by the different characteristic of each employee that contributes to a norm of expected behaviors, values,

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Module 8: Organizational Development and Human Resource Factors

philosophies, rituals, and symbols used by the organization’s employees. However, organizational culture takes time to evolve as it takes time for shared experiences to evolve as an organizational culture.

The correlation between organization culture and human capital management is the recruitment and retention of employees. In being able to attract talent to organizations, employee prospects look at the internal organizational culture of the organization that would set apart from another. However, where organizations that supports a working culture that values the employee or view business situations such as risks and changes thereby requiring immediate responses can a positive differential factor when it comes to attracting new talent.

With that in mind, the evolution of organizational culture starts with the different life cycle of an organization from the view of a start up to firmly established organization. Each different stage of an organization’s growth affects the human capital management strategy. For example, the human capital management strategy will differ from an Information Communications Technology company that is three years old vs. a company that is like IBM or HP. If you look at Appendix 1, this will explain the relationship between the life cycle of an

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Module 8: Organizational Development and Human Resource Factors

organization and the Human Capital Management activities. (Coff 1997)

4.1 Organization/ Industry Life-Cycle Stages and HCM Strategy explaining Appendix 1 Embryonic At this stage is where the entrepreneurial character exists in the organization. As the organization is still at infancy and starting, the amount of resources in terms of capital finance, compensation packages are modest. Recruitment of candidates is based on individuals who already have the necessary skill-sets. Personnel training and development is based on ad-hoc demand basis and is usually on the job.

Growth At this stage, where an organization is growing at a pace rate, so does the need for stability to sustain its growth. This juncture is where necessary additional capital investments are needed to expand facilities, marketing, and human resources to take advantage of the growth rate of business demand of the organization’s business. It is important to have human capital management plans to oversee necessary attracting and recruiting talent and not just deal with immediate business demand pressures. Human capital management efforts have to be expanded to ensure career planning, compensation practices and retention plans so that an organization is able to ensure 15

Module 8: Organizational Development and Human Resource Factors

the organization has the necessary employee staff and is able to attract and recruit talent.

Shakeouts At this level as the industry reacts to rapid growth, not all organization will survive. At the stage, most organizations will be acquired, merged or cease to continue in operations. Human capital management is very focused at this level of the organization because it to ensure that the necessary human capital is retained whilst reorganizing and reducing labor to manage costs efficiently. However, a balance is needed at this level by using short term and long term inducements targeting high potential and niche skilled employees who will ensure the organization’s survivability.

Maturity At this stage of the cycle, the organization should be stable and thus its culture are stabilized as well. As a result, stability of the organization will allow human capital management to be developed further in having formalized plans, policies and procedures. Also, at the maturity stage of the organization, this would also the human capital management to allow plans for new compensation plans for recruitment as well as reward incentives for the retention. Personnel

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Module 8: Organizational Development and Human Resource Factors

training and development plans would also be executed at this stage for the benefit of the employee.

Decline At this stage, where the organization has grown beyond stabilization, it sometimes would face resistance to change. As an organization diversifies or decides to seek in another direction, human capital management faces a challenge in order to execute the organization strategy. This is because employees or organized employees would demand no decrease in pay as well as better employment security. At this level, plans such as productivity enhancement and cost reduction programs are introduced such as layoffs, early retirement programs or simply facility closure or transfer.

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HCM as a strategic business contributor to improve the organization Over the years, human capital management has been gaining

recognition in its effort as a strategic business contributor to the organization. With the ever growing market competition amongst enterprise in business so does the demand for attracting and retaining talent. Even organizations that are not-for-profit must be able to

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Module 8: Organizational Development and Human Resource Factors

manage their human capital and in an organized business oriented style. As such, today not only has the human capital professional has have to manage administrative human capital tasks, they now also have contribute to the strategic success of the organization. (Ulrich 1997) . The points below will state the different strategic of HCM in contributing to the organization:

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5.1

Strategies to improve the organization

Enhancing Organizational Performance The HCM professional can contribute to the strategic success of the organization by establishing activities by enhancing organizational performance. Through planning and development, as well as delivery of organization activities this will enhance organizational performance. (Forbringer and Oeth 1998)

Involvement in Strategic Planning In the past where human capital managers play a more supporting back end role in administration and operations now they are needed as past of a strategic planning team. The HCM professional is now viewed as a strategic partner alongside other strategic roles such as finance, technology, production, sales and other business department concerns. The HCM professional is able to provide input by providing information on the labor workforce by staffing availability, employee cost and necessary staffing requirement and staffing specifications.

Decision Making on Mergers, Acquisitions, And Downsizing When companies are acquired, merged or even downsized, they must take into account the HCM issues they have to face. HCM professionals are needed to be part of the discussions as you look into matters such

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as merged organizational cultures and operations. According to studies, its has been found that less than one-third of those involved in mergers surveyed have adequately considered HCM issues. (Wall Street Journal 1997) Redesigning Organizations and Work Processes Organizational structure follows the strategic planning set by HCM. According to Ulrich, it is the HCM that is the architect of the organization structure. He feels that the HCM professionals would look into new ways to align the organization and its work with the strategic thrust of the organization. The HCM professional would analyze the internal strengths and weaknesses of the human capital in an organization in order to gain strategic competitiveness for the organization by working with the organizational managers and executives in coming up with the analysis. (Ulrich 1998)

Ensuring Financial Accountability for HCM results In the past, HCM was seen as an activity of an organization, now it is seen as contributing to the organizational performance by looking at its financial cost and benefit of the HCM effort. For example, to reduce costs in employment vacancies and high employment turnover rate in certain departments, the HCM professional can introduce high wages as well as program incentives in departments where there are high

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employment turnover rates. (Davidson 1998) This shows that HCM does more than its typical activity and task performance but it also looks at contributing to the organizational strategy by looking at the returns of investment of human capital. In addition, with effective and efficient HCM programs, it also contributes to better financial performance of the organization rather than being a cost activity center. (Huselid 1995)

Outsourcing HCM Activities Nowadays, most organizations seek to outsource activities that can be handled in a cost effective manner. HCM is no exception. The activities in outsourcing HCM activities are payroll, shift activity planning, system maintenance, specialist HCM external expertise consulting and recruitment. In this manner, the organization’s HCM is able to be more flexible and able to adapt in changes to the organizational structure. The advantages in outsourcing is that the HCM does not have to be saddled with operational costs such system maintenance of its HCM processes, some HCM professionals in the organization may not have a certain level of expertise an external HCM professional has. (Outsourcing Guide 1998) However, there are concerns such as the competency of the vendor, loss of control of data as well as risk of information loss of HCM data and the negative performance of the outsourcing vendor selected. In order to alleviate the concerns of

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outsourcing, the service level contract must define the activity clearly indentifying the outsourcing relationship. The organization’s HCM must come up with a detailed analysis and must have periodic key performance indicators to provide key reporting to ensure service levels are met. (Mitchell III 1998)

5.2 Linking the HCM Strategies and Plans to the Organization for Effective Strategic Contribution In order to be an effective strategic contributor, the organization’s HCM must link the HCM strategy to the organization’s plans. Figure 3 will show the relationship among variables that will determine the HCM plans an organization will develop.(McKee, Hill, Jones 1998 and Kochan and Barocci 1985)

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Figure 3 Business strategy affects strategy and HCM plans as well. When an organization decides to further improves itself or decides on a different business strategy, the HCM must be able to support the strategy by coming up with adequate HCM planning so that it can well coordinated with the organization’s business strategy if there is any organizational human capital deficiency that must be remedied. (Barney 1997)

To show the relationship between the relationship between strategy and HR, two basic business strategies can be identified: cost-leadership and differentiation. (Porter 1980) Figure 2-4 will show the different HCM needs under each strategy and the appropriate HCM measures suggestions. (Ragburam and Arvey 1994)

•

The differential strategy is a HCM strategy in dynamic environments where there are rapid changes in an organization such as ICT companies. This is because companies as seek to continuously find new products and new segments. When certain specific skills are needed for a new market or product, it is a challenge to develop internally the resources. With this challenge, using this strategy, the HCM would be able to shorten the time frame and would use external resource to adequately staff the organization.

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•

The cost-leadership strategy requires the HCM to be able to plan and develop employees to fit the specialized needs of organization. However, this requires a long term planning, which maybe challenging if niche skills are needed internally. On the other hand, by using this strategy, the HCM would be able to contribute strategically by focusing on developing internal resources for the long term.

Figure 2-4

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Final Summary In project management, it is important for a project manager to take note of the

matters of human capital management. The right incentive and the right planning would allow the project manager to have the necessary resources in order to complete the task

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Module 8: Organizational Development and Human Resource Factors

set forth by the project manager. Over the years, human capital management has moved from the administrative and operational aspect of an organization and now has become a strategic contributor to the organization. The right strategic plan for the organization and different stages of organization growth allows the HCM professional to plan and execute accordingly to the organizational objectives. Being part of a providing strategy, HCM is now viewed as more of a profit center and away from its past view as an activity based cost center. By being a strategic contributor, human capital management would be able to see good returns to the organization such as in reduction of unnecessary costs on activities that can be outsourced such as payroll and data management, better returns of investment on labor with proper recruitment planning and avoiding other large costs thereby allowing the HCM professional deployed to other more important and strategic tasks. “The most effective project managers are developed day-to-day, not year-to-year or project mistake-to-project mistake. Mistakes will happen, even with the best of mentoring, however, project managers with strong mentors should find their people effectiveness continually improving. The benefit is that the company and everyone connected to the project shares in those gains.” Neal Whitten (Whitten 1999)

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7

Appendixes

Appendix 1

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8

Bibliography (information not used directly but used to supplement information) 1. Management (MGT) 501: Human Resource Management (2006) Virtual University of Pakistan, Nov 2006 2. Ulrich D (1998) A New Mandate for Human Resource. Harvard Business Review January- February 1998, pp.125-134 3. Norman C, Powell A (2004) Transforming HR to Deliver Innovation at Accenture. Strategic HR Review 3 (3), pp.32-35 4. Russell W. Coff, “Human Assets and Management Dilemmas: Coping with Hazards on the Road to Resource-Based Theory,” Academy of Management Review, 22(1997), 374—402. 5. Louis R. Forbringer and Carol Oeth, “Human Resources at Mercantile Bancorporation, Inc.,” Human Resource Management, Summer 1998, 177—189. 6. “The Missing M & A Link,” TheWall Street Journal, October 7, 1997, A1. 7. Linda Davidson, “Measure What You Bring to the Bottom Line,” Workforce, September 1998, 34—40. 8. Mark Huselid, “The Impact of Human Resource Management Practices on Turnover, Productivity, and Corporate Financial Performance,” Academy of Managemen Journal, 38 (1995), 635—672. 9. “The Ongoings of Outsourcing,” Outsourcing Guide, August 1998, 2—5. 10. Howard R. Mitchell III, “A Moving Issue: To Outsource or Not to Outsource,” HR Magazine, May 1998, 59—68. 11. Neal Whitten 1999, PM Network Magazine.

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9

References (text you actually used but not entirely)

1. Richard W. Judy and Carol D’Amico, Workforce 2020: Work and Workers in the 21st Century (Indianapolis: Hudson Institute, 1997). 2. Dave Ulrich, Human ResourceChampions (Boston: Harvard Business School Press, 1997). 3. Figure 2—2 are based on ideas suggested by Kathryn D. McKee, SPHR, CCP; Charles W. L. Hill and Gareth R. Jones, Strategic Management (Boston: Houghton Mifflin, 1998), 92—96; and Thomas A. Kochan and Thomas A. Barocci, Human ResourceManagement and IndustrialRelations (Chicago: Scott, Foresman, 1985), 105. 4. Jay B. Barney, Gaining and Sustaining Competitive Advantage (Reading, MA: Addison-Wesley, 1997), Chapter 1. 5. Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980). 6. Figure 2—4, as adapted, is based on ideas suggested in S. Ragburam and R. Arvey, “Business Strategy Links with Staffing and Training Practices,” Human Resource Planning 17(1994), 58.

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