GB540.Unit3.Assignment.HumanResources

2010 Economics for Global Decision Makers Try L. Muller

[A HOLISTIC APPROACH TO MANAGING THE FIRM’S HUMAN COMPONENT] This paper addresses the dynamics involved in recruiting, hiring, and retaining employees so that a beneficial relationship can be developed that delivers value to the organization and to the employee.

Maximizing the Return on Human Resources

Introduction A survey article entitled, “The Battle for Brainpower”, pointed out that global war for talent is growing ever stronger (The Economist, 2006). The approach to recruiting, developing, and retaining employees is becoming more and more strategic. Firms are realizing that the strategic approach to human resources is a critical factor in determining the short and long-term performance of the organization. In 2004 more than 33% of the mangers who were surveyed said that they hired under qualified candidates in order to fill a vacancy quickly (The Economist, 2006). This has serious implications for the long-term health of firms and their ability to generate enough output from employees to achieve organizational goals. Also consider that 40% of the job market is made up of tacit positions— jobs with less explicit direction that require reliance on judgment and situational knowledge (The Economist, 2006). This adds further importance to redefining the approach that firms take in obtaining and retaining the appropriate employees.

There is a clear need for more holistic human resource strategies for the management of employees and potential candidates so that firms do not fall victim to inadequacy by filling positions with under qualified people or with individuals that do not “fit” within the culture of the organization. The firm must centralize its human assets with the organizational strategy, recognize their value and role in achieving goals, and develop these assets so as to mitigate potential issues of inadequate performance.

Delivering Value Every firm acts as a marketing mechanism when it comes to attracting and retaining the employee. One of the major causes of discontent is due to the packages being offered to the employee (AMEinfo, 2005). The package in this situation is the combination of salary, benefits, and perks as it compares to the qualifications, work demand, and overall work environment

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Maximizing the Return on Human Resources

provided to the individual. If the person feels that the firm is not delivering enough value to them then they will be inclined to seek out one that knows how to better address his or her market value. Thus, finding a happy medium between an individual’s market value and the value deliverables offered by the firm is essential to the relationship and overall productivity of the individual. This requires firms to do the necessary research to and prepare variable compensatory packages that address external equity, internal equity, and perks (AMEinfo, 2005). The rewards system and compensation structure must be explicit so that the employees knows exactly how and where the firm is delivering its value to them. The more transparent the value delivery strategy is, the more likely the firm’s and employee’s expectations are to coincide. This leads to continuity and a mutually beneficial relationship. The Piedmont Housing Alliance is a non-profit organization that provides a great example of this strategy. Since it is a non-profit organization the salary offerings are very moderate. However, the value it delivers to its employees sufficiently addresses the disparity in pay. The organization offers 3% annual raises, annual holiday bonuses, flex schedules, heavily discounted gym memberships, lunch provided twice a week, and extensive benefits that only excludes vision insurance. While it cannot compensate its employees with higher salaries, it does so through other methods that stimulate the work environment and ultimately improves employee morale and productivity (Piedmont Housing Alliance Employee Handbook, 2008).

Investment in Human Capital The first touch point for the potential candidate with the firm will be the recruitment process.

One of the main goals of any firm should be to find candidates that it believes will align well with corporate goals and mission. This brings up the issue of external versus internal recruiting.

A firm does not want to overly internalize its recruitment strategy so as not to deprive it from

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Maximizing the Return on Human Resources

being able to choose from a deeper stock of potential standouts. However, internal recruiting would allow the firm to groom, nurture, and prepare individuals who are already assimilated to the work system and aligned with its goals and strategies (Randell, 2007).

This is also

economical because the employees will be better motivated to perform their job functions knowing that their movement through the firm is part of the reward system (Randell, 2007). The firm will enjoy the benefit of this positive approach to the job and should experience higher returns on their human capital investments. Still, this process must be balanced with external recruiting also. External recruiting incites change in the firm and brings broader scopes of knowledge to the table (HRM Advice, 2008). If a firm is concerned with centrality between organizational goals and the employee, it can internally recruit non-management positions and externally recruit management positions. The logic is that firms would be able to add variety and implement change to the work system in a non-imposing manner. The internal recruiting for management positions would allow for continuity in goal congruence, but would still allow for variety and change as new management vacancies are filled by the external recruits who once occupied non-management positions.

There is a misconception that firms who stock themselves with the most highly qualified and educated individuals are effectively ensuring the short and long-term health and growth of the company (The Economist, 2006). Enron, a major Texas energy company in the 90’s did just that— employing what appeared to be an extraordinary stock of highly educated and talented individuals (The Economist, 2006). However, in 2001 the company was engulfed in scandal which was perpetuated by many departments occupied by that very same stock of highly educated and talented individuals. This is not to say that an organization is at a disadvantage or doomed because they recruit and hire some of the most talented and educated people. But the 4

Maximizing the Return on Human Resources

idea of the “right” employee or “best” candidate is contingent upon the dynamics of the firm itself. Enron is a very explicit example of why character, cultural compatibility with the firm, and hiring for both the position and organizational fit play such significant roles in the success of a company. It is very important that the firm be prudent about person-organization fit because these pieces of human capital represent and regulate the whole firm. The “fit” assessment needs to be balanced on two levels: 1) the KSA’s (knowledge, skill, abilities) of the individual in relation to their task demands and job function and 2) how the character of the individual aligns with that of the firm’s climate or culture (Montgomery, 1996). Striking a balance between these two guidelines translates directly to organizational balance, staff morale, employee performance, and firm-employee goal congruence. The employee will able to acclimate himself quicker and become a productive piece of the work system earlier in their career with the firm.

Managing and Nurturing Human Assets As with any assets, it is vital to provide them with the maintenance necessary in order to slow the rate of depreciation— ultimately extending the amount of time they can generate significant returns. Human assets [employees] are much like any other assets in that in order to stay productive and make quality contributions, their KSA’s must be managed and nurtured so as to retain them and ensure that they continue to generate output. Taking this into account, it is of utmost importance to remember no to dehumanize the role of employees by attributing simple concepts and ideas to how they are maneuvered as pivotal components within the firm. Referring to them as assets is simply a way to formulate strategies as to how to effectively manage them within the organization. However, it is critical that firms understand that they will get as much out of employees as the time they devote to facilitating and stimulating each individual’s growth and development. This is why the term nurture can be attributed to managing employees— the

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process requires cultivating their KSA’s to maximize output, understanding what the employee needs in order to continue producing, and identifying areas for development.

Training and development of the employee is as critical a success factor as any other management strategy. A survey showed that 67% of employees would benefit better from OTJ training as opposed to formal training— learning from a manual or online interactive training program (The Economist, 2006). Identifying the most beneficial methods of employee development is vital to effectively nurturing their KSA’s. The training and development must add value to the employee and the organization which means that there must be subsequent opportunities for the employee to utilize these new developments (Sarvardi, 2005). If the individual feels that their new skills are not being utilized then complacency will set in and productivity will decrease.

Understanding the employee’s latent needs or wants is a little more difficult. These needs or wants are something desired by the employee that will help them be more effective in contributing to the firm— but is not being addressed by the organization. A common latent need or want that has been expressed over various landscapes is autonomy— specifically employee empowerment and discretion to make decisions that are recognized as contributions to the firm’s strategy (AMEinfo, 2005). This paper will not delve into specific strategies for this topic but one thing a firm must do is implement strategies for information sharing and communication on all levels (AMEinof, 2005). Information sharing and communication will either give the employee the opportunity to express a need or want specific to their role or provide them with reasoning as to why the particular need or want is not being fulfilled. Without communication a firm runs the risk of experiencing decentralization between itself and the employee which gives way to discontinuity in the work system.

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Maximizing the Return on Human Resources

The Human Component It is important to reiterate the fact that this paper is not dehumanizing the role of employees by referring to them investments, human capital, and assets. This is simply a way to address the strategy involved in trying to establish mutually beneficial relationships between the firm and its most important resource. Extending the application of these terms beyond their strategystimulating purpose will cause firms to misconceive the pivotal role that employees play in the success of a firm. The human resource management strategy must be formulated with the idea that the firm is developing a mutually beneficial relationship in which it delivers value to the employee while perpetuating an environment that allows the employee to generate returns for the firm.

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Maximizing the Return on Human Resources “HR Role in Securing Talent is Vital to Success”. (2005) AMEinfo.

Retrieved from http://www.ameinfo.com/69075.html “The Battle for Brainpower”. (2006) Retrieved from The Economist database: January 30, 2009.

Montgomery, C.E. (1996) “Organization Fit is Key to Job Success”. HR Magazine Retrieved from http://findarticles.com/p/articles/mi_m3495/is_n1_v41/ai_17974991/ Randell, L. (2007) “Internal vs. External Recruiting: Who Does it Better?” ERE.net Retrieved from http://www.ere.net/2007/06/13/external-vs-internal-recruiting-who-does-itbetter/ Sarvadi, P. (2005) “The Importance of Employee Development”. Entrepreneur.

Retrieved from http://www.entrepreneur.com/humanresources/article77678.html Wheeler, K. (2007) “Employees are not Assets”. ERE.net.

Retrieved from http://www.ere.net/2007/08/30/employees-are-not-assets/

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