Concept and Definition of Human Resource Management - Research Paper Example

Introduction There has been a growing importance of strategic human resource management (SHRM) in the small and medium-sized enterprises (SMEs) specially in the developed countries. Even though there is no consensus on the definition of SRHM, it broadly encompasses changes in the recruitment and selection strategies, outsourcing HRM activities, and introducing flexible HR, amongst other changes in the HR strategy. It is no more restricted to recruitments, payrolls and abiding by rules and regulations. Human resources are recognized as key strategic resources that lead to higher levels of performance. While SHRM has led to redefining the roles of the top management, in the SMEs the authority continues to be with the owner/managers. The SMEs are yet to leverage the benefit of adopting SHRM. Concept and definition of SHRM SHRM is the alignment of the business strategy with the HR policies (Brand & Bax, 2002). In other words, SHRM aims to align or integrate decisions about people with the decision about the results that the organization aims to achieve. People have gained importance because they are now considered human capital and the most valuable assets. According to the CIPD (2009), strategic HRM is the key to business performance. It is concerned with longer-term people issues. The focus is on the structure, quality, culture, values, commitment and matching resources to the future need. All activities that effect the behaviour of individuals in attempting to formulate and implement the strategic needs of the organization, fall under the purview of SHRM. An organization may devise several HR strategies and the overall framework that determines the shape and delivery of individual strategies is SHRM. Traditional HRM focuses solely on physical skills whereas the emerging strategic HRM emphasizes on the total contribution of the firm – cross-functional integration, investment in people and treating the workforce as management partner (Karami, Jones & Kakabadse, 2008). Strategic human resources, like other assets, are not visible on the balance sheet. These assets can only be found in a skilled, motivate and easily adaptable workforce, and in the NRM system of an organization that strives to strategically develop it. The strategic role of the HRM system has become of significance because it allows firms to learn and capitalize on opportunities. SHRM can enhance employee commitment which is a major challenge given the job insecurity in the current scenario. SHRM should lead to new psychological contracts that enhance the performance management systems aimed at developing and maintaining quality (Baker, 1999). SHRM also places strong emphasis on ethics and hence the business strategy is formulated accordingly. The concept of SHRM requires the building and identification of core competencies to be successful. This also requires a bottom-approach to communication and interactions, which in turn encourages empowerment of line managers. The traditional perspective lays emphasis on task instead of people where as focus in SHRM has shifted to strategic instead of functional competencies (Karami, 2005). Small and medium-sized firms (SMEs) Small and medium-sized firms are of great significance to the economy on any nation. In the UK almost 99% of the businesses come under the definition of SME. In terms of employment and turnover, their contribution is significant (Hasnu & Amjad, 2006). This has increased the interest in studying the SMEs from different perspectives. Besides, a significant proportion of the SMEs in the UK are family firms (Reid & Adams, 2001). Of late, there has been concern in the SMEs on the use of strategic HRM and its effect on form performance. The resource-based model of HR identifies that HR is responsible for the overall success of the firm because this approach considers HR as a unique source of competitive advantage of the firm (Karami, Jones & Kakabadse, 2008). There is a strong link between a firm’s performance and its HR capabilities. One of the key competitive advantages of a firm is its human resource capabilities which lead to organizational effectiveness and consequently high performance. Hence, increasing the HR competencies and capabilities of a firm will lead to a firm’s success in achieving its goals and objectives. Investments in the SMEs in the HR sector should not be regarded as costs but as a critical investment decision which will enable the development of the organizations capacity on strategic management. A coherent approach can lead to strategic integration, commitment, flexibility/adaptability of the workforce (Baker, 1999). Karami (2005) found that in high performance SMEs HR is regarded as more involved in HR strategy than in low performance firms. The human resources are more involved in the strategic activities like developing the HR systems, long range planning or strategy formulation. Owner/managers assume authority In small firms, the manager/owners are reluctant to part with authority and responsibility and most prefer an informal management style (Matlay, 1999). In small firms the owner/managers and the supervisors determine the ethos and the strategic direction for the company including the direction of training (Beaver & Hutchings, 2005). In family firms, usually close or extended family members are employed, which makes it very difficult for the CEO (usually mother, or father or a family member) to practice HR management (Reid & Adams, 2001). This is why in small family-owned firms employee involvement is perceived a threat. They believe it is not essential and they do not even encourage direct communication; they are less innovative and less flexible than non-family owned SMEs (Harris, Reid & McAdam, 2004). The owners are resistant to legal regulations. The administrative burden affects the recruitment decisions as the managers find the legislation complex and obscure (Bacon & Haque, 2005). The SME owners are also ignorant of the detail of the legislation. SMEs are discouraged from strategic HR practices because evidence indicates that firms that did incorporate sophisticated HRM practices did not report superior performance. However, the small firms do realize the importance of proper HR practices and some do employ these practices. Adoption of sophisticated HRM practices in the SMEs depends on several internal and external factors. In firms with more of low-skilled employees, exert their influence on workers and are less likely to employ the sophisticated HR practices. This is because they know that easy replacement of workers is possible but in high-skill requirement environment, the human capital is valued. The SMEs also invest in training and development. However, a study by Karami, Jones and Kakabadse (2008) among the SMEs in the hi-tech industry demonstrates that the CEO’s recognize the importance of HR as a key resource of the firm. As strategic HRM results in positive outcome, the CEOs or the owner/managers should increase the involvement of their HR specialists in the processes of strategic management of their firms. ‘Bleak house’ environment SMEs have some typical characteristics that necessitate the implementation of SHRM. The SMEs are characterized as a ‘bleak house’ environment because of the state of poor HRM (Bacon & Haque, 2005). The SMEs do apply the HRM practices but they are not formalized and they are extreme diverse. In these ‘bleak houses’ the employees are satisfied as nobody complains (Wilkinson, 1999). Once the number of employees in small firm reaches 20, their informal management style becomes redundant and their ad hoc method of dealing with personnel issues leads to problems. This is because the manpower need planning, appraisal and evaluation, and training are carried out at a much lower level than larger firms. External recruitment, training and development, participatory management, wages and fringe benefits are offered at a much lower scale in the SMEs compared to the larger firms (Brand & Bax, 2002). As the SMEs seldom offer career opportunities, the probability of labour turnover is higher. In small business, the applications of HRM practices vary and are determined by the ideology and the pluralistic goals of the small business owner. Compensation policies in smaller firms are directly related to performance and hence have a positive effect. Cassell, Nadin, Gray and Clegg (2002) conducted a study on SMEs and their practice of HR as a strategy and found that they practice HR in a variety of ways. They found that there is an HR champion within the firm which could be an individual responsible for the HR function or the manager/owner. This individual thinks of HR as a solution to problems and also has the necessary power to influence the decisions. However, the key managers, instead of taking a coherent approach to HR are taking a “pick and mix” contingency approach. The practices that they choose and the extent to which they use and formalize the practices, is influenced by several factors. SMEs face issues such as skill shortage, a decrease in output or productivity, and an issue of individual performance. Most SMEs do not view HR of great significance to the overall work of the business direction of the firm. Some key managers that were aware and have previous experience of the implementation of the formal HR practices, are more likely to use strategic HRM to integrate it with the overall business objectives. To what extent they use the SMEs implement the HR strategies depends on the resources available to them. In fact, some may not even be aware of the resources at their disposal or they lack the motivation to use them for strategic HR practices. The HR practices in SMEs are hence not driven by strategic focus but by the current presenting issues. The HR practices are applied in an ad hoc manner. The SMEs do no engage in formal evaluation of the HR policies and they evaluate only to the extent and when they would require using some HR practices in the future. Overall, the study indicates that the approach to HR by the SMEs does not have a strategic approach but is piecemeal and reactive. Implementation of any change in piecemeal way can be problematic. The managers implement something just because it fits into their context. Changes in the SMEs Wilkinson (1999) finds that after labour market deregulation, the SME owners’ potential for strategic choice in managing human resources has increased. They have started experimenting new initiatives, and innovative and progressive HR practices. This has led to greater commitment by manages in small firms. According to Bacon, Ackers, Storey and Coates (1996), are applying strategic HR approaches such as culture change, devolved management, team working, flexible employment, and quality task forces. The SMEs have several disadvantages such as lack of resources and management expertise, but they have been trying to pursue the changes in an informal way. The initiatives taken by the SMEs have resulted in positive outcomes although they do not know of HRM as a formal theory. Smaller firms are focusing on role clarity and trying to obtain greater involvement of employees. However, a study of 30 small companies suggested that most companies over-emphasized the practices (Bacon, Ackers, Storey & Coates, 1996). The managers in small firms do not have time to create formal programmes and they communicate change to a small group of employees in a less structured manner. They even reject the approach to culture change. In small firms there is a tendency to change people through informal pressures rather than initiate culture change. This is because in larger forms like the NHS, the pressure to change is driven by the profitability whereas the smaller nursing homes lay emphasis on care. They want to improve the quality of care and not simply reduce the budgets. The culture change initiative in small firms is not replace the informal culture with the formal one but to retain the informal nature. They then combine it with a more professional orientation to work. In small organizations, devolvement becomes necessary but the small firms find it difficult to implement them. Devolving enables the owners to focus on the core issues and take their minds away from routine business activities. Devolvement to line managers in the SMEs Involvement of the line managers in the UK has been adapted as it has helped to reduce costs, provides a more comprehensive approach to HRM, makes the HRM managers accountable, speeds up decision-making and is an alternative to HR outsourcing (Renwick, 2003). Line managers are now expected to do more of their own HRM to enhance efficiency. Training and development Training is a critical area in the growth of the SMEs but there is little or no provision for management development. Training in SMEs is perceived to be an unaffordable luxury as it involves high cost of unproductive labour (Beaver & Hutchings, 2005). The small owners contend that training churns out specialized staff where the small firms require multi-skilled workforce. HRM in small firms changes with size. In micro firms, the owner/managers directly supervise most activities. However, to meet the challenges that the market place has presented, the small firms must be able to attract, retain and motivate high quality staff with effective transferable skills. This requires that they have a specific training plan and a specific budget for training. Integrating training and development to strategic business objectives provides flexibility as people can be transferred to different parts of the operation with core skill requirement. It also takes care of shortage of key management skills and equips the company to respond to changes at short notice. Small firms face continual changes and the owner/managers and supervisors can prepare themselves with this challenge through integration of training and development and producing innovative managers. Small firms face a fear that once trained, the employees leave for better prospects (Brand & Bax, 2002). If an SME uses company-specific training, it would have little value for other firms. Small firm owners are ignorant of the benefits of training programs for their managers, workers and for themselves (Storey, 2004). Besides, the small firms face higher costs of training and lower benefits than the larger firms. Recruitment and selection As the SMEs started facing disciplinary problems, they associated this with poor recruitment and selection decisions. To ensure that they found the ‘right’ person, they started using informal word-of-mouth (WOD) recruitment methods and the hiring of “known quantities” (Carroll, Marchington, Earnshaw, & Taylor, 1999). The manufacturing and the service sectors follow the informal recruitment methods but the high-technology sector uses formal methods. WOD is used for recruiting managers and manual workers but more formal methods are employed for recruiting clerical and technical employees. Formal recruitment procedures also depend upon the size of the firm. In very small firms, known people are preferred and more formal procedures adopted as they grow. The small firms prefer trained people so that they do not waste time and money in training the new recruits. Family members of existing employees are given preference as it helps in faster socialization. The small firms prefer internal promotions for two reasons. First, the employees are already encultured in the organization. Second, job descriptions are vague, and they also keep changing over time. It becomes difficult for an external potential employee to understand the job requirements. The recruitment process involves an assessment of the recruitment needs, job analysis, the production of job description, and a person specification. The SMEs do not carry out formal job analysis systematically. In fact, many do not even understand the term. They do understand ‘job description’ but do not follow it as it allows them flexibility. Besides, at SMES they feel that the content of the job is obvious. Person specification too is seldom followed. Job descriptions are seen more as a source of information for the current staff and not as a stage in the recruitment process. Outsourcing HR Case studies Innocent Drinks, a small firm producing natural fruit drinks, provides smoothies, thickies, orange juice, veg pots, and pea and broccoli rice. The company offers its drinks through delicatessens, health food shops, coffee bars, farm shops, the occasional posh pubs, and tea shops in the United Kingdom (Innocent Drinks, 2009). The company has a total of 163 employees and has executives with designated portfolios. The CEO, also in charge of the brand development, is assisted by a Marketing Director, Commercial Director, Operations Manager, and a Media Manager on the board. The corporate mission is to be able to the accountable to the consumers when they offer pure, fresh, unadulterated drink which becomes a part of their healthy habit. They aim to become a global, natural, ethical food and drinks company. Their long-term vision is to become the earth’s favourite little food company by staying true to their vision. In line with this business objective, they hire people that are brilliant and who can inspire and deliver change all around them. Their vision is to have the most motivated, high-performing team and hence they recruit talented, ambitious and altruistic people. They want great leaders who are able to identify opportunities for growth. The employees are oriented to demonstrate their commitment to the corporate values. The employees at Innocent Drinks are equipped with all the tools essential to support their job execution. Their team spot talent and bring them on board. They create development programmes such as the innocent ACADEMY. They have an effective performance appraisal system in place. They have a separate marketing team that has been entrusted the responsibility to understand the needs of the consumers. The CEO does not meddle with the responsibilities of each department such as logistics, procurements, marketing and sales. While the CEO is overall accountable, he does not interfere with day-to-day operations. This form of empowerment keeps the people motivated and committed to the organization. In line with the strategy to offer the best to the consumers, they follow the philosophy that people, who contribute the most, get the most from the company. This suggests that an annual pay review ensures that performance is rewarded. They also share their profits at the end of the year with their employees. The workers are also offered stock options at the end of the first year. They have various schemes for their employees apart from work related events. They define their objectives to the people and the feedback system allows the employees to discuss with their managers on a one-to-one basis. This promotes a healthy, open and communicative environment. Because of their excellent HR strategy, they have been awarded The Best Workplace in the UK by both The Guardian and The National Business Award. They have been able to achieve this recognition because they allow people to develop themselves and each other. When the workers help others, the workers are rewarded for taking such initiatives. They recognize and make the employees feel special and needed. To convey this message, the company greets every employee with a home baked cake on their birthday. Thus, Innocent Drinks follows strategic HRM, which has enabled them to achieve their corporate goals and objectives. They recruit the best through online CV application followed by personal interviews. They provide training, orientation and development. To enhance employee commitment, they involve their employees through empowerment. They provide the employees to share their thoughts and problems with their line managers. All these HR initiatives have helped the company to align with their corporate strategy. The Body Shop This company, started by Anita Roddick, a Human Rights Activist, is headquartered in West Sussex, England. Their corporate vision was to be the best, most breathlessly exciting company – and one that changes the way business is carried out (The Body Shop, 2009). They strive to deliver natural beauty products to the consumers while discharging their corporate social responsibility by protecting the beautiful planet. The company is known for its ethical stand on animal testing, human rights, community trade and the environment (Glasgow, 2006). They are customer-focused and they believe in the total satisfaction of both their internal (employees) and external customers (consumers). They have expanded their stores all over the world and they also offer online shopping oppurtunities. Like Innocent Drinks, The Body Shop too believes in developing their employees through encouragement and participation. They do not have the glass ceilings, which suggest that employees can stretch their experiences and develop into other roles. Without compromising on business values and ethics, the individuals get an opportunity to grow. They offer competitive and flexible employment package to the employees. They too embrace each other’s achievements, a practice encouraged at Innocent Drinks. Support, help and encouragement is provided to anyone feeling low on any day. This demonstrates the care and concern for their people. The Body Shop also follows decentralized decision-making in different areas such as customer services and marketing (Sinclair & Agyeman, 2005). However, this SME has branches and franchisees in 50 countries and has a much wider network. They, hence have regional heads to take decision on regional issues. They have a leadership development program meant for the senior managers below the executive level. They integrate the theoretical and practical capabilities in their training module. Annual performance reviews are conducted on which basis further development programs are devised and executed. They do not focus on the “high potentials’ but they identify who is needed and critical to the growth of the business. They place less emphasis on charishma and more on leadership; they place more values on the rigour and discipline in the management of business. For their global leaders and their top managers, they have a special objective-based assessment process. They take into account the performance indicators and twice a year they review the pay and reward system. Feedback is encouraged and so is team leadership. The focus at The Body Shop is global leadership and cultural diversity. Comparison of two SMEs Both the companies that have been reviewed, demonstrate traits that are different from what the available literature on the SHRM in SMEs suggests. The Body Shop has only recently been taken over by L’Oreal but it started as an SME and remained so until the take over. Both these companies are not controlled by the CEOs. The CEOs have a positive perception of SHRM and have applied it in their HR practices. Accordingly, they have tried to align their HR practices with their business objectives. Both believe in empowerment of employees through involvement and participation. Achievements and contributions are recognized and annual performance appraisals conducted. While Innocent Drinks focuses on leaders, The Body Shop focuses on charisma when recruiting people. Both provide development of the employees through training programs. Both have a feedback system in place and employees are encouraged to help each other. Conclusion The principle behind SHRM is to integrate the decisions about people with the decision about what the organization aims to achieve. This principle is a shift from the traditional role of HRM. SHRM focuses on investment in people where people are treated as working partners. This calls for employee involvement and participation. Their opinion matters and so does their contribution. When employee commitment is enhanced, performance output and productivity automatically is enhanced. The available literature and papers on the SHRM in the SMEs suggests that SMEs have centralized control system and they seldom apply strategic HR principles. They recruit on ad hoc basis and respond to the current and pressing needs. The CEOs do not carry a positive perception of SHRM and have been using authoritative and dictatorial attitude towards management. The focus is on profits and they have not yet accepted the principle of ‘human capital’. To them, they are just employees who can be easily replaced. However, this situation persists in the low performing SMEs and those that do not require skilled workers. Overall SMEs do practice strategic HRM in a variety of ways which are firm-specific and it can also change from time to time. Based on the findings, HRM strategies of two SMEs in the UK were studied. The findings reveal that both the companies have focused on the employees not as workers but assets that need to be valued and nurtured. They are treated as human capital and regular investment is made on the training and development. They are also encouraged to contribute through their experience and skills developed. These suggest that SMEs have been taking initiatives in SHRM and they recognize the benefits of employee involvement. The SMEs demonstrate that their strategies do not differ from the larger companies. References Bacon, N, Ackers, P, Storey, J. & Coates, D. (1996) It's a small world: managing human resources in small businesses. The International Journal of Human Resource Management, 7(1), pp82-101 Bacon, N. and Hoque, K. (2005) HRM in the SME sector: valuable employees and coercive networks. Int. J. of Human Resource Management, 16(11), pp1976-1999 Baker, D. (1999) Strategic human resource management: performance, alignment, management. Library Career Development, 7(5), pp51-63 Beaver, G. and Hutchings, K. 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