The Effectiveness of HRM Should Be Assessed Only by Financial Measures - Article Example

The effectiveness of HRM should be assessed only by financial measures Introduction Organizational excellence begins with the performance of people. It is what people do or do not do that ultimately determines what the organization can or cannot become. It is their dedication and commitment to organizational purposes that make the difference. Whether organizational goals can be achieved will depend on the willingness of people to make the necessary contributions. It is the performance of people that is the true benchmark of organizational performance. People constitute an organization’s most important and vital factor in its success or failure. In order to function efficiently and effectively, people must be managed well. Human resources management (HRM) is the art and science of dealing with people at work for the optimum achievement of individual, organization and society’s goals. While general management is the orchestration of all the resources, human resource management is limited to people management – their motivation, acquisition, maintenance and development. There are those who aver that the effectiveness of HRM should be assessed only by financial measures – meaning, its effect on the organization’s bottom-line or net income. It is the objective of this essay to present both the affirmative and negative sides of the statement. The Effectiveness of HRM should be Assessed Only by Financial Measures According to an study conducted by the U.S. Office of Personnel Management (OPM), “defining practical, meaningful measures that assess the effectiveness of …human resources management and its support of mission accomplishment is a topic that agencies have been struggling with. It is easy to measure a process -- how long does it take to complete an action? It is easy to measure productivity -- how many actions were completed in any given time frame? But how do you measure the outcome of human resources management? How does an agency know if it has the right people, with the right skills, in the right positions to carry out the agency mission? Have any agencies found a way to do this?” (1999, 8) First of all, maximization of use and value of benefit choices to employees mean that the company should determine the mix of options and alternatives which would give them more income and least cost that would make their employees motivated to do the tasks required of them. Benefits represent substantial annual expenditures for a company. The design for the appropriate benefits program in the short and long term should account for the following factors: the long-term plans of a business, its stage of development, its projected rate of growth or downsizing, characteristics of its workforce, legal requirements, the competitiveness of its overall benefits "package," and its total compensation strategy. Organizations normally assess the effectiveness of an action in terms of its effect to the financial performance of the firm – how much it increased the firm’s net income in a specified period of time. According to Crawford (2005, 1), “typical financial measures may include revenue growth and cost improvements.” In this regard, HRM is effective only insofar as its activities contribute to the increase in net income of the organization since it is the bottom line that the stockholders of the organization are mostly concerned of. The net income is the determinating factor for pay increases and bonuses and therefore, should be the only criterion for HRM’s effectiveness. The Effectiveness of HRM should be Assessed by Other Measures In a study conducted by Crawford (2005, 3), he averred that “the multiple constituency approach to HRM effectiveness adopts the multiple constituency model of organizational effectiveness, which is the most appropriate for evaluating HRM. This approach considers the influences of key stakeholders in the organization.” Literatures presenting various approaches to measure the effectiveness of HR performance indicated the Balanced Scorecard approach as translating “strategy into operational terms by measuring a full range of perspectives: financial, customer, internal, and learning and growth.” (OPM, 1999, 19). In a paper written by Cabrera & Cabrera (2003, 1), the authors expounded that “the balanced scorecard also attempts to link all measures through a cause-and-effect chain; thus, it acts as a management, rather than measurement, system by helping managers to better understand how different measures are related and how they ultimately contribute to financial results (Bontis, et al., 1999)”. The research of OPM discussed other measures of HRM effectiveness including benchmarking (“a systematic process of measuring an organization’s products, services, and practices against those of a like organization that is a recognized leader in the studied area” (OPM, 1999, 18); activity based costing, a method aimed to determine the true cost for a product or service; and the “Malcolm Baldrige and the President’s Quality Award Criteria, based on a set of core values and concepts that integrate key business requirements into a results-oriented framework (OPM, 1999, 20)”. More importantly, as the roles and functions of HRM become more diverse adapting to the demands of the times, the means to assess its effectiveness evolves into encompassing areas of employee development (employee behavior, attitudes and skills), competencies, performance, as these attributes all contribute to the achievement of organizational goals. As aptly concluded by Cabrera & Cabrera, “no longer are operational measures of internal efficiency sufficient. HR departments must be able to demonstrate the value of their strategic contributions” (2003, 3). According to Crawford, “from a HRM perspective, the multiple constituency approach can be operationalized by measuring HRM effectiveness from the perspective of HRMs internal and external stakeholders (such as top management, line management, employees, customers, and trade unions). This particular approach demonstrates the responsiveness of HRM to the demands of a variety of stakeholders who may hold different opinions regarding the effectiveness of the function. (2005, 3)” In human resources management, people are considered investment, assets and a real resource. Following this philosophy, relatively more funds are earmarked for their proper screening and evaluation, for their growth, training and development, which in turn, increases the rate of retention and organizational productivity. These studies confirm that the effectiveness of HRM should not be assessed solely on financial means. There are more relevant concerns, specifically the strategic development of the organization’s human resources that should be taken into account for an organization to be considered as highly successful in attaining organizational goals. Further, as organizations become more specialized in their respective core competencies, the mission and vision that each explicitly stipulates does not necessarily focus on the bottom-line. More contemporary organizations include goals of social responsibility, service to the community, enhancement and encouragement of cultural diversity, among others. In this regard, the effectiveness of HRM should be measured in terms of their success in achieving their well defined goals. Conclusion All resources – man, money, methods, market, materials, minutes (representing time) and machines are the domain of general management. Human resources management solely involves man. Through and by men, the other m’s are acquired and utilized. The quality and utilization of the rest of the resources are almost always affected by decisions about and by human resources. Indeed, the accomplishment of the goals of an organization depends upon the availability and utilization of all these ingredients, the interaction of which, are people-caused. An organization may start with zero funding, but with creative, resourceful, hardworking and honest people, it becomes financially viable. On the other hand, a plethora of financial and material resources in an organization may go down the drain if handled by an incompetent and dishonest staff. The challenge of management is not so much in its money, machines, methods, markets but in its people. (Guia, 2007) Human resources management purports to accomplish not only organizational goals but also individual goals. It posits that an individual worker whose personal goals are realized is willing to cooperate in the accomplishment of organizational goals. The congruence of both goals is directly proportional to the harmony between management and labor. This approach subscribes to the idea stipulated by Carell & Kuzmitz (1986: 5), to wit: “organizational goals and employee needs are mutual and compatible. One set need not be gained at the expense of the other”. In human resources management, people are considered investment, assets and a real resource. Following this philosophy, relatively more funds are earmarked for their proper screening and evaluation, for their growth, training and development, which in turn, increases the rate of retention and organizational productivity. Trends in human resources management indicate the possible direction that his particular phenomenon takes with the past as its backdrop and the present as its center stage. The main area of concern will be the shift in the environment from a monolithic view to the many-sided interests, particularly quality of working life and the impact of technological development. Integrating human and organizational values will be a principal objective. This will be achieved by developing basic methods of reconciling clashes of values through viable primary work groups that will reduce feelings of normlessness. The role of human resource managers will be expanded in helping the organization meet its ever increasing needs. The pay and benefits a worker receives are a yardstick of how adequately his needs are met. Compensation is a denominator of productivity and job worth. However, just like pay and benefits, these financial measures are not the sole yardstick to assess the effectiveness that HRM accords. The strategic value of human resources are measured in diverse ways including determining the growth and development planned for the employees; the ways by which stakeholders’ interests are achieved; and the role that HRM played in improving organization’s worth in terms of contributing service to the community. Therefore, the effectiveness of HRM should not be measured only by financial measures but by means of improving the overall worth of its people resources as they perform their respective roles in one’s society. Reference List Bontis, N., Dragonetti. N.C., Jacobsen, K., & Roos, G., 1999, "The Knowledge Toolbox: A Review of the Tools Available to Measure and Manage Intangible Resources." European Management Journal, Vol. 17(4): 391.402. Cabrera, E.F. & Cabrera, A., 2003, Strategic Human Resource evaluation. Viewed 16 March 2010, from < http://www.entrepreneur.com/tradejournals/article/99146560_1.html> Carell, M.R. & Kuzmits, F. 1986, Personnel: Human Resource Management, 2nd edition, Columbus: Merill Publishing Company. Crawford, J., 2005, Indicators of strategic HRM effectiveness: a case study of an Australian public sector agency during commercialization, Viewed 16 March 2010, from < http://www.allbusiness.com/human-resources/847224-1.html> Guia, F. 2007, “The Role of Human Resources in an Organization”, Lecture, MBA Class on Seminar in Personnel Management and Industrial Relations, College of Business Administration, University of the Philippines, Diliman, Quezon City. U.S. Office of Personnel Management, 1999, Strategic Human Resources Management: Aligning with the Mission, Viewed 16 March 2010, < http://www.opm.gov/studies/alignnet.pdf> Read More