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Changing Environment of Human Resources Management
Describe the business case for having HR report to the CEO/President in large organizations.
The Human Resources (HR) function in many firms, particularly in large firms with functional specialties, has traditionally been perceived as an administrative function that plays a support role in recruiting, training, paying, and retaining (or firing) members of the workforce. HR has also been seen as supporting other managers in providing a safe workplace and dealing with labor-relations issues. Over the past decade, as down-sizing has occurred throughout much of the corporate world, business cases have been made to reduce the size of the overall HR function, to outsource elements of the HR function such as pay or training, and to offload HR duties to other managers. This paper posits that a business case exists for retaining a strategic HR function in organizations, and for having the senior HR person report directly to the company's CEO or President.
Fischer and Mittorp (2002) outline how the HR function within the German multi-national corporation of Deutsche Bank managed to make the shift from playing a traditional support role to becoming a strategic partner within the corporation. The HR function had the direct support of the CEO at the time to lead corporate change in an effort to create and maintain a highly motivated workforce in a very competitive industry. The CEO recognized that HR could play a critical role as a corporate strategic partner in ensuring that corporate goals were achieved through its workforce, and gave his support to HR to fulfill this role as strategic partner. Similar examples also exist of other companies realigning their HR function from support to strategic partner. Huselid and Becker (1999) provide examples of companies such as Sears, Southwest Airlines, 3M, Harley-Davidson, Marriott, Disney and Virgin using their HR functions to create and support corporate cultures that, in turn, create brand differentiation and therefore brand loyalty. HR thus plays an integral role in creating a competitive corporate environment. In these cases, the corporations have supported the statement that their employees are their most valued assets through a strategic HR function. The HR function in these companies is positioned not for performing merely administrative tasks, but instead, to contributing directly to competitiveness and ultimately, corporate success.
In summary, the business case for having HR report to the CEO or President in a large corporation is to change both the perceptions by other functions and the performance by HR from one of administrative support to one of strategic corporate partner. In this latter role, a well-functioning workforce will create and sustain the competitive advantage that is needed for the firm to succeed in today's business environment.
Describe the key competencies HR executives must have to function effectively at this level.
HR executives must be proficient in the traditional roles of HR, not necessarily to fulfill this role solely in-house, but to ensure that whoever performs the HR tasks can do so competently and efficiently. However HR training alone will not prepare HR executives to function effectively as strategic corporate partners in an organization. Key competencies must therefore expand beyond traditional the HR function. Key competencies for HR executives, as touched on by Huselid and Becker (1999), should include:
HR Functions - HR executives must be grounded in the key areas of HR, not necessarily to lead in all functional areas, but to know where to get the best input using resources that can be either internal to, or external to, the organization. If the HR executive cannot answer questions within the discipline, then the CEO or President will question why this person is a member of senior management.
Economic Literacy - HR executives must also understand the nature of the business that the company operates in, to allow the HR function to act as a strategic partner in achieving corporate objectives. HR executives must be able to talk to the CEO in business terms, using hard terms over soft terms where feasible. HR must be able to use quantifiable terms as well as qualitative terms.
Organizational Culture - HR executives must work to create value in the organization's workforce through a productive and adaptable culture.
Change Management - HR executives must be adaptable, able to anticipate change and then able to manage through change.
Team Player/Peer - HR executives must be able to interact as peers within senior management as opposed to playing a more traditional HR administrative-support role. To succeed, HR executives must be able to work within (and lead) teams.
Describe the relationship between HR strategies and business strategies.
HR strategies and business strategies must be completely integrated, because without integration, the need for an HR function becomes questionable. Barney and Wright (1998) note that HR plays an integral role in creating a sustainable competitive advantage through developing the company's human resources. In their examination of "the economics that underlying the role of human resources in a firm's competitive advantage," Barney and Wright (1998) use a resource-based view of the firm that includes value, rareness, imitability and organizational framework to analyze sources of competitive advantage.
HR's strategies cannot be disconnected from the overall direction of the firm, but instead must be interconnected with corporate objectives. Without this direct connection, HR will fail to fulfill its purpose, thereby failing the organization and ultimately contributing to an organization's demise. HR leaders must be able to determine what the corporate objectives are, and how the workforce needs to adapt to succeed at meeting these objectives. HR leaders must be conversant in business language, must be able to anticipate change (legal, social and societal), and then be able to lead other managers and employees through change processes.
The direct connection between HR strategies and business strategies will benefit the organization and its workforce. HR can play a supporting role, but cannot be relegated to playing only a support role in fulfilling business strategies. HR must therefore be a strategic partner in the firm, with a complete blending of HR and business strategies.
Provide three specific examples of HR strategies that can positively influence the organization's ability to obtain its objectives.
Barney and Wright (1998) provide one example of HR positively influencing Alcon Laboratories in achieving the financial objectives of reducing costs or increasing revenues. In this case, HR noticed that employees didn't use doctors who were part of the organization's Preferred Provider Organization (PPO), but instead used higher cost fee-for-service providers. HR directed its insurance provider to enlist the doctors who were being used by employees into the PPO. Most doctors signed on, with the result that "Alcon's health insurance costs have increased at less than half of the industry average."
Barney and Wright (1998) provide another example of HR positively influencing organizational objectives, in this case to increase revenues. FedEx is a company built on customer satisfaction. The company recognizes that happy employees will result in happy customers, and happy customers result in profits. HR in FedEx plays a key role in designing, implementing, monitoring and adapting measures of job satisfaction, along with means to improve areas that show a need for improvement. This direct contribution to measuring and responding to a key business area (employee satisfaction) contributes directly to revenues.
Barney and Wright (1998) provide one final example of HR impacting both costs and revenues in Continental Airlines. HR played a pivotal role in the creation of an on-time bonus system that motivated employees to strive to become industry leaders for on-time performance. An industry turn-around resulted, which reduced costs and increased revenues.
Describe specific benefits to organizations of having HR report to the CEO as strategic partner/consequences of not having HR report to CEO.
The benefits of having HR report to the CEO as strategic partner include:
Creation of credibility for the HR function as key contributors to the overall success of the organization, thus enabling HR to act as a strategic partner in the organization
Direct lines of communication to the CEO who can, in most instances, authorize changes that HR may recommend to help in the achievement of corporate objectives and promote ethics
Addition of HR thinking (often geared to soft issues) to the executive management team. This addition can lead to diversity in thinking, and can temper the typical hard approaches that are taken by technical and financial disciplines. Diversity in thinking may provide insights and alternate approaches to business challenges, to the benefit of everyone involved.
The consequences of not having HR report to the CEO as strategic partner include:
Filtering of messages from functional experts in the HR discipline, and potentially missed opportunities to change deficient HR practices
Downplaying the role of the organization's employees, in relation to financial, technical and operational perspectives (despite the importance of employees in all these areas)
Missed opportunities in viewing the world through a different set of eyes. In the service sector, having a perspective at the executive table that reflects employee concerns can directly affect the overall attainment of corporate objectives, since services rely heavily…[continue]
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