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Human Resource Management:

Issues and Challenges in the New

by Seyed-Mahmoud Aghazadeh





to research

the problems

facing Human Resource

Management (HRM) in the coming millennium. The three aspects of HRM

issues and challenges that we will investigate are those of personnel,
technology and globalisation. We feel that the advent of the European Union
will have a significant impact on the future of HRM, particularly in view of the
increasingly global marketplace.
HRM will face numerous opportunities and challenges in the coming
millennium. How well they cope in an increasingly global market will impact
how well their company does in the marketplace. HR professionals will need
to deal with such diverse issues as building a talent pool, managing diversity
programmes, using technology as a human resource management tool,
dealing with employment law issues and the impact of the EURO. Flexibility,
the ability to cope, and knowledge will be required of future human resource
managers. To add to the complexity of those issues is the fact that many of
the factors are interrelated and affect different aspects of operational and
human resource management.

Personnel Challenges and Issues in the New Millennium

The first aspect that we will examine is that of personnel issues and
challenges. The beliefs of Frederick Taylor, father of scientific management
are still valid. It was his belief that management should assume more
responsibility for: matching employees to the right job, providing the proper
training, providing proper work methods and tools, and establishing
legitimate incentives for work to be accomplished. These beliefs continue to
be valuable components of effective personnel management. The successful
companies or organisations will be those that are able to attract and retain
highly skilled employees. In order to do that, they must be able to match
what the employee wants with what the employer is willing to give. Human
resource directors and executives are coming to the realisation that if you
take care of your people; they will take care of you. Many companies are
doing this by offering innovative and flexible benefits.
Changing employee expectations pose several different challenges for
HRM professionals. In order to retain good employees and keep them happy
and productive, these challenges must be successfully met (Sims R. and S.
Sims, 1994). Companies need to first identify what their employees need.
Companies with more than one location should not assume that all
employees in all sites have the same needs. The employees needs may be a
reflection of socio-economical or cultural influences. After needs have been
determined, the next goal is to establish a cost-effective plan to provide for
the employees needs. The HR professional needs to be aware that the
employees needs are not static, they are indeed ever changing. They provide
benefits based upon what the best particular fit is for the employee. One
location may offer child-care benefits, while another may offer flexible hours
or working from their home. Organisations need to build a better benefits
package. Companies need to look at their total reward package in order to
retain their skilled workers to be sure that these programmes really add
value. They should avoid be-ing rigid and try to customise benefits to the
individual employee.

Yahoo! has begun offering personal finance seminars for its employees
whose stock options have grown tremendously (Yahoo!s stock is now worth
20 times more than it was in 1996). They are also using parties on Fridays
and visits from Ben & Jerrys ice cream truck to create positive morale.
The HR department needs to become employee champions. Workers are
constantly being asked to do more with less. Former employment contracts,
which were based on job security and predictable promotions, have been
replaced with faint promises of trust. As a result, relationships with
employees become transitional with employees giving their time and not
much more. Employees who feel that they are valuable are willing to share
deals, work harder and relate better to customers.
The Sears department store has compiled data that showed a small
increase in employee commitment resulted in a measurable increase in
customer commitment and store profitability.
Sears, Roebuck and Company found themselves in a 10-year business
down-turn and knew that they had to change their strategy and culture. In
September 1992 Arthur Martinez began heading up the merchandising
group. He made many sweeping changes that in 1993 produced a sales
increase of more than 9% and a total return for shareholders of 56%. In order
to ensure that this success would continue he created a core group of senior
executives that became known as the Phoenix Team. He worked to empower
this core group to think and create their own plan for implementing and
sustaining the necessary changes. They devised a questionnaire that was,
and still is, periodically given to employees. By using 10 out of the 70
questions, they have produced a model that shows a 5 point improvement in
employees attitudes will drive a 1.3 point improvement in customer
satisfaction and this will drive a .5% increase in revenue growth. Applying
this model to 12 months of sales equates to employee satisfaction and
customer satisfaction each increased by nearly 4%. This equates to $200

million in additional revenue which in turn result is an increase of almost a

quarter of a billion dollars in market capitalisation.
They found that two areas of employee satisfaction had the largest
effect on employee loyalty and behaviour toward customers. These areas
were their attitude toward the job and toward the company. Sears provides
extensive training to their new sales associates and has empowered them by
giving them greater decision making authority. They use town hall meetings
to seek input and disseminate in-formation to their employees. They stress
that the employees are expected to satisfy the customer. Sears was
fortunate that the publics perception was positive and saw them as being
On January 1, 1995 Sears University in Chicago was established and has
trained more than 40,000 Sears managers. They reward the employees by
basing all long-term incentives on non-financial as well as financial
performance. By utilising a telephone survey, they are able to obtain
feedback from the customers of their perception of the service that they
receive. This is done through the use of an 800 number. Customers are
randomly selected to participate in the survey. They receive $5.00 towards
their next purchase if they agree to answer twenty-four questions about their
shopping experience. Through the coding provided they are able to identify
which associate waited on the customer and thereby provides information to
the individual employee on how the customers perceive them.
The Human Resource Department of an organisation has never been as
necessary as it is today. However, this department needs to establish a new
role and agenda. It should also focus on outcomes rather than just on
staffing and compensation. It needs to find ways to enrich the organisations
value to customers, investors, and employees. Ulrich (1998) has suggested
four ways for HR to deliver organisational excellence:
1. Partner with senior and line managers to move planning from the conference room to the marketplace.

2. In order to deliver efficiency to reduce costs and yet maintain quality,

become an expert in the way work is organised and executed.
3. Become a champion for employees while working to increase employee contributions, specifically commitment and ability to deliver results.
4. Become an agent of continuous transformation, shaping processes and
a culture that will improve an organisations capacity for change.

In most companies, HR is charged with playing policy police and

regulatory watchdog. Some more empowered HR departments oversee
recruitment, manage training and development programmes, and design
initiatives to increase workplace diversity. These departments are often not
connected with the real work of an organisation.
Operating managers and HR professionals need to form a partnership to
rethink and reconfigure the various functions and become committed to
outcomes. Line managers are answerable to the shareholders to create
economic value; the customers for product or service value; and the
employees for creating workplace value. There are five critical business
challenges that need to be faced: Globalisation, Profitability through growth,
Technology, Intellectual Capital, and Change, change and more change.
Managers are constantly being challenged to balance the demands to
think globally and act locally. People, ideas, products and information must
be moved around the world to meet the local needs. Volatile political
situations, global trade issues, fluctuating exchange rates, and unfamiliar
cultures now enter into business decisions. These managers must become
schooled in the ways of their international customers. They must enhance
their ability to learn to work together to man-age diversity, complexity, and

Most western companies have already accomplished gains from

downsizing, reengineering, de-layering and consolidation. They must now
look at revenue growth. This will require them to be creative and innovative.









Organisations who choose to grow through mergers, consolidations or joint

ventures need necessary skills to combine different work processes and
This brings us to the challenge of intellectual capital. The most
successful organisations will be the ones who can attract, develop and retain
individuals who have the ability to manage a global organisation that is









technology. It will be the HR departments responsibility to find, assimilate,

develop, compensate and retain these talented employees.
Companies are having a difficult time finding skilled workers. A net one
million skilled jobs are expected to be created over the next ten years with
no projected increase in supply. They must come to the realisation that they
need to invest in training their employees. This training will not only improve
the quality of the labour pool but also lead to more commitment on the part
of employees. This commitment will lead to higher productivity. The old
contract of job security and fair wages in exchange for worker loyalty has
been broken. Income inequality has increased the ratio of CEO pay to that of
the other average worker has jumped from 27:1 in 1973 to 48:1 in 1991. The
gap continues to grow from 45:1 to 173:1 when restricted stock, stockoptions, and other long-term payouts are included. Companies need to
address this issue and work to retain their skilled employees.
Large companies are now competing with small companies for
executives. The smaller companies can offer opportunities for greater impact
and wealth. The average executive today will work in five companies. In the
past, executives worked in one or two companies. It is projected that in ten
years the average executive could work in seven companies. Executive

talent has long been an under managed company asset. People have not
been made a priority. Superior talent will be tomorrows prime source of
competitive advantage. The question needs to be asked, why would a
talented person want to work here?
The current labour force is living longer and is healthier than the last
generation. Adults have been found to be going back to school to improve
and update their skills. It is likely that they will not be retiring in the same
way that their parents did. They will probably continue to work, or possibly
retire from one career and enter another. The younger members of the
workforce will be competing with the older members for jobs.
In the global economy, organisations that can quickly put strategy into
action, manage processes intelligently and efficiently, obtain the most from
their employees, and make change seem effortless.
The HR department must orient and train line management to initiate
practices that will achieve high employee morale. They must be the









Opportunities need to be presented for the employees personal and

professional growth. Resources have to be put in place to assist the
employees to meet the demands being placed upon them. Tools such as
workshops, written reports and employee surveys can be utilised to help
managers understand.
In conclusion, in order to achieve long-term economic performance it is
crucial that organisations develop their people-based strategies. Downsizing
has not been able to remedy problems with products or services. It has
created low employee morale and motivation due to job loss and fear. Cost
cutting such as this is a one shot deal and represents a single event that
cannot be repeated over and over again.
Good customer service depends on having people who feel good about
the organisation and care about the customers. The people, culture and

abilities of an organisation can create competitive advantage. If your

workforce has a high commitment to the organisation, they will work harder,
smarter, and save on administrative overhead that might be present when
alienation exists between labour and management.
Many institutional investors are taking the non-financial performance
measures of a company into consideration when making decisions to buy or
sell stock. These non-financial performance measures include management
performance, customer satisfaction and employee retention. In a report
entitled Measures That Matter from Ernst & Youngs Centre for Business
Innovation, non-financial measures were given one-third of the weight when
making investment sales decisions. For the decisions to buy, 90% of the
respondents stated that at least 20% of a given decision reflected nonfinancial performance and greater than one-third placed the figure at 4060%. This report was followed up with a simulation that revealed investors
perceptions of improvements in non-financial performance could have a
major impact on share price. This study implies that companies need to track
non-financial performance and make Wall Street aware that they do so.
Disabilities, diversity and globalisation also play a part in the changing
employee expectations. The federal government has even sanctioned some
of these expectations. The Americans with Disabilities Act mandates that
employers and service providers maintain a certain level of accessibility for
people with disabilities. Companies must provide their employees with the
necessary equipment to perform their job in a safe manner. This can range
the gamut of keyboard rests to prevent the aggravation of carpal tunnel
syndrome to installing wheelchair ramps and door openers.

Technology Challenges and Issues in the New Millennium

The use of technology is an important factor in virtually all operations
decisions. Opportunities for the innovative use of new or improved

technologies exist throughout operational management. What technological

issues and challenges will companies face in the new millennium? One
important issue that companies must consider is that technology should not
be used for the sole purpose of utilising technology, but to improve the
productivity of a company and its return to the shareholder. How will the use
of technology impact the existing organisation? Some factors that should be






manufacturing processes, personnel software packages, intellectual property

rights, communication, collaboration, Internets and Intranets. In addition, the
Human Resource professional needs to set goals; realistic, reasonable,
challenging, attainable goals. Long, intermediate and short-term aspects
should be considered when making technology decisions.
The modern office has telephones, computers with modems, and
copiers. When these are linked over telephone lines or via space satellites
and microwave dishes, they make up a telecommunication system. The
advent of the telecommunication system has opened up the door to global
marketing. Internets and Intranets make it possible for companies to have







departments with a company or even companies themselves to collaborate

on a global scale. Because of accelerated changes in telecommunications
and technology, the innovations and culture of the most progressive
economies in the world (such as can be seen with the Japanese, American
and European markets) are being absorbed in part by other nations and
cultures (Zajas, 1997).
One big issue that has evolved with the use of technology in the
workplace is that of intellectual property rights. Who is the owner of what is
created? Does it remain with the employee or does the company who
provides the material to produce it become the owner. This is a particularly
thorny issue and various companies deal with it in a variety of ways. Some
companies keep sole ownership of intellectual property, while others may

either relinquish ownership to the author or negotiate a settlement of some

Why are computers and the use of task specific software packages an
issue in HRM? The primary reason for the existence of any business










organisations must not only maximise revenues but also minimise costs.
Increased efficiency is the most productive way to minimise costs. This
applies both to human resource functions as well as to automated
manufacturing processes. If used properly, computers, with their speed and
accuracy, can increase the efficiency of the HRM department, not to mention
the entire company, thereby maximising revenues while minimising costs.
Personnel software packages can be a boon or a bane to the human resource









considering the implementation of enterprise workforce management, there

are five key points that need to be considered:

Map human resources processes: Before deciding on the best software

option, companies need to have a clear understanding of the HR hiring
and management processes already in place. HR experts need to
examine streamlining the old processes to ensure that what is being
built is a better solution, not just automation of a broken system.

Think about the enterprise: Bring executives from other areas of the
company into the discussion and investigate what type of access is
needed to more closely integrate business objectives with the HR
department. Have a clear list of the enterprise issues the new solution
needs to address.

Research vendors carefully: Investigating a software companys

financial and technical services is critical when buying from a new
company. Since many of the workforce management solution providers
are startups, ask about creating a code escrow or another type of

contingency plan to ensure access to the software code in case the

company closes its doors.

Look for flexibility and scalability: What type of relationship does the
vendor have with ERP (enterprise resource planning) vendors? If they
have partners and offer other products that can be used with a variety
of different applications, chances are integration will be easier.

Discuss future plans with your ERP vendor: Does your ERP vendor have
plans to offer similar types of features in a future update? If not,
determine what type of support it will offer in integrating your bolt on
HR solution to the back-end ERP modules.

Globalisation Challenges and Issues in the New Millennium

The third aspect of HRM issues and challenges in the new millennium is that
of globalisation. Global competition is here to stay. We have seen rapid
growth in emerging world markets. There are new standards of global
competitiveness. Efficiency and added value to goods and services are the
benefit of this globalisation, but it does complicate the job of the operations
manager. How an operation makes the transition from domestic to global to
achieve its strategy requires careful analysis. Some of the factors that should
be considered include: the European Un-ion, Positioning Strategies, Global
Benchmarking, Competition, Cultural Impact and Economic Impact.
As Jones (1998) explains in his book, the following points provide a
preliminary perspective of the European Union. It is unique, it is unfinished,
it has been an exercise in partial integration, its development has been very
uneven, it has been an elite project, it involves the intertwining of political
and economic objectives, it is a product of many influences, its central
concepts are fuzzy, it involves the tension between intergovernmentalist
and supranational influences, and finally, it is the worlds most advanced
project in regional integration. In spite of the nebulous condition of what the

European Union is and where it is going, it has had a significant impact upon
world trade. There are many reasons why a domestic business operation will
decide to change to some form of International operation. These reasons
range from the tangible to the intangible.
Economic Impact - Beyond the questions of political and economic
stability, the benefits to the United States of a successful Euro could be
considerable. By replacing the French franc, the German mark and nine other
national currencies, the programme should make it easier and less expensive
for American companies to sell their products and service. Multinational
American companies are already among the largest in Europe, and many
smaller American exporters are increasingly looking to Europe (Stevenson,
1999). One important role for HR professionals in a multinational company is
to be the purveyor of current and correct information. Many employees are
concerned about how the Euro would affect the way that they are paid and
the benefits that they will receive. Employees are also concerned how the
Euro will impact on their company and the business that they do. As
companies speculate and react to changes in the European marketplace in
the years ahead, opportunities to introduce major changes in HR strategy will
arise (Roberts, 1999). It will be vital for the HR professional to be aware of
these changes and to use them to their best advantage.
Why are global operations important? There are a number of reasons
why a company would consider expanding their area of operation.
Companies can realise a reduction of costs, particularly those costs incurred
by labour, taxes and tariffs. They can also realise an improved supply chain
along with a reduction of risks. These reduced costs, along with the improved
supply chain would permit the organisation to learn how to improve
operations and provide better goods and services. Finally, multinational
expansion would make it possible not only to attract new markets, but also
to attract and retain global talent as well. Globalisation is also having a big
impact on supply-chain management, human resource issues, quality,

positioning, location and process strategies. It is the Human Resource

professionals job to be able to supply the operational side of the business
with employees capable of performing the requisite tasks involved in
capacity planning, location planning, operations scheduling, facilities and
layout design.
In the past, the efforts of many companies to deal with a diverse
employee population were mandated largely by legal pressures or moral
concerns in regards to fairness. These issues of workforce diversity, although
complex and complicated now will become more of an issue for those
companies operating on a global scale. Successful organisations will react to
diversity as the important business is-sue it is by implementing proactive,
strategic human resources planning. Short-term strategies designed to









positioning itself in tomorrows world of cultural, gender, and lifestyle

diversity (Sims, R. and S. Sims, 1994). Yet another aspect of diversity








considerations such as the attitude towards employee theft and bribery can
have significant impact on the operations of a company. Companies must be
aware of potential problems or situations and have a plan to deal with them.

In conclusion, sweeping changes continue to reshape the workplace. Todays
human resource professional plays a vital role in helping their organisation
remain competitive in the marketplace. They need to be a knowledgeable,
skilled business partner. The Human Resource professional in the new
millennium will wear many hats. They must be able to use their sense of
commitment, interpersonal skills and training to help make their company









competencies in their own credibility, communication skills and decisionmaking skills. The Human Resource professional should be a strategic

partner; administrative expert; employee champion; and change agent. They

should be able to present the vision of their company clearly. They must
have a clear and functional perception of Operational Management needs.
What are the questions remaining? There are almost as many as when
we started. How will companies choose to deal with the issues that we have
discussed in the new millennium? There is much information to be








professionals in the future. How will each of these three different yet
interconnected facets affect their choices? While not having a crystal ball, we
can make some generalisations.

In regards to personnel issues and challenges, we have determined

that the most successful organisations will be the ones who can
attract, develop and retain individuals who have the ability to manage
a global organisation that is responsive to customers and the
opportunities being presented by technology.

The implementation of technology will continue to be a driving force in

the success of companies in the future. Firms that know how to use
technology find it an excellent vehicle for obtaining competitive
advantage (Heizer, J. and B. Render, 1999).

Globalisation is having and will continue to have a big impact on the

basic issues of operation management; location strategies, supplychain management, human resource issues, quality, and process

We have learned that Human Resource professionals need to take a

proactive role in the success of their company. They need to examine the
streamlining of old processes to ensure that what is being built is a better
solution, not just automation of a broken system. In essence, the Human
Resource professional must move from the back room to the board-room.

They need to emphasise the importance of continuous progress and

managing change through goal setting. Finally, we have learned that
empowered employees have proven to be more productive.

Five Year Survival Rates of Initial Public Offerings

One of the clearest demonstrations of the causal effect of management
practices on performance comes from a study of the five-year survival rate of
136 non-financial companies that initiated their public offering in the US
stock market in 1988. The results are so compelling that prudent investors
may want to use these results in evaluating new companies. The firms
studied came from numerous industries ranging from biotechnology to food
service retailing and varied widely in size, with half employing fewer than
110 people but with 20 percent having 700 or more employees. Five came
from foreign countries. By 1993, some five years later, eighty-one firms, or
60 percent of the sample were still in existence.
Welbourne and Andrews (1996) developed two scales, along with other
factors, for explaining company survival. The information used in measuring
the firms management practices came from their offering prospectuses and
thus is publicly available. The first scale measured the value the firm placed
on human resources and was comprised of five items: (1) whether the
companys strategy and mission statements cited employees as constituting
a competitive advantage; (2) whether the companys materials mentioned
employee training programmes; (3) whether a company official was charged
with responsibility for human resource management; (4) the degree to which
the company used full-time employees rather than temporary or contract
workers; and (5) the companys self-rating of its employee relations climate.
The second scale measured how the organisation rewarded people; it was
computed, using 10-1 code, by summing whether the company had stock
options for all employees; stock options only for key employees and
management; profit sharing for all employees; profit sharing for key

employees and management; and other group-based incentives, such as

gain sharing.
The empirical analysis (Welbourne and Andrews, 1996) demonstrated
that with other factors such as size, industry, and even profits statistically
controlled, both the human resources value scale and the reward scale were
significantly related to the probability of survival. Moreover, the results were
substantively important. The difference in survival probability for firms one
standard deviation above and one standard deviation below the mean (in the
upper 16 percent the lower 16 percent of all firms in the sample) on the
human resource value scale was almost 20 percent. The difference in
survival depending on where the firm scored on the rewards scale was even
more dramatic, with a difference in five-year survival probability of 42
percent between firms in the upper and lower tails of the distribution.

Table 1: Principal empirical studies of IT and productivity

Economy Wide or
Cross Sector
Osterman (1986)
Loveman (1988)
Cron and Sobol (1983)
Bailey and Chakrabarti (1988)
Weilll (1990)
Franke (1987)
Lefebvre and Lefebvre (1988) Morrison and Berndt (1990)
Harris and Katz (1989)
Roach (1989)
Barua et al. (1991)
Roach (1989)
Brooke (1991)
Siegel and Griliches (1991)
Alpar and Kim (1990)
Brynjolfsson and Hitt (1993)
Noyelle (1990)
Parsons et al. (1990)
Strassmann (1990)
Brynjolfsson and Hitt (1993)
Source: Adapted from Brynjolfsson (1993)


Table 2: Information workforce in four developed countries (percentage per year)





















Source: Adapted from Kim (1994)

Table 3: Benefits derived from IT applications in large firms

Key Competitive Dimension
Concepts described in Maintenance
Use of IT to reduce cost in functional areas (McFarlan 1984)
Internal and interorganisational efficiency (Bakos and Treacy
Comparative efficiency (Bakos 1987)
Productivity (Synnott 1987)
New products and services (Parsons 1983; McFarlan 1984)
Customer service (Ives and Learmouth 1984)
Differentiation (Porter 1985)
Adding value for customers (Clemons and Kimbrough 1986)
Unique product features (Bakos 1987; Bakos and Treacy 1988)



Source: Sethi and King (1994)

Unique product features (Bakos 1987; Bakos and Treacy 1988)

Buyer and supplier power (Parson 1983)
Customer and supplier switching costs (Bakos 1987)
Switching costs and search-related costs (Bakos and Treacy
Preemptive strikes (MacMillan 1983; Clemons 1986)
Positional advantages and timing (Bakos 1987)
First-mover effects (Clemons and Knez 1987)
Integration with company strategy (King et al. 1986);
Information Week (1987)