HR and its importance

Human resource is the element within a company which deals with the human aspects/needs of
workers. It is that department or function of an organization which lays down policies,
procedures, activity pertaining to human capital of an organization.

Key functions

Human Resource Management serves these key functions:

1. Recruitment and Selection`

2. Redundancy
3. Industrial and Employee Relations
4. Record keeping of all personal data
5. Total Rewards: Employee benefits and compensation
6. Confidential advice to internal 'customers' in relation to problems at work
7. Career development
8. Competency Mapping (Competency mapping is a process an individual uses to
identify and describe competencies that are the most critical to success in a work
situation or work role.)
9. Performance Appraisal

Evolution of HR

It started in the 19th century when the concept of personnel management came into existence. At
that point it was only about welfare of the employees in relation to sickness, moral welfare etc.
Then came the need for personnel management in industries for maintaining labor relations. But
the role was small which required making policies to increase productivity. It further evolved
and required personnel managers to look into aspects like labor welfare, working conditions,
incentives etc. which facilitate motivation, promotion, increasing morale, performance appraisal.
Such changes and importance given to personnel management gave rise to the concept of Human
Resources and its evolution to the present state.
HR scenario pre-recession

This was one the healthiest job market according to employers recruiting in 2007-2008. Overall,
according to Job Outlook 2008, an annual survey of college recruiters, employers hired 16
percent more new college graduates in 2007-08 than they did in 2006-07.

The growing demand for new graduates was as a result of an increased demand for employers’
products and services; in addition, employees were retiring or nearing retirement age, and other
employees were leaving organizations for new opportunities. Employers expected the good job
market to continue or perhaps get better.

This was the time when the hiring activities by various businesses, industry took an aggressive
turn. They started employing more employees than they needed. Reason as cited before was
unprecedented growth of businesses. The markets were looking up and every company was in an
expansion mode. They wanted add more and more human capital to achieve this.

In 2007-2008 especially in India the markets were on a boom resulting in high demand for
employees of various backgrounds. Sectors like insurance, I.T, healthcare, hospitality were
aiming for a high growth which resulted in a high demand for human capital. Thus, a major role
of HR during these times called for hiring and acquiring attractive talent, employee retention,
appraisals and promotions.
HR scenario during recession

Recession started with the real estate bubble bursting in the U.S.A. The effects were felt world
over. Big businesses collapsing, stock markets tumbling, grim markets could be seen all over.
More than 7 million jobs were lost in this 2 year period. 7 million is a big figure, and compare
that to just around 1 million jobs lost in the previous recession in 2001. At present, the
unemployment rate is around 10%. Even though the negative effect of the recession seems to be
lessening, that rate isn't going to come down much even for the next couple of years. In fact, it
will go up to somewhere around 11% in this current year. The job market will continue to remain
weak. Another factor is that in this calculation of 10% unemployment, it does not include
millions of individuals who have just stopped or given up looking for work. So the actual rate of
unemployment is much higher. Low consumer confidence and tight credit will keep consumer
spending in check, which in turn will stop employers from adding staff in significant numbers.

At this time the companies entrusted the HR managers with the following jobs:

• Reduction or stoppage of incentives

• Reduction of basic salary

• Lay-offs of non-performing employees

• Get more jobs done out of less employees

• No external hiring, only internal job posting

Every company was pursuing cost reductions in their operations. HR departments started
formulating policies that would reduce costs related to human capital. This involved:-

• Setting higher targets

• Reducing training costs by providing it to only performing employees who were capable
of better returns

• Shuffling employees between different functional areas as per requirements

• Change of organization structure and goals related to cost reduction
HR strategies to combat recession (what successful companies did)

Most of the time, economic downturns are short lived and organizations have to look at the
bigger picture of long term growth in sight. The companies that realized this also realized that if
they dismiss or lay-off employees during recession, not only is there a cost, but they will have to
appoint someone to take their place when the going gets better which costs a lot more in the long
run.

• Don’t recruit a problem

In troubled times it is important to ensure that you have got the right people working for
you. Thus to ensure this the companies saw to it that they conducted recruitment process
with rigorous thoroughness.

• Apportioning the resources wisely

Limit activities with limited business purposes. Reduce expenses that don’t add value.
Instead include low-cost but high impact benefits at a time when the rest of the business
world is cutting back.

The successful companies were honest with their employees about their difficult times.
They let them know what the true financial picture of the company was. When such
things were communicated the employees they often are willing to make cuts and
changes as they understand the facts.

• See the silver lining

Companies called for giving feedback to their employees whenever the can.
Acknowledgement of a job well done and consider non-cash incentives. This makes a big
difference to employee motivation. Irrespective of the financial climate it’s reasonable to
ask employees to do their best.
 • Keep on training the employees

Companies who weather the storm perform better because they keep up their training. It
does not have to be expensive classroom training. The companies focused on cost
effective alternatives like arranging virtual classrooms, online training, encourage
employees to be seconded on to other projects or work outside their usual sphere of
activity.

HR scenario post recession

The past year has undoubtedly brought many changes and challenges to both employers and
employees. Layoffs, pay cuts and furloughs have been widespread, thus contributing to a job
market saturated with qualified candidates competing for fewer jobs. Despite this steep
competition among candidates, employers struggle to find professionals with in-demand skill
sets.

Along with these continued battles, employers face a new challenge: ensuring their companies
are prepared when the economy does make an inevitable turnaround, which will give them a
competitive advantage.

A new survey, the 2009 EDGE Report from Robert Half International and CareerBuilder,
provides answers to many of the lingering questions surrounding today's economy and job
market: Where will jobs be added first in the recovery? What challenges will employers face in
recruitment? How will compensation be impacted? And how will employers retain the talent
they've preserved during this difficult time?

To take advantage of an improving economy, employers that cut staffing levels extensively are
taking a close look at the core skills needed in new hires in order to rebuild their rosters once the
economic recovery takes hold.

Fifty-three percent of employers said they plan to hire full-time employees in the next 12
months, while 39 percent will add part-time employees, according to a new survey. Forty percent
will hire contract, temporary or project professionals.
Here are several key other findings from the report:

Where jobs will be added first

Hiring managers currently consider customer service as the most critical to the company's
success, followed by sales, marketing/creative and technology. Public relations/communication,
business development and accounting/finance round out the list.

When the economy does start to rebound, respondents said technology, customer service and
sales departments will add positions first, followed by marketing/creative, business development,
human resources and accounting/finance.

In the meantime, hiring managers continue to appreciate employees who can perform multiple
functions. Employers cited multitasking, initiative and creative problem-solving as the most
valuable characteristics in ideal new hires.

Retaining talent
Although many business leaders have plans to add new employees to their organizations in the
coming months, they also have to consider how their decisions during the financial crisis have
impacted job satisfaction and loyalty of their current staff.

Fifty-five percent of workers polled have plans to change careers, find a new employer or go
back to school once the economy recovers. Forty-nine percent said that the most effective way to
keep them on board will be with pay increases; in fact, 28 percent plan to ask for a raise.

Employers are aware that competitive pay and benefits will play a critical role in retaining talent.
Forty percent of employers said that they plan to increase pay when the economy improves and
20 percent said they hope for better benefits and perks.

Continued challenges in recruitment

Although there is a greater pool of available talent among job seekers, employers are still having
trouble finding qualified professionals for open positions: 47 percent of employers cited under-
qualified applicants as their most common hiring challenge. Employers said that, on average, 44
percent of the résumés they receive are from unqualified candidates.
As a result, employers are open to paying for great talent; 61 percent said their companies are
willing to negotiate a higher salary for qualified candidates.

A common complaint from job seekers is the amount of time the hiring process takes; however,
this is one area where employers won't budge. Employers say that in order to avoid costly hiring
mistakes, it's necessary to take their time reviewing and screening a high volume of résumés, and
also to carefully evaluate those invited for interviews.

HR strategies post recession

Recruiting the Right Way

The hiring process is the first step on the road of building a successful organization. The success
of this first step is of paramount importance as it sets the tone for the entire road ahead, for the
employer and the employee. Consequently, who you are recruiting is as significant as how and
why you are recruiting. The aspirations of a prospective employee should be kept at the centre
stage while assigning them certain roles and responsibilities. If the organization employs right
people, the intensity of challenges in retaining employees comes down considerably. At the same
time, it is very important that prospective candidates are explained the job responsibilities and
expectations in a comprehensive and candid manner.

Source: Grand Thornton Report

 • Cost of recruitment
Recruitment involves cost; not just as an overhead but time as well. The above data suggests that
it takes anywhere between 1.2 and 2.6 months to recruit a professional. The process takes a
considerable amount of time of the HR department and other concerned personnel. And this is
one of the major reasons why companies won’t like to lose their employees and start the process
of finding a replacement more often. Manufacturing, IT/ ITeS, pharmaceuticals and engineering
are those sectors where the average time for recruitment is fairly high. With time, the cost of
recruitment has gone too steep vis-à-vis the Cost-To-Company (“CTC”), and this study indicates
that this has shot up alarmingly when it comes to hiring for middle and top management
positions.

• Shortage of talent
The shortage of people with employable skill-sets remains a major concern across industries. As
many as 85% of the organizations in this study admitted, that they face shortage of talent with
the desired level of skills required to fulfill certain roles and responsibilities. Our research further
reveals that almost all the participating organizations from pharmaceuticals and engineering
industries were experiencing shortage of talent. The manufacturing industry too experiences an
acute shortage of technical skills that can be readily deployable in ongoing projects.
While looking at the media, entertainment and services sectors, we noted that about 35% of the
participants were satisfied with the availability of manpower for their organizations.

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Attrition and Retention
At this juncture, when a host of organizations are trimming their workforces to bring down costs,
attrition does not appear to be a primary concern. However, observation of empirical data in this
regard can assist an organization to gear up for the future and to retain the much-needed talent.
The average rate of attrition is relatively moderate at 19% across all industries; though the hard-
to-digest fact is that the media and services industry had been witnessing as much as 30% rate of
attrition - even higher than that of the IT/ ITeS industry. This trend is followed by skill-intensive
industries of pharmaceuticals (26%) and engineering (21%) as well.

• Paradigm shift
The Indian economy has been led by its robust services sector in the past two decades and this
sector has made its mark as a knowledge-driven sector enjoying innumerable distinctions and
acknowledgements from across the world.
The key question amidst this scenario remains intact though - what is the key factor behind
employee motivation and retention? Well, traditionally one can say it is incentives. But factually
it is not! This research illuminates an interesting fact: opportunities of career development and
job content are the top two factors that affect employee motivation and retention in an
organization.

• Change for range

Job rotation is yet another factor that helps retaining employees – who clearly communicated
their preferences in our survey. In addition, opportunities for learning, training and development
emerge as the top aspect that employees expect from their organisations. Interestingly, as far as
recruitment (the first stage of employer-employee relationship) is concerned, candidates value
employer’s brand equity and its reputation in the first place.

• Hiring Strategy
An increasing number of organisations realise the need and merits of changing their hiring
strategies in line with changes in business dynamics. Our research indicates that it is the junior
management band that has the maximum rate of employee turnover. One of the obvious reasons
is that the employees in this cadre have maximum room to move, both vertically and
horizontally. They tend to switch jobs even if there is a noticeable change in work profile and do
not pay much heed to their industry or domain specialisation. Especially, resources with readily
deployable skills tend to move much faster than those who are more inclined towards learning
and development. Perhaps this is why as opposed to hunting for employees who are too smart to
perform a job; employers now tend to hire candidates from regional colleges and even consider
approaching smaller cities for recruiting employees who are more inclined towards learning and
development.
 • Learning as incentive
In knowledge-based industries, employees are more inclined towards gaining expertise and
developing their careers. Training, thus not only enables them to perform their duties more
efficiently but also helps an organization to retain talent for a longer duration of time. However,
the training budget as a percentage of total revenues is still significantly low. A meager 1 percent
of total revenue has been allocated for training, as an average across the 5 industries of
engineering, manufacturing, media and services, pharmaceuticals and IT/ ITeS. Our study found
that engineering, pharmaceuticals and IT/ ITeS companies spent an average of 60, 48 and 38
hours respectively, in training every year. This was noticeably low in skill-intensive industry
such as manufacturing (21 hours).

Managing and developing talent

 • High performance or high potential
Conventionally, it is high-performance that is valued the most in an organization, as it is easily
observable, measurable and quantifiable. On the other hand, high potential is harder to observe,
promote, and most importantly, to translate into a discernible business result. This aspect in
talent management is critical to understand for everyone involved with organizational
development. Talent management is not merely about monitoring, and recording performance –
but converting these inputs on performance into actionable talent development initiatives. This
process alone can generate continual success in creating maximum organizational efficiency. In
the long run, it is these organizations, which recognize, develop and nurture potential, that
sustain growth and stay ahead of their competitors. It is not that high-performance should be put
on the backburner but a balance should be maintained in taking forward both of these qualities.
High performers, are those who are able to realize their potential and need to optimize it. At the
same time, there may be high potential employees who need support, recognition and
opportunities to prove their mettle. Selecting high-potential employees within the workplace is
undoubtedly a good practice, but it fails to deliver desired benefits due to lack of communication.
Acknowledgement of their importance by the organization is a must for the development of high
potential employees. This study denotes a noticeable mismatch across industries with regard to
communication between employers and high-potential employees. On the brighter side, most of
the organizations were actively identifying high-potential employees with the average reaching
88% across all five industries. However, as far as communicating this factor to the employees is
concerned, the average was significantly low at 69%. These are IT/ ITeS and engineering
companies with clear expressions on the subject, while media and services, and pharmaceutical
companies were found conservative in their approach in this respect. As for the manufacturing
sector, 86% companies acknowledged identification of high-potential employees within their
organizations. However, only 71% said that they were sending this message across to their
employees.
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• Behavioural training
For employers, behavioral training is as important as technical training. As much as 37% of the
training budget is spent on behavioral training and the rest is spent on conducting job related/
technical training. Expenditure on behavioral training is understandably increasing significantly
in public-facing industries of media and services. The three most effective ways to develop high
potential talent across industries as shared by participating organisations are as follows:
- involvement of high-potential employees in special projects
- higher responsibility being given to high potential employees through enriched job
content
- mentoring sessions with senior management of the organization
Performance and efficiency optimization

Identifying capabilities of potential leaders in an organisation is only the first step in

performance optimisation. In order to actually nurture and empower them, senior management
needs to promote their growth through an appropriate engagement. Leaders like to take on
responsibilities, however responsibilities should accompany authority as well. This is where
organizations stumble. Assigning responsibilities without authority is like putting a man atop a
wild horse, without giving him the reins. Management expects results by delegation; however the
authority to execute at the ground level rests with people who are actually not concerned with a
given task. So, what is the solution? Well, the organisation ought to identify the gaps between
what is expected and what all is needed to fulfill that. Finding and developing leaders will
become more challenging in the future than it is today. The future poses new challenges and
greater speed and complexity, but also opportunities to develop leadership capability more
effectively.

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• Reward to motivate
Provision of annual incentives has become an increasingly effective tool for maintaining higher
levels of employee motivation, and more and more organizations are finding it to be an important
tool for rewarding their high performers. Meanwhile, the average variable pay-out across
industries stands at 19% of the CTC. Media and services industry are paying significantly higher
than the market average, whereas the pharmaceutical companies pay the minimum of all among
the covered industry segments. Typically annual incentives are aimed at rewarding past
performance only, but there is an increasing trend in the industry that shows that corporate
houses tend to link it to the potential of an employee along with past performance.

• Performance appraisal
The performance appraisal process should be viewed as a diagnostic exercise for understanding
employee needs and aspirations, providing clarity about roles and responsibilities and hence
keeping them motivated and engaged with their work. As for the process flow, it is largely done
by the manager, the employee himself and the manager's manager, at most workplaces. The 360
degree feedback (from all across the organization) for an employee is not very prevalent still, but
it has been used more as an input for senior level performance evaluations. Out of the
organizations that seek feedback from customers, 75% belong to the IT/ ITeS sector.

• Goal setting
As for the appraisal process, employees actively participate in setting their goals against which
they are evaluated.
About 89% organizations in our study said that employees are part of the goal-setting exercise.
On the other hand, almost 81% of the organizations provide feedback to employees at the end of
the appraisal process.

Moving towards the Future

From the above we can see that we live in a rapidly changing environment. The economic
scenario is becoming uncertain globally. Both the employer and employee are looking to HR to
play a major role in safeguarding their interest. This is a responsibility and an opportunity. The
recent happening of being separated one day and the next day being reinstated has questioned the
efficacy and role of H R. Business is demanding greater value added services from HR.
organizations looked upon functions like sales, marketing, R&D to foster the growth of a
company but HR has joined the league as people factor has become a major differentiator.
Expectations from HR include solutions that deliver on cost- effectiveness and high level of
employee engagement, retention and productivity. HR as a value proposition would revolve
around framing HR as a source of competitive advantage by creating human abilities and
organizational capabilities that is substantially better than those of the competitors.
So for the future, the HR leaders should look to achieve the following parameters:-
• They need to move from functional expertise to business partnering. Making every
employee a part of the business process helps creating better understanding, returns and
performance.
• In the future people capabilities will define and derive business advantage. So the HR
process has to look to get the better of these capabilities.
• Since it is globalizing world diversity plays a great issue. The HR function is required to
handle this diversity and look to integrating process and people involved from all kinds of
backgrounds
• Gender equality also plays an important role as women should be given the same
opportunity as men and that position should be held on merit.
• HR is to monitor and nurture key employees
• They have to see to it that not only are there hot people available but hot jobs too.
• Ethics should be well abided, which strengthens the moral belief of an employee to the
organization
• Grooming should constantly take place
• Not only best practices to be performed by HR but they have to move on to the next
practices too.