HR M Class 2 Strategy and Retention

Human Resource Management, Class 2
Strategy in Human Resource Management Organization/Individual Relations and Retention Pcs, 2013. 12 February
Zsuzsanna Vitai HRM 2013 spring
Explain strategic HR management and how it is linked to organizational strategies.
Concepts and learning objectives
Identify ways HR professionals can support organizational strategies for quality, growth, efficiency, and international operations.
Define HR planning and outline the HR planning process.
Identify why HR metrics must consider both strategic and operational HR measures.
Identify the changing nature of the psychological contract. Discuss how motivation is linked to individual performance. List the five major drivers of retention and activities related to them. Describe different kinds of absenteeism and turnover.
Explain ways to measure absenteeism and turnover.
Strategic Human Resource Management

Definitions:
SHRM: organizational use of employees to gain or keep a competitive advantage against competitors, resulting in greater organizational
effectiveness.
Core competency: a unique capability that creates high value and that differentiates the organization from its competition
The source of an organizations sustainable competitive advantage
Organizational culture: the shared values and beliefs of a workforce
Strategic HR Management Process
Strategic Success with HR Practices

Recognized HR Best Practices
Employment security
Selective recruiting High wages/incentives Training/cross training
Information sharing/participation
50% higher market value!
Promotion from within

Measurement
FIGURE 2-2
Common Areas for HR Strategies
Operationalizing HR Strategy
Thinking Strategically
Understand the business
Focus on key business goals
Know what to measure
Prepare for the future
FIGURE 2-3
Possible HR Areas for Core Competencies
HR As Organizational Contributor
HR Contributions to Organization Effectiveness
Organization productivity
Customer service and quality
Financial contributions
Organizational Productivity
Productivity
Measure of the quantity and quality of work done, considering the cost of the resources used. Metrics example: employee wages +benefits sales
Unit labor cost

Computed by dividing the average cost of workers by their average levels of output. High wages can be competitive if people produce high levels of output!
2-4
Approaches to Improving Organizational Productivity
HR Effectiveness and Financial Performance

Effectiveness
The extent to which goals have been met.
Efficiency
The degree to which operations are done in an economical manner.
Organizational Effectiveness and Financial Contributions of HR

Return on Investment (ROI)
Difficult to determine returns for HR contributions which affect many facets of the business Former view of HR as a cost center
Human Resource Planning

Human Resource (HR) Planning
The process of analyzing and identifying the need for and availability of human resources so that the organization can meet its objectives.
HR Planning Responsibilities
Top HR executive and subordinates gather information from other managers to use in the development of HR projections for top management to use in strategic planning and setting organizational goals
Purpose of HR Planning
Typical Division of HR Responsibilities: HR Planning
Small Businesses and HR Planning

Attracting and retaining qualified outsiders Management succession between generations of owners
HR Planning Issues in Small Businesses
Evolution of HR activities as the business grows
Family relationships and HR policies
FIGURE 2-7
HR Planning Process
HR Planning Process 2
HR Strategies
The means used to anticipate and manage the supply of and demand for human resources.
Provide overall direction for the way in which HR activities will be developed and managed.
Overall Strategic Plan Human Resources Strategic Plan

HR Activities
Benefits of HR Planning
Better view of the HR dimensions of business decisions Lower HR costs through better HR management. More timely recruitment for anticipate HR needs More inclusion of protected groups through planned increases in workforce diversity. Better development of managerial talent
Scanning the External Environment

Environmental Scanning
The process of studying the environment of the organization to pinpoint opportunities and threats.
Environmental Changes Impacting HR

Governmental Influences Economic conditions Geographic and competitive concerns Workforce composition
Assessing the Internal Workforce

Jobs and Skills Audit
What jobs exist now? How many individuals are performing each job? What are the reporting relationships of jobs? How essential is each job? What jobs will be needed to implement future organizational strategies? What are the characteristics of anticipated jobs?
Organizational Capabilities Inventory
Assessing the Internal Workforce 2

HRIS databasessources of information about employees knowledge, skills, and abilities (KSAs) Components of an organizational capabilities inventory
Individual employee demographics Individual employee career progression Individual job performance data
Creates a profile of the current organizational workforce

Forecasting HR supply and demand 1

Forecasting:
definition: use of information from the past and present to identify expected future conditions combination of quantitative methods and subjective judgment
Methods:
judgmental mathematical
?
Periods:
short, intermediate, long
Judgmental methods
Judgmental
Estimatesasking managers opinions, top-down or bottom-up Rules of thumbusing general guidelines Delphi techniqueasking a group of experts Nominal groupsreaching a group consensus in open discussion
Mathematical methods
Statistical regression analysis Simulation models Productivity ratios Staffing ratios
Forecasting HR supply and demand 2

Forecasting Periods
Short-termless than one year Intermediateup to three years Long-rangemore than three years
HR Forecasting
Forecasting the demand for human resources

Organization-wide estimate for total demand Unit breakdown for specific skill needs by number and type of employee
Develop decision rules (fill rates) for positions to be filled internally and externally. Develop additional decision rules for positions impacted by the chain effects of internal promotions and transfers.
Forecasting the supply of human resources 1

External supply
government labor force population estimates individual demographics changing workforce composition and patterns migration! industrial trends economic forecasts technological developments actions of competing employers government regulations and pressures
Forecasting the supply of human resources 2

Forecasting Internal HR Supply Effects of promotions, lateral moves, and terminations Succession analysis Replacement charts Succession planning The process of identifying a longer-term plan for the orderly replacement of key employees.
Estimating Internal Labor Supply for a Given Unit
Workforce realignment
Layoff:
in response to shortfall in demand for products employees are put on unpaid leaves of absence
Laid - off employees may be rehired if demand becomes stronger! Downsizing: planned elimination of large number of personnel with the goal of enhancing the organizations competitiveness - workers are not rehired!
Objectives:
Downsizing 1
reducing costs replacing labor with technology mergers and acquisitions moving to more economical locations
Effects:
not all positive! Does not generate additional revenue - cuts costs only in the short run remaining employees are overburdened and demoralized
Downsizing 2
Attrition:
people who quit, die, or retire are not replaced in addition companies use hiring freezes
Early retirement buyouts

encouraging more senior workers of the organization to leave early needs additional financial resources, but saves money on the long run humane workforce reduction technique problem: those may leave whom you would like to have!
Downsizing 3
How to?
Investigate alternatives to downsizing involve people necessary for success in the planning for downsizing develop comprehensive communication plans nurture the survivors outplacement pays off
Definition:
Outplacement services
a group of services provided to displaced employees to give them support and assistance
personal career counseling resume preparation typing services interviewing workshops referral assistance special severance pay arrangements medical benefit coverage retraining for different jobs establishing on-site career centers contacting other employers for job placement opportunities
Making Downsizing More Effective
Managing a Shortage of Employees

Use overtime
Add contingent workers
Bring back recent retirees
Human Resource Shortage
Outsource work
Reduce turnover
HR Planning in Mergers and Acquisitions

Cultural Compatibility
The extent to which such factors as decisionmaking styles, levels of teamwork, informationsharing philosophies, and the formality of the two organizations are similar.
HRs Role in Mergers and Acquisitions

Communicating decisions Revising the organization structure Merging HR activities
Measuring HR Effectiveness Using HR Metrics 1

HR Metrics
Specific measures tied to HR performance indicators.
Development and use of metrics that can better demonstrate HRs value and track its performance.
Measuring HR Effectiveness Using HR Metrics 2

Characteristics of good HR metrics: Accurate data can be collected. Measures are linked to strategic and operational objectives. Calculations can be clearly understood. Measures provide information expected by executives. Results can be compared both externally and internally. Measurement data drives HR management efforts.
Examples of Strategic and Operational HR Metrics

Strategic Revenue generated per FTE Net income before taxes per FTE Ratio of managers to nonmanagers Operational Annual turnover rate Benefits costs as percentage of payroll Training expenditures per FTE
Labor costs as percentage of total operating costs

ROI of human capital expenditures HR department expenses as percentage of total expenses Payroll/benefits costs as percentage of revenues
Average time to fill openings

Workers compensation costs per FTE Number of applicants per opening
Absenteeism by employee level/department
Note: An FTE is a measure equal to one employee working full-time for one year.
Measures of Strategic HR Effectiveness 1

Return on Investment (ROI)
Calculation showing the value of expenditures for HR activities.
C ROI A B
A = Operating costs for a new or enhanced system for the time period
B = One-time cost of acquisition and implementation C = Value of gains from productivity improvements for the time period
Measures of Strategic HR Effectiveness 2

Economic Value Added (EVA)
A firms net operating profit after the cost of capital (required return) is deducted. Cost of capital is the benchmark for returns for all HR activities.
HR and the Balanced Scorecard

Financial Internal business processes Customer Learning and growth
Robert S. Kaplan and David P. Norton
The balanced scorecard
HR Measurement and Benchmarking

Benchmarking
Comparing specific measures of performance against data on those measures in other best practice organizations
Common Benchmarks
Total compensation as a percentage of net income before taxes Percent of management positions filled internally Dollar sales per employee Benefits as a percentage of payroll cost
Assessing HR effectiveness
RECORDS!
Must be kept current and properly organised Important documentation if legal problems occur Basis for research
Examples:
HR expense per employee Compensation as a percent of expenses HR dept. expense as a % of total expenses Cost of hires Turnover rate Absence rate Workers compensation cost per employee
HR audit
Definition:
A formal research effort that evaluates the current state of HR management in an organisation
Legal compliance Current job descriptions and specifications Valid recruiting and selection processes Wage/salary and benefits systems Absenteeism and turnover control measures Training and development effort Performance management system Employee handbook policies Health, safety and security issues
Web pages
http://www.ilo.org/public/english/bureau/stat/ http://epp.eurostat.ec.europa.eu/portal/page/portal /eurostat/home/ http://www.bls.gov/ http://www.kormany.hu/hu http://www.ksh.hu/ http://www.fedstats.gov/ http://www.oecd.org/statistics/
Individual/Organizational Relationships
The Psychological Contract
The unwritten expectations employees and employers have about the nature of their work relationships.
Affected by age of employee and changes in economic conditions. Focuses on expectations about fairness that may not be defined clearly by employees.
Psychological Ownership
When individuals feel that they have some control and perceived rights in the organization, they are more likely to be committed to the organization.
Components of the Psychological Contract

Employers provide: Employees contribute:
Competitive compensation and benefits Flexibility to balance work and home life
Continuous skill improvement and increase productivity Reasonable time with the organization
Career development opportunities
Extra effort when needed
FIGURE 3-1
Factors Affecting Job Satisfaction and Organizational Commitment
Job Satisfaction
Job Satisfaction, Loyalty, and Commitment
A positive emotional state resulting from evaluating ones job experience.

Work, pay, promotion opportunities, supervision, coworkers
Organization Commitment (Loyalty)

The degree to which employees believe in and accept organizational goals and desire to remain with the organization. Continuance commitment: the likelihood that an individual will stay with rather than withdraw from the organization.
Individual Employee Performance

Individual Performance Factors
1. Individual ability to do the work 2. Effort level expended 3. Organizational support
Performance (P) = Ability (A) x Effort (E) x Support (S)
FIGURE 3-2
Components of Individual Performance
Individual Motivation
Motivation
The desire within a person causing that person to act to reach a goal.
Management Implications for Motivating Individual Performance

Broad-based strategies and tactics to address individual employee concerns about:
Consistency in organizational rewards Organizational support for employee efforts Accurate measurement of employee performance Desirability of rewards by employees
Repetition: Motivation
Definition:
the desire within a person causing that person to act
Content and process theories explain it
Content theories
Abraham Maslows need hierarchy Clayton Alderfer ERG theory Frederick Herzberg - motivation-hygiene David McClelland achievement motivation Emphasis on what motivates individuals
Process theories
Cognitive evaluation theory Equity theory Expectancy theory Goal setting theory Reinforcement theory
Focus is on the motivational
Equity theory - Stacy Adams Explanation of behaviour on perceptions of social comparisons The theory is based on the perception of inequity We are motivated to act in situations which we perceive to be inequitable or unfair Equity situation:
Process theories of motivation
my rewards my effort and contrib.
your rewards your effort and contrib.
The perceived fairness of what the person does compared with what the person receives
Overreward vs Underreward Inequity

Comparison Other You
Outcomes Inputs Outcomes Inputs Outcomes Inputs Outcomes Inputs
Underreward Inequity
Equity condition
Overreward Inequity
Outcomes
Inputs
Outcomes
Inputs
The causal chain of equity theory

Perception of inequity experience of tension motivation to resolve
action to resolve
equity restored
Strategies for Reducing Inequity

Alter outcomes (e.g. ask for pay increase) Adjust inputs (e.g. reduce effort and performance) Acting on the comparison other (changing the comparison persons inputs or outcomes) Changing the comparison other (compare with someone else) Changing perceptions - rationalize the inequity Leaving the field
Vrooms expectancy theory 1

The expectancy equation: F = (V x I x E) V = the strength of preference for the outcome I = the individuals perceived likelihood that good performance will lead to valued rewards E = the subjective probability or expectation that effort will lead to good performance
Vrooms expectancy theory 2

Effort - Performance Expectations
refer to employees beliefs that working harder will lead to performance
Performance -Reward Linkage

considers individuals expectations that high performance actually will lead to rewards
Value of Rewards
how valuable the rewards are to the employee
Retention of Human Resources

Myths About Retention
1. Money is the main reason people leave. 2. Hiring has nothing to do with retention. 3. If you train people, you are only training them for another employer. 4. Do not be concerned about retention during a merger. 5. If solid performers want to leave, the company cannot hold them.
Retention of Human Resources

Why People Stay or LeaveLinks, Fit, and Sacrifice
Culture and values
Positive, distinctive company that is well-managed, and offers exciting challenges.
Attractive job
Freedom and autonomy, exciting challenges, and career advancement and growth
Compensation and lifestyle

Differentiated pay package, high total compensation, geographic location, and respect for lifestyle
FIGURE 3-3
Drivers of Retention
FIGURE 3-4
Some Characteristics of People and Jobs
Employee Absenteeism
Absenteeism
Any failure to report for work as scheduled or to stay at work when scheduled. Involuntary absenteeism
Unavoidable with understandable cause (e.g., actual illness)
Voluntary absenteeism
Avoidable without justifiable cause (e.g., feigning illness)
FIGURE 3-5
Reasons for Unscheduled Absences
Source: Based on data from 2006 CCH Unscheduled Absence Survey, CCH, Inc., October 26, 2006, www.cch.com/press/news/2006. All Rights Reserved. Reprinted with permission.
Controlling Absenteeism
Disciplinary approach Positive reinforcement
Controlling Absenteeism
Paid time-off (PTO) Combination approach
No fault policy
FIGURE 3-6
Employee Absenteeism Control Actions
Employee Turnover
Turnover
The process in which employees leave an organization and have to be replaced.
Impact of Turnover
Inability to achieve business goals
Loss of image to attract other individuals
High costs of turnover and replacement

Churnhiring new workers while laying off others
Types of Turnover
Involuntary
Controllable
Voluntary
Turnover
Uncontrollable
Functional
Dysfunctional
HR Metrics: Measuring Absenteeism

Measuring Absenteeism
U.S. Department of Labor formula:
Number of person-days lost through job absence during period 100 (Average number of employees) (Number of work days)
Other Measures of Absenteeism:

Incidence rateabsences per 100 employees each day Inactivity ratepercentage of time lost to absenteeism
Severity rateaverage time lost per absent employee during
a specified period of time
Computing the Turnover Rate:
HR Metrics: Measuring Turnover
Number of employee separations during the month 100 Total number of employees at midmonth
Costs of Turnover
Separation costs
Replacement costs Training costs
Hidden costs
Ways to Measure Turnover:
HR Metrics: Measuring Turnover (contd)
Job and job levels Department, units, and location Reason for leaving Length of service Demographic characteristics Education and training Knowledge, skills and abilities Performance ratings/levels
FIGURE 3-7
Simplified Turnover Costing Model

Teller 20,000 8,000 28,000 20 3 3,500 70,000
(40%)
FIGURE 3-8
Managing Retention
FIGURE 3-9
Possible Retention Interventions

Improved Retention
Spot cash awards for good work Develop profiles of successful employees and hire to the profile Learning bonuses Focus groups on employee issues Voluntary job sharing Realist job avenues Excellent employee development Payback agreement for moving expenses Clear goals Accurate performance appraisals Competitive benefits Career counseling Mentoring Diverse workplace Sabbatical leaves
Facilitate promotion/transfer Reward managers with low turnover Fair pay Fulfilling work Avoid hiring those with a history of turnover Tuition reimbursement and promotion for education Retention bonuses Subsidized child/elder care Retrain for promotion/transfer Pay tied to performance Telecommuting Recognize good work Good working conditions Friendly work culture/co-workers Considerate supervisors
Summary and implications for future HR specialists

HR planning should be tied closely with the overall process of strategic planning of the organization HR planning involves analyzing and identifying the future needs for and availability of human resources of the organization Individual performance components include individual ability, effort expended and organizational support Absenteeism and turnover are expensive but they can be controlled with various interventions. Handling the retention management process well pays off the organization.

HR M Class 2 Strategy and Retention

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Human Resource Management, Class 2

Zsuzsanna Vitai HRM 2013 spring

Explain strategic HR management and how it is linked to organizational strategies.

Concepts and learning objectives

Explain ways to measure absenteeism and turnover.

Strategic Human Resource Management

Organizational culture: the shared values and beliefs of a workforce

Strategic HR Management Process

Zsuzsanna Vitai HRM 2013 spring

Strategic Success with HR Practices

50% higher market value!

Promotion from within

Common Areas for HR Strategies

Zsuzsanna Vitai HRM 2013 spring

Understand the business

Focus on key business goals

Know what to measure

Prepare for the future

Zsuzsanna Vitai HRM 2013 spring

Possible HR Areas for Core Competencies

Zsuzsanna Vitai HRM 2013 spring

Customer service and quality

Zsuzsanna Vitai HRM 2013 spring

Unit labor cost

Approaches to Improving Organizational Productivity

HR Effectiveness and Financial Performance

Zsuzsanna Vitai HRM 2013 spring

Organizational Effectiveness and Financial Contributions of HR

Human Resource Planning

Zsuzsanna Vitai HRM 2013 spring

Typical Division of HR Responsibilities: HR Planning

Zsuzsanna Vitai HRM 2013 spring

Small Businesses and HR Planning

HR Planning Issues in Small Businesses

Evolution of HR activities as the business grows

Family relationships and HR policies

Zsuzsanna Vitai HRM 2013 spring

Overall Strategic Plan Human Resources Strategic Plan

Scanning the External Environment

Environmental Changes Impacting HR

Assessing the Internal Workforce

Organizational Capabilities Inventory

Assessing the Internal Workforce 2

Creates a profile of the current organizational workforce

Forecasting HR supply and demand 1

Zsuzsanna Vitai HRM 2013 spring

Zsuzsanna Vitai HRM 2013 spring

Forecasting HR supply and demand 2

Zsuzsanna Vitai HRM 2013 spring

Forecasting the demand for human resources

Zsuzsanna Vitai HRM 2013 spring

Forecasting the supply of human resources 1

Forecasting the supply of human resources 2

Estimating Internal Labor Supply for a Given Unit

Early retirement buyouts

Zsuzsanna Vitai HRM 2013 spring

Making Downsizing More Effective

Zsuzsanna Vitai HRM 2013 spring

Managing a Shortage of Employees

Add contingent workers

Bring back recent retirees

Human Resource Shortage

Zsuzsanna Vitai HRM 2013 spring