Business Issues and the Contexts of Human Resources

Introduction

The main wealth of any IT company in today’s competitive environment is represented by people, their intelligence, creativity, and ability to create know-how. Therefore, a prerequisite for the successful functioning of the enterprise and its development is to ensure a high level of human resources management system. Finding, selecting, and hiring in IT company is a long and costly process.

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Each company strives to attract only those human resources that fully meet the goals and values of the organization. In the IT sphere, in addition to expanding the segment itself, the complexity of the tasks that professionals have to solve is increasing. In addition to the task of selecting employees and creating optimal conditions for their improvement, an important factor is the development of leadership qualities of managers.

Today, not only HR and accounting (personnel accounting and payroll), but also management of staff training and development, staff selection, motivation, compensation, career, etc. are included in the sphere of HRM. Effective use of HRM techniques allows raising the motivation of employees to a new level, increasing not only the profit of the company, but also its image, enabling it to successfully enter new markets and to gain a sustainable competitive advantage.

Internal forces of HR

The organization’s competition basis is web development and business applications integration into corporate information management system (CIMS). The organization has 250 employees, some of whom work on a remote basis. Organizational structure is of project matrix nature. As the company applies Agile methodology for all its projects, HR service is designed specifically to correspond to Agile environment, which implies the following practices:

  • “Interaction systems,” and not just “recording systems,” that is, cooperation, information exchange, project management, etc.;
  • Focusing on lifelong learning and a learning culture at all levels
  • Creation of programs of remuneration and recognition of each other among specialists of equal level;
  • Development of programs to promote diversity in teams;
  • An organizational culture in which employee engagement, teamwork, and trust are priorities.

Thus, the HR service fulfills the function of coordinating Agile practices throughout organization, as well as maintaining motivation and organization culture.

In order to be successful, the HR service, along with other business units, must perform a number of functions ‑ from basic operations to strategic planning. However, many HR professionals make the typical mistake of focusing solely on strategic management or tactical components, while balancing strategic and tactical action is important. There are many “models” that outline the most important areas of activity of the average HR service.

The most famous of these is undoubtedly the “four sectors” or “business partnership” model proposed by Dave Ulrich from the University of Michigan. However, whatever effective this model may be, it does not define the role of strategic planning. Alternatively, the Five Levels of HR Contribution Model (see Figure below), which better describes all levels of HR service functioning, is used in IT company under consideration. The “work” of HR managers can be clearly divided into five levels, from operational to strategic.

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The Five Levels of HR Contribution Model.
Fig. 1. The Five Levels of HR Contribution Model.

Managers holding strategic business positions define only the main end consumers of the company’s products and services as their clients. Each employee should consider enhancing the value of these products and services to the end user as their priority and consider any action within the company from this point of view. However, when providing services within a company, it is important to clearly identify internal customers as well (Storey, Ulrich and Wright, 2019). For HR managers who have already attained leadership status, and for those who are just coming to it, it should be obvious: to influence strategically, they must identify the company’s top executives as their “internal clients.” There are many reasons for this, and below there are some of them:

  • Top executives take a strategic position by definition: they control resources and lead units. Almost no mid-level manager can influence at the strategic level, so defining them as clients means to end any opportunity to influence the results;
  • Top executives act as supervisors to line managers, which means they can influence them, persuade them to follow the advice of the HR manager and implement HR programs;
  • To become senior executives in other business areas, HR directors must first demonstrate the success of their department in supporting productivity, enhancing profits, and achieving common corporate goals.

Thus, namely the company’s top executives are the main internal clients of HR units. The HR manager should understand the business tasks of other top executives, their needs and expectations regarding human resources and then propose appropriate HR systems. All HR plans, services, evaluations and performance measurements should be tailored to the goals and objectives of these internal clients.

The Harvard model of HRM is also applied to ensure fulfillment of HR service functions, with analytical framework of consisting of six basic components: situation factors; stakeholder interests; HRM policy choices; HR outcomes; long-term consequences; feedback loop between the organization and the stakeholders (Storey, Ulrich and Wright, 2019). This model has two characteristic features:

  1. a large part of the competitive strategy and policies in relation to personnel lies with middle managers;
  2. employees must develop rules that guide the development of staff activities and are applied in such a way as to mutually reinforce the middle and lower levels of management, which corresponds to Agile vision.

The Harvard scheme in the form in which it was modeled by Beer et al. is shown in Fig. 2.

Harvard HRM model.
Fig. 2. Harvard HRM model.

Both models contribute to overall Agile environment in the company under consideration, as knowledge workers enthusiastically perform complex tasks. This is their natural occupation, however, it is needed to consider the following: it is important for them to understand the meaning and purpose of their work, they need recognition and respect. Such employees need to take responsibility and participate actively in the activities of the company.

In order for them to generate innovations, they need to be empowered with broad powers and creative freedom. This is the basis of a new way of interacting with an employee. Management should not only understand the motivation of such people, but also the need for appropriate changes in management. This is closely related to the transition from task management based on directives and control to leadership development. This approach is expressed in two Agile HR principles: use internal employee motivation; decentralize decision making.

This inevitably affects the interaction of the HR service with managers and staff. The company must take into account the views of employees on how to support them, and this applies not only to career development, but also to the entire value chain in the personnel sphere.

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HR function: impact of external factors

Taking responsibility for improving performance and forging a “culture of productivity” at the company, HR professionals often complain that it is “unfair” to expect them to manage productivity, since the end results are influenced by many other factors besides the actions of employees of different units (Purcell and Boxall, 2016). To achieve a strategic result, one needs to get a loan of trust, and, above all, to take responsibility, to a certain extent, become the “master” of some strategic area. In our case, the HR service needs to feel involved in the task of improving the productivity of employees and to take responsibility for its implementation, based on taking into account the influence of external factors. The influence of the macro environment on HR management is dynamically noticeable. In particular, these concerns the following factors:

Market condition

Market condition affects HR service: when market conditions change, organization also needs to track these changes and find out how they affect resources and analyze these functions. In a highly dynamic IT market environment, this is especially important.

Competition for IT specialists

Moreover, when organizations of the same industry compete for the most qualified resources, it is necessary to analyze competition and offer resource packages that are best in terms of industry standards. The IT industry is in constant development and requires highly qualified specialists. It is difficult to find professional employees in this segment. Companies expand their capabilities faster than specialists appear, which determines the widespread use of headhunting. Thus, the HR service has to maintain sustainability of its ‘competitive advantages’ in the minds of employees.

CSR initiatives and integrated reporting

Today, CSR became one of the crucial factors determining the goodwill and overall value of companies. Moreover, integrated reporting now determines attractiveness of companies both for customers and investors. Thus, the HR service of the company under consideration should participate on the constant basis in the development of CSR initiatives, drawing up elements of integrated reporting, and working with personnel to ensure their adoption of CSR values and politics and commitment to them.

Comparison of SWOT and PESTLE analytical tools

SWOT analysis is often referred to in the business literature as a tool for selecting alternatives when considering a strategy, and it is quite rare to mention that it can also be applied in the HR field. When using SWOT analysis, we are primarily concerned with the following areas of activity: recruitment, personnel development, project management, internal analysis of the organization. The purpose and capabilities of SWOT analysis in relation to the HR service is to map out what to do next based on objective information. It should be remembered that the strengths and weaknesses depend on the personnel management service itself, and the opportunities and threats must be sought outside.

Initially, it makes sense to evaluate the external factors. Opportunities often determine the direction of HRM development. To evaluate the reality of the use of a particular opportunity, the head of the HR department must answer several questions:

  • How to convey to the top managers the benefits that one or another opportunity promises?
  • Does the HR department have the resources and means to realize specific benefit?
  • Will the HR service realize the opportunity better than an external provider?
  • What is the economic efficiency from the realization of each specific opportunity?

Opportunities that are not related to external risks, to which the strengths are relevant, and which coincide with the strategy of development of the company as a whole are considered the best. External threats are possible adverse scenarios that, in the absence of safeguarding mechanisms, can lead to problems in the operation of the HRM. However, the insignificant threats can be ignored. Other threats require constant monitoring and development of action plan in the event of a particular threat.

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After analyzing the external factors, one can move on to the assessment of the internal environment. It should be remembered that the analysis of internal factors is desirable to be carried out periodically, so as not to miss the opportunity to implement external positive factors and for the HR service to be constantly developed. One of the results of the analysis can be a plan to correct the identified deficiencies in the service. In this case, the plan can be both evolutionary and providing for a gradual change in the work of the service, as well as a revolutionary one, thanks to which a significant change in the work of the personnel service occurs ‑ up to the transition of a part of business processes to outsourcing service.

The experience of the organization considered in this paper shows that there is a lack of coordination between the departments of the company when conducting a SWOT analysis. Therefore, it is very important to look at the working relationships between departments in general and employees in particular as a very significant factor in the internal environment. It is good practice to prepare an annual analysis in which each unit participates. At the same time, each unit is both a supplier and a consumer of services of other units. After evaluating and analyzing the internal and external factors, a table can be drawn up to ask additional questions (Table 1):

Table 1. Elements of interpretation of SWOT HR analysis data.

SO
How can you use the available opportunities due to your strengths?
What opportunities can make strengths even stronger?
ST
How, using your strengths, can you resist threats? What threats can deprive an object of its strengths?
WO
What features can be used to improve performance (eliminate deficiencies)?
How can weaknesses prevent from taking advantage of opportunities?
WT
What weaknesses can prevent you from properly confronting threats?
What threats can further exacerbate weaknesses?

By compiling the answers to the above questions, one can get ready-made options for further actions. After conducting a SWOT analysis, a list of tasks for the HR department is compiled. It is also worth considering that initially it is not a detailed work plan that is drawn up, but strategic milestones in the work, the implementation of which will raise the work of the HR department to a new level.

In the same context, it should be noted that, unfortunately, today the situation is such that most T&D managers (training and development managers) plan training based on applications from various departments. They either respond to specific requests from departments or offer their own training plan based on previous experience or preferences. However, in both cases, it is a reactive approach to staff training, and T&D, to a greater extent, serve as organizers. In some situations, such a strategy may be justified, and the organizational function is an integral part of T&D, but a proactive approach to training allows achieving qualitatively different results. The first step towards a proactive HR approach is PESTLE analysis. It is one of the steps to HR business partnership, when the personnel department becomes not just a department providing a service, but also a strategic business partner that directly affects its success. Below we consider each of the factors in more detail.

  1. P (Political) – Political factors (stability of the government, tax policy, regulation of international trade, social policy). This section includes the following questions: How do political changes affect business? Perhaps changes are coming and it is necessary to prepare personnel for changes? How to prepare them? What activities should be carried out today so that these changes become new opportunities in the very near future?
  2. E (Economic) – Economic factors (GNP trends, sanctions, inflation, unemployment, global economic crisis). What skills will be most in demand in this economic situation? How to develop them with a minimum budget?
  3. S (Social) – Social factors (population demography, social mobility, income distribution, work and leisure traditions, level of education of the population). How to train staff of various age categories? What type of training is most suitable for people of generation X, and which for generation Y?
  4. T (Technological) – Technological factors (innovative developments, the speed of diffusion of new technologies, the proportion of obsolete technologies, government support for the development of new technologies). What new technologies can be applied for staff training? What is e-learning? What training can be done interactively? The speed of data processing directly affects the company’s business performance. How to train employees to work with databases and software as quickly and efficiently as possible?
  5. L (Legal) – Legal factors (laws on competition and monopolization of production, laws on employment, the Labor Code, laws on the protection of employee health, product licensing). Do employees interact with licensed equipment, products, or services? How legally, from a legal point of view, do employees represent the company? Indeed, for the mistakes of employees, the company will first have to pay. Another important aspect from a legal point of view is the presence of registered training programs in the company (i.e., its own developments). If there are any, then no trainer leaving the company has the right to conduct similar programs, since they are the intellectual property of the company.
  6. E (Environmental) – environmental laws, energy consumption, waste management. What do the company and its employees do to protect the environment? How can corporate events be held (collecting old batteries, reusing paper, etc.)?

PESTLE analysis helps to cover all external factors that affect a business, and therefore, people. Using this type of diagnostics, it becomes possible not only to show the expertise in the issue of staff training and development, but also to study the company’s business as deeply as possible and plan, relying not only on momentary requests, but on a long-term strategy based on the analysis of the whole situation ‑ internal and external factors affecting business success.

A brief comparison of SWOT analysis and PESTLE as tools used in HR practice is given in Table 2 below. These two types of analysis are of practical value for organizations, but their use directly depends on the strategic goals of the company. It is also worth noting that SWOT analysis and PEST analysis complement each other well.

Table 2. Comparison of SWOT analysis and PESTLE as tools used in HR practice.

SWOT PESTLE
Advantages
It is possible to summarize and conduct a comparative study of the data obtained, regardless of their purpose and type Providing a holistic picture of the external environment
Using SWOT analysis, one can conduct a thorough analysis of the current situation. A detailed analysis of the external environment, stimulating the head to action and taking into account external factors
Drawbacks
The disadvantage of the SWOT analysis is the impossibility of obtaining any indicators in a quantitative or evaluating form. In order to find a solution for specific problems, the information content of the analysis is not enough. In this case, the analysis can only indicate, but not compare with competitive indicators or evaluate performance results. This method does not take into account “internal” factors, and is suitable only for the analysis of long-term goals; it does not allow to respond quickly to changes

Stages of strategy formulation and implementation: the role of HR

Formation of a strategic vision for the future of the company

Today, human resources departments have a more precise strategic role in companies, and the HR strategy affects the outcome. At present, it can be said that HR technologies have become an integrated mechanism in promoting the wider needs of the business, supporting much more than basic transactions, and promoting the future of HR and business. The formation of the HR management system is determined by the organization’s strategy, depends on the management mechanism and is determined by the principles of HRM, manifested in specific methods and forms.

The HR service tries to understand the business, knows the technology of the company and seeks to increase its value. The purposeful formation of a HRM system must be carried out on the basis of a strategy. The development strategy should be understood as a long-term program of action, which reflects the vector of changes, the priorities of the goals in determining the rights and obligations of employees to achieve them. The HR strategy stems from a corporate strategy that should be customer-oriented (Westover, 2014). The model of strategic HRM reflects the strategic goals of the organization.

Setting goals and translating strategic vision into a practical plane

At the second stage, the company’s mission is formed. It reveals the main content and activities of the company at the present time. For people working in a company, it is important not only in what the company is useful for them as employees, but also what are the benefits for the society of which they are members. Therefore, mission inevitably becomes an important part of corporate culture. Being an external tool, the mission can and should be used, in parallel with the goals of the company, as an element of internal PR, which is the immediate task of the HR service

Creation of a strategy

The third stage is the creation of a strategy, when management plans how to achieve the goals set, taking into account the situation and prospects of the organization. At this stage, it must be taken into account that constant changes are taking place in the external and internal environment, which implies a constant change and adjustment of the strategy, including HR strategy. Moreover, a great influence on the development of a personnel management strategy is provided by the stage of the company’s life cycle. At the stage of birth and establishment of a business, the personnel strategy is aimed at attracting young initiative people, mainly on the basis of the “family” principle.

At the stage of active growth, emphasis is placed on standardizing procedures for attracting and selecting personnel, as well as on developing corporate communications. Often, additional investments are required to hire highly qualified specialists and create a system of training, assessment, and quality control of work. The company’s entry into the stability stage is characterized by optimization of business processes, increased cost control and the creation of an effective and economical HRM system. At the recession stage, a high degree of bureaucratization is observed, as well as a strengthening of the control system. In order to survive the business, measures are often taken to reduce staff.

Strategy implementation

Depending on the chosen strategy of the organization (strategy of entrepreneurship, dynamic growth, liquidation, change of course), emphasis is placed on certain components of the strategy. So, to implement an entrepreneurship strategy, innovative employees are required. Practice of the company we consider shows that a small number of employees introduce innovations, while the task of managers is to provide conditions for the development of individual qualities of such employees, as well as a high degree of participation in project management.

Assessment of results

Employment is carried out mainly from among young people with high potential and necessary competencies. Evaluation of employees’ activities is carried out mainly on individual or group results and is not well formalized. Incentives are provided in the form of attracting employees to directly participate in the implementation of the organization’s strategy. When implementing this strategy, the opportunities for growth and individual development of employees are very important.

The agile approach to human resource management used in the company under consideration assumes that the company is working to improve its organizational agility in order to achieve competitive advantages in a rapidly changing environment. The development strategy and practices of the flexible HRM model are significantly different from the traditional approaches to personnel work and are presented in two directions.

The first area relates to the agile approach application in high-tech companies (mainly in the IT industry). The introduction of flexible methodologies ‑ Scrum, Kanban, extreme programming based on team work, requires a significant restructuring of HR functions, and not all companies are capable of carrying it out. According to practitioners, “one out of ten attempts is successful, despite the fact that guidelines have been developed for implementing the agile methodology in project management” (Thoren, 2017, p. 62).

The second direction ensures the formation and implementation of a flexible HR model as part of the overall development strategy of the company in a “dynamically changing environment” (Thoren, 2017, p. 63). Here a significant number of conflicting internal and external factors exists (automation of HR functions, shortage or lack of qualified personnel, high turnover, etc.) that affect the performance of a flexible HR system.

The role of HR in business ethics and accountability

In practice of the company, ethical aspects are reflected in corporate rules and code of ethical conduct. The role of HR managers in implementing ethical practices is very important ‑ they must train managers based on best practices in this area. It is necessary to initiate the necessary adjustment and implementation of a corporate code of ethics; become a role model, assist managers in addressing ethical dilemmas.

As to the accountability, as it was noted above, the role of HR in development and implementation of HR practices is significant. HR service indices represent an important part of integrated reporting. An increase in the level of involvement of organizations in CSR positively affects the quality of social and labor relations. In addition, it should be noted that corporate social responsibility as an instrument of strategic personnel management is called by experts among the main HR trends (Hughes, 2018).

The role of HR in change management and business performance measuring

It is very important that the HRM service represented has an appropriate status, allowing it to stand at the origins of organizational changes, and not just serve this process. Obviously, most of the problems can be avoided by advising the proponents of changes in advance when choosing particular approaches. Thus, the HR service acts, on the one hand, as a consultant to the owner and team of top managers, and on the other hand, helps to implement the existing plans in the most optimal way, that is, it performs the service role. Along with the indicated functions, the HRM service, during organizational changes, plays the role of facilitator and catalyst.

Moreover, organizational changes most often cause resistance from ordinary employees; therefore, top managers, together with the HRM service, have to overcome this resistance, implementing the system of motivation for change.

HR as a partner needs to understand the business from the inside, delve into the development plans and know the company’s strategy, ‘speak the same language’ with business representatives and broadcast the development strategy to staff. The most relevant areas in this include the following: organizational transformation of business processes; employer brand building; creation of a corporate university; restructuring and formation of an HR department in accordance with new business goals.

Recently, HRM services have been assigned new tasks aimed at developing the competitive advantages of companies and finding opportunities to solve strategic business problems through the use of human capital. Accordingly, when evaluating organizational effectiveness, HR metrics should be considered. In particular, it is important to consider not only the “visible” abilities (competencies) of the staff, but also the “intangible” ones, which gradually accumulate and eventually turn into the exceptional competitive advantages of organizations. This can be knowledge, relationships (behavior, organizational culture, teamwork, hobbies, etc.), as well as the know-how of staff.

The role and nature of information sources in HR practices

Human resources management information systems as a mandatory attribute of a modern company have long been widely introduced in most companies. However, the volume and quality of the personnel information used is insufficient for making optimal management decisions. Personnel information does not have the completeness that is available in other subject areas: finance, production, logistics. There are serious gaps in information about the professional activities of personnel, about indicators of their change (in particular, about the dynamics of competencies, etc.).

Meanwhile, the human resources management support information system is part of the corporate information system and should be organically integrated into a single business model of the company. The same circumstance requires the unification of information, that is, the interfacing of the human resources management support system with ERP, CRM, and other systems, with the corporate portal and other components of the corporate information system.

The main purpose of the software solution is to accurately, fully and on time provide managers with information about the human resources of the company and help in making decisions by working with a new type of information ‑ knowledge. Knowledge, in turn, creates a platform for choosing alternative successful solutions and implementing a “point” management impact.

Reference List

Hughes, C. (2018) Ethical and legal issues in Human Resource development: evolving roles and emerging trends. Palgrave Macmillan.

Purcell, J. and Boxall, P. (2016) Strategy and human resource management. New York: Red Globe Press.

Westover, J. H. (2014) Strategic human resource management. Boca Raton, FL: HCI Press.

Storey, J., Ulrich, D. and Wright, P. M. (2019) Strategic human resource management: a research overview. Abingdon, UK: Routledge.

Thoren, P.-M. (2017) Agile people: a radical approach for HR & managers. Lioncrest Publishing.

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