Strategic Human Resource Management (SHRM) is an intricate procedure that is constantly reshaping and continues to elicit a lot of debate regarding what promotes. Definitions range from a HR system that is accustomed towards the requirements of a business process (Miles and Snow, 1984, pg. 32) to organized HR activities’ pattern that enables a firm to achieve its goals and objectives (Wright and McMahan, 1992, pg. 52). Although there is a slight difference between these two definitions, the impact is quite substantial. In the first definition, human resource management is a reactive supervisory field in which it becomes a tool for executing strategy. The second definition has a hands-on role in which the HR actions actually create and shape the business policy.
SHRM is in theory a link between the different earlier known forms of human resource management procedures within the strategic planning and running of business organizations. It incorporates HR considerations with other physical, monetary and technological resources in placing targets and finding solutions to intricate organizational problems (Lengnick-Hall & Lengnick-Hall, 1988, pg. 467). SHRM emphasizes on a set of principles and practices that have a capacity of creating skilled, knowledgeable and able pool of employees that.
It can be considered as a common approach to the strategic management of human resources in line with the goals of the organization. It relates to matters affecting human resource and in general concerns about constitution, value, policies and matching resources to the organization’s future requirements. A general definition of strategic human resource management has been given as ‘all those activities shaping the behavior of persons in their attempts to devise and put into practice the strategic requirements of the organization’ (Schuler, 1992, pg. 365- 392). A second definition is ‘the model of planned human resource positioning and the activities aimed at enabling the forms realize the goals’ (Wright and McMahan, 1992, pg. 295-320).
Theoretical Models of HRM
Critics have often disagreed over whether HRM domain contains a rational theoretical framework for describing the HRM function in an organization (Butler et al, 1991. pg. 12). This criticism has been sustained until recently when SHRM scholars developed theoretical models that attempt to expound on the issue. These theoretical models are very essential in understanding the strategic and non-strategic factors that determine the HR practices employed in a firm. They include:
- Cybernetic model;
- Agency/transaction cost theory;
- Resource-based theory;
- Power/resource dependence theories.
Resource-based view of the organization
Since the establishment of strategy as an area in the field of management, strategists have relied mainly on a single structure to frame their research on strengths, weaknesses, opportunities and risks (Barney, 1991, pg. 99-120). Resource-based perspective differs from the earlier strategy model in that it focuses on the connection between strategy and the firm’s internal resources. Its outlook on competitive advantage focuses on the firm while the previous model focused on the association between the industry and the environment.( (Barney, 1991, pp. 99- 120).
This perspective studies organization of control systems. Cybernetic perspectives differ in their analysis of the system. While some models focus on closed systems that seek to bring up mechanisms to shield the technological hub from the environment, others view the system as being open to effect exchange with the outer environment. Open systems hold that firms can be illustrated as input, throughput or output systems interrelating with the surrounding environment. Katz & Kahn (1978, pg. 35- 50) assert that firms are made of patterned activities or persons with a common goal.
Such activities can be in the form of an energetic input into the firm (capital, technology etc), conversion of energies within the system and the product. Mowday (1983) was one of the HRM scholars to apply the systems model to human resource management practices; he proposed strategies for lowering turnover by applying Thompson’s (1967) model of organizational structure and control. Wright and Snell (1991) were able to use an open system to generate HRM policies that showed that in competencies where a firm could make use of a person came about because of projected inputs in the system.
Agency/ transaction cost theory
This theory has been applied in HRM function in exploration of transactions hence controlling employee conduct. This approach of observing the problems in human resource is based on the field of finance and economics and attempts to internalize financial dealings as a way of minimizing the costs associated with the financial dealings. The approach recognizes bounded sanity and opportunism as the two human factors that act as major impediments to human exchange.
Bounded rationality is the phrase used to refer to the fact that persons are subject to information processing limits while opportunism refers to fact that persons’ will act in a self-interest and cunning manner in pursuit of their goals. When these factors are combined with environmental characteristics of uncertainty and diminutive numbers exchange relationships, the result is a loss of transaction and agency costs (Jensen & Meckling, 1976, pg. 321). Costs that make transactions more effective are related to supervising, negotiation, assessment and implementing exchanges between two parties. This theory is popular in strategic management literature in studying diversification, internalization and restructuring in an organization.
Resource Dependence/ Power Models
Power dependence model is an interesting non-strategic approach to managing HRM practices. Here, the focus is mainly on the different power associations between firms. It postulates that all firms depend on a flow of resources in order to continue operating. The ability to practice control over these valued resources offers a person or group a significant source of power. The model shifts the focus of SHRM as being mechanistic.It is the political other than strategic factors that mainly influence development of the final product. In addition, the power and politics perspective illustrates the potential of the HRM function to amplify its function as a strategic associate in the organization.
Downsizing, also known as layoff or redundancy, is a short-term suspension or permanent termination of the services of a single or group of employees. Budros (1999, pg. 70) defines it as the conscious application of permanent staff decrease in order to improve the performance of a firm. Downsizing is a strategic tool for turning around the performance of struggling firms through cutting of costs thereby improving its performance (Mellahi & Wilkinson, 2004, pg. 245). Downsizings also enable a company center on its strongest competencies and outsource other nonessential services.
While there are obvious short-term benefits to this approach, the effects of downsizing could have long-term negative effects on the performance of an organization (Di Frances, 2002, p. 49). The main reasons that company executives give as the main reasons for downsizing are restructuring of the firm, business downturn and reengineering of the firm. Most of those who advocate for the practice say that it improves profits without affecting productivity and is an essential tool for guarding a firm against bankruptcy. Studies have shown that downsizing indeed increases the profit margins; but these are temporary.
Effects of Downsizing
Downsizing is often unsuccessful in achieving its targets. Its effects are felt by both the senior management and low-cadre employees who survive the process. The survivors lose the team-sense and work under high stress levels that lead to low output (Jacobs, 2000, Para. 2). This means that it affects the employee- organization negatively since survivors live in constant fear of losing their jobs. In addition, they are forced to input more effort at the workplace leading to exhaustion. There is a direct relationship between the health of the remaining staff and downsizing. The frequency of sick leaves increase with a large magnitude after a downsizing operation. Some of the negative effects of layoffs include:
- Poor morale and lack of belief in the management from the subordinate staff.
- Loss of a knowledgeable and experienced pool of employees.
- Loss of corporate customs due to the lack of mentors for guiding present and new employees. An example is when IBM company dumped its life-long policies after numerous layoffs in the early 1990s (Mills and Friesen, 1996, pg. 1)
- Loss of conventional customer service and loss of consumer contacts.
- The firm’s reputation is adversely affected.
- Breach of contract- most downsizing operations normally go against the employment contract and such operations are normally based on employer-employee agreement.
- Discrimination claim- it is illegal to take a job-related action on an employee with respect to their gender, age, race, religion or membership in another groups protected by the law. Downsizing operations with respect these elements can result into legal processes leading to huge financial settlements.
- Tort claims- a tort is a charge of doing a wrong that may cause the victim a significant amount of injury. Downsizing operations can cause an organization to be sued for intentionally causing emotional pain, defamation, interference with contractual agreements and other claims based on the Tort Act.
Layoffs have successfully been implemented in a number of companies. An example of such a firm is Taiwan Semiconductor Manufacturing Company which laid off 3 percent of its 23,000 employees in the first quarter of 2009 due to a decline in income. This resulted to an 80 percent rise in income and the company eventually re-employed the dismissed staff.
Companies have embraced downsizing as a way of curtailing the effects of the recession. Companies that were hit hard by the recession include Starbucks, Nokia, and a UK betting firm. Ladbrokes was forced to shut down its Aintree call center. Despite the recession hitting various industries, some were flourishing due to sound SHRM practices. Such industries include video gaming firms such as Nintendo and Xbox 360 (Keane, 2008, Para. 4) and pharmaceutical companies such as Bristol-Myers and GlaxoSmithKline (Thalie Y., 2009, Para. 4).
Steps to follow in effective downsizing
In some situations, downsizing is unavoidable for organizations to remain in operation. Considering the possible effects of downsizing, the process should be well planned to ensure success. Downsizing is mostly the last resort. The initial step before downsizing should entail revising the leave structure for all employees. The leave days of employees should be looked at as well as additional package associated with leaves. This would help an organization to avoid possible liabilities that could be associated with leaves (Mellahi &Wilkinson, 2004).
The second step entails revising pay packages that are under variable pay. The human resource manager should help employees to understand the importance of such a move. The third step is to identify non-value added activities and resources. Non-value added activities can be stopped while non-value added resources could be relocated to performing areas. Threats to employee emotional engagement should be evaluated before embarking on downsizing. Last In First out (LIFO) criterion can be used where employees who are the last to join an organization becomes the firsts to be dropped. Another criterion to be used in identifying employees to be laid off includes chronic absentees. Employees who are consistently away from job without good reasons could be selected for downsizing. The most efficient criterion for downsizing is performance management system. Such a system would help in understanding individual contribution to an organization.
Most companies that undertook downsizing during the recession are striving to take back their employees level and pre-recession level. In fact, most of the companies aim to achieve this before 2012 (Pace, 2010, par 1). As economic situation improve organization are changing from cost cutting strategies to strategies aimed towards growth. Organizations that had poor downsizing are experiencing difficulties in ensuring fast growth as they had lost some of talented employees through downsizing.
Due to the negative effects resulting from downsizing, an organization must strive to avoid the practice. Alternatively, a company can adopt some of the following strategies in its HR management process.
- Employing employees in other department other than the ones currently employed.However, this will require the Human Resource managers to manage career effectively so that they can know positions that require new employees. Career evaluation and development actions should be practiced so that employees can be prepared for the positions to which they will be deployed.
- Formation of SHRM models by companies can eliminate the need to downsize its staff. These include cutting salaries/ wages and arranging placements with other companies to absorb some of its staff.
- The company can also formulate a policy aimed at reducing working hours. The aim of this strategy is to reduce the salaries paid to workers. Job-sharing between two or more people can also be adopted.
- Attrition, this is where the company waits for its staff to retire or leave voluntarily. The company can then leave such positions unfilled thereby reducing costs. Additionally, they should give early retirement and other benefits to the staff members who are willing depending on the type of job as well as the age of these staff members.
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