In human recourses management (HRM), there is a widespread recognition today that the profession has evolved into something that is much more important for the overall business operation than it was a few decades ago. Both the extensive research on human resources (HR) and the changing conditions of operating a business in the modern world have contributed to the evolution.
It is also acknowledged that the adoption of contemporary and advanced HR practices can make remarkable contributions to the business development of organisations and help the organisations improve their performance, gain competitive advantages, and bring their operation to new levels of excellence. However, in order to obtain these benefits, firms and HR managers within them should constantly analyse current trends in HRM and gain insight into the mechanisms through which advanced HR practices promote significant improvements.
In order to assess the evolving role of HR in the contemporary business world, six topics will be addressed: key forces that shape the HR agenda, business environment analysis tools, factors affecting business and HR function, stages of strategy formulation and implementation, business performance evaluation, and sources of business and contextual data.
Key Forces that Shape the HR Agenda
In the analysis of the importance of HR for business performance today, it is primarily necessary to examine such factors in shaping the HR agenda as HR function and HR strategies. First of all, Armstrong and Taylor (2014, p. 34) stress that ‘human resources within an organisation…are vital to ensuring the organisation meets its current and future objectives.’ From this perspective, the authors suggest that the HR function is to utilise various types of resources (e.g., financial and technological) and make the best use of those resources by applying knowledge and skills in the optimal way and to the full extent. Therefore, HRM has grown into a more comprehensive function today compared to mere handling of the processes of hiring and supporting employees. The latter understanding was widespread in the past but has been reconsidered within recent decades.
In order to examine this change in more detail, the concepts of efficiency, effectiveness, and performance can be addressed. Measuring performance is a crucial component of HR work, and HR practitioners have been involved in assessing individual employee performance since the dawn of the profession. In this process, many instruments and theoretical frameworks have been developed by HR practitioners, and, at some point, it became evident that those tools and frameworks can be used on a different level; i.e., for measuring the organisational performance. Organisational performance is constituted by individual performances but also features the element of adhering to strategic goals.
From the HR perspective, it is possible to assess whether an organisation performs properly and to propose recommendations as per possible performance improvements.
Similarly, the concepts of efficiency and effectiveness came from HR work as it was previously understood and were extended to overall business operation. Efficiency suggests that the same or larger value (output) is obtained with the use of a smaller amount of resources. Effectiveness, in turn, implies that the initially set goals are successfully achieved. HR managers have developed tools for assessing the efficiency and effectiveness of employees’ work in various professional spheres, and it allowed them to apply the HRM perspective to larger business operation processes. Therefore, the HR function has evolved from filling in available positions and assessing individual performance into planning the workforce and guiding businesses throughout their operation.
Apart from the HR function, the evolving role of HR can be also explored from the perspective of HR strategy. Various HR strategies—such as development, resourcing, reward, performance, and employee relations—have been integrated by HR theorists into coherent strategic HRM. Its crucial element is proactive management; with the knowledge and experience HR professional have, they are expected to plan the operation of their firms and those firms’ workforce needs as opposed to reacting to needs and challenges as they occur.
However, it is noteworthy that the shift of focus from basic HR functions, such as hiring and employee relations, to guiding business operation on a higher level does not mean that basic HR functions should be neglected or are now considered less important. Quite the opposite: the strategic HRM perspective suggests that HR processes and procedures should be taken to a new level, too, properly aligned with goals, and made proactive as well.
Further, the HR strategy perspective suggests that managers should pursue long-term HR function development in order to gain competitive advantages for their firms. In this context, a particularly important role is played by regular measurements: without evaluation, practitioners are unable to ensure the reasonability of business recommendations they provide to their firms.
Comparison of Business Environment Analysis Tools
To succeed in their work, HR professionals need to constantly analyse the environment in which their firms operate. In this context, two types of external factors can be identified: micro and macro; the micro environment consists of factors that can directly affect an organisation within the sector in which the organisation operates (these may include supply, distribution, and competition), and the macro environment consists of factors that can affect all the businesses in a given country or region (these may include policies and regulations, technology, and economy). Different tools can be used to analyse these types of environment, and three of them can be compared: the five forces model, the PESTLE model, and the SWOT model.
First of all, the five forces model was developed by Porter to help practitioners analyse the micro environment (Dobbs 2014). The five forces are constituted by the internal force of competitive rivalry and four external forces consisting of two types of threats—threat of new entry and threat of substitution—and two types of power—supplier power and buyer power. Analysis of competitive rivalry is based on the number of competitors, significant differences among competitors, and the customer loyalty rate.
Examining the threats and powers allows identifying the current position of a firm within its market sector. To evaluate the supplier power, it is necessary to consider the number and size of suppliers and the uniqueness of the products and services supplied by them; also, the ability to change suppliers and the cost of such changes should be estimated. To evaluate the buyer power, it is primarily necessary to assess the size of the customer segment and the price sensitivity indicator in it.
Further, to analyse the threats, it is necessary to assess the market performance of products and services that can be used as substitutes to what a firm provides to the market (threat of substitution) and to assess market prospects of the emergence of new competitors. As it is evident from the description, the five forces tool is mainly used to analyse competition and further provide organisations with recommendations as per gaining competitive advantages.
Unlike the five forces model, the PESTLE (politics, economy, social, technology, legal, environment) model is used to analyse the macro environment (Ho 2014). It focuses on factors that can affect organisations across market sectors because such factors are applicable to an entire country or a group of countries (e.g., international unions, such as the European Union).
These factors may include government decisions, taxation, economic changes (inflation or interest rates changes), social changes (including cultural), emergence of new technologies, changes in laws and regulations, and the issues of sustainability, pollution, and waste management. This analysis is similar to the five forces model in terms of methods (considering opportunities and calculating risks) but different in terms of the area of application (macro environment as opposed to micro environment), which is why the two models can be used by the same organisations without the need to choose either one of the two.
Finally, there is the SWOT (strengths, weaknesses, opportunities, threats) model that is used ‘to see what the organization has to work with as it begins to position itself to deal with the opportunities and threats identified through the analysis of the external environments’ (Schippmann 2013, p. 45).
Importantly, this model analyses organisations both internally (strengths and weaknesses are assessed not only in comparison with competitors but also based on organisations’ own internal operation) and externally (opportunities and threats are linked to relevant market developments). Unlike the two models described above, SWOT analysis reduces the number of consideration categories to four, but it is useful in terms of suggesting specifically what organisations should pursue and what they should avoid. In this regards, the SWOT model can be used by HR practitioners along with the five forces and PESTLE analyses.
Factors Affecting Business and HR Function
Among various factors that affect business and HR functions, including factors described above (see Comparison of Business Environment Analysis Tools), several examples can be specifically addressed to demonstrate the mechanism of analysis in HR practice. First of all, there are social factors, an example of which is the unemployment rate (Farber & Valletta 2015). On the one hand, a higher unemployment rate means that firms have a larger pool of potential employees, and this provides more opportunities for HR managers to hire adequate workforce.
On the other hand, high unemployment is often the result of economic difficulties that employers may face, too, in which case there may be a need for reducing their own workforce. In this scenario, HR practitioners will be forced to improve the efficiency of operation in order to ensure that all the required output is delivered with fewer employees. If these attempts are unsuccessful, the organisational performance will be undermined. Evidently, unemployment presents both opportunities and risks for firms and HR specialists in them.
Second, a type of influence organisations often face is legal changes (Shields et al. 2015). To a significant extent, necessary adjustments made to ensure that a firm complies with the current legislation as this legislation changes are performed by the firm’s legal department. However, different departments may be affected, and the HR function within a firm can be modified, too. This is especially relevant to labour law and regulations.
In case the government adopts new rules as per the way hired employees’ work should be organised, HR managers will need to comply with them. This is why the proactive approach is recommended: HR practitioners should be able to predict possible changes in laws and regulations and calculate the cost of introducing such necessary modifications in their organisations. Similar to the factor discussed above, legal changes can both strengthen and impede organisational performance.
The unemployment rate and legal changes are examples of external factors that HR professionals face in their work; there are also internal factors that should be addressed, too. An example of an internal factor is conflicts among employees; such conflicts may occur due to internal competition (e.g., for rewards) or due to cultural or demographic differences (Bamberger, Biron & Meshoulam 2014). On the one hand, conflicts impede the operation of an organisation because time is spent on settling conflicts instead of pursuing organisational goals.
On the other hand, conflicts often reveal internal problems, such as contradictions among expected contributions from different employees. From this perspective, it cannot be stated that conflicts are a negative factor altogether; instead, HR practitioners should view them as opportunities to improve performance by eliminating elements of operation that make conflicts possible or by creating new mechanisms of resolving conflicts that will help a firm avoid negative consequences in the future.
Finally, another internal factor affecting business and HR function is budgeting (Wehrmeyer 2017). HR managers can provide recommendations to their firms’ executives as per favourable ways of distributing funds internally, but HR managers are not the decision-makers. In most cases, they find themselves in a situation of a given budget, and their task is to make sure that maximum benefits are obtained through the use of allocated funds.
It cannot be doubted that budgeting is a major internal factor affecting business; however, its implications for the HR function may not be obvious. For example, HR managers may need to fill in both revenue-generating and non-revenue-generating positions (although positions in the latter category still participate in value creation), and stretching the staffing budget may require reconsidering the base pay (Ashe-Edmunds n.d.). In such cases, HR practitioners are also required to demonstrate their financial planning skills, which is an additional feature of the HR function.
Key Stages in Strategy Formulation and Implementation
To further analyse the role of HR in modern business, it is necessary to explore the ways in which HR strategies and practices are designed and developed. For this, it is possible to examine the five phases of the Kepner-Tregoe strategy formulation and implementation process (Hall 2013). The first phase is strategic intelligence gathering and analysis; it refers to the processes of collecting data needed for strategic decision making and further analysing it in order to transform the data into meaningful information that organisations can use in phase two. The collected data may be associated with the local, national, or international business environment, expected changes in the macro environment, and such an aspect of HRM planning as talent management.
Phase two is strategy formulation, and it involves more processes than mere verbalisation of long-term goals. Armstrong and Taylor (2014) suggest that strategy formulation involves active engagement in the creation of roles, frameworks, processes, and systems that will contribute to organisational flexibility and responsiveness; i.e., will allow an organisation to adapt to changes more easily, faster, and at smaller costs. Importantly, the ultimate strategy formulated as a result of phase two should be not only feasible but also measurable; practitioners need to ensure that an organisation’s activities can be assessed properly in the future and linked to the strategy.
The third phase is strategy implementation planning. In this transition from the strategy to specific courses of action, HR practitioners should identify objectives and translate strategic goals into activities that should be performed to achieve the goals (Taylor & Wilkinson 2012). It is noteworthy that such objectives should be specific, measurable, achievable, relevant, and time-bound (SMART objectives n.d.).
This planning allows increasing business accountability because it allows businesses to define their goals and take responsibility for attaining them through particular actions. Additionally, it is important that HR managers also include evaluation planning in this phase; in order to evaluate the strategy implementation process afterwards, it is necessary to establish evaluation criteria before the implementation phase based on the formulated strategy.
Phase four is strategy implementation; Armstrong and Taylor (2014) suggest that this process involves the development of organisational culture and behaviours as a method of obtaining and distributing knowledge and skills in a way that will allow smoother adaptation to new strategic options. An important part of the organisational culture of a firm is business ethics, and HR practitioners should engage in the promotion of ethical behaviours. Ethics is a powerful tool of employee relations and organisational culture maintenance; if employees agree on shared principles of appropriate business operation, they are more likely to cooperate successfully than in situations in which business ethics is not supported by HR managers and is thus weak.
Finally, the fifth phase is strategy monitoring and updating. As it was explained above, criteria for evaluating the successfulness of a strategy should be planned before the implementation; however, they may be reconsidered and augmented as the implementation process unfolds. Therefore, the monitoring process should identify specific challenges and report them to strategy planners and implementers. Based on this feedback, the strategy can be updated in case strong evidence is obtained that its current formulation should be improved.
Business Performance Evaluation
There is a widely shared recognition that businesses need proper evaluation mechanisms in order to establish whether their performance is optimal and what can be improved; however, there are various possible evaluation principles, and this is why it is important to define and categorise evaluation variables. Three specific types of indicators can be explored: financial, customer-based, and internal processes-based.
The first type refers to different financial key performance indicators, primarily including profitability, return on investment, liquidity, and cash flow. It can be argued that the financial indicators are relatively less challenging than other types of evaluation criteria because they are quantitative and can be calculated with a high degree of precision by finance experts working for a firm. Although the maximisation of profit is the main goal of businesses, financial indicators are insufficient for full performance evaluation because knowing how much an organisation earns does not fully confirm that the organisation is successful; e.g., in terms of being able to sustain its current financial performance.
Another type is customer-based evaluation, which refers to assessing customer quality. In this regard, HR professionals should plan sales, the number of current customers, the number of repeat customers, and the customer loyalty rate. Customer-centred evaluation is somewhat vaguer than financial evaluation because the latter operates quantitative values while the former operates qualitative ones, such as customer satisfaction. While some measurements can be performed with a fair degree of precision, such as the number of customers, the volume of sales, and the market share, some other measurements are subject to interpretation, such as customer feedback.
Also, in order to plan improvements in customer-related performance, HR practitioners need to engage in extensive analysis of interactions between an organisation and its customers. This once again demonstrates the evolution of the role of HRM in modern business: traditionally associated with internal operation and the employee dimension of business, HRM today also enters the customer dimension (Goetsch & Davis 2014) and expands its planning initiatives, thus affecting business operation to a larger extent.
One more type of evaluation criteria is associated with internal processes; it can also be described as the employee-based evaluation. This type of evaluation focuses on establishing whether current organisational procedures and mechanisms are properly adjusted, effective, and efficient. The employee dimension is primarily linked to performance: as it was explained above (see Key Forces that Shape the HR Agenda), performance is a major concept in HRM, and HR practitioners possess adequate instruments for measuring individual performance and establishing whether improvements are needed and, if so, what those improvements are.
Further, employee-based evaluation includes assessing knowledge, skills, and abilities possessed by current employees collectively and individually. Importantly, in this type of evaluation, targets are initially set for each individual position, and performance evaluation is subsequently largely based on how successfully an employee achieves target performance indicators. Finally, there is the consideration of employee engagement (Alfes et al. 2013): if employees are actively involved in suggesting improvements and communicating extensively with their supervisors and HR managers, it may indicate a better employee environment and, therefore, better prospects for the performance of a firm.
In the context of evaluation, particular attention should be paid to the role of HR in change management. Based on the results of evaluation, HR professional should be able to promote necessary changes in their organisations. For example, if it is revealed during the evaluation process that certain positions are in conflict, HR managers should revise job requirements for the two positions to eliminate conflicting elements and ensure smoother performance.
In another example, evaluation may demonstrate that customer loyalty is decreasing because of the worsening image of a firm. In this case, the HR department should ensure that the organisation suffering from such a decrease pays more attention to public relations by allocating more human resources to customer communications and building a more favourable image of the firm among its current and potential customers.
Sources of Business and Contextual Data
Finally, the process of business planning can be explored from the perspective of data assessment and data use; for this, four sources of business and contextual data can be examined. First of all, HR strategies and business plans focus on organisational aims and objectives; i.e., the documentation generated by organisations themselves during the strategy formulation phase (see Key Stages in Strategy Formulation and Implementation). In their activities and suggestions, the practitioners should rely on the initially established strategy and ensure that their firms’ operation contributes to the achievement of strategic goals and does not impede the achievement of such goals.
Further, data on implementation barriers and constraints should be collected and analysed. The sources of such data are implementation plans (which are, again, part of the documentation generated by firms themselves) and external reports, such as industry reports (Bapna et al. 2013), that analyse the micro and macro environments and predict what challenges can be faced by organisations in their operation in the nearest future. Reasons for these challenges may include economic, technological, or regulatory changes. Implementation plans, in turn, describe resources needed for the achievement of goals, business accountabilities, financial implications, and timescales established during the planning stage.
Another source of data for appropriate business planning is cost-benefit analysis. This type of analysis is performed prior to taking certain measures with the purpose of calculating the costs of those measures and the benefits that will be obtained upon taking them. Therefore, if the analysis is performed correctly, it can be established whether the benefits will cover or outweigh the costs and, therefore, whether the addressed measures should, in fact, be taken.
In order to use the cost-benefit analysis tool, HR managers should access various types of information based on the essence and the area of the decision to be made; however, what is especially important in this regard is further using the analysis results as a source of data for planning business performance. A specific consideration in the context of this type of analysis is the indicator of return on investment.
Finally, extensive communications with all the stakeholders constitute an important source of data used for better business decision making. Three major categories of stakeholders can be identified from this perspective: employees, organisations’ decision-makers, and customers. HR managers should integrate feedback from customers (as per the quality of products or services provided by the firm), feedback from employees (as per the effectiveness and efficiency of internal processes and operation), and feedback from decision-makers (as per the desired performance and necessary adjustments) into a comprehensible understanding of how further business operation should be planned.
In practice, this process of integration involves taking notes based on direct communications with employees and executives, collecting data on customers’ feedback, finding common themes in these various texts, and proposing suggestions on what the organisation should further pursue.
In any work associated with data collection and analysis, it is necessary to ensure that data is relevant, accurate, and complete. In order to ensure this, HR practitioners should engage in fact checking and data verification. Therefore, for practitioners involved in business planning, the skills required for effectively working with information are vital.
The evolution of the role of HR in the contemporary business world is primarily associated with the process of widening the scope of HR work. While it was previously believed that the HR function is related to staffing and employee relations only, it is now acknowledged that HRM is exactly the area responsible for distributing knowledge, skills, and abilities. In other words, it is the area responsible for ensuring that strategic goals of organisations are pursued properly, and the operation is optimal in terms of performance, effectiveness, and efficiency. This conclusion suggests that extensive research on current HR trends and achievements and the adoption of advanced HR practices can help organisations improve them performance remarkably.
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