Intellectual Human Capital as Central to Competitive Advantage in the Present Environment - Assignment Example

?Human resource management plays an important role in helping a firm achieve its objectives and goals. It ensures that the personnel of the firm are of the right skills, are motivated properly to ensure best performance and cooperation. The easier it is to work with its employees the more effectively it can achieve its goals (Walters, 2010). An economic downturn severely affects all aspects of a firm and an individual. Due to uncertainty and insecurity, workers are stressed out and concerned about their jobs. Firms, on the other hand, have to reduce production costs due to decrease in economic activity, and do so by decreasing salaries, bonuses and making workers redundant. An economic downturn also affects the reward system of the firm where the human resource management has to figure out a way to reduce the costs of rewards and still keep employees motivated (Ere.net. 2013). Economic Downturn: No business operates in isolation and is very sensitive to the outside environment. As an economy goes into a recession there is a significant decline in economic activity, a slowdown in industrial production, a decrease in consumer spending, loss of jobs, and a reduction in real income. For example Sherry FitzGerald a leading Irish residential and commercial estate agent was significantly affected by the recession as the volume of transactions in the residential market fell by 40% and their capital value fell by 50% ( Top of Form Roche, 2011). Bottom of Form . Due to this downturn, the Human Resource Management all of a sudden finds itself in the midst of problems encompassing all of its functions. It needs to reduce workers, ensure it maintains the motivation of the survivors, completely redesign jobs, and also try to gain the few opportunities that recession presents to the various firms. During the downturn of an economy, the human resource management must strive to maintain a balance between the interests of the employees and the organization as a whole. This scenario greatly affects the efficiency of the HR as it is faced with increasing constraints. Due to a decrease in economic activity, the management faces a decline in the HR budget and the main priority of the firm is to reduce production costs. Downsizing becomes the norm as companies critically review the allocation of their resources. Sherry FitzGerald however, did not initiate a redundancy policy right away, but decided that its chief HR policy would be to offer job protection and security. Salary cuts, recruitment embargo, career breaks and flexible working hours were offered to the staff and it was claimed that redundancies would be kept to the minimum. However, the complex economic situation threatened HR with more problems as all the steps it had taken until now were not very effective in decreasing the cost. Thus, redundancies were seen as unavoidable and 31 employees were laid off. Cuts in salaries and reduction in fringe benefits was implemented once more. Layoffs put up a challenge for the HR departments, as they try to keep the existing employees motivated and appropriately trained. Reduced staffing levels and funds, and psychological problems faced by the employees during this hard time make the work of the HR difficult. All the events faced by the HR department of Sherry FitzGerald challenged its efficiency as many of their policies were not very effective in reducing costs and helping the firm through recession. However, by involving the staff and trying very hard to compensate its workers, it gained the support of its employees and was able to live through the hard times (Dtz Sherry Fitzgerald (Firm), 2010). The economic recession of 2007 created uncertainty for the American businesses and many are still hesitant in investing. According to the Bureau of Economic Analysis, corporate spending is increasing and GDP is expanding; but companies are still hesitant to hire again (Charles et al 2010). Many companies have also cut spending for the current employees, and won’t increase wages, benefits, and investment in hiring and training until they can feel more secure. This hesitancy presents the HR managers with problems to effectively manage its people in all aspects of the HR function as it becomes difficult to predict demand and supply for labour. Recruiting budgets are reduced which makes the HR managers struggle to find new capable people. Reduced training and development budgets can also affect the employees’ ability to conduct tasks efficiently thus reducing the efficiency of the human resource management (Furnham, 2011). The process of HR planning is affected as the labour supply cannot be accurately predicted even though mathematical techniques that rely on historical data are used to estimate job transition probabilities. This is because of the new factors that come to influence worker availability. Due to economic downturn voluntary turnover rates may be unpractical to predict future rates, because workers cannot find appealing work outside the organization and older workers postpone retirement (Metcalf, 2009). The Job Characteristics Model developed by J.R. Hackman and G.R Oldham (1974) claims that jobs should be designed in such a way that the job characteristics will improve the employee’s behaviour and gradually the workplace outcomes. In order to do so, an employer must understand the critical needs of employees, which is made even more difficult during the complex times of recession. During this time they face financial difficulties due to many factors and become increasingly concerned with compensations and wages to increase earnings. Recessionary economic conditions can adversely affect the recruiting and selection process of the human resource. Due to the high unemployment rate, a larger pool of applicants is available to any organization; however, a challenge faced by management is that it has to determine how to effectively filter out the most capable applicants from the least capable. Some HR managers may resort to internal recruiting in order to avoid the constraints faced in external recruiting. However, this option is not without its challenges. The increased desire for compensation drives workers to seek promotions, and this leads to a high number of candidates. Many of the employees do not receive promotions and this leads to demotivation and dissatisfaction. Rewards: Intellectual human capital is central to competitive advantage in the present environment and increasing attention is given to reward this capital to retain and develop it. One of the human resource management’s main job is to motivate its employees so that they give their best to the firm. Reward is a fundamental means of managing to achieve this goal and encourage personnel loyalty and retention (Marshall, 1999). Money has been viewed as a reward for a very long time, and for some people it is more important than anything else. A well-known scholar and consultant Manfred Kets Vries said “it is easy to say money isn’t everything as long as we have enough of it. Unfortunately, though, the typical scenario is that the more money we have, the more we want it” (Ket De Vries, 2004) However, there are many employees who rank money at the top of their priority list and some rank it lower. Individual and team monetary rewards along with the non-monetary rewards play an important role in ensuring focus and consistent performance. Managers, leaders, and team members can provide non-monetary rewards that increase employee energy, motivation, and loyalty. They include praise, recognition, challenge, and feedback among many others. Volvo Car Corporation has two different reward systems; one is designed for the managerial level while the other one is for the remaining employees based on performance. This program includes both fixed and variable incentive elements. The fixed part is given as a base salary and the incentive program is divided into short term and long term incentive programs. Offering of rewards helps human resource management in a lot of ways. When motivation of personnel is high the labour turnover is low as many employees do not voluntarily leave the organization. The recruitment and selection function of the human resource manager is kept to the minimum as less number of employees needs to be hired. Also according to the wage efficiency theory, wages in some markets may not be at the equilibrium. Managers can take advantage of this situation and offer wages above this prevailing market rate to motivate its existing employees and also attract new talent. This will help reduce the need for supervision and guidance as the company will have skilled workforce available at hand. Loyalty is high and internal promotions can be used to fill higher vacant positions. Succession planning becomes easier as employees tend to stay longer with the organization (Hiam, 2003). Full benefits can be gained from training and development as the employees would choose to stay with the business longer. According to the study conducted at VVC, the managers were interviewed and asked about their feelings about the company mainly due to the rewards both monetary and non-monetary. Many mentioned that they loved their job and said that they were proud of working with Volvo. Recognition and appreciation for work well done is a form of non-monetary reward and encourages workers to perform well and put forward ideas and innovations. The human resource manager for Orient-Express Hotels, Inc deals with employees by telling them “Im the HR expert; you are the expert at what you do”, and puts power in their hands and say “I trust you”. Employees find this form of recognition motivational and this result in greater productivity and quality work. The managers at Volvo Car Corporation responded to a study in which they claimed that they were motivated by praise and appreciation from their boss and co-workers as it gives them a feeling of being valued and needed (Axelsson et al, 2009). They were of the view that information flow from top with clear objectives was very motivating and important. VCC also influences motivation through offering internal recruitment. When employees are happy there are no disagreements with trade unions and strikes can be avoided. During recession many employees will understand pay cuts and salary freezes which will make the job of the human resource management easier. Conclusion Thus it can be seen that an economic downturn creates significant challenges for HRM. Its job of dealing with employees in all aspects is made much harder due to the difficult times. If not dealt with properly, it can severely affect the success of the firm and undermine the reputation of HRM. However, it is not impossible to effectively deal with hard times and many firms have managed to come through but not without great struggle. Rewards help firms motivate its employees. A higher cost in the form of rewards may not necessarily mean higher production costs, as motivated workers have high productivity and efficiency. A higher figure for rewards may be worth it, if it is spent in the right way. References Top of Form Bottom of Form Top of Form Bottom of Form Top of Form Top of Form Top of Form Top of Form Top of Form Top of Form Top of Form Top of Form Top of Form Top of Form Bottom of Form AXELSSON, ANNA, & BOKEDAL, SANDRA. 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