HRM in the Automobile Industry - Essay Example

Introduction Throughout the 1980s to the current period, the concepts of downsizing and reward management have gained prominence especially in the automobile industry. Various researches have been conducted in this area and the main objective of this paper is to examine the automobile industry by paying particular attention to the competitive environment and importance of HRM and its practices during the contemporary period. The paper will start by giving a brief outline of the nature of the automobile sector and contemporary issues related to this industry. It will be followed by giving a brief outline of downsizing and reward management, rationale and outcomes of implementing the two concepts in the automobile industry today. A detailed explanation of these basic concepts will also be outlined in an attempt to give a definition for easier understanding of these two concepts. This section attempts to outline the rationale of implementing such strategies supported by empirical evidence from the automobile sector based on researches conducted before on the sector. Different researches will be analysed in order to ascertain the rationale of embarking on such practices. This section will then be followed by comments on the relation between HRM and performance, productivity as well as the importance of combining such practices to achieve greater outcomes in the operations of human resources management in the automobile industry. A critical analysis of the application of both concepts to the automobile industry will be drawn in conclusion to sum up the effectiveness of implementing such kind of strategies in the automobile industry during the contemporary period. The automobile manufacturing sector From the beginning of the year 2008, the automotive industry witnessed some major changes that affected the whole sector. Whilst South American as well as Asian countries witnessed a major increase in the sales of automotives, the markets in Japan and North America were stagnant (simplyglobal n.d). Research has also shown that the transport system based on the use of cars is highly unsustainable in the face of government bodies advocating the minimisation of the harmful effects of the increasing automobiles which emit dangerous greenhouse gasses that are detrimental to the environment. The year 2008 also witnessed a global downturn of the economy which saw a rapid increase in the prices of oil. This saw a shift in consumer buying behaviour where they in fact preferred to use public transport (Simplyglobal n.d). America was hard hit as the large trucks such as SUV witnessed a decline in sales as a result of their high fuel consumption rates which has seen China emerging as the leading automotive manufacturer in the world. General Motors (GM), Chrysler and Ford were most affected which resulted in restructuring and job losses (Dervin & Anderlik 2007). The automotive industry is also characterised by intense competition both locally as well as globally since there are various manufactures that also compete for the same customers. Research has also shown that the industry is facing stiff competition from public transporters as people are now resorting to use public transport in the face of rising costs of using private cars owing to high oil prices (Zohrer &Leiriao 2009). As a result of the economic crisis, the costs of manufacturing the automobiles have continued to escalate while the consumer spending power has been facing a downturn. In most cases, cars are the largest investment that can be made by private households but due to the negative economy, the trend has negatively impacted on the manufactures (Zohrer &Leiriao 2009) where downsizing or outsourcing of labour is the rule of the day. Automobile manufactures in the US for instance have resorted to outsource labour as a way of cutting the costs involved through the payment of wage bills. For instance, most organisations prefer to outsource their manufacturing to areas with relatively cheap labour such as China or South America where the costs will be minimised in terms of paying wages. According to research conducted using mainly secondary sources such as published journal articles, newspapers as well as scholarly articles as outlined above, it can be noted that the automotive manufacturing industry is characterised by stiff completion both locally and globally to various actors in the industry. The economic crisis has also impacted negatively on the performance of the whole industry which has resulted in different companies downsizing their operations in order to cut the costs mainly incurred through paying wages. It can as well be noted that as a survival tactic, most of the manufactures have also resorted to outsource their labour so as to cut costs by employing cheap labour. Downsizing and the automobile manufacturing sector Downsizing usually focuses on the organisation’s strategy for handling large numbers of employees in case of surplus (Redman and Wilkinson (2009). When there are surplus workers in the organisation, this means that there are more personnel than the company requires. In most cases, the surplus workers will often negatively impact on the operations of the company such as exerting pressure on the financial resources through wage bills. This prompts the company to take necessary measures to reduce the workers to meet the expected number which does not lay a burden on the viability of the organisation. This is often associated with restructuring of the organisation which results in layoffs or retrenchment of the affected employees (Kleynhans 2006). Heil (n.d) posits that corporate downsizing often results from both poor economic conditions and company decisions to eliminate jobs in order to cut costs and maintain or achieve specific levels of profitability. Downsizing may also stem from restructuring efforts to maximise efficiency, cut corporate bureaucracy as well as focus on the organisation’s core business Heil (n.d). First and foremost, the strategies and methods of downsizing include the identification of sections of the workforce which are believed to be no longer necessary to the organisation. Though downsizing results in job losses, it is not synonymous with instant termination of a job contract. It is a process which involves different steps in its implementation. Packages are designed for those who would wish to go for early voluntary retirement. However, the type of downsizing also has to be identified if it would be temporary or going to be permanent. In the event that there are few people willing to voluntarily retire, then the affected departments would be targeted for retrenchment. Once these people to be retrenched have been identified, they are given their packages for the benefits which effectively mean that they would cease to be employees of that particular company. In most cases, companies embark on a drive to downsize their operations as a cost cutting measure. According to a research by Block (2006), the automotive industry in US from the 1980s was characterised by collective bargaining where the employees as well as the automobile industries were represented in terms of financial earnings. This structure allowed the workers in the automotive industry such as Ford to enjoy huge pay checks but this did not go down well in the market as the trends that later characterised the market showed that this was a burden on the viability of the organisation. Compared to other competitors such as Japan, US was spending more on the costs of manufacturing automobiles. Japan also had the competitive advantage of manufacturing cheap and economic cars. More than 25 000 jobs were to be lost during the restructuring exercise. Ford and Chrysler responded by offering incentives such as early retirement as a way of cutting costs as well as cutting benefits on health and more emphasis was put on job security. It can be noted that the rationale of downsizing in this case was necessitated by the need to lower costs in terms of wages while at the same time increasing the market share. However, there are mixed feelings on the outcome of downsizing particularly in the automotive industry. Downsizing is mainly beneficial to the company executive as well as economists while it negatively impacts on the welfare of the retrenched workers as they would have no source of income for their upkeep and their families. According to research by Heil (n.d), when international competition began to increase in the automobile industry in the 1980s, the US manufactures for instance realised that they had a $1000 cost disadvantage compared to similar classes of Japanese cars. However, besides having a large number of white collar jobs in the automobile industry in US, only a small percentage of this cost difference could be attributed to labour costs. This heralded a new era in the automotive industry where downsizing was introduced. The outcomes of such a move are not always favourable especially to the affected people as they would loose their jobs. Research has also shown that some companies simply ended up downsizing for the sake of it though they had very little strategies in place to determine if it was necessary. On the other hand, downsizing entails reorganisation or restructuring of the organisation which often results in the elimination of non-core functions of other departments in the company. One major outcome of such initiative is the removal of bureaucratic structures within the organisation and the advantage is that decision making can be made relatively faster since there would be an improvement in the communication structure. Overally, advocates of downsizing concur that it is effective given that US still remains the strongest economy in the world though it has witnessed some form of downsizing especially in the automobile industry. According to Gandolfi (2009), various researches were conducted especially in the US about downsizing. Various explanations on the causes of downsizing were put forward by various researchers. For instance, Mishra and Mishra (1994 as cited in Gandolfi 2009).) assert that firms have downsized in order to cut costs while Harrington attributes downsizing to surpluses of both employees and facilities. However, many studies have shown that while other firms have reported financial improvements, other downsized firms have not been able to reap improved levels of efficiency, effectiveness, productivity and profitability (Gandolfi 2009). Thus, there is overwhelming evidence that suggests that many attempts to downsize the operations of the firms have been dismal. The automotive industry in the US for instance has not greatly improved to overtake the Japanese industry regardless of the measures adopted that were meant to downsize the industry. Research has also shown that this concept of downsizing is often misunderstood by the people in most cases and is not the solution to turn around the fortunes of the company though it has some positive impacts on the operations of the company. Reward Management and the automobile manufacturing sector Basically, a pay system can be defined as a system that is used to determine compensation given to an individual or group on the basis of tasks completed (http://definitions.uslegal.com/p/piece-rate-pay-system/ ). Workers can earn more depending on the base of performance they adopt. This system is often adopted in order to provide greater incentives for higher levels of productivity. In the automotive industry, this system can be adopted in order to increase high quality production through offering the workers handsome incentives that are meant to appeal to their performance. Despite the agreement made between the employer and the employee, every worker in the US for instance is entitled to a certain minimum wage which is set by the federal government. While the states are allowed to set higher wages in order to improve the standard of living, the Equal Pay Act of 1963 prohibits the employer to give wages determined by sex (answers.com). The interests of the workers are also represented by the trade unions whose aim is to ensure that there is fair labour practice exercised by the employers such that they do not exploit their employees. Block (2006) posits that the United Auto Workers (UAW) represented the automotive workers in the US and it mainly represented General Motors (GM), Ford and Chrysler and these workers from these giant manufacturing companies were getting almost the same minimum wages. Basically, the trade unions play a major role in representing the interests of the workers. The rationale for implementing various systems of pay is mainly influenced by the idea of human resources approach which posits that you will not achieve the organisational goals if you ignore the needs of the employees (Kleynhans et al 2006). This approach is based on a system that recognises that the success of the organisation is its human resources, its people. It aims to make the organisation more effective and at the same time to motivate the employees through satisfying their needs. In most cases, employees who are motivated will produce good work which will also contribute to the profits generated by the organisation. If the organisation shows some profits, the employees will also benefit through financial rewards and recognition as a ‘thank you’ for the good work that would have seen the organisation generating more profits. According to Susan & Randal (2000), the HR approach is about managing people as assets where particular attention is paid on balancing the needs and achieving the goals of both the organisation and the employees. If employees are managed and developed properly, they will provide long term rewards to the organisation in form of greater productivity. Against this background, there are various systems of pay which include: variable pay system (VPS), performance by results (PBR) which is based on results as well as performance related pay (PRP) which involves qualitative assessment of work done by an individual over a certain period of time (Traxler 2008). This system is most popular and is often used in the manufacturing industry of the automobiles. In the PRP system, an employee will be subjected to be assessed mainly by the supervisor over a period of time where he will also contribute towards the output of the document that will be used as a measure of performance. This process is constantly carried out so as to allow the managers to have up to date information that can be used in the appraisal of different workers. The automotive industry requires commitment and some times people are forced to work over time depending on the amount of tasks that need to be accomplished. In most cases, people work as a group in the automotive industry hence it can be difficult to use a pay system based on output. The outcome of the PRP system is often measured through high performance by the members involved since they will be working in groups in most cases. Having realised that other colleagues will be enjoying pay increases after assessment, research has shown that all the employees would also be motivated to put maximum effort in the execution of their duties as a way of gaining the extra pay. Since it is difficult to measure performance based on output which is often done by a group of people especially the manufacture of a car, it is relatively easier to measure collective performance which can as well be attributed to the individual members making up the group. Evidence suggests that individuals enjoy working in groups since there are various tasks that need to be performed by various people until the finished product is ready for marketing. There is need for the management to allocate duties on the basis of experience so as to avoid the chances of duplication of tasks. When tasks are assigned using this method, it becomes cheaper to monitor performance of the individuals in the groups since they will be doing things they are familiar with. An employee is motivated to do something he is well versed with. Note about HRM practices Basically, HRM is concerned with managing people who work in an organisation, that is, it manages a group of people employed by a company to produce goods or services (Carell et al 1995). Thus, the aim of HRM is to make the organisation successful, help employees enjoy their work and do their best as well as making sure that they receive their suitable rewards for their work. Against this background, it can be noted that there is a relation between HRM and performance and productivity. The success of every organisation is mainly determined by its human resources since these are the cornerstone of every organisation. It is the duty of every HR manager to ensure that the workers are motivated in to improve on their performance. Workers are motivated by various factors ranging from social to financial motivators. A disgruntled worker is likely to perform poorly at work and this must always be avoided. A motivated worker is likely to perform hard which increases productivity in an organisation. An increase in productivity translates into an increase in profitability of the company since there will be more production. The success of the company is determined by the levels of production recorded on a daily basis. In an automobile industry for instance, it is imperative to motivate the workers in a bid to increase productivity through increased performance. It is important to combine the practices in order to achieve different outcomes. Downsizing eliminates the services of the workers who are no longer required in the company hence it minimises the chance of wasting time on irrelevant things. In fact, it promotes the workers to focus on core business of the organisation. On the other hand, reward management is mainly concerned with giving the workers suitable rewards after performing nicely as a way of motivating them to be more productive. Conclusion Over and above, it can be noted that the concepts of downsizing and reward management have gained prominence especially in the automobile industry during the contemporary period. Various researches have been conducted in this area and the evidence available suggests that there is a mixed feeling as far as the concept of downsizing is concerned. Whilst the company may benefit financially by minimising costs in the percentage of labour, the affected people will always bear the brunt of unemployment and some schools of thought suggest that the results of downsized automotive industries in the US have not brought the much anticipated changes. It has also been noted that HRM plays a critical role to ensure that the organisation is successful, help employees enjoy their work and do their best as well as making sure that they receive their suitable rewards for their work. Against this background, it can be noted that there is a relation between HRM and performance and productivity. A brief outline of downsizing and reward management, rationale and outcomes of implementing the two concepts in the automobile industry today was also covered. Different researches were analysed in order to ascertain the rationale of embarking on such practices. Giving rewards to the workers always motivates them to put maximum effort in their performance. The pay system that is commonly used particularly in the automotive industry is the performance related pay which is awarded to workers who display outstanding performance in their duties. This is designed as an incentive that can influence the employees to work hard which in turn increases productivity for the organisation. Bibliography Bates B. et al (2005), Business Management, fresh perspectives, Pearson SA Becker, B. & Gerhart, B. (1996). The impact of human resources management on organisational performance: Progress and Prospects. Academy of Management Journal, Vol 39 Block N.R. (19-21 July 2006). “Labour relations in the unionized automobile assembly industry in the United States: 1961 – 2006” Available at http://www.docstoc.com/docs/29571915/Collective-Bargaining-in-the-Automobile-Industry Accessed 16 March 16, 2010 Boxall, P. (1995). The challenge of human resource management. 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