29/11/2009
Profiting from People Management: What Really Works?
By Sue Cunningham
Why do we bother trying to manage human resources? Particularly in an economy experiencing slower growth and increased unemployment, is it important to value and engage existing human capital, or can we simply replace the existing employees with new ones as we would other capital items?
People are not like any other capital item. They have the ability to:
· take valuable client and process knowledge to your competitor;
· think for themselves;
· perceive fairness;
· expend extra effort;
· become de-motivated.
We have long been told that human capital can help to make or break an organisation, particularly when times are tough and that, therefore, we need to understand how to best manage our human capital to provide the best possible outcomes for the business. But is this true? And, if so, how do we make sure that the human resource initiatives we invest in will deliver results to the bottom line?
A recent pilot study indicates that there are three key areas of human resource management that are linked strongly to business performance:
· Staff selection
· Performance management
· Reward management
Staff Selection
The top performing firms made greater use of almost all of the stated staff selection tools than the lower performing firms. In particular, the top performing firms made significantly more use of unstructured interviews, assessment tests and reference checks.
The top performers also relied more on academic results, communication skills and, to a lesser extent, cultural fit to the firm. Interestingly, all of the top performing group used academic results and oral communication skills in their selection process.
Conversely, high performers were less likely to make use of prestructured interviews than were low performing firms, which suggests that overly-scripted selection interviews may be counterproductive.
Performance Management
In general, a greater use of performance management tools appears to be linked with improved business performance. The exception to this appears to be in the sourcing of feedback on performance.
Whilst less than half of the respondents used peer input, subordinate input or input from supervisors other than the direct reporting line supervisor, in all three cases, the lowest performing firms sought feedback from these sources significantly more often than the top performing firms, prompting the question, is feedback from these sources (as per 360o reviews) useful?
On the other hand, the top performing firms made significantly greater use of interim discussions and the provision of ad hoc feedback. They were also more likely to have agreed targets, use financial results in assessing performance and use behaviour in assessing performance. Of particular note is that more of the top performing firms used behaviour as an indicator of performance than financial results, whereas the reverse was true in the lowest performing firms. In other words, in top performing firms, it is not just the results that matter, but also how the result was achieved. Given the top performing firms were also more likely to use cultural fit in the selection process, this may reflect a greater overall emphasis on the importance of culture.
Reward Management
It is here that the practice gap between high and low performers is most pronounced. The best performing firms use almost all of the suggested reward management tools more often than the lowest performing group. In particular, the following measures were used significantly more often by high performing firms:
· Reviewing salaries to market;
· Reviewing salary survey data;
· Negotiating total pay on an individual basis; and
· Having a formal pay structure and to a lesser extent, formal job evaluations in place.
Similarly, the top performing firms made significantly more use of performance related rewards, particularly bonuses based on individual performance (all of the top performing group used this approach to bonuses) and discretionary bonus.
Only non-monetary reward practices seem to have a negative association with firm performance – a result that contradicts much of the received wisdom of reward management theory.
Conclusion
As we move through the current economic climate there is no question that lessons will be learned and firms will seek long term efficiencies. It will become increasingly necessary to demonstrate the impact on the firm’s bottom line of initiatives undertaken and to reconsider ongoing investment in initiatives that do not measure up.
For many organisations human capital remains one of the greatest costs. This research indicates that the use of some, but not all, human resource management practices can be linked to improved business performance.
Sue Cunningham, the principal of Futurity Solutions has 20 years experience in medium and large organisations. Sue has worked across a wide range of businesses, from major infrastructure projects, health, and media, to small business. Her focus has been strategy development and implementation including capital and business investment decisions, sourcing of client, stakeholder and employee feedback, business restructuring and linkage of human resource to corporate strategic plans.
Important Note: These articles have been prepared for general circulation and are circulated for general informational purposes only; these articles should not be regarded as business or investment advice. The articles represent the views of the writers and are subject to change without notice. Additionally, while every care has been taken in the preparation of the articles no representation or warranty as to accuracy or completeness of any statement is given. An individual or organisation should, before any business or investment decision is made, consider the appropriateness of the information in this document, and seek professional advice, having regard to objectives, situation and needs. This document is solely for the use of the party to whom it is provided.
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