6. Decision Making to Improve Human Resource Performance

Human Resource Objectives

• A specific goal or target relating to the human resource management of a business.
  • S: Specific
  • M: Measurable
  • A: Attainable
  • R: Relevant
  • T: Time-bound
• Human Resource Management includes:
  • Recruitment and selection
  • Training
  • Talent development
  • Employee engagement and involvement
  • Motivating and rewarding employees
  • Managing diversity
  • Developing corporate culture

Key Human Resource Objectives

• Employee engagement and involvement:
  • Maximise reported levels of engagement
  • The extent of satisfactorily completed appraisals
• Talent development:
  • Investment (level) in employee training
  • Staff retention rates
  • Percentage of job vacancies filled by internal candidates
• Training:
  • Spend in total and per employee on training
  • Measures of training effectiveness
• Diversity:
  • Diversity in senior management positions (gender, experience, ethnicity etc.)
  • Diversity in external recruitment (gender, ethnicity etc.)
• Alignment of values:
  • Recruitment and induction training; extent focused on core values
  • Employee awareness of core values
• Number, skills, and location of employees:
  • Labour turnover
  • Staff retention
  • Recruitment target
  • Training budgets

Internal & External Influences on Human Resource Objectives

• Key Human Resource Objectives:
  • Employee engagement and involvement
  • Talent development
  • Training
  • Diversity
  • Alignment of values
  • Number, skills, and location of employees
• Internal influences on HR objectives:
  • Corporate objectives: E.g., an objective of cost reduction is likely to require HR to implement redundancies, job reallocations etc.
  • Operational strategies: E.g., an introduction of new IT or other systems and processes may require new staff training, fewer staff
  • Marketing strategies: E.g., new product development and entry into a new market may require changes to organizational structure and recruitment of new sales return
  • Financial strategies: E.g., a decision to reduce costs by outsourcing training would result in changes to training programs
• External influences on HR objectives:
  • Market changes: E.g., a loss of market share to a competitor may require a change in management or job losses to improve competitiveness
  • Economic changes: E.g., changes in the level of unemployment and the labour market will affect the supply of available people and their pay rates
  • Technological changes: E.g., the rapid growth of social networking may require changes to the way the business communicates with employees and customers
  • Social changes: E.g., the growing number of single-person households is increasing demand from employees for flexible working options
  • Political and legal changes: E.g., legislation on areas such as maximum working time and other employment rights impacts directly on the workforce planning and remuneration

Soft & Hard HRM

• What is HRM?
  • “The design, implementation, and maintenance of strategies to manage people for optimum business performance”
• Hard approaches to HRM:
  • Treats employees simply as just another resource of the business
  • What resources do we need?
  • How do we get them and how much will they cost?
  • How do we use them most productively?
• Soft approaches to HRM:
  • Treats employees as the most important resource of the business and a source of competitive advantage
  • How do we get the best out of our employees?
  • How can they help give the business an edge?
• Features of a HARD approach to HRM?
  • Focus: Identify workforce needs of the business and recruit and manage accordingly (hiring, moving, and firing)
  • Key features:
    • Short-term changes in employee numbers (recruitment, redundancy)
    • Minimal communication, from top down
    • Motivation- focus on financial methods (Link to Taylor’s scientific approach)
    • Little empowerment or delegation
    • Taller organizational structures
    • Suits autocratic leadership style
• Features of a SOFT approach to HRM:
  • Focus: Concentrate on the needs of employees- their needs of employees- their roles, rewards, motivation etc.
  • Key features:
    • Strong and regular two-way communication
    • Competitive pay with performance-related rewards
    • Motivation- greater use of non-financial methods, including empowerment, delegation
    • Focus on job design and job satisfaction
    • Flatter organizational structures
    • Suits democratic leadership style
• Is a HARD approach better than a SOFT approach to HRM?
  • More cost-effective workforce (possibly), particularly if labour is used efficiently
  • Quicker decision-making by senior managers
  • Higher absenteeism; higher labour turnover; difficulties with employee retention
  • Potential damage to business reputation
• Is a SOFT approach better than a HARD approach to HRM?
  • Higher employee costs may leave the business at a competitive disadvantage
  • Higher levels of motivation and productivity
  • Lower absenteeism; lower labour turnover and higher employee retention
  • Benefit to the business of reputation as a great place of work

Staff Retention and Labour Turnover

• Key measures of HR Performance:
  • Labour turnover and Staff retention: Percentage of staff who during a period
  • Labour productivity: Output per employee
  • Absenteeism: Percentage of staff who are absent from work
• Employee retention:
  • All businesses lose staff
    • Retirement/Maternity/Death/Long-term illness
    • Unsuitability
    • Changes in strategy (e.g., closure of location)
  • Labour turnover needs to be managed if the business is to succeed
  • Employee retention = the ability of a business to convince its employees to remain with the business
• What is labor turnover?
  • The percentage of the workforce (employees) that leave a business within a given period (usually a year)
• Labour turnover formula: \frac{\text{Number of employees leaving during the period}}{\text{Average number employed during the period}} \times 100 Problems of high staff turnover:
  • Higher costs
    • Increased recruitment and training costs
  • Increased pressure on remaining staff
  • Disruption to production/productivity
  • Harder to maintain the required standards of quality and customer service
• Factors that affect staff turnover:
  • Type of business
    • Some businesses have seasonal staff turnover (e.g., holiday parks)
    • Some businesses employ many temporary staff (e.g., hotels)
  • Pay and other rewards
  • Working conditions
  • Opportunities for promotion
  • Competitor actions
  • Quality of communication in business
  • Economic conditions:
    • Downturn often leads to lower staff turnover
    • Buoyant economy- staff more likely to leave
  • Labour mobility:
    • How transferable are staff skills
    • What other jobs are available?
  • Employee loyalty
• Ways to improve staff turnover:
  • Effective recruitment and training
    • Recruit the right staff
    • Do all you can to keep the best staff (role for training and other motivation tools)
  • Provide competitive pay and other incentives
    • Competitive pay levels and non-financial benefits
  • Job enrichment
  • Reward staff loyalty
    • Service awards, extra holiday etc.

Labour Productivity

• What is labour productivity:
  • Labour productivity is concerned with the volume of output (units) or value (£) produced by each employee
• Why labour productivity matters:
  • Labour costs are usually a significant part of total costs
  • Business efficiency and profitability are closely linked to the productive use of labor
  • In order to remain competitive, a business needs to keep its unit costs down
  • Labour productivity: Higher output of employee
  • Labour costs per unit: Lower labour costs per unit
• Factors influencing labour productivity:
  • The extent and quality of fixed assets (e.g., equipment, IT systems)
  • Skills, ability, and motivation of the workforce
  • Methods of production organization
  • The extent to which the workforce is trained and supported (e.g., working environment)
  • External factors (e.g., reliability of suppliers)
• Calculating labour productivity:
  \frac{\text{Output in period (units)}}{\text{Number of employees at work}}
• Ways to improve labour productivity:
  • Measure performance and set targets
  • Streamline production processes
  • Invest in capital equipment (automation + computerisation)
  • Invest in employee training
  • Improve working conditions
• Some potential problems when trying to increase labour productivity:
  • Potential ‘trade-off’ with quality- higher output must still be of the right quality
  • Potential for employee resistance- depending on the methods used (e.g., introduction of new technology)
  • Employees may demand higher pay for their improved productivity (negates impact on labour costs per unit)

Flexible Working

• What is Flexible Working?
  • Working arrangements where employees have options in terms of working time, working location, and the pattern of working
• Examples of Flexible Working Options:
  • Part-time working
  • Term-time working
  • Working from home
  • Flexitime
  • Career breaks
  • Job sharing
  • Annual hours contracts
  • Mobile working
  • Shift swapping
• Of the options listed above, by far the most popular in the UK is part-time working. Job sharing, flexitime, and working from home are also increasingly popular
• The ‘Gig Economy’ is Encouraging Greater Use of Flexible Working:
  • Significant rise in the extent of self-employment
  • Firms in the Gig Economy have a more flexible operation which is better able to match work with consumer demand
  • Do flexible working options help businesses attract and retain employees compared with self-employment?
• Main Benefits of Flexible Working (for a business):
  • Cost- Potentially significant savings on fixed costs (e.g., less space) and lower recruitment and training (if labor retention improves)
  • Higher job satisfaction and employee morale if employees who want to work flexibly are allowed to do so
  • May attract more applicants for available jobs
  • Better customer service- e.g., ability to offer 24/7 services
• Drawbacks of Flexible Working (for a business):
  • More complex to manage
  • Investment required in technology and other support to make flexible working effective
  • Potential impact on motivation from greater remote working (e.g., increased isolation, work/life balance)
  • Loss of capacity/capability if key employees reduce their hours

Span of Control

• What is the Span of Control:
  • The span of control is the number of employees for whom a manager is responsible/in control of at any one time
• What determines the span of control?
  • Nature of the work involved (e.g., the need for supervision)
  • Degree of autonomy granted to employees
  • Number of layers in the hierarchy. Flatter structures have encouraged wider spans of control
• Features of Narrow Span of Control:
  • Allows for closer supervision of employees
  • More layers in the hierarchy may be required
  • Helps more effective communication
• Features of Wide Span of Control:
  • Gives subordinates the chance for more autonomy
  • More appropriate if labor costs are significant- reduce the number of managers
  • Consistent with flatter structures

Organisational Design – Delegation

• What is delegation?
  • The assignment to others of the authority for particular functions, tasks, and decisions
• Examples of delegation:
  • The Human Resources Director of a public limited company delegates authority for recruitment and training to the Recruitment and Training Manager
  • The supermarket Store Manager delegates authority for ensuring products are properly displayed to her Section Managers
• Benefits of Effective Delegation:
  • Lower management stress and workload
  • A good method of on-the-job training
  • Allows senior management to focus on key tasks
  • Subordinates are empowered and motivated
  • Better decisions or use of resources (potentially)
• Drawbacks of Delegation:
  • It is harder in a smaller business- fewer people
  • Cannot/should not delegate responsibility
  • Depends on the quality/experience of subordinates
  • This may increase the workload and stress of subordinates

Organisational Design - Centralisation & Decentralisation

• Who makes the decisions?
  • Decision-making is about authority.
  • A key question is whether authority should rest with senior management at the center of a business (centralized)
  • Or whether it should be delegated further down the hierarchy, away from the center (decentralized)
• Centralized Decision-Making:
  • Businesses with a centralized structure keep decision-making firmly at the top of the hierarchy (amongst the most senior management)
• Examples of centralization:
  • Fast-food businesses use a predominantly centralized structure to ensure that control is maintained over their thousands of outlets
  • The need to ensure consistency of customer experience and quality at every location, together with a desire to exploit economics of scale, are the main reasons for this choice
• Potential benefits of centralization:
  • Easier to implement common policies and practices for the whole business
  • This prevents other parts of the business from becoming too independent
  • Easier to coordinate and control from the center- e.g., with budgets
  • Economies of scale and overhead savings are easier to achieve
  • Quicker decision-making (usually)- easier to show strong leadership
• Possible drawbacks of centralization:
  • More bureaucratic- often extra layers in the hierarchy
  • Local or junior managers are likely to be much closer to customer needs
  • Lack of authority down the hierarchy may reduce manager motivation
  • Customer service: lost flexibility and speed of local decision-making?
• Decentralized decision-making:
  • In a decentralized structure, decision-making is spread out to include more junior managers in the hierarchy, as well as individual business units or trading locations
• Examples of decentralization:
  • Hotel chains are particularly keen on using decentralized structures so that local hotel managers and staff are empowered to make on-the-spot decisions to handle customer problems or complaints
• Possible benefits of decentralization:
  • Decisions are made closer to the customer
  • Better able to respond to local circumstances
  • Improved level of customer service
  • Can enable a flatter hierarchy
  • Good way of training and developing junior management
  • Facilities empowerment: should improve staff motivation
• Possible drawbacks of decentralization:
  • Decision-making is not necessarily ‘strategic’
  • Harder to ensure consistent practices and policies at each location
  • Maybe some diseconomies of sale- e.g., duplication of roles
  • Who provides strong leadership when needed (e.g., in a crisis)?
  • Harder to achieve tight financial control- risk of cost-overruns

Human Resource Flow

• The five elements of the human resource flow describe the journey an employee takes within an organization:
  • Attraction: This involves attracting the right candidates through job postings, social media, and recruitment events.
  • Selection: This involves assessing the candidates' skills, qualifications, and cultural fit through interviews, assessments, and reference checks.
  • Integration: This involves welcoming new employees, introducing them to the organization, and providing them with the necessary resources to succeed.
  • Development: This involves supporting employees' growth and development through training and career planning.
  • Separation: This involves the exit of employees from the organization through resignation, retirement, or termination.
• Overall, the human resource flow describes the journey of employees from the time they enter the organization until they leave, and the various stages in between.
• What are the benefits of identifying your human resource flow?
  1. Strategic Workforce Planning:
     • By analysing human resource flow, you can strategically plan for current and future workforce needs. For example, by knowing the typical length of an employee’s tenure, or the average retirement age, you can predict when you may need to start recruitment activities in advance of notice being given.
  2. Cost Savings:
     • Efficient human resource flow management helps reduce costs associated with recruitment, onboarding, and training. Understanding the patterns of employee movement allows you to optimise resources and allocate budgets more effectively.
  3. Improved Recruitment and Hiring Processes:
     • Identifying trends in the human resource flow enables you to refine your recruitment strategy. This includes targeting specific talent pools, streamlining the hiring process, and improving the overall candidate experience.
  4. Enhanced Employee Engagement and Retention:
     • Recognising the stages of human resource flow allows you to proactively address factors that influence employee engagement and satisfaction. For example, when an employee typically should start advanced training or leadership development.
  5. Tailored Training and Development Programs:
     • Understanding the skills and competencies required at different stages of the human resource flow enables you to tailor training and development programs to meet their needs. This personalized approach enhances employee performance and fosters professional growth.
  6. Agile Succession Planning:
     • Identifying potential future leaders within the organisation becomes more manageable with insights into human resource flow. This allows for effective succession planning, ensuring a smooth transition for the key roles at your business.
  7. Adaptation to Changing Market Conditions:
     • If your business operates in a dynamic environment, this process can help you adapt more effectively to market changes by understanding how your workforce evolves. This is crucial for staying competitive and agile in response to shifting industry trends.
• 5 ways you might improve your organisation's flow
  1. Invest in employee training and development:
     • This provides improvement to both your throughflow (as a method to aid retention and also improve the performance of your staff) and to outflow, by reducing the frequency of staff moving on.
  2. Develop clear job descriptions and roles:
     • Job descriptions should be written to fill the needs of your organisation, not the skillset of an individual. This means that when an employee is promoted, moves laterally or leaves the business, it is quicker and easier to recruit.
  3. Implement an effective performance management system:
     • It is important that your workforce knows what their goals are, whether they are achieving them, the rewards for success and that this data is recorded consistently across the organisation. This helps employees feel confident in being assessed and rewarded transparently – resulting in job satisfaction and retention.
  4. Streamline your HR processes:
     • As in the above two tips, if your roles are well defined and your performance management is effective, it becomes much easier to streamline your HR processes which will lead to quicker decision-making and ultimately cost-saving for the business.
  5. Emphasise leadership development:
     • The best way to retain your staff and improve your business’ performance is to grow from within by providing leadership development. Let staff take responsibility for their work and guide them towards growing within your organisational structure.

Motivation Theories – Maslow

• Abraham Maslow:
  • An American psychologist (like Herzberg)
  • 1943 published A Theory of Human Motivation
  • People have five sets of needs, which come in a particular order
  • Hugely influential (and still)
• Maslow’s Theory of Motivation:
  • Five levels of human needs which employees need to have fulfilled at work
  • Only once a lower level of need has been fully met, would a worker be motivated by the opportunity of having the next need up in the hierarchy satisfied
  • A business should therefore offer different incentives to workers in order to help them fulfil each need in turn and progress up the hierarchy of needs
• Maslow’s Hierarchy of Needs:
  1. Psychological: Basic needs- e.g., food, shelter
  2. Safety: Safe working environment; job security
  3. Social: Feeling wanted, sense of belonging, part of a team
  4. Esteem: Self-respect, level of status
  5. Self-actualisation: Intellectual needs, fulfilling potential, achieving targets
• The Hierarchy of Needs and Motivation at Work:
  1. Physiological: Acceptable pay and working conditions
  2. Safety: Job security, Clear Job Role and Description, Health and Safety protection, Insurance
  3. Social: Working in a team, Social facilities, Mentoring and Coaching
  4. Esteem: Status (Job Title), Authority, Trust, Recognition of Achievements
  5. Self-Actualisation: Promotion opportunities, Challenging work, Job Enrichment
• Some Criticisms of Maslow’s Hierarchy of Needs:
  • Not everyone has the same needs
  • Our perception of what is important at work will vary
  • Not realistic that most employees will reach the top of the hierarchy

Motivation Theories – Herzberg

• Professor Frederick Herzberg:
  • American psychologist (1923-2000)
  • Specialism in business management
  • Disagreed with Taylor (Scientific Management) about the importance of financial rewards (e.g., wages)
  • Much more convinced about the importance of non-financial factors
• Herzberg’s Two Factors:
  • Motivators: Factors that directly motivate people to work harder
    • Responsibility at work
    • Meaningful, fulfilling work
    • Achievement and recognition
  • Hygiene: Factors that can de-motivate if not present but not actually motivate employees to work harder
    • Pay and other financial rewards
    • Working conditions
    • Appropriate supervision and policies
• How Herzberg Would Suggest Motivating People:
  1. Motivate by using Motivators
  2. Ensure Hygiene factors are met
• Some Possible Herzberg Motivators:
  • Job Enrichment:
    • A wider variety of tasks
    • Greater complexity and challenge
    • Manage own workload
    • Greater sense of achievement
  • Empowerment:
    • More responsibility and more autonomy
    • Allow employees to make decisions independently
    • Less supervision
    • Demonstrates trust

Financial Methods of Motivation

• Key Factors to Consider with Financial Motivation:
  • Employment Legislation
  • Recruitment and Retention
  • The extent to which pay should be linked to performance
  • Individual vs Team Incentives
• Financial Methods of Motivation:
  • Wages: Normally paid per hour worked paid weekly/monthly
  • Salaries: An annual salary paid at the end of each month
  • Bonuses: Paid when certain targets have been achieved- performance-related
  • Commission: Paid according to volume or value of sales achieved
  • Profit share: Where a cit of the business profits is shared amongst some/all employees
  • Share options: Where some/all of the employees have the option to buy shares in a business
  • Fringe benefits: In addition to basic pay- e.g., company car, private health insurance, free meals, staff discounts
• Pros of financial methods of motivation:
  • Influences positive behaviors
  • Encourages high performance
  • Increases productivity
  • Easy way to achieve short-term goals
  • Improves working atmosphere
  • Can be used to recruit new employees
  • Employees feel appreciated and valued
  • Improves staff morale, and retention level and increases engagement
  • Provides an element of control and reward for the employee
• Cons of financial methods of motivation:
  • Can create a sense of entitlement
  • De-motivates employees who do not reach targets
  • Short-term focus
  • Inconsistent bonuses based on business profits
  • Can inhibit teamwork and cause competition among co-workers
  • Burnout from overworking to achieve goals
  • Pushing customers for sales
  • Risk of unethical behavior to reach goals
  • Risk of quality performance to meet goals

Non-Financial Methods of Motivation

• Many Methods of Non-Financial Motivation:
  • Delegation
    • Delegation is when authority is passed down to employees and staff are given the responsibility to carry out tasks. Delegation is closely associated with a democratic leadership style and can lead to increased motivation as it can contribute towards an employee’s esteem needs and can also contribute towards self-actualisation. It is also one of Herzberg’s motivators (increased responsibility)
  • Empowerment
    • Empowerment is like delegation, although there are differences. Empowerment provides employees with more responsibility to work on their own behalf without necessarily the need to “hand down” specific tasks and projects. This can be a powerful motivator as it gives workers more control over their work and can lead to growth and advancement, one of Herzberg’s motivators. Empowerment is not without its problems as some employees can potentially take advantage of the increased power that they have been given
  • Consultation
    • Consultation occurs when managers and leaders obtain the views of employees when making decisions. Consultation is associated with a paternalistic and democratic management style and can make workers feel more involved within the business. Although consultation can improve worker motivation, this does depend on the extent to which workers are consulted and whether workers’ views are actually considered
  • Job Rotation
    • Job rotation involves the movement of employees through a range of jobs in order to increase interest and motivation. Job rotation can facilitate "multi- skilling”, but also involves the need for greater training. For example, an administrative employee might spend part of the week looking after the reception area of a business, dealing with customers and enquiries. Time might then be spent being responsible for the company telephone switchboard and then doing some typing and data entry
  • Job Enrichment
    • Job enrichment attempts to give employees greater responsibility by increasing the range and complexity of tasks that they are called upon to complete, and giving them the required authority. It motivates by giving employees the opportunity to use their abilities to the fullest. Herzberg argued that job enrichment, through motivators, should be a central element in any attempt to improve motivation
  • Job Enlargement
    • Job enlargement involves the addition of extra, similar, tasks to a job. In job enlargement, additional tasks are at the same level and in the same job area as the job itself, remaining essentially the same. However, by widening the range of tasks that need to be performed, hopefully, the employee will experience less repetition and monotony
  • Team Working
    • Teamwork can meet worker’s social needs (Maslow) and can also lead to a more multi-skilled workforce and shared responsibility, which can improve worker motivation. That said, when things go wrong, it is easy for team members to point the finger at others and there is often resentment if some members feel others aren’t pulling their weight
  • Flexible working
    • Flexible working ultimately involves workers having a degree of choice relating to how and when they work, allowing workers to balance their own personal needs with the needs of the business. Methods of flexible working include multi-skilling, part-time and temporary, flexible hours and home- working

Employer - Employee Relations

• Legal Requirement For Employers to Consult with Employees:
  • Proposed redundancy programmes
  • When employees are transferred from one employer to another (e.g., the sale of the business)
  • On changes to pension arrangements
  • Proposed changes to working time arrangement
• What is Employee Representation?
  • Where employees are part of a formal structure that involves them in business decision-making
• Reasons for Formal Employee Representation:
  • Make employees’ views known to management
  • Help strengthen both management’s and employees’ understanding of workplace issues and other matters affecting the business
  • Help create an atmosphere of mutual trust between employees and management and therefore improve workplace relations
• Benefits of Employee Representation:
  • Increased empowerment and motivation of the workforce
  • Employees become more committed to the objectives and strategy of the business
  • Better decision-making because employee experience and insights are taken into account
  • Lower risk of industrial disputes
• Drawback of Employee Representation:
  • Time-consuming - potentially slows decision-making
  • Conflicts between employer and employee interests may create resistance to necessary change in the business
  • Managers may feel their authority is being undermined
• Work Councils:
  • EU legislation makes these mandatory for firms that operate in two or more EU countries and have more than 1,000 employees
• Typical Agenda for a Works Council:
  • Business objectives and performance
  • Workforce planning issues (recruitment, staffing levels)
  • Employee welfare issues (Working conditions, health and safety)
  • Training and development programs
  • Compliance with legislation (e.g., discrimination)
• Role of Trade Unions:
  • Protect and improve the incomes of their members
  • Provide or improve job security
  • Protect workers against unfair dismissal and other issues relating to employment legislation
  • Lobby for better working conditions
  • Offer work-related services (e.g., legal support)
• Advantages for an Employer of a Good Relationship with Trade Union:
  • Negotiating with trade unions (ideally a single union) saves time and cost rather than dealing with employees individually
  • Unions are part of the communication process between the business and employees
  • Employee morale and motivation may be improved if they know that their interests are being protected by a union
  • The trade union can be a supportive partner in helping a business undergo significant change
• What factors influence the success of industrial action?
  • Nature and strength of the union
  • Workforce concentration e.g., lots of union members in one firm compared with a few members in many firms)
  • Management tactics e.g., if stocks are available to meet demand during a strike)
  • Economic and legal climate
  • Public support
• What problems of industrial action can affect employers?
  • Lost production, reduced revenue and lower profits
  • Continuing poor relationships and grievances with employees, which lead to poor motivation and communication
  • Shifts management's focus away from strategic planning for the future
  • Harms the firm's reputation with its customer
• What problems of industrial action can affect employees?
  • Reduced/lost earnings and possible redundancies
  • Must conform to legislation or be liable for damages
  • Stress due to friction with other workers and with management
  • If unsuccessful, workers are in a weaker position
  • Support from the public may decline if the action affects them
• What are the benefits of industrial action?
  • Resolves ongoing grievances and improves the atmosphere
  • This leads to new and agreed rules, e.g., about rates of pay or the need to consult
  • This leads to a greater understanding of employer/employee positions