Month: February 2021

Restructuring is when an organization changes its internal structure to increase efficiency and cost effectiveness. This act can involve merging two formerly unique entities, separating an entity into multiple parties or incorporating a formerly unincorporated enterprise. Restructuring can occur as the result of one business buying another company or an enterprise increasing in size. For example, a sole proprietorship might grow into a mid-sized business with potential to expand nationally. It would be in the company’s best interest to incorporate and begin observing regulations that apply to a business of its size. Strategic restricting can minimize financial losses, decrease production costs and otherwise impact the company’s bottom line.

Companies may embark on organizational restructuring after changes in vision and strategy, or in hopes of cutting costs by revitalizing processes or pruning parts of the company. When it’s done, a small business will have a new organizational structure and a changed workforce. The influence of the human resources department on job design, assignments and training can have a lasting impact on the strategic success of the new organizational structure.

The organization can be regarded in two ways: as a system or as a form. In management and marketing the concept of viewing the organization as the system is popular and more focused on examining the relationship between organizations and their environment.

From this point of view, we are used to consider the organization “a system built by energetic input-output where the energy coming from the output reactivates the system”. The typical scheme of organization includes the structure with departments, programs, divisions or teams and the organization’s policy, culture, plans and procedures. All of them function in cooperation and combine a kind of summation which results in outcomes and scores of the company.

Workforce Characteristics

Human resources should influence the strategic choices leading to restructuring. To develop strategy, the owner must consider the company’s competitive position, including employees’ strengths and weaknesses. HR supplies the owner with a workplace assessment a thorough inventory of the employees’ skills and other characteristics such as talent, turnover, education and experience. The inventory is compared against the strategies under consideration to calculate how well the company’s workforce can enact them.

Once strategy is chosen, HR then evaluates how it must transform the company’s workforce to fill the company’s needs in the context of the restructuring and strategy.

Organizational Structure

Organizational structure determines job scope, working relationships and resource sharing, so it has a profound impact on how business gets done. Keeping the company’s strategy at the center of structural decisions allows HR to make the best choices. For instance, if a small business wants to focus on fine, custom-built products, the organizational structure must promote individual accomplishment instead of mass production.

Job Design

Job design and talent choice as critical in talent management generally, and these are especially important factors to consider when restructuring an organization. HR must reassess the tasks and workflows needed to effectively do business and compare those to the organization’s existing jobs and processes. Positions may stay the same, change or be removed. Some tasks may require new positions. Considerations when designing jobs include how specialized a job should be, how much authority an employee needs to accomplish work and how much supervision is needed.

HR Restructuring Strategies for Reengagement

Restructuring is an unsettling process for employees. HR must make sure that the remaining employees are primed to be successful in their new situations. It’s a good idea to create a sample restructuring communication to staff that describes the process, goals and aims of the restructuring, to put staff at ease.

But these parts of organization may also become dysfunctional and bring no effects while they operate in dynamically changing reality. This happens if one forgets about the people inside the organization and sees the organization as the raw scheme from the bureaucrat perspective instead of regarding it as well as the valuable team of individuals. Organizations are also the socio-technical systems including two main components. One is a social component and means people and the other is a technical component which includes technologies and machines. The organization should therefore combine the system approach and the social approach in its functionality, because the most valuable asset the company can possess is the loyal and qualified group of people with the same goals who operate in this structured cluster. The problems inside the organization may occur when it comes to restructuring and at the same time there exists a clash between executives who see the company as the system (departments, divisions, subsidiaries, etc.) and the workforce which considers the company as their source of living and the shared community. The restructuring of organization due to various strategies may then bring negative impacts which frequently diminish the final impression and result of positive outcomes. The task for the executives and representatives in the company should be the correct evaluation of the possible restructuring process results in terms of positive and negative impacts, as well as implementing the most efficient restructuring strategies which will help to manage the process in the most risk-free way.

Motives, strategies and implications of restructuring

There might be hundreds of reasons why the organization need to restructure, but the most significant is the market expectations. The business environment these days is so dynamic and turbulent that it is hard for the companies to keep up and follow the newest trends and frequently they lose their stability, especially the finance one, and competitiveness. Therefore, the companies go through changes and decide to restructure.

Basic reasons to restructure are:

• To make the organization more profitable and integrated
• To achieve efficiency and effectiveness
• To reduce unwanted and overwhelming expenses
• To implement new technologies
• To open to new markets on a global scale
• To meet the customers’ demands in a quicker and smoother way
• To be more competitive and achieve the market advantage
• To raise from the crisis or survive a currently adverse economic climate
• To move in an entirely new direction and enhance the share-holder value.

The changes inside each separate field are the most appropriate in terms of final results. Therefore, it is advised that organization concentrate on individual parts and restructure according to the division into:

• Operational restructuring,
• Financial restructuring,
• Decisive restructuring,
• Restructuring in organization.

The structural change should be done by a particular strategy. There are various strategies which are commonly implemented by many entities in the process of restructuring:

• Downsizing, layoff, rightsizing or smart sizing
• Starbursting or networking
• De-layering
• Outsourcing
• Business process re-engineering
• Enterprise resource planning
• Total quality management
• Virtualization
• Verticalization

According to Sikula “the ultimate purpose/objective of human resource planning is to relate future human resources to future enterprise need so as to maximise the future return on investment in human resources”.

Human resources are sometimes considered a “soft” industry, because it can’t always provide quantifiable financial data about its workload and doesn’t typically create revenue either. Investment in HR can make executives nervous, because projects and programs often provide no tangible results although the idea of “improved morale” or “greater employee satisfaction” seems like a good thing, whether that translates to a significant increase in revenue or improved productivity remains questionable. Calculating the return on investment provides a way for HR professionals to demonstrate the worth of the profession.

“Return on Investment,” or ROI, is the term given to a mathematical calculation used in the finance industry and business in general. The ROI measures the financial return on an investment made, or it can be applied to a business measuring the performance of the firm by assessing the net profit compared with the overall net worth of the company. In more recent years, the ROI concept has been adopted by other industries to evaluate projects and programs on a smaller scale.

Importance of ROI to HR

Using quantifiable metrics improves the credibility of HR as a profession, and allows upper management to identify specific, measurable ways that HR services benefit the organization. It’s no longer enough to state that a certain program is believed to be beneficial you need to be able to prove the worth of your actions. In difficult economic times, the value of support services often seen as tangential to the organization’s core mission or product comes under increasing scrutiny. Consequently, it becomes even more important for HR professionals to show how HR services directly impact the bottom line, while identifying and eliminating programs that are not financially efficient.

Examples of ROI in HR

HR can use ROI metrics to analyze the value of almost any of its services, as long as a dollar cost can be determined. For example, if HR introduces a new health and safety program, its effectiveness can be measured by the associated reduction in costs of work-related injuries. The value of a new employee orientation program can be measured in terms of an ROI by assessing the costs saved by correlated reductions in turnover. Diversity programs, HR information systems, training, development and mentoring initiatives are additional examples of HR programs that can be measured by the ROI calculation.

Calculating ROI in HR

To calculate the ROI of human capital, divide the organization’s net revenue gross revenue after deducting operating expenses, salaries and benefits by the cost of salaries and benefits. To calculate the ROI of a particular program, you must first calculate the value of the specific program itself, then divide it by the costs of implementing the program. For example, if a training program to speed production of a factory line results in an increased amount of product, calculate the value of the additional product and divide that by the costs of providing the training and materials. In some cases, a general increase in productivity, for example you will need to isolate the portion of the increase that was because of an HR measure before calculating ROI. Conduct an analysis of groups that underwent a training class, versus groups that did not, to estimate the effect. Alternatively, use an expert to estimate the percentage increase that was because of the training.

Formula to Calculate Human Capital ROI

The formula to calculate the Human Capital ROI is very simple. Human Capital RIO is the Revenue minus non-human capital expenses divided by Human Capital Expenses.

Non-Human Capital Expenses = Operating Expenses – Human Capital Expenses

Human Capital Expenses = Fixed compensation(salaries) + Variable compensation + Benefits + Indirect cost

Revenue = The adjusted revenue after deducting the cost of capital, depreciation, etc

Importance of Calculating Human Capital ROI

Human Capital ROI helps to analyze which factors help or hinder the profitability and productivity of the organization. It can be either organizational and personal factors.

Furthermore, It also enables the organization to create or provide the right atmosphere to its employees. This will eventually result in relatively fast and more productivity.

MNCs measures HCROI on a short-term and long-term basis. This helps them to find which external or internal factors influence the productivity of their workforce.

It helps to know whether the right candidates have been hired or retained. It further helps to know whether or not the proper level of training and skills are developed in employees.

In addition to the above, it enables the organization to know that the environment provided for employees to flourish is right or not.

It will identify whether right leadership and managerial support are available to the employees. This enables them to accomplish and align with the company’s business objectives.

Knowledge of all the above things helps us implement proper initiatives that help us to improve the ROI.

Human resource planning is a process that identifies current and future human resources needs for an organization to achieve its goals. Human resource planning should serve as a link between human resource management and the overall strategic plan of an organization. Ageing workers population in most western countries and growing demands for qualified workers in developing economies have underscored the importance of effective human resource planning.

As defined by Bulla and Scott, human resource planning is ‘the process for ensuring that the human resource requirements of an organization are identified and plans are made for satisfying those requirements’. Reilly defined (workforce planning) as: ‘A process in which an organization attempts to estimate the demand for labour and evaluate the size, nature and sources of supply which will be required to meet the demand. ‘ Human resource planning includes creating an employer brand, retention strategy, absence management strategy, flexibility strategy, (talent management) strategy, (recruitment) and selection strategy.

Businesses typically look three to five years ahead when formulating a strategic plan, and the process results in a document that articulates the company’s vision, mission, big-picture goals and the broad strategies it will use to reach those goals. This planning document is intended to guide leadership in its decision-making.

A key part of strategic planning is assessing the company’s resources. It’s easy for any company to dream big and have stratospheric ambitions, but what the company can realistically achieve is limited by the number and type of resources it has at its disposal. For most businesses, those resources fall into three main categories:

Technology resources: This includes all the equipment, processes and infrastructure the business uses to create the products and services that it brings to market.

Financial resources: Finance comprises all the liquid resources the company can use to carry out its business operations namely cash in hand, short-term and long-term bank deposits, liquid financial investments like stocks and bonds, and approved bank loans.

Human resources: This resource comprises the people whose talents, skills and personal characteristics the business can use to accomplish its strategic goals. While technology and money are important assets, human resources are the most important, because technology and money need people to manage them.

Implementation Stages

1. Assessing the current HR capacity

Develop a skills catalog for your employees so that you have a clear understanding of what your staff currently holds. This employee catalog should include everything from volunteer activities to certifications, of all degrees not just topics pertaining to their particular position. These catalogs can be assessed to deem whether or not an employee is ready to add more responsibility, or to forecast the employee’s future development plans.

2. Forecasting HR requirements

This step includes projecting what the HR needs for the future will be based on the strategic goals of the organization. Keep in mind you will need to also accommodate for external challenges that can affect your organization.

3. Gap Analysis

During this step you will observe where your organization is currently, and where you want to be in the future. You will identify things such as, the employee count, and the skills evaluation and compare it to what will be needed to achieve your future goal. During this phase you should also review your current HR practices and identify what you are doing that is useful and what you can add, that will help you achieve your goal.

4. Developing HR strategies to support the strategies of the organization.

There are 5 HR strategies that you can follow to meet your organizational goals.

• Restructuring strategies: This includes reducing staff, regrouping tasks to create well-designed jobs, and reorganizing work groups to perform more efficiently.
• Training and development strategies: This includes providing the current staff with training and development opportunities to encompass new roles in the organization
• Recruitment strategies: This includes recruiting new hires that already have the skills the organization will need in the future.
• Outsourcing strategies: This includes outreaching to external individuals or organizations to complete certain tasks.
• Collaboration strategies: This includes collaborating with other organizations to learn from how others do things, allow employees to gain skills and knowledge not previously available in their own organization.

Theories

Strategic human resource management

Strategic human resource management is “critical importance of human resources to strategy, organizational capability to adapt to change and the goals of the organization”. In other words, this is a strategy that intends to adapt the goals of an organization and is built off of other theories such as the contingency theory as well as institutional theory which fit under the umbrella of organizational theory. These theories look at the universalize, contingency and configuration perspectives to see the effect of human resource practices in organizations.

The universalize perspective says that there are better human resource practices than others and those should be adopted within organization while contingency says that human resource practices need to align with other organization practices or the organizations mission, and configuration perspective is based on how to combine multiple aspects of human resource practices with effectiveness or performance. This can also be viewed as how human resource practices fit vertically or horizontally in an organization. This theory also involves looking at the value of human capital as well as social capital both in and outside of organizations and how this affects human resource practices. Human capital being knowledge and skills of individuals working for the organization and social capital is based on the character and value of relationships in and out of the organization. “Colbert suggests that SHRM should focus on the interactions and processes of the organization’s social system the intentions, choices and actions of people in the system and on HR systems as a coherent whole.”

Resource dependency theory

Resource dependence theory which is the theory that organizations are not self-sustaining there they must depend on outside resources to stay functioning. “Resources and dependence could help to explain how HR practices evolve from the interaction between nonprofits and their environment, how they deploy employee skills, behaviors and how HR systems are managed.”

Managerial Judgement:

Managerial judgement technique is very common technique of demand forecasting. This approach is applied by small as well as large scale organisations. This technique involves two types of approaches i.e. ‘bottom-up approach’ and ‘top-down approach’. Under the ‘bottom-up approach’, line mangers send their departmental requirement of human resources to top management.

Executive or Managerial Judgment method is the most suitable for smaller enterprises because they do not afford to have work study technique. Under this method the executives sit together and determine the future manpower requirements of the enterprise and submit the proposal to the top management for approval. This approach is known as ‘bottom up’ approach.

Sometimes the members of top management sit together and determine the needs on the advice of personnel department. The forecasts so prepared sent for review to the departmental heads and after their consent approved the need. This is known as ‘top down’ approach. The best way is the combination of the two approaches. Executives at both levels equipped with guidelines sit together and determine the human resources need of the organization.

Top management ultimately forecasts the human resource requirement for the overall organisation on the basis of proposals of departmental heads. Under the Top-down approach’, top management forecasts the human resource requirement for the entire organisation and various departments. This information is supplied to various departmental heads for their review and approval. However, a combination of both the approaches i.e. ‘Participative Approach’ should be applied for demand forecasting. Under this approach, top management and departmental heads meet and decide about the future human resource requirement. So, demand of human resources can be forecasted with unanimity under this approach.

Ratio Trends Analysis:

Under this method the ratios are calculated for the past data related to number of employees of each category i.e. production, sales and marketing levels, work load levels. Future production and sales levels, work load, activity levels are estimated with an allowance of changes in organization, methods and jobs. The future ratios are estimated. Then future human resources requirement is calculated on the basis of established ratios. This method is easy to understand. Value depends upon accuracy of data.

Estimated production for next year = 1,40,000 units

Estimated no. of workers needed

(on the basis of ratio-trend of 1: 200) will be = 700

Regression Analysis:

This is similar to ratio-trend analysis in that forecast is based on the relationship between sales volume and employee size. However, regression analysis is more statistically sophisticated. A firm first draws a diagram depicting the relationship between sales and workforce size. It then calculates regression line – a line that cuts right through the center of the points on the diagram. By observing the regression line, one can find out number of employees required at each volume of sales.

Regression analysis is used to forecast demand for human resources at some point of time in future by using factors such as sales, production services provided etc. This method is used when independent and dependent variables are functionally related to each other. Nowadays computers are used to solve regression equations for demand forecasting.

Work Study Techniques

It is also known as work load analysis. Under this method the stock of workload and the continuity of operations are determined. Accordingly the labour requirement is determined. The workload becomes the base for workforce analysis for the forthcoming years. Here due consideration is given to absenteeism and labour turnover. This method is also known as work study technique. Here working capacity of each employee is calculated in terms of man-hours. Man-hours required for each unit is calculated and then number of required employees is calculated.

Work-study techniques can be used when it is possible to apply work measurement to calculate length of operations and the amount of labor required. The starting point in a manufacturing company is the production budget, prepared in terms of volumes of saleable products for the company as a whole, or volumes of output for individual departments.

The budgets of productive hours are then compiled using standard hours for direct labor. The standard hours per unit of output are then multiplied by the planned volume of units to be produced to give the total number of planned hours for the period. This is then divided by the number of actual working hours for an individual operator to show the number of operators required.

The example is given below:

(a) Planned annual production = 2, 00,000 units

(b) Standard man-hours required for each unit = 2 Hours

(c) Planned man-hour needed for the year (a x b) = 4, 00,000 hrs.

(d) Planned annual contribution of an employee = 2000 hrs.

(e) No. of employees required ————- (c/d) = 4, 00,000/2000 = 200

This method is useful for long term forecasting.

Delphi Technique

Delphi technique is also very important technique used for estimating demand of human resources. This technique takes into consideration human resources requirements given by a group of experts i.e. mangers. The human resource experts collect the manpower needs, summarises the various responses and prepare a report. This process is continued until all experts agree on estimated human resources requirement.

Delphi Technique Named after the ancient Greek Oracle at the city of Delphi, the Delphi technique is a method of forecasting personnel needs. It solicits estimates of personnel needs from a group of experts, usually managers. The human resource planning (HRP) experts act as intermediaries, summarize the various responses and report the findings back to the experts.

The experts are surveyed again after they receive this feedback. Summaries and surveys are repeated until the experts’ opinions begin to agree. The agreement reached is the forecast of the personnel needs. The distinguishing feature of the Delphi technique is the absence of interaction among experts.

Demand forecasting is a quantitative aspect of human resource planning. It is the process of estimating the future requirement of human resources of all kinds and types of the organisation.

Human resource (HR) demand forecasting is the process of estimating the future quantity and quality of people required. The basis of the forecast must be the annual budget and long-term corporate plan, translated into activity levels for each function and department. In a manufacturing company, the sales budget would be translated into a production plan giving the number and type of products to be produced in each period. From this information, the number of hours to be worked by each skilled category to make the quota for each period, would be computed. Once the hours are available, determining the quality and quantity of personnel will be the logical step.

HR Demand forecasting must consider several factors-both external as well as internal. Among the external factors are competition (foreign and domestic), economic climate, laws and regulatory bodies, changes in technology, and social factors. Internal factors include budget constraints, production levels, new products and services, organisational structure, and employee separations. Demand forecasting is common among organisations, though they may not do personnel-supply forecasting.

Factors:

(1) Employment trend in the organisation for at least last five years to be traced

to determine the future needs.

(2) Organisation has to find out the replacement needs due to retirement, death, resignation, termination etc.

(3) Improvement in productivity is yet another factor. To improve productivity organisation needs better employees with skills and potential. Productivity leads to growth but depends on the demands for the product of the enterprise in the market. Higher demand may lead to more employment of skilled personnel’s.

(4) Expansion of the organisation leads to hiring of more skilled persons. The base of human resource forecast is the annual budget. Manufacturing plan depends upon the budget. Expansion in production leads to more hiring of skills and technology.

1. Assessing Human Resources:

The assessment of HR begins with environmental analysis, under which the external (PEST) and internal (objectives, resources and structure) are analyzed to assess the currently available HR inventory level.

After the analysis of external and internal forces of the organization, it will be easier for HR manager to find out the internal strengths as well as weakness of the organization in one hand and opportunities and threats on the other. Moreover, it includes an inventory of the workers and skills already available within the organization and a comprehensive job analysis.

2. Demand Forecasting:

HR forecasting is the process of estimating demand for and supply of HR in an organization. Demand forecasting is a process of determining future needs for HR in terms of quantity and quality. It is done to meet the future personnel requirements of the organization to achieve the desired level of output.

Future human resource need can be estimated with the help of the organization’s current human resource situation and analysis of organizational plans and procedures. It will be necessary to perform a year-by-year analysis for every significant level and type.

3. Supply Forecasting:

Supply is another side of human resource assessment. It is concerned with the estimation of supply of manpower given the analysis of current resource and future availability of human resource in the organization. It estimates the future sources of HR that are likely to be available from within an outside the organization. Internal source includes promotion, transfer, job enlargement and enrichment, whereas external source includes recruitment of fresh candidates who are capable of performing well in the organization.

4. Matching Demand and Supply:

It is another step of human resource planning. It is concerned with bringing the forecast of future demand and supply of HR. The matching process refers to bring demand and supply in an equilibrium position so that shortages and over staffing position will be solved.

In case of shortages an organization has to hire more required number of employees. Conversely, in the case of over staffing it has to reduce the level of existing employment. Hence, it is concluded that this matching process gives knowledge about requirements and sources of HR.

5. Action Plan:

It is the last phase of human resource planning which is concerned with surplus and shortages of human resource. Under it, the HR plan is executed through the designation of different HR activities. The major activities which are required to execute the HR plan are recruitment, selection, placement, training and development, socialization etc.

Finally, this step is followed by control and evaluation of performance of HR to check whether the HR planning matches the HR objectives and policies. This action plan should be updated according to change in time and condition.