Author: indiafreenotes

Treasury Bills:

The treasury bills are issued by RBI on behalf of the Central Government. Earlier they were issued on the basis of tenders floated regularly but now are available on tap system, i.e., on rates announced by RBI every week. These bills are issued only in bearer form. Name of the purchaser is not mentioned on the bills, rather they are easily transferable from one investor to another.

No interest is paid on the bills but the return is the difference between the purchase price and face (par) value of the bill. Since there is a backing of the Central Government, these are risk free securities. A very active secondary market exists for these bills so it has made them highly liquid. Treasury bills are one of the popular marketable securities even though the yield on them may be low.

Negotiable Certificates of Deposit (CD’s):

The money is deposited in a bank for a fixed period of time and marketable receipt is issued. The receipt may be registered or bearer, the latter facilitates transactions in the secondary market. The denominations and maturity periods are decided as per the needs of the investor.

On maturity the amount deposited and interests are paid. The CD’s are different from the treasury bills which are issued on discount. The short-term surplus funds can be used to earn interest in this method. The investment is secure unless the bank fails, the chances of which are remote.

Unit 1964 Scheme:

The Unit Trust of India’s unit 1964 scheme is very popular for making short-term investments. It is an open ended scheme which allows investors to withdraw their funds on a continuing basis. The units have a face value of Rs10. The purchase and sale value of units is not based on net assets value but it is determined administratively in such a manner that they rise gradually over time.

The unit scheme offers a good avenue for investing short-term funds and has the following advantages:

(i) The dividend income from unit received by companies is treated as inter-corporate dividend, it qualifies for tax exemption up to 80 per cent under Sec. 80M of the Income Tax Act. Many Companies purchase cum-dividend units in May, collect dividend in July and then sell the units.

(ii) The yield can be increased by a careful synchronizing of the purchase and sale of units because the capital loss on sale of units would qualify for a tax set-off, of which 80 per cent of the dividend income would be tax free.

(iii) There is an active secondary- market for units, there will be no liquidity problem.

Ready Forwards:

A commercial bank or some other organisation may enter into a ready forward deal with a company willing to invest funds for a short period of time. Under this system the bank sells and repurchases the same security (that means that company purchases and sells securities in turn) at pre­determined prices.

The difference between the purchase and sale price is the income of the company. Ready forwards are generally done in units, public sector bonds or government securities. Ready forward deals are linked with the position of the money market. The investor can hope to earn more if money market is tight during busy season and at closing of the year.

Badla Financing:

Badla financing is used in stock exchange transactions when a broker wants to carry forward his transactions from one settlement period to another. Badla financing is done through operators in stock exchange. It is the financing of transactions of a broker who wants to carry forward this deal to the other settlement period. The badla rates are decided on the day of settlement.

Badla transaction is financed on the security of shares purchased whose settlement is to be carried forward. Sometime this financing facility may be extended for a particular share only. For example, a company may provide badla finance to a broker X 10 crores for purchasing ACC shares in forward market. Badla rates vary with demand and supply position of funds.

Badla financing offers attractive interest rates. However, it becomes risky if the broker defaults in his commitment. Even the wide fluctuation in prices of shares may also affect the value of security.

An investor in this type of financing should be careful about following things:

(i) The selection of a broker should be on the basis of reputation.

(ii) The shares with a sound intrinsic value should be selected.

(iii) The margin should be adequate.

(iv) The possession of securities should be taken.

Inter-Corporate Deposits:

These are short term deposits with other companies which attract a good rate of return.

Inter-corporate deposits are of three types:

(i) Call Deposits:

It is a deposit which a lender can withdraw on one day’s notice. In practice it takes three days to get this money. The rate of interest at present is 14 per cent on these deposits.

(ii) Three Months Deposits:

These deposits are popular and are used by borrowers to tide over short- term inadequacy of funds. The interest rate on such deposits is influenced by bank overdraft interest rate and at present the borrowing rate is 22 per cent per annum.

(iii) Six-month Deposits:

The lenders may not have surplus funds for a very long period. Six-month period is normally the maximum which lenders may prefer. The current interest rate on these deposits is 24 per cent per annum.

Since inter-corporate deposits are unsecured loans, the creditworthiness of the borrower should be ascertained. Section 370 of the Company’s Act has placed certain restriction on inter-company deposits, so these provisions should be adhered to, these provisions are:

(a) A company cannot lend more than 10 per cent of its net worth (equity plus free reserves) to any single company.

(b) The total lending of a company cannot exceed 30 per cent of its net worth without the prior approval of the central government and a special resolution should permit such a lending.

Bill Discounting:

A bill arises out of credit sales. The buyer will accept a bill drawn on him by the seller. In order to raise funds the seller may get the bill discounted with his bank. The bank will charge discount and release the balance amount to the drawer. These bills normally do not exceed 90 days.

A company may also discount the bills as a bank does thus using its surplus funds. The bill discounting is considered superior to inter-corporate deposits.

The company should ensure that the discounted bills are:

(a) Trade bills (resulting from a trade transaction) and not accommodation bills (helping each other),

(b) The bills backed by the letter of credit of a bank will be most secure as these are guaranteed by the drawee’s bank.

Investment in Marketable Securities:

A firm has to maintain a reasonable balance of cash. This is necessary because there is no perfect balancing of inflows and outflows of cash. Sometimes more cash is received than required for quick payments. Instead of keeping the surplus cash as idle, the firm tries to invest it in marketable securities.

It will bring some income to the business. The cash surpluses will be available during slack seasons and will be required when demand picks up again. The investment of this cash in securities needs a prudent and cautious approach. The selection of securities for investment should be carefully made so that the amount is raised quickly on demand.

In choosing among alternative securities, the firm should examine three basic features of a security: safety, maturity and marketability. The security element deals with the absence of any type of risk. The securities with risk may give higher returns but these should be avoided. There should not be any default in payment when the securities are redeemed. The maturity periods will give higher returns.

The short-period securities will carry lower rates of interest but these should be preferred. The surplus cash can be invested only for smaller periods because the amount may be required for meeting operating cash needs in the short periods.

The securities should have a ready market. These investments can be made only in near cash securities. If the securities selected are such which require some time for realisation then there may be payment problems. So, the securities should have a ready market and may be realizable in a very short period.

Money Market Mutual Funds (MMMF):

‘Money market mutual fund’ means a scheme of a mutual fund which has been set up with the objective of investing exclusively in money market instruments. These instruments include treasury bills, dated Government securities with an expired maturity of upto one year, call and notice money, commercial paper, commercial bills accepted by banks and certificates of deposits.

Till recently, only commercial banks and public financial institutions were allowed to set up MMMFs. But in November 1995, the Government has permitted private sector mutual funds also to set up money market mutual fund. MMMFs are wholesale markets for low risk, high liquidity and short-term securities. The main feature of this fund is the access to persons of small savings.

Sustainable competitive advantages are a set of assets, characteristics, or capabilities that allow an organization to meet its customer needs better than its competition can. Sustainable competitive advantages are difficult to duplicate or replicate.

At its most basic level, there are three key types of sustainable competitive advantage.

• Cost advantage: The business competes on price.
• Value advantage: The business provides a differentiated offering that is perceived to be of superior value.
• Focus advantage: The business focuses on a specific market niche, with a tailored offering designed specifically for that segment of the market.

Types and Examples of Sustainable Competitive Advantages

Low Cost Provider/ Low pricing

Economies of scale and efficient operations can help a company keep competition out by being the low cost provider. Being the low cost provider can be a significant barrier to entry. In addition, low pricing done consistently can build brand loyalty be a huge competitive advantage (i.e. Wal-Mart).

Market or Pricing Power

A company that has the ability to increase prices without losing market share is said to have pricing power. Companies that have pricing power are usually taking advantage of high barriers to entry or have earned the dominant position in their market.

Powerful Brands

It takes a large investment in time and money to build a brand. It takes very little to destroy it. A good brand is invaluable because it causes customers to prefer the brand over competitors. Being the market leader and having a great corporate reputation can be part of a powerful brand and a competitive advantage (i.e. Coca-Cola (KO).

Strategic assets

Patents, trademarks, copy rights, domain names, and long term contracts would be examples of strategic assets that provide sustainable competitive advantages. Companies with excellent research and development might have valuable strategic assets (i.e. International Business Machines (IBM).

Barriers to Entry

Cost advantages of an existing company over a new company is the most common barrier to entry. High investment costs (i.e. AT&T (T)) and government regulations are common impediments to companies trying to enter new markets. High barriers to entry sometimes create monopolies or near monopolies (i.e. utility companies).

Adapting Product Line

A product that never changes is ripe for competition. A product line that can evolve allows for improved or complementary follow up products that keeps customers coming back for the “new” and improved version (i.e. Apple iPhone) and possibly some accessories to go with it.

Product Differentiation

A unique product or service builds customer loyalty and is less likely to lose market share to a competitor than an advantage based on cost. The quality, number of models, flexibility in ordering (i.e. custom orders), and customer service are all aspects that can positively differentiate a product or service.

Strong Balance Sheet / Cash

Companies with low debt and/or lots of cash have the flexibility to make opportune investments and never have a problem with access to working capital, liquidity, or solvency (i.e. Johnson & Johnson (JNJ).The balance sheet is the foundation of the company.

Outstanding Management / People

There is always the intangible of outstanding management. This is hard to quantify, but there are winners and losers. Winners seem to make the right decisions at the right time. Winners somehow motivate and get the most out of their employees, particularly when facing challenges. Management that has been successful for a number of years is a competitive advantage.

Steps to developing a sustainable competitive advantage

• Understand the market and its segments. Look for those niches that aren’t well serviced by competitors and can be profitably targeted and sold to.
• Develop an understanding of what customers really want and establish a value proposition that grabs their attention.
• Work out the key things that you need to do really well to support and deliver the value proposition. For example, service levels, quality, branding, pricing, et cetera.
• Understand what your strengths and core competencies are and how you can use these in innovative ways to provide value to your chosen market.
• Design your business model to support and deliver the value proposition.

At the end of this process, you will have a very clearly defined statement of:

• Who you will be selling to (customers and market segments);
• Why they will buy from you and not your competitors (the value proposition); and
• The key things you need to excel at to be able to consistently deliver your value proposition.

International assignment management is one of the hardest areas for HR professionals to master and one of the most costly. The expense of a three-year international assignment can cost millions, yet many organizations fail to get it right. Despite their significant investments in international assignments, companies still report a 42 percent failure rate in these assignments.

With so much at risk, global organizations must invest in upfront and ongoing programs that will make international assignments successful. Selecting the right person, preparing the expatriate (expat) and the family, measuring the employee’s performance from afar, and repatriating the individual at the end of an assignment require a well-planned, well-managed program. Knowing what to expect from start to finish as well as having some tools to work with can help minimize the risk.

New technologies provide greater opportunities in globalization for businesses of all sizes, but this international growth requires sending employees to foreign countries, either temporarily or permanently, to oversee the operation, administration, and marketing of international negotiations. Unfortunately, the biggest obstacles in International business are problems caused by cross-cultural differences. When cultural differences are not respected, appreciated and noted, negotiations can fail. By training employees in cross-cultural differences before sending them abroad, you can resolve many of these misunderstood issues.

Incorporate Multiple Delivery Modes

Quality elearning is not as simple as posting a series of videos on a shared drive. Not everyone can absorb knowledge or skills just from watching videos. Although convenient, self-paced videos often lack the power to keep viewers engaged. Plus, studies have shown that different people learn differently. These differences can be especially profound across diverse cultures, generations and languages.

Search for a native cross-cultural trainer from the country the employee will work in. Use foreign in-house training personnel or contact your local Small Business Administration to find businesses specialized in this type of training. You can also locate this specialized training from online businesses like InterCultural Group, People Going Global or Interchange Institute. Ask for training in cultural practices in business, and in body language and facial gestures for the country you are doing business in. Many foreign countries emphasize hand and body gestures. Learning to identify these can help the negotiation run smoothly.

Teach future international employees a little of the language used in the country they will work in. The foreign business associate will not see it as insulting or embarrassing when a foreign associate mispronounces a word. To the contrary, it is a sign of respect and recognition to attempt to speak the foreign language.

Train the employee to slow down. Most Americans and Canadians are trained to work on a schedule. They live fast-paced lives and stick to set times faithfully. Other cultures are not as defined in their daily schedules. Help the employee understand these different perceptions of time and be a little more flexible with scheduling meetings and other work related events. Understand that the negotiating partners may be more interested in the long-term relationship rather than just closing the deal in a week.

Define the country’s cultural standing when referring to power, individualism, collectivism and masculinity vs. feminism. For instance, some countries put more emphasis on group communication rather than individual decisions. Teach employees to respect these differences even if they don’t coincide with their personal beliefs.

Train the employees in local culture, art, history and politics. This will give them topics of conversation not related to business to help remove the stress from the business negotiation. Explain the importance of complimenting a culture and country, without comparing it unfavorably to that of their native country. Allow the employee to demonstrate pride in their country without demeaning the foreign country.

Train the employee to be aware of culture shock and its possible interference in the work environment. Explain the three stages of culture shock, which are initial optimism, followed by a period of frustration and gradual improvement of mood and satisfaction.

Double taxation is a situation associated with how corporate and individual income is taxed and is, therefore, susceptible to being taxed twice.

Categories of Double Taxation

1. Corporate Double Taxation

It is a situation in which corporate earnings are taxed twice at two different levels but include the same income. A corporate organization’s net income is taxed as corporate tax, and when the same income is distributed to shareholders as a dividend, it is again taxed by way of a dividend tax. Corporate double taxation is common not only in the United States but in several countries around the world.

Arguments against corporate double taxation indicate that as shareholders are the owners of a corporation in which corporate tax is levied on profits attributable to the owners, income distributed to them as dividends and taxed with dividend tax at a personal level represents the same income stream being taxed twice.

However, arguments for the maintenance of the double taxation regime contend that since a corporation in the form of a company is a separate legal entity divorced from the company’s individual owners, taxation on both corporate earnings and dividends is justified.

2. International Double Taxation

International double taxation mainly concerns multinational entities that operate in jurisdictions other than their home country, but it can also affect foreign income earned by individuals in foreign countries. There are instances where foreign income is taxed in the country where the income is derived and the country where an investor resides.

Hence, double taxation induces a hardship on taxpayers through an increased tax burden on the investor and can result in the increase of the price of goods and services, discourages cross border investment through curtailing capital movement, and violates the tax fairness principle.

Measures to Avoid Double Corporate Taxation

1. Legislation

Legislation must be enacted to remove elements of double taxation, which is inefficient and discourages investment. If investors are able to receive their dividends tax-free, they will be inclined to invest more rather than retain profit, especially for mature companies that do not need much capital.

2. Pass-through taxation

It involves structuring the business as a sole proprietorship, a partnership, or an LLC adopt pass-through taxation features. There are no dividends in such structures, as profits are shared between the owner(s)/partners. However, the strategy is only applicable to small organizations.

3. Absence of dividend payments

Avoiding payment of dividends and retaining profits in the business to generate growth. The strategy works for start-ups and organizations in the growth phase of the business life cycle. It is critical to growing product scope and market share. Shareholders of mature companies with stable cash flows and very little cash appetite expect dividend compensation.

4. Personal income tax status

Shareholders can add themselves as employees in smaller companies or as executive directors in larger companies and get paid a salary; however, they would still be taxed on their salary through a personal tax rate. It would not qualify as double taxation.

Managing International Double Taxation

The best way to manage the challenge of international double taxation is to come up with tax treaties between countries and legal jurisdictions. The treaties involve collaboration between jurisdictions and the exchange of information. They are established to reduce or eliminate illegal taxation practices, promote trade efficiency between nations, prevent tax evasion, and ensure tax certainty.

Double Taxation Agreements (DTA)

A double taxation agreement (DTA) refers to an agreement signed between two countries to prevent or minimize territorial double taxation of the same income by the two countries. DTAs are put in place to ensure they alleviate double taxation, which undoubtedly discourages international trade. Given the global village the world has become, double taxation is counterproductive and discourages investment flows.

DTAs encourage cross-border trade and investment between countries. When trade between two countries is growing, and both countries anticipate further growth, they usually facilitate the signing of a DTA to eliminate double taxation and improve trade between them. The DTA establishes rules and regulations of how income earned through cross-border transactions is treated and ensures that the income is not compromised through double taxation.

A DTA can require that tax is charged in the investor’s home country and is exempt in the country where the income is generated. Alternatively, an investor may be levied tax where the income arises, and the investor will receive a foreign tax credit in the home country.

Double Taxation Relief

1. Exemption method

Under the exemption method, a taxpayer is exempt from tax in their resident country or jurisdiction regardless of where the income is generated. However, taxpayers are liable to pay tax in the host country where income is generated. The exemption method encourages cross-border investments by investors in their resident countries and removes barriers to free trade, thereby increasing trade and the globalization of business.

Countries that solely use the exemption method are termed tax havens, as they do not tax –or apply low tax rates to foreign earned income by resident corporations and individuals.  Most tax havens attract wealthy individuals, multinational corporations, and financial institutions that seek to minimize tax liabilities.

However, tax havens are being criticized for helping protect the financial transactions of criminals and shady businesses and facilitate money laundering. Examples of tax havens include The Cayman Islands, Bermuda, The Bahamas, and Cyprus.

2. Foreign tax credit (FTC)

The foreign tax credit method taxes the income of residents regardless of where it arises. The FTC method requires the home country to allow a credit against domestic tax liability where a resident pays tax in a country where the revenue arises.

The tax paid in one country is used to offset the tax liability in another country. This method helps businesses to operate normally within existing tax regulations. FTC can also be termed the Capital Export Neutral System.

Tax Residency Certificate

The Government of India has made it mandatory for assessor’s to obtain Tax Residency Certificate (TRC) from the country of residence to avail the benefits of the Double Taxation Treaty in India.

DTAA Agreement with Mauritius

India has a comprehensive DTAA agreement with Mauritius wherein the capital gains arising from the sale of shares are taxable in the country of residence of the shareholder and not in the country of residence of the company whose shares have been sold. Therefore, a Company incorporated in Mauritius selling shares of an Indian Company will not pay capital gains tax in India. Further, since there is no capital gains tax in Mauritius, the entire gain on capital gains arising from the sale of shares will not be taxed. Hence, this unique feature of the DTAA agreement between India and Mauritius is used by many Foreign Institutional Investors to trade in the Indian stock markets and avoid capital gains tax in India and Mauritius.

India has DTAA agreements that are similar to the India; Mauritius DTAA Agreement with Singapore and Cypriot. Hence, many Indian Companies and Foreign Investors invest through these foreign companies in foreign countries into India.

List of Countries having Double Taxation Treaty with India

The following are the list of countries having the Double Taxation Treaty with India:

• Armenia
• Australia
• Austria
• Bangladesh
• Belarus
• Belgium
• Botswana
• Brazil
• Bulgaria
• Canada
• China
• Cyprus
• Czech Republic
• Denmark
• Egypt
• Estonia
• Ethiopia
• Finland
• France
• Georgia
• Germany
• Greece
• Hashemite Kingdom of Jordan
• Hungary
• Iceland
• Indonesia
• Ireland
• Israel
• Italy
• Japan
• Kazakastan
• Kenya
• Korea
• Kuwait
• Kyrgyz Republic
• Libya
• Lithuania
• Luxembourg
• Malaysia
• Malta
• Mauritius
• Mongolia
• Montenegro
• Morocco
• Mozambique
• Myanmar
• Namibia
• Nepal
• Netherlands
• New Zealand
• Norway
• Oman
• Philippines
• Poland
• Portuguese Republic
• Qatar
• Romania
• Russia
• Saudi Arabia
• Serbia
• Singapore
• Slovenia
• South Africa
• Spain
• Sri Lanka
• Sudan
• Sweden
• Swiss Confederation
• Syrian Arab Republic
• Tajikistan
• Tanzania
• Thailand
• Trinidad and Tobago
• Turkey
• Turkemistan
• UAE
• UAR (Egypt)
• UGANDA
• United Kingdom
• Ukraine
• United Mexican States
• United States of America
• Uzbekistan
• Vietnam
• Zambia

Developing compensation plans for managers or professionals is similar in many respects to developing plans for any employee. The basic aim is the same: to attract and keep good employees. And job evaluation classifying jobs, ranking them, or assigning points to them, for instance is about as applicable to managerial and professional jobs as to production and clerical ones.

There are some big differences though Managerial jobs tend to stress harder to quantify factors like judgment and problem solving more than do production and clerical jobs. There is also more emphasis on paying managers and professionals based on results based on their performance or on what they can do rather than on the basis of static job demands like working conditions. And there is also the considerable challenges of having to compete in the market place for executives by some standards are paid like rock stars. So, job evaluation while still important usually plays a secondary role to non salary issues like bonuses, incentive, market rates, and benefits

Compensating Executive and Managers

Compensation for a company’s top executives usually consists of four main elements; base pay, short term incentives, long term incentive and executive benefits and perks. Base pay includes the person’s fixed salary as well as, often guaranteed bonuses such as 10% of pay at the end of the fourth fiscal quarter, regardless of whether or not the company makes a profit. Short term incentives are usually cash or stock bonuses for achieving short terms goals, such as year to year increase in sales revenue. Long term incentives aim to encourage the executive to take actions that drive up the value of the company’s stock, and include things like stock options; these generally give the executive the right to purchase stock at a specific price for a specific period. Finally, executive benefits and perks might include supplemental executive retirement pension plans, supplemental life insurance and health insurance without a deductible or coinsurance. With so many complicated elements employers must also be alert to the tax and securities law implications of their executive compensation decisions.

How to determines executive pay

The traditional wisdom is that company size and performance significantly affects top managers’ salaries. Studies show that company size and company performance explain only about 30% of the variation in CEO pay. Instead each firm seems to take a unique approach: In reality CEO pay is set by the board taking into account a variety of factors such as the business strategy, corporate trends and most importantly where they want to be in a short and long term. Anther study concluded that CEOs pay depends on the complexity and unpredictability of the decisions they make. In this study, complexity was a function of such things as the number of businesses controlled by the CEO’s firm, the number of corporate officers in each firm, and the level of R&D and capital investment activity. In practice CEOs may have considerable influence over the boards of directors who theoretically set their pay. So, while some CEOs may be paid like top athletes their pay is sometimes not based on the arms length market based negotiation that the athletes (or rock stars) are.

However we’ll see that shareholder activism has tightened the restrictions on what companies pay top executives. For example, share holders in pharmaceuticals firm Glaxo Smithkline voted to reject the board’s recommendation to pay its chief executive $35 million if he lost his job and to enhance the pension plans of both him and his wife.

Elements of Executive Pay

Salary is traditionally the cornerstone of executive compensation it’s element on which employers layer benefits, incentives and perquisites – all normally conferred in proportion to base pay. Executive compensation emphasizes performance incentives more than do other employees’ pay plans, since organizational results are likely to reflect executives’ contributions more directly than lower echelon employees. Indeed boards are boosting the emphasis on performance based pay (in part due to shareholder activism). The big issue here is identifying the appropriate performance standards and then determining how to link these to pay. Typical short term measures of share holder value include revenue growth and operating profit margin. Long term shareholder value measures include rate of return above some predetermined base, and what is known as economic value added.

Team-based organizations vary from traditionally hierarchical, directive organizations. Instead of having a supervisor or manager focus on facilitation, teams focus on achieving objectives together. This allows true collaboration in the workplace. Major characteristics of team-based organization include trust, empowerment, goal setting, autonomy, team accountability and shared leadership.

Team-Based Organizations

The purpose of this paper is to introduce the concept of team-based organizations. It provides an overview and definition of this concept. Furthermore, the concept of team-based organization is explored and advantages and disadvantages phased by organizations using this strategy is provided. In addition, the paper introduces the concept of employee motivation, its effectiveness, and effect on employee morale and organizational culture.

Team Based Organization-Defined A team-based organization is a company that relays on a team making decisions together and working as a unit to achieve team and company objectives. “Team-based organizations require that all employees participate in the decision-making process”. Below the structure, benefits, and disadvantages this kind of strategy might bring to a company are discussed.

Better Communication

The primary advantage of a team-based organization is that because there are usually no managers or only one manager supervising multiple teams, communication between employees is much more free-flowing and effective. Team-based organizations lack the multiple layers that employees would otherwise have to go through before making a suggestion or receiving the go-ahead to implement a new idea.

Teams Resolve Problems Quicker

This improved communication also means that companies can resolve work issues quicker because employees can share information at a faster rate, which speeds up responsiveness.

Flexible and Empowered Workforce

Another advantage is that team-based organizations are more flexible than organizations that are traditionally structured. As a business owner, you can shift employees from one team to another to maximize their skills and talent and to also keep them motivated with new challenges. Employees that work in teams is also more likely to understand their specific roles in the organization and are also more likely to feel validated and empowered.

Increased efficiency

Because professionals can communicate more effectively within an organization, they increase the efficiency of outputting projects. This means that they can often complete more tasks quickly than professionals in other organizational structures because they understand more information that goes into a single project. This increased efficiency works its way through an organization in other ways, too. For example, the organization might take on more projects that are like each other at once because they complete projects faster and understand creation processes more fully. Finally, organizations that are more efficient may receive both better contracts and more contracts from their clients.

Encourages innovation

Because professionals in an organization with a team-based structure feel more empowered, they can bring ideas to their team leaders and other management professionals in their organization. This includes new ideas for markets an organization can enter, new processes to help production increase, ways to increase a sense of community within the organization and other innovations that help an organization grow. Each team may also develop new processes to increase their own production and then share those ideas with other teams to help them.

Empowered professionals

Professionals who are part of a team, developing skills and working on a variety of projects may derive more satisfaction from their jobs. This means they can feel empowered because they have a lot of skills they can use and know that an organization can help them grow as a professional. This allows them to focus their energy at work on creating high-quality products and delivering on their commitments instead of worrying about their future within the organization and whether they’re progressing in their field. Empowered professionals may also feel more comfortable approaching leadership with ideas.

Human Resources Investment Considerations

• Management values
• Risk and return on HR investment
• Economic rationale for investment in training
• Utility theory
• Outsourcing

An Investment Prospective of Human Resource Management

• HRM practitioners & Scholars have long advocated that HR should be viewed from investment prospective.
• Current practices indicate employees as valuable investment but still some organizations view employees as variable cost and there is little recognition about employees training & development, recruitment & replacement cost.
• Investment only in physical resources does not give organizations a competitive edge as systems, processes can be duplicated, cloned or reversed engineered.
• Maintainable edge / advantage drives from the level of skills of employees, their knowledge and capabilities.
• Management scholar Edward Lawler described investment in Human Resources as:
• “to be competitive, organizations in many industries must have highly skilled and knowledgeable workforce. They must also have a relatively stable labour force since employee turnover works directly against obtaining the kind of coordination and organizational learning that leads to fast response and high quality products and services.”
• Due to forecast of shifts in skills need from manual to cerebral (intellectual), investment for enhancing employee’s knowledge & skills become more important.

Human Resource is one of the most important resources in an organization. The success or failure of an organization largely depends on how human resource is used to utilize other resources available to the organization. As a result, the focus of human resource management has shifted towards increasing the return on investment by maximizing the productivity of human resource. Therefore, evaluating the quality, costs and benefits of HR are very crucial to organizations much like any other capital investment.

Since human resource is a crucial resource in organization, human resource practitioners and management scholars have promoted the concept of adopting an investment perspective in human resource. It involves developing policies and programmes in human resources in order to increase its value to the organization and to the market, just like other asset in the organization.

The notion of viewing human resource as human asset, and adopting an investment perspective enable the organization to invest in people in order to earn the best return from them.

When an organization views human resource as an investment, rather than a variable cost, it has to consider costs, risks and return when making human resource decisions. The organization has to consider the suitability of the candidates to the jobs, and to train them much like servicing machineries. The opportunity cost of releasing the employees for training has to be considered along with the cost of conducting such trainings when comparing the return from those trainings such as potential increase in loyalty and motivation.

Once an organization has developed a competitive advantage in human resource, the competitors may try to attract those competent employees. The competitor might even be at a better position to offer a higher pay, as they do not have to spend on training and development. Therefore, organizations have to develop their human resource management policies and strategies in such a way to retain the employees and to transfer the knowledge from employee to employee within the organization. Moreover, viewing human resource management from an investment perspective allows organizations to be more proactive and protect their own the knowledge as they are being created.

Adopting an Investment Perspective

1. Characterizing employees as human assets implies the strategic management of human resources should include considering HR from an investment perspective.
2. Cost/Benefit basis analysis may be used to evaluate HR programs, such as training and development.
3. Investment perspective toward human assets facilitates their becoming a competitive advantage as most other resources/assets can be cloned, copied or imitated by competitors.
4. A strategic approach to HR, however, does not always involve a human relations approach to employee relations, as noted in the Managing Employees at United Parcel Service example
5. Investments in employees must be undertaken in tandem with strategies to retain employees long enough to realize an acceptable return on investments in employees. This requires valuation of the employee as an asset, which can be difficult to do.

In an increasingly competitive business world, top talent is in high demand. If you aren’t making your top workers happy, another company may come along to steal them away. Here are ten tips that will help you make sure your employees are around for many years

Hire the Right Employees

As you’re screening candidates, pay close attention to signs that you may have a job-hopper. While there’s nothing wrong with someone switching jobs if it provides career advancement, look for someone who is interested in growing with your company rather than getting experience to take somewhere else.

Create the Right Culture

Finding employees who will feel a strong bond with your company starts with creating an environment that attracts those employees. Your company culture should match the type of employee you want to employ, whether you opt for a by-the-book, strict workplace or a more casual, laid-back atmosphere.

Offer Training

Businesses expect their professionals to arrive fully trained and certified. Yet too many aren’t willing to invest in helping them maintain those credentials. Whether you send employees to a learning center or you provide membership to one of the many e-learning sites available, when you take your employees’ education seriously, they see it as an investment in their career.

Provide Guidance

Your employees should be fully aware of their job duties and how they’re doing in performing them. You can accomplish this by first having a job plan in place and providing regular feedback on an employee’s performance. If an employee feels confused about his role in your organization, he’s more likely to feel disgruntled and begin searching for something else.

Pay Well

As difficult as it is to pay competitive salaries when funds are low and budgets are tight, calculate the cost to replace employees. It can cost as much as 30 percent to 50 percent of an entry-level employee’s annual salary just to replace him. Employees often find they can enjoy a 10 to 20 percent salary increase by simply moving from one company to the next, which makes jumping ship attractive.

Don’t Punish Competence

Managers often spend much of their time on employees who are struggling, leaving the talented ones completely neglected. Over time, this can lead to resentment as star employees start to feel unnoticed and unsupported. Managers must make an effort to let top performers know their hard work isn’t going unnoticed.

Be More Flexible

Workers have expressed a preference for flexible working conditions. If you expect your best employee to answer his phone when a client calls at seven o’clock on a Friday night, you should also understand when that employee comes in late one morning or needs to take off early.

Offer Benefits

Small businesses often struggle to compete with larger corporations in providing benefits. While you don’t have to beat big business in the healthcare options you offer, you can offer things they won’t get elsewhere, such as the ability to work from home, more flexible vacation offerings, and performance bonuses.

Provide Unique Perks

Another way businesses can compete without breaking the budget is through offering perks they can’t get elsewhere. Silicon Valley has become notorious for its free meals and nap pods, but you can increase retention by coming up with creative perks. Use your connections to get free VIP tickets to special events or special discounts at local retailers.

Don’t Take Yourself Too Seriously

As much work as you try makes your company attractive to talented people, the truth is employees might be leaving because of their bosses. In fact, research has shown people tend to quit their bosses, not companies. If you can cultivate an environment where employees feel rewarded and gratified, you’ll already be ahead of a great deal of other bosses out there.