Human Resources Management Challenges

Challenge 1. Demographic and Employee Concerns:

HR managers need to be concerned about the changes taking place among the workforce and their expectations in addition to the competitive changes. Demographic changes and cultural changes cause considerable impact on HRM.

Challenge 2. Managing Diversity:

Managing diversity means being adequately aware of characteristics common to employees and at the same time managing these employees as individuals. The most important aspect of diversity management is valuing diversity in the work place followed by developing appropriate culture, arranging needed opportunity and providing effective leadership.

Developing Appropriate Culture:

1. Fostering mutual respect and a sense of belonging,
2. Accepting differences,
3. Providing diversity-training programs,
4. Maintaining equity in performance expectations, pay and rewards, and
5. Promoting multicultural employees.

Arranging Needed Opportunity:

1. To develop new skills,
2. To help climb the ladder to reach top positions,
3. To encourage differently-abled and minority people, and
4. To motivate affirmative action.

Challenge 3. Containing Costs:

Managers are increasingly under pressure to lower cost and improve productivity to maximize efficiency. Similar to other functional departments, HR department also is required to show financial results. HR department is in a dilemma to contain costs related to people.

1. Labour costs are one of the larger expenditure of any organization, particularly, in service-and knowledge-intensive firms.
2. Healthcare costs pose a much bigger burden to the firms.

To contain operational costs, firms are resorting to many activities such as downsizing, outsourcing, offshoring and employee leasing, which all have a big impact on HR policies and practices.

1. Downsizing or Rightsizing:

It is the planned elimination of jobs. It is also called ‘smart cost reductions’. Instead of terminating employees some firms resort to early retirement, voluntary separation programs and sabbaticals for continuing education.

Downsizing is not a short-term answer. Now, it is being increasingly used to adjust to changes in technology, globalization and the firm’s business direction. However, while some firms improve efficiency and lower costs, many others fail to reap any benefits by downsizing.

Downsizing, instead of reducing costs, may backfire through the following hidden costs:

1. Severance and rehiring costs.
2. Accumulated vacation and sick-day payments.
3. Lumpsum pension benefits.
4. Loss of trust in the management resulting in reduced business.
5. Unavailability of skilled workers when the firm comes back to form.
6. Potential lawsuits from terminated workers.
7. Reduced productivity as the remaining workers are likely to be demotivated.

It is hard to get dedicated and productive workers when the company is known for terminating employees whenever there is a problem. Downsizing signals that employees are expendable. There are companies which consider employees as assets/intellectual capital, make special efforts to reassign and retrain employees to new positions when their jobs are eliminated.

1. Outsourcing:

It means hiring someone outside the company to perform tasks that could be done internally.

Nowadays, it is common to find hiring of:

1. Accounting firms to take care of financial services of firms,
2. Advertising agencies to handle product/service promotions,
3. Software companies to develop data processing systems, and
4. Law-firms to handle legal issues.

In many companies, maintenance, security, catering and payroll are being outsourced to increase the organization’s flexibility and lower its overhead costs. Outsourcing is gaining momentum as the executives feel that they could concentrate on their core activities rather than wasting their time and energy on peripheral activities. Increasingly outsourcing is changing the way HR departments operate. But whether outsourcing has resulted in reduced cost or not is a moot question to answer.

1. Offshoring:

It is almost similar to outsourcing, the main difference being that the jobs are done by people of other countries. It is also called ‘global sourcing’. Cost reduction is the overwhelming motivator of off shoring. Companies in developed countries are able to save a substantial amount in offshoring jobs to developing countries where the highly educated workers can perform the same as workers of developed countries.

But there are problems to face such as finding the right foreign vendors, productivity loss during transition, domestic lay off costs, language inadequacy, offshore countries’ regulations and political/economic instability.

HR managers will be able to help the management in offshoring by addressing issues such as skill and language requirements, labour costs, alternative talent pools, workforce training, retraining and change management.

1. Employee Leasing:

It is the process of terminating employees who are then hired by a leasing company and contracting with the leasing company to lease back the employees. Generally, smaller companies opt for employee leasing. The leasing company takes over management of smaller company’s HR functions and becomes a co-employer to its employees.

Challenge 4. Responding to Market Forces:

In the present scenario of business competition is inevitable. Managers are required to take care of the customers’ needs of quality, innovation, variety and responsiveness. Total quality management (including six sigma) and process reengineering are two important approaches to respond to customers.

1. TQM, Six Sigma and HRM:

Total Quality Management (TQM) is a set of principles and practices which include understanding of customer needs and striving for continuous improvement from the start. Many TQM programmes, initially thought to be a cure-all for every problem, failed to respond to customer needs and to improve quality.

This was attributed to little changes in organizational philosophies and HR programmes. Later, many companies start adopting a more systematic approach to quality known as Six Sigma.

Six Sigma is a statistical process used to translate customer needs into a set of optimal tasks that are performed in concert with one another. Six Sigma includes many major changes in management philosophy and HR programs. Six Sigma process is able to find out the mistakes before they happen. In a true Six Sigma environment variations from standard is only 3.4 defects per million.

HR and Six Sigma:

1. The importance of HR to Six Sigma begins with the formation of teams and extends to training, performance management, communication, culture and rewards.
2. Through Six Sigma training individuals progress from ‘green belt’ to eventually ‘black belt’ status.
3. In some companies HR positions are reserved for black-belt certified professionals.
4. In six sigma process, the stress is on motivation, change in corporate culture and employee education.
5. HR programs are essential to help balance to opposing process viz. the need for order and control and the need for growth and creativity.

Challenge 5. Managing Human Capital:

Human capital is the knowledge, skill and capabilities of individuals that have economic value to the organization. As human capital is intangible and elusive, it cannot be managed the way jobs, products or technologies are managed. This is because human capital is owned by the employees themselves and not by organizations.

Managing human capital is highly crucial because if valued employees leave an organization, they take their human capital with them and any investment made in training and development is lost. Hence, success increasingly depends on an organization’s ability to retain and manage human capital.

Role of HRM in Retaining and Managing Human Capital:

Managers must continue to develop superior knowledge, skills and experience within their workforce to build human capital.

1. Staffing programs should focus on identifying, recruiting and hiring the best and brightest talent available.
2. There must be effective training skill enhancement and opportunities for development on the job.
3. Managers must provide development assignments and ensure their job duties and requirements are flexible enough to allow for growth and learning as highly valued intelligence tends to be associated with competences and capabilities learned from experience.
4. Talent should not be left unused. There must be efforts to empower employees and encourage their participation to fully utilize the available human capital.
5. In many companies, managers are evaluated on their progress towards meeting development goals that focus on skill development and gaining new competencies and capabilities. In many cases pay is attached to additional knowledge or skill acquired.
6. HR programmes and assignments are the means through which knowledge is transferred among employees.
7. Identifying the ways of utilizing the knowledge to benefit the firm.

Challenge 6. Change Management:

The major forces driving changes in organizations as well as HRM are globalization and technology. In the present business scenario business success mostly depends on how changes are managed. Companies are successful as they develop a culture that keeps moving all the time. In highly competitive business environment, change management is the core competency of organizations.

Changes could be reactive, proactive or both. Reactive change is one where change occurs after external forces have already affected performance. In the case of proactive change, change is initiated to take advantage of environmental opportunities. The main thrust of change management program is to involve employees in establishing continuous innovation and excellent customer service.

Challenge 7. Ever Changing Technology:

The effect of advancements in information is so dramatic that organizations are changing the way they do business. Use of internet to do business is so pervasive in both large and small organizations that e-commerce is rapidly becoming a challenge.

As computer-mediated work style is resulting in ‘virtual’ office in which people can work from home or any outstation spots, the implication for HRM are mind-boggling.

Impact of Technology on HRM:

1. Advanced technology tends to reduce the number of jobs which require less skill and to increase jobs requiring high skills.
2. The shift from ‘touch labour’ to ‘knowledge workers’ has resulted in retraining of employees on higher responsibilities.
3. Knowledge based training has become very important.
4. HRIS has become a potent weapon to lower administrative costs increase productivity, speed up response times and improve decision making and customer service.
5. Information technology has resulted in automating routine activities, alleviating administrative burdens, reducing cost and improving productivity in the HR department.
6. As HR managers are able to access the employee records themselves, delay and wastage of stationery are reduced.
7. Apart from the routine activities software’s are being used to recruit, screen and pretest applications online.
8. Setting up of goals and measuring of performance are also done through online.

Challenge 8. Globalization:

Many companies are seeking business opportunities in global markets to grow and prosper as domestic markets are shrinking. Globalization is the trend towards opening up foreign markets to international business and investment. The impact of globalization on business and HRM is enormous.

Impact of Globalization on Business:

1. Competition as well cooperation with foreign companies has become an important focal point in the present business context.
2. For large companies the vision is to offer customers anything, anytime, anywhere.
3. Well known products are losing their national identities.
4. There are many free-trade agreements between nations.
5. Even though there is improvement in the standard of living of people consequent to globalization, there is still the fear of loss of jobs in certain sections of people.
6. People in developing countries fear that developed countries are exploiting their natural resources resulting in a ‘have/have not’ world economy.
7. Corporates are discovering that being socially responsible helps the people at the bottom line. Corporate social responsibility is to operate in the best interests of the people and communities affected by its activities.