The Financial Importance Of Human Resources Department

Introduction

Not so long ago, in the Human Resource Conference organized by the Chartered Institute of Personnel Development (CIPD), held in September 2007; Sir Gerrard Robinson (former Granada Chief Executive) proclaimed in very few direct words: 'I am not a big fan of HR' and went on to insinuate that HR was 'getting a bit big for its boots'. In the same conference, Greg Dyke (ex-Director General for BBC) commented on HR's functionality by saying, 'HR's job is to facilitate, not lead'. (Harrington, 2007)

These are all familiar statements to an HR professional. Though, Human Resource Management (HRM) has come a long way - from the early stages of Personnel Administration to the more recent, Strategic HR management; still for reasons unknown, the core business function has never quite accepted HR as a mainstream function like Marketing and Accounting (both of which have difficulty in establishing their credibility). Some have argued the lack of credibility of Accounting, based on occasions when it employed the so-called 'Creative Accounting' spirit of it, which led to numerous disastrous accounting scandals like Enron, and WorldCom. Inspite of all this, Marketing and Accounting always find a place in the board of a company. But why is it that one rarely finds an HR Professional on the board of a company?

Jack Welch, (ex-CEO & Chairman of GE) on the other hand has been quoted as saying: "We spend all our time on people," he says. "The day we screw up the people thing, this company is over." It has been quoted by the famous business advisor, that one of the main reasons a CEO fails, is due to this 'people issue' - lack of putting the right person to the job and addressing people problems in time. (Charan & Colvin, 1999) This may lead one to ask then, why is it that the department which deals with these 'people' matters, are left out from being a 'business partner'? Could it be because this department - (HR) has failed to prove its credibility and contribution towards the company's financial performance, or is it that the HR department's efforts have gone unrecognized, and unappreciated?

The above are only few questions that plague an astute HR professional, even today; though there is increasing evidence of advocacy against this notion.

Plan of the essay

This essay begins with an overview of the evolution of HR, from its preliminary origins to its gradual shift towards Strategic Human Resource Management (SHRM). It then progresses to illustrate David Ulrich's idea of transforming HRM with the Value Proposition model. Having established how HR can create 'value' within an organization, the essay then demonstrates the metrics available to quantify the value addition by HR. In conclusion, it attempts to justify whether the metrics truly help in expressing HR's credibility and argument to be accepted as a 'business partner'.

Background of Human Resource Management

HRM can be traced back to the earlier function of Personnel Administration, which sought to 'administer' employees (humans) rather than 'manage' them to achieve a competitive edge in the environment. (Beaumont, 1996)

The basic traditions of Personnel Management included: Welfare - the firm wide initiative to mitigate the effects of lassiez-faire (free trade) doctrine; Industrial Relations - initiative to act as a mediator or as an administrator to groups of employees; Employment management - administer rules and policies in accordance with the organization; and Professional - the practice which found it increasingly difficult to 'manage' people and expectations and understand human behaviour. (Perman, 2007) This need to understand behaviour led to further research towards an appropriate style of 'Personnel Management', called Human Resource Management.

HRM 'architecture' (Becker, Huselid, & Ulrich, 2001) viewed employees not as 'commodity' but as valuable resources, which if managed effectively could contribute significantly towards organizational success. (Beaumont, 1996) It was believed, clear understanding of human behaviour, aptitude and competences (skills) of an employee, ensured good fitment of person to job-role and organization, thereby decreasing complexity of administrative duties in HR and enhancing organisational capability.

HR Strategic Architecture

The recent past has increasingly seen the association of the term 'strategic' with HRM. This association has given rise to increased scrutiny of HR effectiveness and raised questions about HR's credibility and contribution to the company bottom-line. All this criticism has boiled down to the one fundamental question: "Do we really need an HR Department?" (Perman, 2007)

Strategic Human Resource Management (SHRM)

Beaumont has described the key facets of SHRM as: 1) Span of employee coverage - to institutionalize "all employees" policy throughout the organization. This strategic policy assures similar working environment for all. By ensuring equality, it motivates an employee to perform better and contribute positively towards the organization's financial performance. Schuller says, this change ensures employee commitment rather than only compliance. He says employee involvement in company affairs guarantees 'effective implementation of decisions' in the future. (Schuller, 1999)

2) Organizational level for decisions - Beaumont describes three levels at which decisions are made: a) Strategic level - forming organization policies and objective/goal setting; b) Managerial level - deciding on effective processes and resource allocation; and c) Operational level - for every day decisions. He argues that in order to increase the perceptual value of HR policies and assure a long-term positive effect, HR decisions need to be made at the strategic level with management seriousness.

3) HR decisions and external competitive strategy - All strategic decisions made in the organization must be in accordance with the other. Beer & Spector (1985) have commented: "A business has an external strategy: a chosen way of competing in the market place. It also needs an internal strategy: a strategy for how its internal resources are to be developed, deployed, motivated and controlled. ... external and internal strategies must be linked. ...need for practices to be guided by conscious policy choices to increase the likelihood that practices will reinforce each other and will be consistent