Strategic challenges and significances of human resource management in today’s business environment

Summary

Rapid changes in business environment has deteriorate the condition of talent retention. A topic that shows signs of raging in the 1990s, show no signs of slowing down. Experts of this field are expecting it to persist for another two decades, claiming “the war for talent is far from over” (Ed Michaels, Helen Handfield-Jones and Beth Axelrod, 2001). With such tricky topic to handle, human resource need to plan out feasible strategies that would help in retaining the talent. Yet, lack of diversity management in organizations reoccur, challenging the strategies plan of human resource. Diversity issue bring about negative effect to job satisfaction, individual performance and increase of absenteeism and turnover. But, underlying these issues, are organizational cost. This present a difficult decision to human resource, ensuring that their decision will not cause the organization to suffer a loss. Moreover, diversity and productivity can have its own conflicts and an adverse selection could have produced in the process. Nevertheless, those issues can be minimized by conducting audit to identify the existence of institutional cultural biases or providing education, training, flexible work practice and technology-supported teams. Guidelines that layout both the diversity and productivity criteria would help minimizing the adverse selection that human resource managers might commit.

Introduction

In today’s rapid changing business world, organizations need to respond quickly to incoming internal or external factors that may affect the business negatively. Competitors in the industry that could respond quickly to the changes of internal or external factors will dominate the market completely. Organizations need to be decisive in making decisions to ensure they have the upper hand against their competitors. Moreover, they need to ensure their decisions are correct or the business will suffer badly. One of the key functions in business is human resource. Human Resource plays a critical part in an organization. It manages the movement of the employees which are the driving force of an organization. It is essentially a brain behind the whole organization. On the outside, human resource may seem to have a small position in a company as all it functions is mainly recruiting. However, and ironically, Human Resource department recruiting process is critically important. A wrong hire will adversely harm the company while a good hire will bring the company to a whole new level. In many large corporations, 75% of total expenses are related to human resources with 70% of worldwide wealth, created by human capital which is the major source of economic gain and growth (Edward Lazear & Michael Gibbs, 2015).

Identifying Key Issues

Human Resource in today’s world face rapid changes in business environment that cause two main issues, talent retention and diversity. These issues are not only faced by a particular firm in particular industry or sector. All companies in the world faced these issues in today’s business environment. They are tricky to handle and most of the time costly to solve these problems.

Talent Retention

Changes in business environment is a positive note, as it implies that everything is progressing steadily. However, rapid change is bad and could cause some adverse effect on company such as obsolete employees’ skills, and higher or loss of training costs. In such situation, retaining talent became a critical matter to the human resource as “talent is considered the most critical source of success in an organization” (Jack J. Phillips and Lisa Edwards, 2009). Their skills and capability enables them to prove themselves as valuable assets in company as they are able to perform extraordinary than other employees. They will be able to communicate strategic business objectives to the whole company effectively, according to successfactors.com. With these potential benefits, poaching of talent between companies is common in business environment. A great example is the Silicon Valley companies poaching each other employees. They even had a no-poaching agreement which, unfortunately, violates the law. Other than the potential costs of violating law, the fight for the talent will drive hiring the talent to no yield when compared against its productivity (Edward Lazear & Michael Gibbs, 2015). Moreover, losing a talented employees comes with potential problems in the company such as lost leadership and cultural impact. On a wider look, employees will go for the company that pay the highest and have the desire to climb up the ranks. And if the desire is not met, they will search for opportunities elsewhere. Hence, in most cases, talent retention is costly and difficult.
 Diversity
 With rapid changes in business environment, frequent employee’s movement is needed to ensure the company stay up to the competition. As a result, Diversity will be a tough topics to tackle. Firstly, there are significantly more males in leadership than female and in certain industry such as technology, there are more males working in the industry than female. Secondly, the races distribution is not evenly in a company. Commonly, an U.S. company will recruit more White than Black. This problem is not exclusive to White and Black but also to other races such as Asian, Hispanic and Multiracial. Diversity is a problem to Human Resource as they will need to take in to these considerations when they are making decisions in recruiting new employees or laying off employees. These will have an impact to Human Resource as they might make an adverse selection of candidates that fill up the diversity issue but does not fit the company productivity. Moreover, it will be tough for human resource to layoff minority races as these groups of people are much tougher to hire to fill up the gaps. The lack of diversity management can lead to interpersonal conflict, which has negative effect to job satisfaction and individual performance. These two factors will lead to increase absenteeism and turnover, an organizational cost (Australian Centre for International Business, 2002, page 4). Overall, it is said that “organizations have not been as successful in managing women and racioethnic minorities as while males” (Taylor H. Cox and Stacy Blake, 1991, page 3).

Review of literature

Talent in the company is the key to success and in many ways regard as a key strategy to maintain a competitive advantage (Jack J. Phillips and Lisa Edwards, 2008). This book tackles how talent retention is critical to organizational success and how it could possibly pose serious problem. It highlights that a successful management of talent would means “a clear process for identifying and developing high potentials.” (Jack J. Phillips and Lisa Edwards, 2008, page) This is done through an extensive succession plans across several layers of management. Providing the basic compensation no longer retain talent but a competitive compensation that match the needs of the talented employees. This is because talented employees desired more benefits to differentiate themselves from other employees. Essentially, talent retention had been tough few decades ago and is proved to be even tougher in the future (The War for Talent, Ed Michaels, Helen Handfield-Jones and Beth Axelrod, Page 1).

Being a diversified organization would be a competitive advantage in dealing with rapid changes of business environment (Taylor H. Cox and Stacy Blake, 1991). This article suggested that an organization that could capitalize the potential benefits of diversity will be able to “gain competitive advantage in creativity, problem solving, and flexible adaptation to change.” Moreover, a diverse company enables employees to understand situation more easily, as long as one person in the team have the same experience. Harvard Business Review agree with this and further explain it saying A team with a member who shares a client’s ethnicity is 152% likelier than another team to understand that client”.

Discussion of relevant theories or frameworks to approach the key issue

To tackle the talent retention effectively, we will be using the frameworks that are recommended by Edward Lazear and Michael Gibbs as well as Jack J. Philips., and Lisa Edwards. Regarding diversity issue, we will be referencing journals authored by Taylor H. Cox and Stacy Blake and a study conducted by Australian Centre for International Business.

Recommendations

Talent Retention
 
Talent retention is a recurring issue that have shown deterioration over the decades (The War for Talent, Ed Michaels, Helen Handfield-Jones and Beth Axelrod, Page 1). No organizations can prevent it entirely but it is possible to minimize the rate of talent turnover and the negative effect that it brings. Firstly, Companies should provide a competitive compensation that meet the needs of the employees such as work-life balance or providing retirement insurance plan. On top of that, promotion of talent within company is essential to differentiate them from other employees. Talented employees are aware that their ability are wanted by many other companies and will usually leave the job, if promotion or compensation are not desirable. Edward Lazear and Michael Gibbs suggest that organizations should see the value of each employees. If they are valuable to other employer, company should layoff the employee instead of spending more. In addition to that, they also suggested giving stock options to talented employees as it will encourage employee commitment. On the other hand, Jack J. Phillips and Lisa Edwards suggested a ROI approach to retain talent. Firstly, organizations should measure and monitor both the turnover and retention rates. Secondly, organizations need to establish loaded costs of talent departure and also understand the causes and needs to improve retention. By understanding the causes and needs, organizations have to explore solutions and match it based on the needs. With the solution in mind, organizations will be able to calculate and forecast the ROI before coming to final conclusion. The other talent retention strategy that company is starting to adopt is giving stock grants to key employees. By doing so, the company is treating their talented employees as a shareholder. In most cases, these stocks given are Restricted Stock Unit (RSU) which the employees can vested it after a certain amount of time holding it, usually several years. This is beneficial to company as employees are not able to vest those RSU immediately which leads to employees staying in company in order to vest it. Moreover, if the employees decide to leave, its remaining RSU will be gone. Both Apple Inc. and Twitter Inc. are doing this, according to report from Wired and Forbes respectively. Of all these, It also helps in deterring other companies poaching key employees as they will incur a much higher costs. 
 Diversity
 
Managing diversity is no easy task but it is possible to achieve. Taylor H. Cox and Stacy Blake suggested four key components that would transform organizations. They are leadership, training, research and analysis. They briefly explained that leadership’s support and commitment will help to make a strong stand “on the need for change” while the main objectives of training is awareness. Research and analysis on diversity will help understand the “attitudes and perceptions of employees”. Human resource can act as the overall leadership in promoting diversity as they are responsible which training the employees go for. Moreover, they can collect data after sending some employees for training and use the data to compare the difference. Other than the four key components, Australian Centre for International Business suggested that human resource should conduct a diversity audit. This audit will help human resource to identify the existence of institutional cultural biases, if any. In addition to that, they also suggested factors such as education, training, flexible work practice and technology-supported teams that could help in achieving productivity diversity. In regards to prevent adverse selection, company should setup a guidelines that would layout both the diversity and productivity criteria. This would help minimizing the adverse selection that human resource managers might commit. However, to completely solve diversity, it require the right amount of execution and long-term commitment in continuously carrying out the strategy.

All in all, the issues cause by rapid changes in business environment could be minimized with the right execution of strategy at the right time. After all, “business leaders in 21st century is decisive, insightful and constantly challenging company conventions to keep ideas flowing.” according to Mark Stevens, author of Your Management Sucks.

References

Blake, Stacy. & Taylor H., (1991) Managing Cultural Diversity: Implications for Organizational Competitveness.

Chaykowski, Kathleen. (2015, October 22) CEO Jack Dorsey Gives One-Third of His Twitter Stock To Employees. Forbes. Retrieved from http://www.forbes.com/sites/kathleenchaykowski/2015/10/22/ceo-jack-dorsey-gives-one-third-of-his-twitter-stock-to-employees/

Edwards, Lisa. & Phillips, Jack J. (2009) Managing Talent Retention: An ROI Approach. John Wiley & Sons.

Flynn, Janine O’., Ricciotti, Aurora., Nicholas, Stephen., Lau, Karen., Sammartino, André. & Fisher, Nicole. The HRM Business Case for Diversity Management. Australian Centre for International Business.

Gibbs, Mike. & Lazear, Edward P. (2014, October) Personnel Economics in Practice, 3rd Edition. Wiley.

Hewlett, Sylvia Ann., Marshall, Melinda., & Sherbin, Laura. (2013, December) How Diversity can Drive Innovation. Harvard Business Review. Retrieved from https://hbr.org/2013/12/how-diversity-can-drive-innovation

Lapowsky, Issie. (2015, October 14). Apple Opens Stock Grants To All Employees, Including Retail. Wired. Retrieved from http://www.wired.com/2015/10/apple-stock-grants

Michaels, Ed., Handfield-Jones, Helen., Axelrod, Beth. (2001) The War for Talent. Harvard Business Press

Stevens, Mark. (2006) Your Management Sucks: Why You Have to Delcare War on Yourself — and Your Business. Crown Business

Talent Management Strategy to Create a Higher-Performing Workforce. Successfactors. Retrieved from http://www.successfactors.com/en_us/lp/articles/strategic-talent-management-training.html