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THE BOTTOM LINE IMPACT OF HUMAN RESOURCES

MS. JYOTI SHARMA


FACULTY HR

INTERNATIONAL INSTITUTE OF PROFESSIONAL STUDIES


DAVV- INDORE

Abstract- If you are in the field of Human Resources, chances are you believe that the
work of the HR function adds value to the organization and, in fact, has a bottom-line
impact. If executed effectively, the HR initiatives and activities can be a competitive
advantage to the organization. Unfortunately, if done poorly, it can be a drain on the
organization’s financial resources. If HR practices improve, there should be some
incremental bottom-line improvement, all things being equal. But how do we demonstrate
this impact? The demonstration of positive bottom-line impact of improvements in HR
initiatives and practices is difficult, complex and time consuming. It is, however, an
entirely worthwhile effort and a very important thing to pursue, even if proof positive is
never achieved. It is somewhat like trying to achieve the perfect marriage or perfect
relation-ship

As organizations and human resources teams within them remake themselves for the 21st
century , it is through partnership that the most successful among them will prevail.
HR professionals have now realized that their role must be in direct alignment with their
organizations strategic intent. Moreover, as HR professionals , they must combine their
competencies with many internal and external sources and must devise stratagems
directly aimed at producing bottom line results. They have to bring some key capabilities
to the table – diversity management and team building among them. Capitalizing on
these skills and be aware of the need to develop others.
If you are in the field of Human Resources, chances are you believe that the work of the
HR function adds value to the organization and, in fact, has a bottom-line impact. If
executed effectively, the HR initiatives and activities can be a competitive advantage to
the organization. Unfortunately, if done poorly, it can be a drain on the organization’s
financial resources. If HR practices improve, there should be some incremental bottom-
line improvement, all things being equal. But how do we demonstrate this impact? The
demonstration of positive bottom-line impact of improvements in HR initiatives and
practices is difficult, complex and time consuming. It is, however, an entirely worthwhile
effort and a very important thing to pursue, even if proof positive is never achieved. It is
somewhat like trying to achieve the perfect marriage or perfect relation-ship. The
journey yields the benefits not the destination.
It’s easy to say that people are our most important asset or the source of our competitive
advantage. But it’s much more difficult to provide the evidence, especially at a time
when cost-cutting, downsizing and other short-term interventions have too often held
sway over careful and systematic management practice.However, the past few years have
seen the development of a steadily mounting body of research-based evidence which
shows that managerialist interventions such as downsizing do not have positive long-term
benefits for the organisation (Cascio, 1995; Littler, 1998). By contrast, the research
argues, carefully selected human resources management strategies and practices – which
are appropriate to both the organisation

and its circumstances – do contribute positively to the organisation’s performance and


profitability. Researchers are now giving human resources specialists the hard evidence
they need – to show top managers that people management practices can have positive
and profitable outcomes, but that many of them have the opposite effect. The challenge
for human resources specialists is to take notice of the research, adapt and present its data
in ways that persuade their management colleagues that people really are ‘our most
important asset’, and use its conclusions to better inform their own decisions and
practice. David Guest and John Purcell in the United Kingdom and David Ulrich and
Mark Huselid in the United States demonstrates convincingly that selected people
management practices, implemented within a supportive organisation culture, lead to a
positive psychological contract. These in turn lead to beneficial outcomes for individual
satisfaction and organisational performance.
Three key conclusions can be drawn from these research studies (Guest and Conway,
1997; Patterson, West, Lawthorn, and Nickell 1997):

1. the key elements of good people management practice are job design, skills
development, and a climate of regular, systematic involvement;

2. good people management practices are associated with a positive psychological


contract based on trust, fairness, and delivery of the deal; and,

3. An organisation culture in which employees believe their employers will look after
their interests has positive outcomes for work performance.

Guest (2000) reveals that managers believe there is a link between their use of human
resources management practices and how the business performs. Mostly, managers also
agree that the link is not directly causative between human resources management
practices and organisational performance, but that it depends on the quality and the
commitment of the people doing the work.In other words, as the diagram shows, human
resources or people management practices affect employee quality, commitment and
flexibility – and these characteristics are associated with higher productivity and
improved products and services, which feed through in turn to the firm’s financial results.

People Commitment
Management Productivity
Practices Positive Motivation
+ > Psychological > > Profitability
Supportive Contract Contribution
Organisation Flexibility
Culture Satisfaction

People management and business performance

As mentioned in the above diagram, positive psychological contract ,- “ emotional


intelligence ” is the answer, which is considered as more of determining factor in an
individual’s success and organization’s success- both personal and professional, than
traditional IQ ( Goleman).
If the competencies of a leader is characterized , only 20 percent to 25 percent of those
that distinguish stars are IQ based. The other 80 percent or so are soft skills or people
management
skills. Some of the competencies that make emotional intelligence include self control,
integrity, persistence, adaptability, motivation, initiative, organizational commitment,
optimism and empathy.These abilities are learnable at any phase of life. This will help
people improve if they understand the emotional change.

A FRAMEWORK OF EMOTIONAL COMPETENCIES

Self Others

Personal Competence Social Competence


Self Awareness Social Awareness
• Emotional self • Empathy
Recognition awareness • Service orientation
• Accurate self assessment • Organizational
• Self assessment Awareness

Self Management Relationship


• Self control Management
• Trustworthiness • Developing others
Regulation • Conscientiousness • Influence
• Adaptability • Communication
• Achievement drive • Conflict management
• Initiative • Leadership
• Change catalyst
• Building bonds
• Teamwork &
collaboration

This model is a refinement of the model used in 1998.Three dimensions-Self-


Awareness, Self-Regulation, and Motivation-described personal competencies, that is,
knowing and managing emotions in oneself. Two dimensions-Empathy and Social Skills-
described social competencies, that is, knowing and managing emotions in others.The
competence called Innovation was collapsed into Initiative; Optimism was integrated
with Achievement Drive; Leveraging Diversity and Understanding Others combined to
become Empathy; Organizational Commitment was collapsed into Leadership; and the
separate competencies Collaboration and Team Capabilities became one, called
Teamwork and Collaboration. Political Awareness was renamed Organizational
Awareness, and Emotional Awareness became Emotional Self-Awareness.

The implications for HR professionals are profound, especially because expertise will be
needed
with galloping technology. A radical rethink is needed in both jobs and organizations.
As communication network and information technology is becoming an important part
of
business operations, the roles and responsibilities of those managing this critical
resource should be reconceptualized .Successful companies are designing communities
of professional practice that are different from traditional hierarchical and rule bound
organizational structures. The teams responsible, cut across organizational boundaries
and different types of expertise and organise themselves as network rather than
hierarchies. Companies are developing the ways in which the experts involved in such
can feel part of a larger system bound by shared goals and incentives. Organizations
should explore the benefits of creating a professional context that fosters trust, innovation
and knowledge sharing community of practice. The emerging challenge is to design and
deploy infrastructure that will serve as the backbone for the management of intellectual
capital. Companies are assessing their potential for using technology in its management
of the supply and demand chain, which is leading to new thinking, behavioural issues, as
well as changes in processes and working .For the longer term, the research found that 29
per cent of the variation in productivity over a three- or four-year period could be
attributed to the human relations' dimensions of culture. Concern for employee welfare
was identified as the single most important predictor of organisational performance.The
research reveals that “people management is not only critical to business performance: it
also far outstrips emphasis on quality, technology, competitive strategy or research and
development in its influence on the bottom line” (West and Patterson, 1998). However,
‘people management’ in this context does not necessarily involve technically
sophisticated human resources policies and practices, nor the input of human resources
specialists. Half of the firms surveyed did not have an individual in charge of human
resources, and more than two-thirds had no written personnel strategy. Managers
generally described the approach to training as reactive, and only 6 per cent of the firms
had organised training strategies. However, where workforce satisfaction was such an
important predictor of future productivity, it was clear also that:
“People management is not just about traditional human resources practices such as
recruitment, appraisal and training. It is important to take account of the whole person
and address the satisfaction of all employees across a range of areas”.
According to West and Patterson (1998), the most enlightened organisations:
“…consider many aspects of employee satisfaction, including their needs for growth and
development, their sense of security, relationships with colleagues and supervisors, the
balance between home and work, and even physical fitness”.
Nevertheless, how employees see their company as a community is an equally important
predictor of productivity and profitability, as is this more holistic approach to employee
satisfaction. In particular, according to the Sheffield research, the human relations'
climate of the organisation appears to have a significant influence on performance. A
concern for welfare, good communication, high quality training, broad autonomy and
respect for employees collectively create a community climate.
The work of Patterson et al (1997) might have reached what they describe as “dramatic”
conclusions about the impact of people management practices on business performance,
but their report concludes with seven straightforward recommendations:
1. Senior managers should regularly review people management objectives, strategies
and processes and make changes or introduce innovations accordingly.

2. Senior managers should monitor employee satisfaction and commitment on a regular


basis using standardised surveys.

3. Senior managers should monitor employee perceptions of the organisation’s culture –


examining, for example, the extent to which employees feel they are able, supported and

4. equipped to do their work.

5. Organisational changes should be made to promote job satisfaction and employee


commitment.

6. Human resources management practices should be reviewed in the areas of


recruitment and selection, appraisal, training, reward systems, job design, and
communication.

7. Senior managers should receive training and support that enables them to provide
effective vision and direction for the organisation’s ‘people management’ strategies.
The central element of each organisation’s philosophy and mission should be a
commitment to skill development, well being and effectiveness of all employees.

Human resource specialists need to look closely at the roles they can best play in the
‘new’ organisation. In recent years, many human resource departments and specialists
have opted to take up consultative or advisory roles; others have seen their functions
'devolved' to line managers; some have been outsourced. Like most structural solutions to
organisational dilemmas, these may not be the best answers. As the work of Huselid
(1995), Ulrich (1997), and others, people management issues need to be integrated totally
with the organisation’s management and change processes suggests that human resources
specialists should have wider-ranging roles and more open briefs than might presently be
the case. In addition, they need to be linked closely – organisationally, intellectually, and
emotionally – to the organisation and its managers.
Indeed, many human resource specialists may need to remind themselves of the profound
ways in which ‘human resources management’ and ‘people management’ are different. It
is true that human resources management is too important to be left to human resource
managers.
Yet, and at the same time, people managers – those who are in ‘line’ positions with direct
responsibility for the performance of the people they manage – have never needed more
support from their human resources specialists.

Conclusion

Intuitively, we all know that if employees are well managed, if they have high levels of
job-satisfaction, if they trust and are committed to their employer, then they will be
more effective in their work and this must impact positively on
organisational bottom line.

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