Human resource management deals with individuals within the company. Sometimes we call it personnel management.
What is human resources?
Human resources are those who work in a company, either as employees or management. They constitute human capital because their skills and knowledge provide economic benefits to the company.
Human resource management is one of the four main business functions. The other three are operations, marketing, and finance functions.
Human resource management has several essential functions, including recruiting, training, establishing appraisal systems, termination policies, and managing industrial relations. It aims to ensure the company has the best talent and optimizes them to support value creation activities to support strategy and achieve company goals.
Demand patterns change affects the number of employees and the level of skills required. Likewise, the dynamic external environment also influences variations in the number of employees and the level of skills available and required.
Carrying out value-creation activities requires adequate human resources (both in terms of numbers and skills). By doing so, companies can achieve goals and implement corporate strategies.
Companies can achieve goals depending on their ability to plan workforce needs. They need time to reach a suitable composition. They need to recruit and train the right people.
Then, as the business grows, companies also need to estimate their future needs, which underlies human resource planning (workforce planning).
Human resource management roles and functions
Human resource management aims to recruit, develop and utilize organizational personnel to fulfill company goals. There are four key roles:
- Recruitment and selection
- Dismissal or termination
The human resources department is responsible for workforce planning. It recruits, selects, and appoints employees according to needs. It also prepares employment contracts and manages salary administration and setting.
In addition, this department also ensures the company complies with applicable labor laws, including those related to minimum wages, occupational health and safety, discrimination, and working conditions.
Another function is related to assessing and managing workforce performance. That includes promotions, transfers, and terminations.
Motivation and development programs are other functions. The human resources department encourages employees to stay motivated through financial incentives such as salaries and bonuses and non-financial incentives such as training and job enlargement.
Lastly, the human resources department is also responsible for succession planning. The department identifies employees who can be trained for future leadership positions.
Human resource management approach
Two approaches in human resource management:
- Hard human resource management (hard HRM)
- Soft human resource management (soft HRM)
Hard human resource management (hard HRM)
Hard HRM treats employees in the same way as other resources such as machines and equipment. This approach emphasizes controlling employees to optimize them in the most cost-efficient manner.
Thus, the company can maximize profits and returns to shareholders. They will recruit, train, and fire employees according to business needs.
Under this approach, the company keeps a close eye on the employees. The goal is to ensure they perform according to their duties and roles and avoid possible deviations.
In addition to strict supervision, the company develops training and development programs to increase business profits. In other words, the program is not oriented towards employee needs but business interests.
This approach manages staff with a focus on cutting costs. For example, companies offer temporary and part-time employment contracts.
Soft human resource management (soft HRM)
Soft HRM treats employees as valuable assets because they contribute to a company’s competitive advantage.
Thus, soft HRM focuses on developing employees to motivate them to work hard and be loyal to the company. That way, they will be encouraged to be more productive and produce more output at a more efficient cost.
Soft HRM focuses on motivating. The company also provides employee support. In addition, they also develop a supportive work culture.
The company considers each employee’s needs and pays attention to their personal and professional development. So, compared to hard HRM, soft HRM is more humane in managing employees.
The company offers training and development programs to benefit employees and businesses. Such a program is expected to increase their satisfaction with the company and motivate them to work. As a result, the company expects them to work harder and be loyal for a long time because they are more motivated.
Labor turnover refers to the percentage of workers who leave the company within a certain period. We calculate it with the following formula:
- Labor turnover = (Number of employees leaving / Total number of employees) x 100
For example, a company employs an average of 1,000 employees in 2022. A total of 50 workers leave the business during the year. Applying the formula above, we get labor turnover equal to 5% = (50/1,000) x 100.
High turnover indicates employees only stay at the company for a short time. It can happen for reasons such as:
- Due to poor recruitment and selection processes, businesses fail to recruit the right people.
- Job satisfaction is poor, possibly due to job factors, work environment, or financial and non-financial incentives.
- Employees are incompetent and not by what is required by the company.
- The work environment or other aspects may demotivate the workforce and reduce productivity.
- Salary and remuneration packages may be uncompetitive, and better-paying jobs elsewhere may be available.
Companies also lose employees for other reasons like:
- Retirement period
- Health problems
- Closure of branches or factories
- Operational changes
- Seasonal factor
High labor turnover can cause problems such as:
- Increased costs for recruiting, selecting, and training new employees.
- Difficulty in building team spirit because members are constantly changing.
- Low output levels because new employees are less productive than those who leave.
- Demotivate existing employees because they realize there are problems in the company.
- Decrease in sales and customer service due to new hires taking time/ineffectiveness to replace departing employees.
However, high labor turnover may be fine. There are potential benefits from it, including:
- Create more opportunities to recruit high-skilled workers as the lower-skilled and less productive leave.
- Enabling more new ideas and practices to be brought into the business by new hires.
- Suitable to support a plan to reduce the number of employees, namely, employees who will leave will not be replaced.
High labor turnover needs to be a concern when:
- Employees leave voluntarily, not for reasons such as factory closures.
- Turnover is higher than competitors; worse, competitors are hiring employees.
- High turnover is an increasing trend, indicating problems in human resources that have not been resolved.
Meanwhile, low labor turnover may indicate high loyalty by existing employees. They are loyal to the business and are more motivated to work. It also shows the company has recruited the right people for the right jobs and provided them with the proper compensation.
But, low turnover can also mean the business is underdeveloped. In fact, business requires innovation and new ideas to grow, which can be obtained from new people.
Human resource planning
Human resource planning is about how a company has employees in the right number and composition to support company goals. It includes determining how many employees are needed, their qualifications, and their skills. It also involves determining the company’s steps to prepare for future staffing needs. Also known as workforce planning.
Planning aims to properly anticipate current and future staff demands. Thus, it minimizes hiring errors and avoids wasting time and money.
Human resource planning details the number of workers – and their skills – needed over a future period. It requires a workforce audit as a starting point.
A workforce audit examines the number and composition of employees in each business area. It also checks the match between their qualifications and their current job.
The audit also examines human resource management policies and procedures. It determines whether policies and procedures are appropriate or must be updated or adapted to strategy or business objectives changes.
Audits are essential to identify areas for improvement, stay on track with goals and targets, and comply with labor laws and regulations.
The Workforce plan usually contains the current and future workforce demand, aligned with the company’s targets and goals.
The human resources department identifies gaps and considers ways to address them, including developing policies on training, recruitment, assessment, and so on.
Aspects to consider when calculating employee needs are:
- Average tenure
- Turnover rate
- Employee workload
- Employee qualifications
Other factors, such as production targets and capital intensity (whether the company uses more capital or labor), are also considered.
The four parts of human resource planning
Human resource planning includes four key parts, including:
- Recruitment – hiring the right people for the right job.
- Training – ensuring employees are more productive and motivated through proper training and development.
- Appraisal – evaluates the employee’s job performance.
- Termination or dismissal – manage those who leave voluntarily or involuntarily.
Companies need different employees in different work areas and jobs. They recruit and select in different ways with varying degrees of success. Likewise, the required training and development may differ for each work area.
Companies need employees with the right skills in the right work areas. If they fail to do so, they cannot meet its customer needs and goals.
This is why companies need to develop a work plan. They need it to identify their future staffing requirements.
For example, a company plans to hire a new marketing manager because the current one is about to retire. Other reasons companies need new hires include the following:
- Existing employees were promoted and had to be replaced
- Employees move or are assigned to other business areas
- The employee decides to resign/quit from the company
Benefits of workforce planning
Workforce planning is important to support the business to achieve its goals in the future. Without planning, companies may lack the people or the skills to create value.
Other benefits include:
- Prevent problems resulting from too few or too many staff
- Avoiding much staff with the wrong skills
- Avoid wasting time and money involved in recruiting and training
Factors influencing human resource planning
Internal and external factors affect human resource planning. Internal factors are related to the company itself. Meanwhile, external factors are beyond the company’s control.
Internal factors include:
Changes in business finances. Companies reduce the workforce when experiencing financial difficulties to minimize costs.
Changes in strategic plans and company objectives. For example, companies need more labor when they enter international markets.
Business growth. As businesses get bigger, they need more people to hire. This can also be attributed to increased demand for the product in the future.
Existing composition. If existing employees are less productive, companies need to recruit more new workforce to replace them.
Labor turnover. The higher the turnover rate, the greater the company’s need to recruit new employees to replace those who leave.
Changes in the nature of company operations. When transitioning from labor-intensive to capital-intensive, businesses invest more in machinery and equipment and begin to reduce labor as operations rely more heavily on machines than hands.
Management change. New management may bring new missions and targets, which require new people to support them.
Changes in business organization. Companies might change how organizations are organized to better meet their strategic goals.
Changes in labor relations. Demands by unions cause companies to meet their requirements to keep the business running and the workforce motivated.
Meanwhile, external factors may include:
Technology changes. For example, robotic machines reduce manual work and, therefore, employees. In addition, new communication technologies enable companies to carry out e-recruitment, online meetings, online training courses, and work from home.
Demographic changes. An aging population and declining birth rates are affecting the labor supply available for recruitment. It also affects wages. In addition, an aging population results in increased dependents, changes in consumption patterns, changes in employment patterns, and reduced labor mobility.
Socio-cultural trends – closely related to demographic changes – can also affect workforce planning. An example is:
- Increasing women’s participation in the workforce
- More part-time jobs
- Higher demands for a better work-life balance
Economic conditions. For example, a recession forces companies to cut jobs because product demand falls. During this period, the unemployment rate was higher.
But on the other hand, this situation provides more opportunities to recruit workers with the right skills and experience at lower wage levels (as supply tends to increase relative to labor demand).
Changes in labor mobility. Mobility can be occupational mobility and geographical mobility.
Occupational mobility is influenced by factors such as education and training. The higher the occupational mobility, the greater the supply because workers can easily leave one job for another in a different field.
Changes in the law. For example, the government introduced a new, higher minimum wage. Businesses must comply by recruiting new employees at higher costs and ensuring existing employees are paid according to the new rules.