To look at HR from the strategic perspective, the HR manager needs to understand the business system, the fundamental business model and the causes of business failure in an organization.
The 3 basic business decisions are:
- Financing (the process of obtaining CAPITAL for the business).
- Investment (the process of acquiring ASSETS to operate the business).
- Operations (using ASSETS to maximize shareholder wealth).
These 3 decision areas are important for making appropriate economic trade-off.
THE FUNDAMENTAL BUSINESS MODEL
It comprises of the following steps:
1. Obtaining capital(cash) for the business from shareholders & lenders.
2. Acquiring assets out of the capital obtained to operate the business.
3. Using the assets to create Products & Services.
4. Selling the products & services.
5. Generate adequate returns for the shareholders & lenders.
To make a business successful three crucial elements are required:
• Cash: The money that is used in the cycle described in the fundamental business model. Without sufficient cash it is difficult for any business to start the cycle.
• Employees: The means of creating the products, providing the service and running the business. The quality of the skills of the people in the business is crucial in achieving success.
• Customers: A business cannot survive without customers. Attracting customers is where the process begins, but retaining customers by continuing to satisfy their needs is just as important. Existing and satisfied customers not only provide revenue but may also become advocates for the business.
Causes of business failure:
• 1. Insufficient revenue. Producing products or services that customers do not buy in sufficient quantities. This is often caused by entrepreneurs not really understanding the needs of customers. An example, a product that meets no specific need and relies wholly on customers making whimsical purchases.
• Excess fixed cost. A high cost base in a business that does not enable a profit to be made; or a cost base that is not flexible enough to adapt to changing volumes if sales decline. Many airlines struggle to survive because of the way that demand for air travel can suddenly slump.
• Poor quality and service. The inability of managers and staff to plan, control and operate the business effectively. This affects the quality and reliability of the business, ultimately leading to a decline in its revenue. Many have experienced examples of this in poorly run restaurants and have left saying “never again”. The word spreads and that business continues its downward spiral.
To attain the strategic goals of the organization, employees must first understand and share the values and objectives of the organization. There is a need for a committed workforce who can work effectively and contribute to the overall performance of the organization.
Human resources if managed effectively can become a competitive advantage. Therefore it is the responsibility of the management to
employees with appropriate skills. The challenges that organizations generally face in developing people are:
· Integrating people with the strategic goals of the organization.
· Managing employees effectively.
Managing Employees effectively:
An organization that plans to constantly innovate and grow should have a capable leader who can guide it towards strategic goals. Strategic goals can be attained through constant innovation, entrepreneurship and quality improvements. Until and unless a leader is strategically oriented he cannot orient the employees towards these goals. Leaders should also empower employees so that they are free to come out with innovative ideas and practices.
A leader with vision, enthusiasm, passion and consistency is more customer-oriented and believes in innovation and creativity to tackle competitive pressures. He expects quality from employees and for this he trains employees, encourages creativity and involves them in the decision-making process and motivates them. Most of the successful companies deliver quality by involving the entire workforce in the decision-making process.
The role of HR manager has assumed significance as he has to manage people keeping in view the strategic objectives of the organization. He helps to establish the organizational culture where people have the competency, concern and commitment to serve both internal and external customers well. People are thus an important strategic asset and they can create and sustain a competitive advantage through quality training, entrepreneurship and leadership. This aspect of people being an asset is not reflected in many organizations’ Balance-sheets. You see only Land & Buildings, Plant & Machinery, Furniture & Fixtures, Stock etc., as assets in the Balance-sheet and the human resource which manages(mismanages?!) these assets are shown as an expense in the Profit & Loss A/C under the head- Salaries & wages. Now a few companies have started showing human resources as an asset in their Balance-sheet. This is a welcome change!
There are 5 stages in the strategic management process:
1. Defining vision, mission & value statement.
2. Analyzing the environment.
3. Organizational self-assessment.
4. Establishing goals & objectives.
5. Formulating & implementing strategies.