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
recruit
develop &
train
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.
The
role of HR department in the strategic management has gained greater
significance of late for right reasons. In strategic management the focus is PEOPLE
because strategy is only sustainable through people. Only people have a
foresight(envisioning) capacity. Everybody has the innate capacity for
foresight, but in organizational planning process, that capacity is often not
tapped & gets buried by busy work. Here HR manager can play a very vital
role and the time is RIGHT NOW!
