Management of Human Resources
The management of human resources (HR) is a critical aspect of organizational success, focused on the effective utilization and development of employees as key assets. Over the past decades, HR management has evolved from a departmental function to a shared responsibility across all levels of an organization, necessitated by changes in competitive markets and workforce dynamics. In the modern business landscape, firms increasingly integrate HR practices with overall business strategies to enhance performance and secure competitive advantages, especially in a global context.
With the rise of technology and changing workforce values, organizations are tasked with innovative HR practices that cater to a diverse employee base while addressing issues such as recruitment, retention, compensation, and development. Strategic human resource management emphasizes aligning HR processes with business objectives, which includes fostering a collaborative environment and addressing the needs of employees. Moreover, the COVID-19 pandemic has further accelerated the need for adaptive HR strategies, prompting organizations to rethink employee engagement and management practices.
As globalization expands, international human resource management has become increasingly significant, requiring businesses to navigate cultural sensitivities and diverse employment practices effectively. Organizations that excel in HR management not only contribute to employee satisfaction and retention but also position themselves favorably against competitors in a complex and ever-evolving marketplace.
On this Page
- Abstract
- Management > Management of Human Resources
- Overview
- Applications
- Categories of Human Resource Practice
- 1. Employee Acquisition
- 2. Employee Retention Strategies
- 3. Compensation and Incentives
- 4. Benefits and Services
- 5. Rewards and Recognition
- 6. Technical Training
- 7. Management Development
- 8. Career Planning and Development
- 9. Performance Appraisals
- 10. Potential Development
- 11. Succession Planning
- 12. Employee Relations
- 13. Employee Exit and Separation Management
- 14. Corporate Responsibility
- Issues
- Terms & Concepts
- Bibliography
- Suggested Reading
Management of Human Resources
Abstract
The management of human resources has undergone much transformation over the past decades, due to changes in markets, industry, technology, costs, workforce, and employer-employee relationships. The management of human resources is no longer restricted to a single department: it is a shared responsibility across organizations. In an era of heightened competition, firms are turning to innovative human resource practices for competitive advantage, and human resource policies and practices are increasingly integrated with business strategy, both domestically and internationally.
Keywords Competitive Advantage; Human Resource Management; Human Resource Planning; Human Resource Strategy; International human resource management; Management of Human Resources; Personnel Administration; Personnel Management
Management > Management of Human Resources
Overview
People are the most important asset of every organization. This is especially true in the twenty-first century's challenging business environment, where human resources are seen as an indispensable input for organizational effectiveness. Since there is a strong relationship between the quality of human resources and the performance and success of an organization, organizations the world over strive for effective management of their human resource base.
The management of human resources has evolved in several phases over the twentieth and into the twenty-first century. As an occupation or a department within an organization, this area first came to light between the first and second world wars, under the term "human relations." Subsequently, as trade unions became increasingly powerful in the middle of the century, the term "industrial relations" became popular. The terms "personnel administration" and "personnel management," together with the less popular "employee relations" and "manpower management" emerged in the late 1960s and 1970s, due to the growing complexity of employment law, and ongoing concern about trade unions.
At the time, the management of people in organizations was seen to be the responsibility of the personnel function. As the personnel function grew in scope and importance, monopolizing the management of people, those in managerial and supervisory positions were left with little to do when it came to such activities as the acquisition, development, and compensation of human resources; the design of work systems; and labor relations. At the same time, because personnel specialists were increasingly concerned with rules and regulations and were mainly seen as preoccupied with problem-solving, they were often left out of the strategic thinking of their firms.
The 1980s presented new challenges for business organizations. In an era of increasing competition, as the global playing field became far more competitive and volatile than ever before, firms had to strive to gain competitive advantage whenever and wherever possible. Business was also changing at a much faster rate, and this was accompanied by high uncertainty.
As a result of rising costs and increasing competitive pressures on profit margins, firms also realized the need to be more cost-effective. Trade union power declined, and the me generation emerged, with its emphasis on individualism. There were also changes in organization structure, as firms decentralized responsibility to business units built around products and markets to get closer to their customers. Organizations became flatter, leaner, and more flexible.
The technological revolution also posed great challenges for businesses, with innovations such as the introduction of information technology and computer-integrated manufacturing, which led to issues that had to be managed 'across' the organization and which themselves called for a more integrated view of the organization. The accelerated pace of new product development also meant that people in different functions such as design, marketing, production, and finance had to work much more closely together than before. Rapid technological change also led to increased demands for new skills through sourcing, educating, and retraining. This advancement in technology was critical to business and human resource management success during the COVID-19 pandemic, but it created a divide between technologically capable employees, those with access to unlimited internet, and those without (Kirby, 2020).
Additionally, workforce values were changing: the higher proportion of better-educated "knowledge workers" were increasingly likely to demand self-actualization, causing greater attention to be paid to such issues as communications, participation, and motivation. Firms in countries with aging populations faced the extra challenge of limited availability of labor, amid a shrinking workforce. Thus, a premium was placed on the recruitment and retention of high-quality employees.
In general, the firms that survived or came on the scene after these changes, have been more complex in terms of products, location(s), technologies, business functions, customers, and markets. These changes led to a change in the image and role of the personnel function, leading to another change in name to "Human Resource Management." At the same time, the management of human resources moved from a department function, to a shared responsibility among managers and non-managers, personnel or human resource directors, and line managers. In the highly competitive, internationalized business structure that emerged in the twenty-first century, human resource management became essential to gaining or retaining an edge on rivals (Anca-Ioana, 2013; Brauns, 2013). The COVID-19 pandemic's impact on human resource practices is important to consider. Following the crisis, an initial push to protect employees and pause business operations occurred, followed by years of adaptation and restructuring to accommodate the long-term impact of the pandemic, new governmental restrictions, and varying employee perspectives concerning the illness (Hamouche, 2021).
Applications
With the changes in image, role, and name of the human resource management function, came a quest for a new kind of innovation, as firms recognized that the traditional sources and means of competitive advantage, such as capital, technology, or location, had become less significant. Innovative human resource practices have become one of the bases for competitive advantage—no longer as a matter of trend, but rather of survival.
Categories of Human Resource Practice
Agarwala (2003) has identified fourteen categories of human resource practice, highlighting examples of innovative practices for each:
1. Employee Acquisition
Employee acquisition refers to internal and external selection and recruitment of employees to jobs. It includes the hiring of temporary work assistance and the use of external consultants (Grønhaug and Nordhaug, 1992). Pre-acquisition tasks include planning and forecasting, job analysis, job evaluation, job design and work system design. The latter relates to how tasks and responsibilities in the firm are distributed among job incumbents and the degree to which sharp borderlines exist between jobs (Grønhaug and Nordhaug, 1992).
Employee acquisition tasks are best performed in the context of an organization's culture. All things being equal, selection should favor those candidates who appear to "fit in" with the prevailing organizational culture, be it a culture of empowerment, participation, equal opportunity, and/or any one of the many other facets of culture.
Innovative employee acquisition strategies include (Agarwala, 2003):
- greater importance attached to the fit between person and company culture
- emphasis on "career," not "job"
- selling company image to attract potential employees
- referral bonuses
- sign-on bonuses for new employees
- psychological testing
- developing industry-academia interface
2. Employee Retention Strategies
Employee retention refers to the measures put in place to keep employees in an organization, thus reducing the labor turnover rate.
Innovative employee retention strategies include (Agarwala, 2003):
- evolving a pleasant work environment
- deferred compensation
- competitive salaries
- faster promotions
- greater work autonomy
3. Compensation and Incentives
Compensation includes the whole range of rewards and incentives that are applied in relation to employees. Intrinsic rewards are those that are internal to a person, such as job satisfaction and self-esteem; extrinsic rewards are more tangible and range from wages to employee stock ownership plans (Grønhaug and Nordhaug, 1992). Compensation must be managed, along with employee attitudes towards compensation. Incentives are those offerings that tend to motivate employees to will or to act as the organization desires.
Innovative compensation and incentive strategies include (Agarwala, 2003):
- increasing the component of variable pay
- stock options
- combining individual and team incentives
- performance-linked incentives
- customization of perks to individual needs
- offering a variety of allowances
- conducting compensation surveys
4. Benefits and Services
Similar to compensation and incentives, benefits and services may form part of an employee's remuneration package, and may include medical care, loans, travel, accommodation, catering, and so on. Many employers, for instance, offer Employee Assistance Programs, which are employee benefit programs typically offered in conjunction with a health insurance plan. Such Employee Assistance Programs aim to help employees handle personal problems so that they do not negatively impact their work ability, health, or well-being. These programs usually include assessment, short-term counseling, and referral services for employees and their household members.
Innovative benefits and services strategies include (Agarwala, 2003):
- a focus on long-term benefits for employees through alternative insurance and health management schemes
- giving benefits directed to employees' families
- flexible employee benefits or the cafeteria approach, where employees choose from a menu of benefits
- child and elder care programs
- Improvements in retirement benefits
5. Rewards and Recognition
Rewards and recognition are used to encourage and motivate an organization's employees, and effective reward management will promote consistency of practice in this area.
Innovative rewards and recognition strategies include (Agarwala, 2003):
- performance-linked rewards
- flexible rewards
- cash rewards for extraordinary performance
- rewarding team performance
- rewarding team performance
- public recognition of good performance at a company meeting or function
- recognition from co-workers
- a blend of financial and non-financial rewards
6. Technical Training
Human resource development concerns the maintenance, refinement and advancement of competencies possessed by the firm's employees (Grønhaug and Nordhaug, 1992). Technical training refers to training for specific competence on the job, with regard to technology and/or business process change. Training may take place on-the-job or outside the workplace.
Innovative technical training strategies include (Agarwala, 2003):
- systematic training needs assessment
- cross-functional training
- providing job relevant training
- facilitating transfer of training to actual job performance
7. Management Development
The effectiveness of management is recognized as one of the determinants of organizational success, and investment in management development can have a direct economic benefit to organizations, since management development helps to develop leadership, supervision, and control.
Innovative management development strategies include (Agarwala, 2003):
- linking management development to individual needs
- linking management development to organizational objectives
- using innovative management development methods, like stress management programs
- adventure training
- leadership and attitudinal training
- study leave
8. Career Planning and Development
Career planning and development refer to the assistance given to employees, to help them plan for, execute, and manage their career development within an organization. Some organizations may link the career progress of their members to succession planning.
Innovative career planning and development strategies include (Agarwala, 2003):
- developing career paths
- providing fast-track career plans
- providing mentors to employees
- cross-functional career paths
- providing mentors to employees
- career counseling
9. Performance Appraisals
Performance management is the process linking goal setting and rewards, coaching for performance, aspects of career development, and performance evaluation and appraisal into an integrated process (Sparrow et al., 1994). Performance appraisals are a key component of performance management; they may seek to measure and motivate customer service, quality, innovation, and risk-taking behavior.
Innovative performance appraisal strategies include (Agarwala, 2003):
- giving weight to individual, team and organizational performance while appraising
- using quantifiable criteria for appraisals
- participative appraisals
- open appraisals to increase transparency
- giving appraisal feedback
- linking rewards to appraisals
- 360-degree appraisals, where feedback comes from all around the employee: from subordinates, peers, and managers in the organizational hierarchy, as well as a self-assessment, and in some cases external sources such as customers and suppliers or other interested stakeholders.
10. Potential Development
Potential development is a company-wide management development program that seeks to cultivate performance and leadership at the top of the organization, through the provision of the necessary training, support, and opportunities.
Innovative potential development strategies include (Agarwala, 2003):
- job rotations
- use of assessment centers
- coaching
- conducting potential appraisals
11. Succession Planning
This is a management development program aimed at filling specific positions with one of two potential candidates.
Innovative succession planning strategies include (Agarwala, 2003):
- identifying replacements
- provision of fallback positions in case of failure
- preparing to assume higher responsibility
12. Employee Relations
As firms seek to empower and include employees in the organization, they ought to treat their employees with concern through effective internal communication flows; enhancement of the quality of work life; good labor relations; and health, welfare, and safety programs.
Innovative employee relations strategies include (Agarwala, 2003):
- information sharing
- open and transparent communication
- family get-togethers
- humanizing work environment
- respecting employees
- ensuring fairness in management practices
- encouraging risk-taking
13. Employee Exit and Separation Management
Employee exit and separation management refers to the planning, facilitation, and management of the departure of employees from an organization. Exit and separation may be initiated by employees themselves; by the state, through retirement; or by firms conducting specific "decruitment" activities such as downsizing and skills reprofiling.
Innovative employee exit and separation management strategies include (Agarwala, 2003):
- extending benefits to retirees for lifetime
- retirement planning workshops for about-to-retire employees
- conducting exit interviews
- outplacement services
- voluntary retirement schemes
14. Corporate Responsibility
As their corporate responsibility, firms seek to recognize and incorporate aspects of the external environment such as the general quality of the labor force, legal regulations or concerns about environmental quality, and social responsibility. They also ensure an effective flow and sharing of information outside of the organization.
Innovative strategies for corporate responsibility include (Agarwala, 2003):
- adult education programs
- community development projects
- concern for greening and protection of the environment
- research promotion
When well-planned and implemented, the 'right' combination of the above variables should lead to job satisfaction, motivation, employee commitment and participation for employees, and ultimately, competitive advantage for an organization.
Issues
As the management of human resources is seen increasingly in terms of competitive advantage, the question that arises is, what must be done to gain this advantage? The answer: strategic business change, with human resource processes at its core.
Before the 1990s, attempts to coordinate human resource management with a firm’s business strategy had taken one of three limited approaches: correlating managerial style or personnel activities with strategies; predicting manpower requirements based on strategic objectives or environmental conditions, and discovering ways to assimilate human resource management into the comprehensive attempt to equalize strategy and structure (Lengnick-hall and Lengnick-hall, 1988).
Since the early 1990s, however, the call has been made to integrate the management of human resources with business strategy all the more. Rather than existing in a vacuum, the human resource activities in a firm are expected to directly support business strategy and the satisfaction of customer needs.
The integration of the management of human resources with business strategy means that the management of human resources involves a wide variety of policies and procedures which are strategically significant for the organization and are typically used to promote employee commitment, flexibility, good quality of work life as well as to realize overall business goals such as organizational values, structure, productivity, and production techniques (Sparrow et al., 1994).
This has led to a concept in the management of human resources called "human resource strategy." This concept refers to the set of decisions or factors that shape and guide the management of human resources in an organizational context. It is also a set of strategic processes communally shared by human resources and line managers to resolve people-related business issues. It is directly related to the business strategy and focuses on the formulation and alignment of human resource activities to achieve organizational competitive objectives. Through human resource strategy, human resource management aims to increase value through issue identification, assessment, and resolution. The main issues targeted are those critical to the organization’s viability and success. It is a more action-oriented strategy than traditional human resource planning.
Strategic human resource management works through many means, including the following:
- coordinating available resources with necessary staffing levels and abilities, through recruitment, selection, assignment, and other strategic staffing processes
- aligning individuals and groups with overall business objectives through the management of performance.
- developing needed capabilities and performance through training, education, and job-related learning
- enhancing the quality of management through an emphasis on management development
- bridging the gap between the strategic and the operational through the relationship between employee and line manager. The personnel or human resource management function advises the manager on how they can carry out these objectives, and line managers implement the strategic objectives of the organization through their leadership style and the way in which they manage their people.
- conducting human resource planning (predicting future business and environmental costs and generating the personnel requirements determined by those future conditions) as a key aspect of strategic planning. The resultant plans are strategic if they address significant change of direction—not merely continuity.
Companies such as Google and Netflix have been lauded as models of innovation in terms of human resources management. Google became known for not only its more luxurious employee perks and benefits, but also for its use of data-based analytics in the hiring process and in maintaining more positive employee attitudes (Rafter, 2015). Netflix became famous for its agile approach to managing its workforce, including a dedication to hiring only the most qualified individuals, promoting open communication about employee performance rather than formal review processes, and maintaining a philosophy of treating employees maturely (McCord, 2014). However, these same companies sparked outrage in the early 2020s, as employees were forced to return to work after becoming accustomed to a remote workplace during the pandemic. Organizations which offered work-from-home options began maintaining an advantage in recruiting and retaining talent (Hamouche, 2021).
In the international arena, there has been a growing interest in international human resource management, as more markets internationalize, more nations become integrated into the international world economy, and more businesses choose to expand their operations across national borders. The increasing attention drawn to this area reflects the prevalence of the realization that efficient and effective human resource management internationally is a key factor in the success of a business. Evidence suggests that human resource constraints are often the limiting factor when attempting to implement international business strategies. It has been argued that the fast pace of internationalization and globalization has led to a more strategic role for human resource management, and it also leads to changes in the content of human resource management (Scullion & Starkey, 2000).
It is important for multinational firms to know which human resource policies and practices they can consider using in their worldwide operations, to assist them in gaining competitive advantage. This leads to the questions whether different parts of the world practice human resource management for competitive advantage differently; and whether there is some uniformity that firms can pursue in their efforts to manage their worldwide workforces successfully.
International businesses are increasingly turning their attention to issues such as expatriate management, where employees are transferred by organizations to work outside their country of origin or permanent residence. Effective management in this area helps to reduce the early return of expatriates; to minimize disruption to international operations; and to prevent the situation where expatriates are not retained by the organization after completing their assignments. As it is believed that quality of management is more critical in the international arena than in domestic operations (Tung, 1984), international firms are also looking at the plethora of issues stemming from cross-cultural management, along with those issues surrounding the management of diversity in multicultural domestic workforces. As the pace of internationalization has accelerated, the need for cross-cultural awareness, cross-cultural sensitivity, and understanding the daily operations of international businesses, has become more salient. Academicians too have advanced understanding in these areas through the development of the distinct subfield of International Human Resource Management, within the management discipline. Marler (2012), for example, compares scholarship in the field from the United States, Germany, and China, three countries with widely differing histories, economic and political systems, and business cultures.
Terms & Concepts
Benefits and Services: Non-financial components of an employee's remuneration package. These may include medical care, loans, travel, accommodation, and catering.
Career Planning and Development: The assistance given to employees, to help them plan, execute, and manage their career development within an organization.
Compensation and Incentives: Compensation includes the whole range of rewards and incentives that are applied in relation to employees. Incentives are those offerings that tend to motivate employees to will or to act as the organization desires.
Competitive Advantage: This refers to one organization having the upper hand over its rivals, through sources and means such as capital, technology, location, and increasingly, human resources.
Corporate Responsibility: The actions taken by an organization to meet various needs concerning socially relevant issues in the community at large.
Employee Acquisition: Internal and external selection and recruitment of employees to jobs. It includes the hiring of temporary work assistance and the use of external consultants.
Employee Exit and Separation Management: The planning, facilitation, and management of the departure of employees from an organization.
Employee Relations: The way an organization treats its employees. Ideally, employees should be treated with concern through effective internal communication flows; enhancement of the quality of work life; good labor relations; and health, welfare, and safety programs.
Employee Retention Strategies: The measures put in place to keep employees in an organization, reducing the labor turnover rate.
Empowerment: The situation where employees have the necessary skills, knowledge, authority, permission, and incentives to deliver quality service without top management approval.
Human Resource Management: The discipline, occupational function and department within an organization, concerned with the acquisition, development, and compensation of employees, as well as the design of work systems and labor relations.
Human Resource Planning: Predicting future business and environmental costs and generating the personnel requirements determined by those future conditions. Human resource planning may be done in response to the organization business planning process or as an integral part of the business planning process.
Human Resource Strategy: This is the set of decisions or factors that shape and guide the management of human resources in an organizational context. It is also a set of strategic processes communally shared by human resources and line managers to resolve people-related business issues. It is directly related to the business strategy and focuses on the formulation and alignment of human resource activities to achieve organizational competitive objectives.
Industrial Relations: A precursor to present-day human resource management, 'industrial relations' is a term that was popular from the mid-1950s to the late 1960s, during the period when trade unions were particularly dominant.
International Human Resource Management: The discipline and occupational function involved with employee issues such as expatriate management, cross-cultural awareness, cross-cultural sensitivity, diversity management, and understanding of the daily operations of international business.
Management Development: A range of policies and programs to assist managers in developing leadership, supervision, and control.
Management of Human Resources: A wide variety of policies and procedures which are strategically significant for the organization and are typically used to promote employee commitment, flexibility, good quality of work life as well as to realize overall business goals such as organizational values, structure, productivity, and production techniques.
Organizational Culture: Otherwise known as corporate culture, organizational culture is the set of values, attitudes, experiences, beliefs, and assumptions shared by people in an organization. These in turn determine the norms and behaviors and goals of those in the organization and affect the way that people in the organization interact with each other and with stakeholders outside the organization.
Performance Appraisal: A performance management tool, often in interview form, used to evaluate employees at work. Performance appraisals are used for goal setting, rewards, coaching, and aspects of career development.
Personnel Administration/Personnel Management: A precursor to present-day human resource management, 'personnel administration' and 'personnel management' were popular terms that emerged in the late 1960s, and 1970s.
Potential Development: A company-wide management development program that seeks to cultivate performance and leadership at the top of the organization, through the provision of the necessary training, support, and opportunities.
Rewards and Recognition: Tangible and intangible means of encouraging and motivating employees based on performance.
Succession Planning: A management development program aimed at filling specific positions with one of two potential candidates.
Technical Training: Training for specific competence on the job, regarding technology and/or business process change.
Bibliography
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Sparrow, P., Schuler, R., & Jackson, S. (1994). Convergence or divergence: human resource practices and policies for competitive advantage worldwide. International Journal of Human Resource Management, 5, 267–299. Retrieved March 8, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=5812654&site=ehost-live
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Suggested Reading
Agarwala, T. (2003). Innovative human resource practices and organizational commitment: an empirical investigation. International Journal of Human Resource Management, 14, 175–197. Retrieved March 08, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9629951&site=ehost-live
Armstrong, M. (2006). A handbook of human resource management practice (10th ed.). Kogan Page.
Noe, R. A. (2022). Human resources management: Gaining a competitive advantage (13th ed.). McGraw-Hill Education.
Sparrow, P., Schuler, R., & Jackson, S. (1994). Convergence or divergence: human resource practices and policies for competitive advantage worldwide. International Journal of Human Resource Management, 5, 267–299. Retrieved March 08, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=5812654&site=ehost-live