What every business owner should know about human resources

The following terms are related: Employee Benefits; Employee Compensation; Employee Manual

A Human Resource Management (HRM) system is a formal system devised to manage employees within an organization. Staffing, employee compensation and benefits, and defining/designing work are the three primary responsibilities of a human resource manager. HRM aims to maximize an organization's productivity by optimizing the effectiveness of its employees. Despite the ever-increasing pace of change in the business world, the mission is unlikely to change fundamentally. As Edward L. Gubman noted in the Journal of Business Strategy, "the basic mission of human resources will always be to acquire, develop, and retain talent; align the workforce with the business; and be an excellent contributor to the business.

The human resources department has traditionally been at the bottom of the corporate ladder, despite its mandate to replenish and nourish what has been cited as an organization's greatest resource, its human capital. However, recognition of the value of human capital has grown in recent years. There is a growing recognition of the importance of human resources management in a company's overall health. This recognition extends to small businesses too, since, although they may not have the same volume of human resource requirements as larger organizations, they have personnel management challenges that can affect their performance. Irving Burstiner commented in The Small Business Handbook, "Hiring the right people--and training them well--can mean the difference between scraping by on the barest of livelihoods and growing your business steadily." Personnel issues do not discriminate between big or small businesses. You find them in all businesses, regardless of size."

PRINCIPLE OF MANAGEMENT OF HUMAN RESOURCES

According to business consultants, modern human resource management is governed by several key principles. The principle may be that human resources are one of the most important assets of any company; a business cannot succeed without effective management of human resources. HR's role is to locate, secure, guide, and develop employees whose skills and preferences are compatible with the operating needs and future goals of the organization. Michael Armstrong argues in his book A Handbook of Human Resource Management that HR policies and procedures contribute significantly to achieving corporate objectives and strategic plans. Furthermore, HR management practices that contribute to corporate culture, such as promoting integration and cooperation within an organization, implementing quantitative performance metrics, or taking some other action, are commonly cited as key components of business success. As defined by Armstrong, HRM is "a strategic management process focused on the acquisition, motivation, development, and management of organizational human resources. HRM emphasizes developing an effective corporate culture and introducing programs that reinforce the enterprise's values."

POSITION AND STRUCTURE OF HUMAN RESOURCE MANAGEMENT

Three things are the responsibility of the HR department: individual, organizational, and career development. Employees' strengths and weaknesses are identified through performance reviews, training, and testing, and their deficiencies are corrected. Organizational development requires a system for maximizing human resources (and other resources). An organization can adapt to changes in external and internal influences by maintaining a change program. It's all about matching individuals with the right career opportunities.

Human Resources Management offers access to all parts of the organization due to its proximity to the theoretical core. HR departments need access to key decision makers and their support in order to achieve high levels of productivity and development. HRM should communicate effectively with other departments in an organization.

HRM structures differ from organization to organization according to the type, size, and philosophy. Nonetheless, most organizations organize their HRM functions around clusters of employees. Recruitment, administration, and other HRM functions are centralized. There are different employee development groups for different departments to train and develop their employees in specialist areas, such as sales, engineering, marketing, or executive education. However, some HR departments are independent. All divisions receive training, for example.

Positions and structures within human resources have been reevaluated in recent years. In Business Quarterly, John Johnston wrote, "Changes in business conditions, organizational structures, and leadership have forced human resource departments to change their perception of their role and function almost overnight." "Previously, companies structured themselves on a centralized and compartmentalized basis--head office, marketing, manufacturing, shipping, etc. As a result, they are decentralizing and integrating their operations, forming cross-functional teams. Senior management expects HR to move from its traditional, compartmentalized 'bunker' model to a more integrated, decentralized approach." Given this change in expectations, Johnston noted that "an increasingly common trend in human resources is the decentralization of the HR function and making it accountable to specific line management groups." This increases the likelihood that HR is viewed and included as an integral part of the business process, similar to its marketing, finance, and operations counterparts. However, HR will retain a centralized functional relationship in areas where specialized expertise is truly required," such as compensation and recruitment responsibilities.

HUMAN RESOURCE MANAGEMENT--KEY RESPONSIBILITIES

Human resource management is concerned with the development of both individuals and the organization in which they operate. HRM, then, is engaged not only in securing and developing the talents of individual workers, but also in implementing programs that enhance communication and cooperation between those individual workers in order to nurture organizational development.

HR management's key responsibilities include: job analysis, staffing, organizing and utilizing the work force, measuring and evaluating performance, implementing reward systems, and developing employees professionally.

The process involves determining the nature and responsibilities of various employment positions, identifying job and industry trends, as well as anticipating future employment levels. "In Management: Function and Strategy, Thomas S. Bateman and Carl P. Zeithaml state that "Job analysis is a cornerstone of HRM, as it provides valuable information about jobs that can be used to hire people, set wages, determine training needs, and make other important HRM decisions." Likewise, staffing is the process of managing the flow of personnel into, within (through transfers and promotions,) and out of the organization.), and out of an organization. Once the recruiting part of the staffing process has been completed, selection is accomplished through job postings, interviews, reference checks, testing, and other tools.

HRM is also responsible for the organization, utilization, and maintenance of a company's work force. Organizing an enterprise in a way that makes maximum use of its human resources and establishing communication systems that help it function better as a whole. Among these responsibilities are safety and health, as well as worker-management relations. Employee safety and health activities entail compliance with federal laws that protect employees from workplace hazards. Several federal agencies, such as Occupational Safety and Health Administration (OSHA) and Environmental Protection Agency (EPA), as well as a variety of state agencies, implement laws related to worker's compensation, employee protection, and other matters. Maintenance tasks related to worker-management relations primarily entail: working with labor unions; handling grievances related to misconduct, such as theft or sexual harassment; and devising communication systems to foster cooperation and a shared sense of mission among employees.

Performance appraisal is the practice of assessing employee job performance and providing feedback to those employees about both positive and negative aspects of their performance. Performance measurements are very important both for the organization and the individual, for they are the primary data used in determining salary increases, promotions, and, in the case of workers who perform unsatisfactorily, dismissal.

Reward systems are typically managed by HR areas as well. This aspect of human resource management is very important, for it is the mechanism by which organizations provide their workers with rewards for past achievements and incentives for high performance in the future. It is also the mechanism by which organizations address problems within their work force, through institution of disciplinary measures. Aligning the work force with company goals, stated Gubman, "requires offering workers an employment relationship that motivates them to take ownership of the business plan."

Employee development and training is another vital responsibility of HR personnel. HR is responsible for researching an organization's training needs, and for initiating and evaluating employee development programs designed to address those needs. These training programs can range from orientation programs, which are designed to acclimate new hires to the company, to ambitious education programs intended to familiarize workers with a new software system.

"After getting the right talent into the organization," wrote Gubman, "the second traditional challenge to human resources is to align the workforce with the business--to constantly build the capacity of the workforce to execute the business plan." This is done through performance appraisals, training, and other activities. In the realm of performance appraisal, HRM professionals must devise uniform appraisal standards, develop review techniques, train managers to administer the appraisals, and then evaluate and follow up on the effectiveness of performance reviews. They must also tie the appraisal process into compensation and incentive strategies, and work to ensure that federal regulations are observed.

The tasks associated with training and development include determining, designing, executing, and analyzing educational programs. Training and development programs that benefit the organization and individual should be carefully designed and monitored by HRM professionals with a strong understanding of learning and motivation. Almost no business can ignore this aspect of its operations. As Roberts, Seldon, and Roberts noted in Human Resources Management, "the quality of employees and their development through training and education are significant factors in determining long-term profitability of small businesses. There are specific benefits that a small business receives from training and developing its workers, such as higher productivity, decreased employee turnover, increased efficiency, which results in financial gains, and a decreased need for supervision."

Human resource management practices are increasingly recognized as having the potential to contribute meaningfully to business processes. The human resource manager has always contributed to overall business processes in certain ways, such as disseminating guidelines and monitoring employee behavior, or ensuring that the organization complies with worker-related regulations. Human resource managers are now being integrated into other business processes as well. Prior to the early 1990s, human resource managers were cast in a supporting role and rarely asked for their input on cost/benefit justifications and other operational aspects of a company. But as Johnston noted, the changing character of business structures and the marketplace are making it increasingly necessary for business owners and executives to pay greater attention to the human resource aspects of operation: "In some cases, completely new work relationships have developed; telecommuting, permanent part-time roles, and outsourcing major non-strategic functions are becoming more commonplace." All of these changes, which human resource managers are heavily involved in, are important factors in shaping business performance.

THE CHANGING FIELD OF HUMAN RESOURCE MANAGEMENT

The broad field of HRM has been significantly impacted by several business trends in recent years. Technology has been at the forefront of these changes. Especially in the areas of electronic communication and information dissemination and retrieval, these new technologies have transformed the business landscape. Satellite communications, computers and networking systems, fax machines, and other devices have all enabled changes in how businesses interact. HR professionals have had to adapt new guidelines for this emerging subgroup of employees, for instance, as telecommuting has become a very popular option for many workers.

The changing face of human resource management has also been influenced by changes in organizational structure. In addition to the erosion of manufacturing industries in the United States and other nations and the growth of service industries in those countries, the decline in union representation in many industries has also changed the workplace (both trends are widely seen as interconnected). Organizational philosophies have also changed. Traditional hierarchical organizational structures have been scrapped or adjusted by many companies in favor of flatter management structures. The shift in responsibility necessitated a reassessment of job descriptions, appraisal systems, and other personnel management elements.

A third change factor has been accelerating market globalization. This phenomenon has served to increase competition for both customers and jobs. The latter development enabled some businesses to demand higher performances from their employees while holding the line on compensation. Other factors that have changed the nature of HRM in recent years include new management and operational theories like Total Quality Management (TQM), rapidly changing demographics, and changes in health insurance and federal and state employment legislation.

THE CHANGING FIELD OF HUMAN RESOURCE MANAGEMENT

A small business's human resource management needs are not of the same size or complexity of those of a large firm. Nonetheless, even a business that carries only two or three employees faces important personnel management issues. Indeed, the stakes are very high in the world of small business when it comes to employee recruitment and management. No business wants an employee who is lazy or incompetent or dishonest. But a small business with a work force of half a dozen people will be hurt far more by such an employee than will a company with a work force that numbers in the hundreds (or thousands). Nonetheless, "most small business employers have no formal training in how to make hiring decisions," noted Jill A. Rossiter in Human Resources: Mastering Your Small Business. "Most have no real sense of the time it takes nor the costs involved. All they know is that they need help in the form of a 'good' sales manager, a 'good' secretary, a 'good' welder, and so on. And they know they need someone they can work with, who is willing to put in the time to learn the business and do the job. It sounds simple, but it isn't."

Before hiring a new employee, the small business owner should weigh several considerations. The first step the small business owner should take when pondering an expansion of employee payroll is to honestly assess the status of the organization itself. Are current employees being utilized appropriately? Are current production methods effective? Can the needs of the business be met through an arrangement with an outside contractor or some other means? Are you, as the owner, spending your time appropriately? As Rossiter noted, "any personnel change should be considered an opportunity for rethinking your organizational structure."

Small businesses also need to match the talents of prospective employees with the company's needs. Efforts to manage this can be accomplished in a much more effective fashion if the small business owner devotes energy to defining the job and actively taking part in the recruitment process. But the human resource management task does not end with the creation of a detailed job description and the selection of a suitable employee. Indeed, the hiring process marks the beginning of HRM for the small business owner.

Even the most modest business enterprises should implement and document policies concerning human resources. "During the first few years of operation, few small businesses can afford even a fledgling personnel department," acknowledged Burstiner. "Nevertheless, a large mass of personnel forms and data generally accumulates rather rapidly from the very beginning. To hold problems to a minimum, specific personnel policies should be established as early as possible. These become useful guides in all areas: recruitment and selection, compensation plan and employee benefits, training, promotions and terminations, and the like." Depending on the nature of the business enterprise (and the owner's own comfort zone), the owner can even involve his employees in this endeavor. In any case, a carefully considered employee handbook or personnel manual can be an invaluable tool in ensuring that the small business owner and his or her employees are on the same page. Additionally, the existence of a written record can offer some protection to a small business if its management or operating procedures are challenged in court.

In managing their enterprise's employees, some small business owners also need to address training and development needs. Such educational supplements are often necessary. While a bakery owner might not need to devote much resources to employee training, a company that provides electrical wiring services to businesses may need to implement a system of continuing education for workers in order to remain competitive.

In addition, the small business owner needs to create a productive work environment for his or her employees. If your employees feel fairly treated, they are more likely to be productive assets for your company. The owner of a small business who communicates clearly personal expectations and company goals, provides adequate compensation, offers meaningful opportunities for career advancement, anticipates work force training needs, and provides meaningful feedback to employees is more likely to be successful than the owner who is neglectful in any of these areas.