Fundamentals of HRM_22nd May_2022_Sirapatsorn

AMO: Ability, Motivation,

Opportunity (Purcell,2003)
•Resources will represent a

competitive advantage & they

must have 4 attributes: VRIN
•Valuable
•Rare
•Imperfectly imitable
•Non good substitutes

I/O Model:
Industrial /
Organization

Model



What is Human Capital?

Human Capital

Human capital is defined as
the collective knowledge,

skills and abilities of people
that contribute to
organizational success

Human Capital

Human capital is influenced
by corporate culture,
organizational values and
strategic business goals and
objectives and indicates the
health of an organization

Human Capital

Human capital can be assessed
via key performance indicators
(KPIs) which are quantifiable,
specific measures of an
organization’s performance in
critical areas of its business

Sources of Employee Value

 Technical Knowledge

 Markets, processes, customers, environment

 Ability to Learn and Grow

 Openness to new ideas
 Acquisition of knowledge & skills

 Decision Making Capabilities
 Motivation
 Commitment
 Teamwork

 Interpersonal skills, leadership ability

Sources of Employee Value

 Technical Knowledge

 Markets, processes, customers, environment

 Ability to Learn and Grow

 Openness to new ideas
 Acquisition of knowledge & skills

 Decision Making Capabilities
 Motivation
 Commitment
 Teamwork

 Interpersonal skills, leadership ability

Sources of Employee Value

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(Merit) (Competency) (Performance )
(Quality of work-life)

HRM

HRM is charged with programs
concerned with people

Effective use of people

Achieving individual &
organizational goals

Getting every manager
involved

HRM Activities

EEO compliance Job analysis

HR planning Labor relations

Training, development

Performance evaluation, compensation

Safety, health, wellness
Recruitment, selection, motivation, orientation

HRM Orientation

Action

People

Global

Future

Strategic Importance of HRM

HRM actions,
language,

performance

Measured Communicated

Evaluated

Strategic Importance of HRM

HRM accountability resulted from:

Concerns about productivity
Organizational downsizing and redesign

Increasingly diverse workforce
Competitive need to use all
organizational resources

HRM and Organizational
Effectiveness

• For a firm to survive and prosper, reasonable
goals must be achieved in:

– Performance
– Legal compliance
– Employee satisfaction
– Absenteeism
– Turnover
– Training effectiveness and ROI
– Grievance rates
– Accident rates

HRM and Organizational
Effectiveness

Reaching Using Influx/
goals employees retention
efficiently of good
employees

Measure of Effectiveness

Mission and Company HRM
strategy structure

HRM and Organizational
Effectiveness

The people who do the work
and create the ideas

allow the organization to survive….

HRM and Organizational
Effectiveness

Coping With Change

Growing global competition
Rapidly expanding technologies
Demand for individual, team, organizational competencies

Faster cycle times
Increasing legal and compliance scrutiny

Higher customer expectations
Mechanized, routine work now knowledge-based

HRM and Organizational
Effectiveness

Profitability gains
Higher stock prices
Company survival

Employees + Good Management = $

Objectives of the HRM Function

HRM Contributions to Effectiveness

Help the organization reach goals
Provide trained, motivated employees
Employ workforce skills/abilities efficiently
Increase satisfaction, self-actualization, quality of work life
Communicate HRM policies to all employees

Maintain ethical policies, socially responsible
Manage change to thebmeuhtuaavlioadr vantage of individuals,

groups, the enterprise, and the public



Research Findings

 HR practices directly related to profitability &
market value

 Primary reason for profitability:
 Effective management of human capital

 Integrated management of human capital can
result in 47% increase in market value

 Top 10% of organizations studied experienced
391% return on investment in management of
human capital

HR Value Chain



HRM&HRD
core beliefs:

HRM&D core beliefs:

1. Organizations are human-
made entities that rely on
human expertise to establish
and achieve their goals:
HRD is intricately connected
to the fate of organization

HRM&D core beliefs:

2.Human expertise is developed
and maximized through HRD
processes and should be done for
the mutual long- and or short-term
benefits of the sponsoring
organization and the individuals
involved

HRM&D core beliefs:

3.HRD professionals are
advocates of
individual/group, work
process, and organizational
integrity

Example: 3 screenings
before assess people for job

1. Integrity

People with integrity tell the truth and keep their word

2. Intelligence

Has a strong dose of intellectual curiosity with a breadth of
knowledge to lead other smart people in today’s complex world

3. Maturity

Ability to handle stress and setbacks, and enjoy success with
equal parts of joy and humility

Common HR Metrics

 Training Investment Factor

 Absence Rate  Training Return on Investment

 Cost per Hire (ROI)

 Health Care Costs per Employee  Turnover Costs

 HR Expense Factor  Turnover Rate
(Monthly/Annually)
 Human Capital Return on
Investment (ROI)  Vacancy Costs

 Human Capital Value Added  Vacancy Rate

 Labor Costs as a Percentage of  Workers’ Compensation Cost per

Sales or Revenues Employee

 Profit per Employee  Workers’ Compensation Incident
 Revenue per Employee rate
 Time to fill
 Workers’ Compensation Severity
rate

 Yield Ratio

Calculation of Human Capital Metrics

Measure Formula Value/Use

Human Capital ROI Revenue - (Operating Expenses – Allows determination of return
Profit per employee -Compensation + Benefits Costs)) / on human investments relative

Compensation + Benefits Costs to productivity and profitability;
represents pre-tax profit for
amounts invested in employee
pay and benefits after removal of

capital expenses

Revenue - Operating Expenses/ Illustrates the value created by

Number of Full-time equivalent (FTE) employees; provides a means of

employees productivity and expense
analysis

HR expense factor Total HR expense/total operating Illustrates the degree of

expenses leverage of human capital;
provides a benchmark for
overall expense analysis
relative to targets or budgets

Calculation of Human Capital Metrics

Measure Formula Value/Use

Human Capital Value Added Revenue - (Operating Expenses – Shows the
value of employee
-Compensation + Benefits Costs)) / knowledge, skills and
human Total number of FTE employees
value to an performance and how
capital adds
organization

Turnover Rate number of employee separations Provides a
measure of

(during a given time period)/ workplace retention efforts
number of employees
which can impact direct costs,
stability, profitability morale,
and productivity; can be used
as a measure of success for
retention and reward programs

HR Metrics Are Complex!

90% of Fortune 500 organizations evaluate
HR operations on basis of three metrics:

 Employee retention and turnover
 Corporate morale
 Employee satisfaction

These metrics do not necessarily illustrate
how HR impacts

 Profits
 Shareholder value

Mercer Model of Measuring HR Impact

 Identify problem HR can impact
 Calculate actual cost of problem
 Choose HR solution that addresses problem
 Calculate cost of solution
 Calculate value of improvement 6 to 24 months

after implementation
 Calculate specific return on investment
 ROI in human assets often not realized until some

time in the future

Adopting an Investment Perspective

Determines how to best invest in people
Costs
Human assets become competitive

advantage
Required skills become less manual, more

knowledge-based
Appropriate, integrated, strategy-

consistent approach is needed

A Dilemma!

Failure to invest in employees causes

 Inefficiency
Weakening of organization’s

competitive position

Human assets are risky investment
Require extra effort to ensure that

they are not lost

Factors Influencing Investment
Orientation

Investment-Oriented Organization

Sees people as central to mission & strategy
Mission statement & strategic objectives

espouse value of human assets in achieving
goals
Management philosophy encouraging
development & retention of human assets
Does not treat human assets in same ways as
physical assets

Investment Orientation Factors

 Senior Management Values & Actions

 Managers need “investment orientation” toward
people

 Attitude Toward Risk

 Investment in human resources inherently riskier
 Human assets never absolutely “owned”

 Nature of Skills Needed by Employees

 The more marketable employee skills, the riskier the
firm’s investment in skill development

Investment Orientation Factors

Utilitarian (“Bottom Line”) Mentality

 Attempt made to quantify employee worth
through cost-benefit analysis

 “Soft” benefits of HR programs difficult to
objectively quantify

Availability of Outsourcing

 Given availability of cost-effective outsourcing,
investments in HR should produce highest
returns & sustainable competitive advantages.

Model for Management Success

Strengthen key Leverage
relationships
downtime
Customers
 Employees Use variable-pay
Shareholders Address neglected

areas:

Infrastructure
Marketing
Operations

Model for Management Success

Refocusing staff on Building return on

what’s important compensation
 Link base-pay
 Performance
progression to
management as
competency achievement
disciplined, strategic,

value-added process  Link incentive pay to

 Clearly define, annual, semiannual, or

differentiate & balance quarterly results

between core

competencies & results







Maximizing Human Capital

Human capital is defined as
the collective knowledge,
skills and abilities of people
that contribute to
organizational success

Maximizing Human Capital

Human capital is influenced
by corporate culture,
organizational values and
strategic business goals and
objectives and indicates the
health of an organization

Maximizing Human Capital

Human capital can be assessed
via key performance indicators
(KPIs) which are quantifiable,
specific measures of an
organization’s performance in
critical areas of its business