HR as a Source of Shareholder Value
Advait Bhobe, Shalibhadra Jain, SiddharthPadki Padki, Ragini Bhaia, Lokesh
Kumar Merugupala, Sagar Darira
Human resource management (HRM or simply HR) is the management of an organization's
workforce, or human resources. It is responsible for the attraction, selection, training, assessment, and
rewarding of employees, while also overseeing organizational leadership and culture, and ensuring
compliance with employment and labor laws.
Traditional View of HRM
HRM is generally considered as "Salaried model". The traditional approach to HRM was designed
on the basis of blue collared people i.e. workers of the factory or industry. Workers have much
autonomy as they can deviate from written policy & rules & regulations. Workers also have the
bargaining power which gives them opportunity to negotiate regarding certain points like pay scale,
promotion etc. Sometimes the group of workers also forms their trade circle so that it can enjoy their
bargaining powers. Traditionally HRM had the following roles and responsibilities.
Focus on Functional Activities & Process Orientation
HRM focuses on Human resource planning, Training & Development, Compensation Planning,
Selection, maintaining Employee relations, performance appraisal, etc.
It also focuses on establishing policies, procedures, rules & regulations, motivating employees
monetarily & non-monetarily to do better in their job by using their skill & also enhancing their
skills too in order to achieve the goals of the organization set by their superiors & even excelling
the organizational goals.
HRM also includes supervising & controlling the activities of employees but giving them freedom
in their thought process & innovative ideas. If the employees break the rules & regulations then
they are either punished or charge fines.
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Reconciliation between Management & Workforce
HRM also plays the major role in reconciling the interest between Workforce & Management
which would be good for the future & success of any organization.
As the goals of management & workforce is same i.e. success of organization, it helps in
reconciling between Management & Workforce. But if there is conflict between two then
reconciling becomes difficult.
HRM is generally considered as Staff functions & is responsible for Human Resource
Current view point on HRM
Earlier HRM was considered as Cost function but with the return to real-world economics after
the unwinding of the 1990s and bursting of the 'tech' bubble HRM gained ground and considered as
strategic function for the organization. New approach says that “it is the quality of a company's people
management that determines its real success or failure.” HRM develops and manages these people
therefore it can transform the crisis into opportunity. These are some new concepts adopted by HRM to
retain the most important asset of any company “Employee”.
A safe and happy workplace makes the employees feel good about being there. Each one is given
importance and provided the security that gives them the motivation and incentive to stay. This is
usually achieved through internal surveys to find out whether they are satisfied and if not what they
think needs to be changed. HR manager should make sure that employees get a good and healthy work
Employees don’t like the feeling of being kept in the dark about what is happening in the company.
They feel motivated and develop enthusiasm only when the management opens up to them and
discusses the company policies, sales, clients, contracts, goals and objectives. This encourages
participative management. Asking them for ideas on how to improve will get their creative juices
flowing. Being open about everything related to the company will help in building trust and motivating
the employees. This open management policy can be practiced using several tools.
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Every good performance is appreciated in the form of a pat on the back, bonuses or giving some
other compensation for a job well done. Organizations that struggle to keep up with the attrition rate
are mostly those that think employees are “just” doing their job. Even if it is the employee’s job,
completion in an appreciable manner calls for an incentive, and this goes a long way in boosting the staff
morale. These incentives can be implemented at the individual as well as the team level and it has been
seen that this works wonders in getting the best out of the employees. But it is important to keep in
mind that these bonuses should not be given without a reason, unless it is a commitment for annual
bonuses or some such thing. Doing so will only reduce the perceived value of the bonuses.
This is one the methods that is being followed by many organizations. Feedback is not only taken
from the boss, but also from other seniors and subordinates. Previously, appreciation was only sought
from the immediate boss or the management, but now organizations understand the importance of
collecting performance feedback from several quarters. The opinion of everyone matters, especially for
someone who is in a leadership role at any level. Each person in the team is responsible for giving
constructive feedback. This kind of system helps in identifying people who can perform well as leaders
at higher levels in the organization. Even the senior level managers can use this system to their
advantage, as a tool to improve themselves.
E.g. 360 degree feedback is a new and fast way to give performance feedback.
Every company has an employee evaluation system in place but a good system links individual
performance to the goals and priorities of the organization. This works well when achievements are
tracked over a year. For a fair review of each employee, the evaluation, apart from being done by the
boss, should be done by another person at a higher level, for whom the employee’s contribution is
important. Ratings can also be obtained by other employees. This ensures a fair and accurate rating of
each and every employee
Sharing of Knowledge
Knowledge sharing is a wonderful strategy that helps in the betterment of the employees and their
work. Keep all the knowledgeable information in central databases that can be accessed by each and
every employee. For example, if an employee is sent on some training, the knowledge that is acquired
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by that employee can be stored in these databases for others to learn from it. Even innovative ideas that
the management deems fit for employees to see, can be stored here for all to see.
Publicize Good Performances
Every company has some employees who outperform others. Such performances should be
highlighted and displayed where other employees can look at them; such as on the display boards and
intranet etc. This will encourage others to give their best. A proper system should be set up to make a
list of high performances at specific times in a year.
HRM as competitive advantage to the organization
Earlier patents, economies of scale, market regulation all are considered as competitive
advantages, but these are not relevant in current economic environment. Instead, the core
competencies are capabilities of employee to develop new product, provide better services to the
customer and implement the strategies of the organization. HRM manage develop and sustain these
kind of invisible asset of the organization and become a competitive advantages.
Implementing a Strategy
Any business that wants to remain successful must continually assess and formulate new
strategies to meet the needs of its customers in more effective ways. It is important that employees be
informed about the organization's strategic mission. HRM practices should be the mechanisms used to
focus people's attention on the major strategic issues in the organization i.e. altering the HRM practices
to meet their strategic goals. As an example, a differentiation strategy calls for specialists in product
design and development, higher budgets for research and development, rewards for innovative ideas
related to quality, and customer-based performance appraisal.
Dealing with Change
In an increasingly competitive environment, organizations with a greater capacity for change are
more likely to satisfy, retain, and attract customers. In organizations, the capacity to change may be
increased by using HRM tools correctly. As an example, hiring people who are flexible and develop
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people that they will realize that change is an important part of growth. Moreover, performance
standards should be set to encourage flexibility and diversity and should reward employees’ innovative.
Building Strategic Unity
Strategic unity represents the extent to which stakeholders inside (e.g. employees) and outside
a business (e.g. customers) share a core set of values and assumptions about the business. As an
example, if the stakeholders believe that customer service is of central importance to corporate
performance, this core values can be developed and nurtured among employees, suppliers and
customers of the business. The benefit of the internal quality is that it channels employees' attention
toward an important organizational goal e.g. helps the company to provide a unique service to
customers that cannot easily be copied by competitors.
Human Capital Management (HCM)
Human capital management (HCM) is an approach to employee staffing that perceives people as
assets (human capital) whose current value can be measured and whose future value can be enhanced
through investment. An organization that supports HCM provides employees with clearly defined and
consistently communicated performance expectations. Managers are responsible for rating, rewarding,
and holding employees accountable for achieving specific business goals, creating innovation and
supporting continuous improvement.
Two competencies required for Human Capital Management
1. Professional HRM Capabilities - these are related to the delivery of traditional HR activities such
as recruiting, selection and compensation
2. Business related capabilities - reflect the understanding of business and implementation of
The HCM should look at the following with special attention.
1. HR must focus on business level outcomes rather than HR level inputs-The number one priority
for value creating HR function is to develop the value creating HR is to develop the perspective
and competency to solve business problems.HR makes a difference when it can point to human
capital problems that limit the ability of a firm to achieve important business priorities and can
provide HR solutions to those problems
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2. HR must become a strategic core competency rather than a market follower - A high
performance work system that creates real shareholder value is not a commodity that can be
benchmarked from other organizations. Benchmarking, might keep you in the game but it will
not provide the intellectual capital to create sustained competitive advantage.
3. Strategic competencies are more important than functional competencies - It is the ability to
understand the human capital dimension of each of the businesses key priorities and be able to
communicate how solving human capital problems will improve the operating performance of
4. The most important missing element in HR functional expertise is systems perspective -
Functional competencies must blend traditional HR functional expertise with systems
perspective to avoid deadly combinations and identify powerful connections.
Intangibles in Human Resources Management
Evolution of Intangibles
Before 1990, 75% - 90% of a firm’s market value could be predicted by its own financial
performance. Since 1990, however this figure has dropped down to near 50% in both bullish and bearish
market conditions. It leads to a conclusion that market value of a firm is no longer determined by
financials alone. Rest of the 50% value is determined by a thing known as ‘intangibles’ – a term coined
by the financial community. The concept of intangible is relatively new in HRM study and marks a major
shift in way a firm is to be values. Intangible are represented by means of choices that are derived /
tapped internally within an organization, how investors value such decision apart from the traditional
physical assets. Organizations and its people form the intangible asset which translates into investor
confidence, tangible earnings improvement. Corporate leaders and investors understand only one
language – the language of finance and accounts. It is the HRM function that carries out the arduous
task of presenting the intangibles in financial terms.
Architecture of Intangibles
It is a technique proposed by modern day HRM guru Dave Ulrich that would aim at improving
organizations intangibles. Starting from the bare essentials at level 1 into more intricate and complex
areas of HRM is nothing but ‘Architecture for Intangibles’.
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Level Area of focus Action outcome
1 Keep promises Build reputation among stakeholders for delivering what
you promise to deliver.
2 Anticipate future Define growth strategy , manage trade offs in customer
while investing in intimacy, geographic expansion to achieve growth
3 Put money where Provide full support to current capabilities , build
strategy is competencies in R&D, sales and alike.
4 Build value through Develop capabilities of shared mindset, talent, leadership
organization and and alike throughout the organization.
It’s progressive and sequential wherein all the level follow in ordered manner one after the.
Each level could involve HR practices that would help leaders foster truest and promote learning
and communication amongst internal shareholders viz. employees which eventually results in
better productivity and better investor sentiment owing better performance of company.
It essentially increases the likelihood of evoking behaviors that would engage and delight
Level 1 - The organization build a solid reputation by doing what it promised to do and keeping
its promises. This helps in bringing a lot of credibility for the firm which gives the firm lot of
Level 2 – As a company gains credibility, it begins charting out growth strategy and becomes
mature enough to manage tradeoffs in customer intimacy, geographical expansion to achieve
Level 3 – Provide full support towards development of core competency such as sales
marketing, R&D, etc. that is essential in success of any company.
Level 4 – Develop the intangibles such as capabilities of shared mindset, talent, speed and
others throughout the organization.
It is at level 4 of the architecture, where HR really brings a lot of value at the table. It
defines and creates capabilities as intangibles. Recently, studies of organizations have proved
that there is greater emphasis on capabilities than structure and processes. The deliverables of
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the HR function is organization’s capabilities. These capabilities enhance investor confidence in
future earnings and have the ability to increase/decrease market capitalization. Huselid, Becker,
Beatty found that firms with speed, talent, learning, shared mindset , innovation and
accountability capabilities significantly outperformed lower capability firms in productivity,
profitability and shareholder value.
Firms differ so much that no one can produce a single magical list of ideal and
pre requisite capabilities. Qualities such as efficiency, talent, collaboration are ‘not the only’
capabilities may require but they do gives us a broad sense about the types of capabilities that
makes intangibles tangible. These delight the shareholders, customers; engage employees;
establish reputation amongst investor community and provide a means of sustaining long term
sustainable growth. HR professionals can play the role of architects and thought leaders in
defining and creating each of such capabilities.
An intangibles audit measures how well intangibles are being delivered and usually leads to an
action plan for improvement. An intangible audit is usually a self-assessment type of audit which helps
HR Leaders evaluate the four core dimensions: keeping promises, growth strategy, core competence,
A sample Question from intangible audit:
Level 1: Keeping Promises
a.) To what extent do we keep promises to investors by delivering consistent and predicatable
1 2 3 4 5 (1 – low, 5 – highest)
Level 2: Growth Strategy
To what extent do our decisions align with primary growth strategy?
1 2 3 4 5 (1 – low, 5 – highest)
Many organizations have adapted this template to yield productive results. HR professionals can be
prime movers for these audits as they collaborate with other staff experts and prepare information for
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High Performance Work System
A high-performance work system (HPWS) can be defined as a specific combination of HR
practices, work structures, and processes that maximizes employee knowledge, skill, commitment, and
flexibility. Although some noteworthy HR practices and policies tend to be incorporated within most
HPWSs, it would be a mistake for us to focus too much, or too soon, on the pieces themselves. The key
concept is the system. High-performance work systems are composed of many interrelated parts that
complement one another to reach the goals of an organization, large or small.
The notion of high-performance work systems was originally developed by David Nadler to
capture an organization’s “architecture” that integrates technical and social aspects of work.
Edward Lawler and his associates at the Center for Effective Organization at the University of
Southern California have worked with Fortune 1000 corporations to identify the primary
principles that support high-performance work systems. There are four simple but powerful
1. Shared information
2. Knowledge development
3. Performance–reward linkage
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In many ways, these principles have become the building blocks for managers who want to create high-
performance work systems. More important, they are also quickly becoming the foundation for current
theories of human resources management.
The Principle of Shared Information
The principle of shared information is critical for the success of empowerment and involvement
initiatives in organizations. In the past, employees traditionally were not given—and did not ask for—
information about the organization. People were hired to perform narrowly defined jobs with clearly
specified duties, and not much else was asked of them. One of the underlying ideas of high-performance
work systems is that workers are intimately acquainted with the nature of their own work and are
therefore in the best position to recognize problems and devise solutions to them. Today organizations
are relying on the expertise and initiative of employees to react quickly to incipient problems and
opportunities. Without timely and accurate information about the business, employees can do little
more than simply carry out orders and perform their roles in a relatively perfunctory way. They are
unlikely to understand the overall direction of the business or contribute to organizational success. On
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the other hand, when employees are given timely information about business performance, plans, and
strategies, they are more likely to make good suggestions for improving the business and to cooperate
in major organizational changes. They are also likely to feel more committed to new courses of action if
they have input in decision making. The principle of shared information typifies a shift in organizations
away from the mentality of command and control toward one more focused on employee commitment.
It represents a fundamental shift in the relationship between employer and employee. If executives do a
good job of communicating with employees and create a culture of information sharing, employees are
perhaps more likely to be willing (and able) to work toward the goals for the organization. They will
“know more, do more, and contribute more. “ At FedEx Canada, at every single station across Canada,
company officers and managing directors meet with employees at 5:30 a.m. and 10:00 p.m. to review
the business data and answer questions.
The Principle of Knowledge Development
Knowledge development is the twin sister of information sharing. As Richard Teerlink, former
CEO of Harley-Davidson, noted, “The only thing you get when you empower dummies is bad decisions
faster.” Throughout this text, we have noted that the numbers of jobs requiring little knowledge and
skill is declining while the number of jobs requiring greater knowledge and skill is growing rapidly. As
organizations attempt to compete through people, they must invest in employee development. This
includes both selecting the best and the brightest candidates available in the labor market and providing
all employees opportunities to continually hone their talents.
High-performance work systems depend on the shift from touch labor to knowledge work .In
the contemporary work environment, employees must learn continuously. Stopgap training programs
may not be enough. Companies such as DaimlerChrysler and Roche have found that employees in high-
performance work systems need to learn in “real time .
The Principle of Performance–Reward Linkage
A time-tested adage of management is that the interests of employees and organizations
naturally diverge. People may intentionally or unintentionally pursue outcomes that are beneficial to
them but not necessarily to the organization as a whole. A corollary of this idea, however, is that things
tend to go more smoothly when there is some way to align employee and organizational goals. When
rewards are connected to performance, employees naturally pursue outcomes that are mutually
beneficial to themselves and the organization. When this happens, some amazing things can result. For
example, supervisors don’t have to constantly watch to make sure that employees do the right thing.
But in fact, employees may go out of their way—above and beyond the call of duty, so to speak—to
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make certain that co-workers are getting the help they need, systems and processes are functioning
efficiently, and customers are happy. At Clearwater Seafood’s, a global Canadian company of 2200
employees based in Bedford, Nova Scotia, nearly all employees participate in a bonus plan based on the
volume of food that is packaged. Connecting rewards to organizational performance also ensures
fairness and tends to focus employees on the organization. Equally important, performance-based
rewards ensure that employees share in the gains that result from any performance improvement. For
instance, Lincoln Electric has long been recognized for its efforts in linking employee pay and
The Principle of Egalitarianism
People want a sense that they are members, not just workers, in an organization. Status and
power differences tend to separate people and magnify whatever disparities exist between them. The
“us versus them” battles that have traditionally raged between managers, employees, and labour unions
are increasingly being replaced by more cooperative approaches to managing work. More egalitarian
work environments eliminate status and power differences and, in the process, increase collaboration
and teamwork. When this happens, productivity can improve if people who once worked in isolation
from (or in opposition to) one another begin to work together.
These four principles—shared information, knowledge development, performance–reward
linkage, and egalitarianism—are the basis for designing high-performance work systems. These
principles help us integrate practices and policies to create an overall high-performance work system.
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Evaluating the Success of the System
Once high-performance work systems are in place, they need to be monitored and evaluated over
time. Several aspects of the review process should be addressed. First, there should be a process audit
to determine whether the system has been implemented as it was designed and whether the principles
of high-performance work systems are being reinforced. Questions such as the following might be
included in the audit:
Are employees actually working together, or is the term “team” just a label?
Are employees getting the information they need to make empowered decisions?
Are training programs developing the knowledge and skills employees need?
Are employees being rewarded for good performance and useful suggestions?
Are employees treated fairly so that power differences are minimal?
Second, the evaluation process should focus on the goals of high-performance work systems. To
determine whether the program is succeeding, managers should look at such issues as the following:
Are desired behaviors being exhibited on the job?
Are quality, productivity, flexibility, and customer service objectives being met?
Are quality-of-life goals being achieved for employees?
Is the organization more competitive than in the past?
Outcomes of High Performance Work Systems
When implemented effectively, high performance work systems benefit both the employees
and the organization. Employees have more involvement in the organization, experience growth and
satisfaction, and become more valuable as contributors.
The organization also benefits from high productivity, quality, flexibility, and customer
satisfaction. These features together can provide an organization with a sustainable competitive
Accounting in HRM
Unlike conventional assets human resource cannot be seen in the balance sheet of the firm. It is
the present value of future cash inflow of the firm. There is no scientific method to measure these
intangible assets of the firm.
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Watson Wyatt's 2002 Human Capital Index
Watson Wyatt's 2002 Human Capital Index (HCI) study shows that superior human resources
practices are not only correlated with improved financial returns, they are, in fact, a leading indicator of
increased shareholder value. The year-long study, a follow-up to the firm’s landmark HCI study in 1999,
reports that companies with the best HR practices provided a 64 percent total return to shareholders
(TRS) over a five-year period, more than three times the 21 percent TRS for companies with the weakest
The study confirmed a positive correlation between the quality of a company’s HR practices and its
economic results. But it left unanswered the question whether effective HR practices drive positive
financial results — or whether successful companies simply have more resources to invest in HR
programs," says Bruce Pfau, head of organization effectiveness consulting at Watson Wyatt and author
of the study. "Evidence from this new research clearly favors superior human capital management as a
leading — rather than lagging — indicator of improved financial outcomes."
The HCI study is based on a comprehensive survey of human resources practices at 750 North American
and European companies with a track record of at least three years of total returns to shareholders
(TRS), 1,000 or more employees and a minimum of $100 million in revenues or market value. The survey
data is matched to objective financial measures of a company’s worth, including its market value, three-
and five-year TRS, and its Tobin’s Q, which measures a company’s ability to create economic value
beyond its physical assets. Based on this analysis, each company is given a Human Capital Index score on
a scale of 0 (low) to 100 (high).
Leading or Lagging Indicator?
To determine which way the relationship between HR practices and financial performance truly
runs, Watson Wyatt compared two different correlations using HCI scores and financial data for 51
companies that participated in both the 1999 and 2001 HCI studies.
The study first looked at the correlation between 1999 HCI scores and 2001 financial
performance. This correlation suggests the degree to which human capital management is a "leading"
indicator of future financial success. The study also looked at the opposite effect — that is, the
correlation between 1999 financial outcomes and 2001 HCI scores. This correlation looks at the degree
to which good human capital practices are simply a function of financial success — in other words, a
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"lagging" indicator. The analysis shows that the first, "leading," correlation is very significant (.41) from a
statistical perspective. Moreover, the "leading" correlation is twice as great as the "lagging" correlation
"The difference between the two correlations is comparable to the difference between a batting
average of .410 and an average of .190," says Pfau. "The bottom line is that effective human capital
practices drive business outcomes more than business outcomes lead to good HR practices."
The HCI study also shows precisely which HR practices find their way to the bottom line,
identifying 43 specific HR practices that play the greatest role in creating shareholder value. According
to the study, a significant improvement in all practices is associated with a 47 percent increase in market
value. The 43 practices are divided into five key areas, and the research quantifies exactly how much an
improvement in each area is expected to increase a company’s market value.
Expected Change in Market Value Associated with a Significant Improvement in HCI Dimension
Total Rewards and Accountability 16.5%
Collegial, Flexible Workplace 9.0%
Recruiting and Retention Excellence 7.9%
Communications Integrity 7.1%
Focused HR Service Technologies 6.5%
Total = 47.0%
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BENEFITS OF HR SYSTEM
Recruitment and Training
This is one of the major responsibilities of the human resource team. HR managers come up
with plans and strategies for hiring the right kind of people. And if any missing skill is required - a
training program is designed. In this way, the enhanced skills will help improve the revenue for the
HR encourages the people, to work according to their potential. HR personnel give suggestions
that can help people to bring about their improvement. When taken on a regular basis, motivate the
employees and results in improved performance for the employee which will inturn benefit the
Maintaining good Work Atmosphere
This is the vital aspect of HR, because this affects the individual work atmosphere or work
culture. Good working condition will help bring out the best in an employee which will result job
satisfaction and increase in the output of an individual.
In an organization, there are several issues on which disputes may arise between the employees
and the employers. The human resource department acts as a consultant and mediator to sort out those
issues in an effective manner. Such an environment without any issues will help in improving the
performance of an individual, thus enhancing the revenue of the company.
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Developing Public Relations
The HR department is responsible for organizing business meetings, seminars and various
official gatherings on behalf of the company in order to build up relationships. HR department also plays
an active role in preparing the business and marketing plans for the organization. Good Public Relations
improve the chance to attract new talent, new investors and improve relationship with the existing
employees and investors.
HR as a Value to Shareholders
Top management of the firm take business and strategic decisions to design an HR management
system which focuses on employee skills, employee motivation, job design and work cultures which
leads to an increase in productivity, creativity and discretionary effort by the employees. Due to this,
there is an increase in overall profit and growth of the company, which increases the share price of the
firm in the company. This is how shareholders worth increases in the firm.
Linking HR Strategy to Shareholders Value
The most important question that needs to be answered is that are the decision-makers in the
organization aware of the link between human resource planning and profits?
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Some firms in negative growth choose to lay off thousands of employees so that profits and
share price increase immediately. Consider an example of Mastek Ltd., an Indian IT firm based in
Mumbai, till couple of years back when Mastek used to hire fresh graduates for colleges they used to
provide them training on a particular language like Java, .NET, etc. and during the training they used to
provide compensation to the fresh graduates as well. But after losses is eight straight quarters Mastek
stopped providing compensation during training to the fresh graduates and they were told that after the
training if they do not have any projects then they would be asked to leave. By not giving compensation
during training and laying off the fresh graduates they made a profit of six crores in the last quarter. But
it is to be seen that whether in the long run they can sustain suitable growth by doing such practices.
Slash and burn tactics do not always work and can lead to irreversible damage to the firm’s
performance. Remaining employees cannot compensate for the loss of productivity and at least 7% of
the remaining employees quit in the six months following a layoff. Loosing valuable employees to layoffs
can lead to loss of clients because the level of expected services may decrease, giving the competitors to
cut deals to steal the business.
In the study “HR as a source of Shareholder Value: Research and Recommendations”, it was
found out that combining HR initiatives with strategies like performance management systems has a
50% larger effect on firm’s performance than implementing single policies alone. In the research, Becker
and his colleagues focused on strategic impact of HRM system on both market-based and accounting
based measures of firm’s performance. Use of market-based measures of firm’s performance is
appropriate in this line of research because they reflect the present value of the firm’s future cash flows
which is net of any additional costs associated with implementing these systems. Thus organizations
which fix their objective on share price, may achieve short term success but they are bound to
encounter long term costs if their objectives are achieved at the expense of productivity and customers.
Employee and customer needs frequently change, due to which an integrated workforce development
strategy helps the organization adapt to shifting goals.
An HR strategy should translate business goals into individual accountability, thus creating long
term value for the organization. This is because engaged employees are able to drive customer loyalty as
well as corporate profits through their consistency and quality of service. Investing in employees’
performance confirms to the shareholders that you are concerned with growth and not minimizing
costs, which provides a much smaller competitive advantage. Thus the number one priority for the
value-creating HR function is to point to human capital problems that limit the ability of the firm to
achieve important business priorities and can provide solutions to those problems.
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HR Factors affecting Profits
Some of the HR factors affecting profits are as follows.
1. Management participation
2. Open management style
3. Taking some risks, but not too many
4. Top managers spending 20% of the time with customers
5. Around 20% of top management should be outsiders
6. Management training is deemed important
7. Top managers should be effectively incentivized
8. Succession plan is done
9. A good appraisal plan is in place
10. Employees should get regular feedback
HR Factors affecting Market Value
Some of the HR factors affecting Market Value are as follows.
1. Use of knowledge and contract workers
2. Recruiting excellence
3. Good union-management relationship
4. Teamwork and 360 degrees feedback
5. Customer – focused environment
7. Sharing information with employees
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