Welcome to the Human Resources Chapter!

Hello! This chapter is incredibly important because it focuses on a business's most valuable asset: its people. Human Resources (HR) is the function responsible for managing employees, from hiring them to motivating them, and ensuring they have the right skills.

Understanding HR isn't just about personnel administration; it's about seeing how happy, skilled employees drive productivity, quality, and ultimately, a business's competitiveness. Don't worry if the calculations seem tough—we'll break them down!

HR is Crucial for Business Success

HR decisions are deeply connected to the other functions (Operations, Marketing, Finance). For example, if Operations needs to increase production speed, HR must ensure the labour force has the necessary skills (via training) and motivation (via reward schemes).

The impact of global business on HR is huge! Companies operating internationally need to manage diversity, different labour laws, and varying cultural expectations regarding work and pay.

3.2.2.1 Human Resource Planning and Objectives

Human Resource Planning is ensuring the business has the right number of people, with the right skills, at the right time.

Key Human Resource Objectives

A business sets specific objectives for its workforce to align with its overall strategy (e.g., if the strategy is premium quality, HR needs high skills and low employee turnover).

  • Employee Engagement: How enthusiastic and committed employees are to their work and the business. High engagement often means high productivity.
  • Diversity: Ensuring the workforce reflects a wide range of backgrounds, ages, genders, and experiences. This can lead to more creative problem-solving.
  • Number and Skill of Employees: Objective focuses on ensuring there are neither too many nor too few staff, and that their skills match the job requirements.
  • Retention: The objective to keep existing, experienced employees and reduce labour turnover (staff leaving).

Internal and External Influences on HR Plans

HR plans must adapt to many factors:

1. Technology: Developments like automation and AI change the nature of work. HR must plan for training existing staff or recruiting new staff with specific technological skills (e.g., managing a shift towards tele-working or remote teams).

2. Ethical and Environmental Influences: Businesses increasingly need to ensure fair wages, safe working conditions, and ethical hiring practices (e.g., equal opportunity).

3. Market Conditions (The Labour Market):

  • If unemployment is low, it's a 'tight' labour market, making it harder to recruit and increasing wage costs.
  • If competition (both domestic and international) is high, the business may need to improve skills or cut labour costs to remain competitive.

Quick Takeaway: HR objectives are targets related to managing people (like keeping them engaged and skilled). These plans are heavily influenced by technology and how easy it is to hire people in the current market.

3.2.2.2 Human Resource Data: Measuring Performance

To know if HR objectives are being met, managers use specific numerical data. Students must be able to calculate and interpret these key metrics.

Remember: A single number doesn't tell the whole story. You must interpret whether the number is high or low compared to competitors or previous years.

1. Labour Turnover

Measures the percentage of employees who leave the business in a given time period.

\( \text{Labour Turnover} = \frac{\text{Number of employees leaving}}{\text{Average number of employees}} \times 100 \)

  • Interpretation: A high percentage means the business is constantly replacing staff. This is costly (recruitment, training) and disruptive.

2. Labour Productivity

Measures output per employee (or per hour/shift).

\( \text{Labour Productivity} = \frac{\text{Total Output}}{\text{Number of Employees}} \)

  • Interpretation: Higher productivity is usually good, meaning the workforce is efficient, but you must check if this is achieved by overworking staff.

3. Employee Costs as Percentage of Turnover

Shows how much of the total revenue is spent on wages and related employee costs.

  • Interpretation: If this percentage is high, the business might need to improve productivity or look for ways to manage staff costs better, especially if sales revenue is falling.

4. Labour Cost per Unit

The average cost of labour needed to produce one item.

  • Interpretation: This is crucial for pricing decisions. If the cost per unit is rising, the business is becoming less competitive.

5. Sales and Profit per Employee

A measure of efficiency showing how much revenue or profit each employee generates.

  • Interpretation: Used particularly in retail or service sectors to benchmark performance (e.g., "Store A generates \$500,000 in sales per employee, while Store B generates \$300,000.")

6. Employee Engagement

Often measured through surveys, scoring how connected and motivated staff feel (e.g., scores out of 10 or 100).

  • Interpretation: Low scores indicate poor morale, which likely impacts quality, customer service, and retention.

Quick Review: HR metrics quantify how well the workforce is performing. Focus on high labour turnover (bad) and high labour productivity (good, usually).

3.2.2.3 Organisational Design and Managing Human Resources

Managing human resources involves key tasks like effective hiring and training, alongside structuring the business efficiently.

I. Essential HR Management Tasks

Value of Effective Recruitment and Selection:

Hiring the right person (selection) and attracting the best candidates (recruitment) saves massive amounts of money and time compared to hiring the wrong person who quickly leaves.

Value of Training:

  • Increases skills, leading to higher quality and productivity.
  • Boosts employee motivation and job satisfaction.
  • Reduces mistakes and waste, lowering operational costs.

Issues Relating to Reducing the Number of Employees:

Sometimes businesses must reduce staff (retrenchment), usually through redundancy. This is costly (payouts) and damages morale and the company's reputation. It must be managed legally and ethically.

II. Organisational Design Decisions

Organisational design determines how tasks, authority, and communication flow within the business. These decisions shape how employees work.

1. Span of Control

This is the number of subordinates (people) reporting directly to one manager.

  • Wide Span: Manager has many subordinates. Results in a flat hierarchy (fewer management layers) and encourages delegation.
  • Narrow Span: Manager has few subordinates. Results in a tall hierarchy (more management layers) and allows for closer supervision.

2. Levels of Hierarchy

The number of layers of management and supervision in the structure.

  • Fewer levels (flat) means communication is faster but managers may be overloaded.
  • More levels (tall) allows for clear promotion paths but communication can be slow and distorted.

3. Delegation

Passing down authority to a subordinate to make decisions.

  • Benefit: Motivates staff (empowerment) and frees up senior managers for strategic tasks.
  • Challenge: Requires trust and capable subordinates.

4. Centralisation and Decentralisation

Where decision-making power rests:

  • Centralisation: Decisions are made at the top (e.g., Head Office). Good for consistent policies and rapid crisis response.
  • Decentralisation: Decisions are pushed down to departmental managers or regional offices. Good for responding quickly to local market needs and motivating local managers.

Quick Takeaway: Organisational design determines structure (flat or tall) and power distribution (centralised or delegated). These choices directly impact communication, speed of response, and employee motivation.

3.2.2.4 Motivation and Engagement

Motivation is the desire to achieve a goal or perform a task. Engagement is the level of enthusiasm and dedication an employee has for their work. Highly motivated and engaged employees deliver better performance.

The Benefits of Motivated Staff

  • Higher Productivity (more output per hour).
  • Improved Quality and reduced mistakes.
  • Lower Labour Turnover and reduced absenteeism.
  • Better Customer Service (staff care more).

Theories of Motivation

Don't worry, these theories sound complex, but they explain simple human needs:

1. F.W. Taylor – Scientific Management

Core Idea: Employees are motivated solely by money and operate like machines. Work should be broken down into simple, specialised tasks (division of labour). Managers should monitor output closely.

Technique: Piece Rate pay (paid per unit produced).

Critique: Very simplified view; ignores social and psychological needs. Suitable only for routine, manual jobs.

2. Abraham Maslow – Hierarchy of Needs

Core Idea: Humans have five sets of needs, arranged in a pyramid. Lower-level needs must be satisfied before an individual can pursue higher-level needs.

  1. Physiological Needs (Food, shelter, basic wage).
  2. Safety Needs (Job security, safe working conditions).
  3. Love/Belonging Needs (Teamwork, friendly colleagues).
  4. Esteem Needs (Status, recognition, job title).
  5. Self-Actualisation (Reaching full potential, challenging work, achievement).

Memory Aid: P-S-L-E-S (Please Secure Lasting Esteem Successfully).

3. Frederick Herzberg – Two-Factor Theory

Herzberg argued that job satisfaction and dissatisfaction are caused by two separate sets of factors:

  • Hygiene Factors (Dissatisfiers): These do not motivate, but their absence causes dissatisfaction. If they are poor, staff are unhappy. Examples: company policy, supervision, salary, working conditions. (Think of them as basic expectations.)
  • Motivators (Satisfiers): These actively create satisfaction and engagement. Examples: achievement, recognition, responsibility, advancement, challenging work. (These are needed for staff to truly excel.)

Analogy: Salary (Hygiene) keeps you from complaining, but giving someone an important, responsible job (Motivator) makes them want to work harder.

Financial Methods of Motivation

  • Piece Rate: Paid per unit produced (aligns with Taylor).
  • Commission: Percentage of sales value received (common in sales roles).
  • Salary Schemes: Fixed annual payment (offers security).
  • Performance-Related Pay (PRP): Bonus or pay increase tied to meeting pre-set targets (e.g., a manager getting a bonus if profit increases by 10%).

Non-Financial Methods of Motivation

  • Consultation: Asking employees for their input before making a decision.
  • Job Design: Changing the nature of the job to make it more challenging or meaningful. Includes:
    • Job Enrichment: Giving staff more complex tasks and responsibility (Herzberg motivator).
    • Job Enlargement: Giving staff a wider variety of tasks (reduces boredom).
  • Empowerment: Giving employees the authority to make decisions, often within certain limits (related to delegation).

Quick Takeaway: Motivation links directly to productivity. Use Maslow and Herzberg to explain why money alone isn't enough; staff need recognition, responsibility, and engaging work.

3.2.2.5 Employer-Employee Relations

Effective employer-employee relations are vital for a harmonious and productive workplace. Poor relations lead to strikes, high turnover, and low morale.

The Value of Employee Involvement

When employees are involved in decision-making, they feel valued, leading to:

  • Better acceptance of change.
  • Decisions based on better, real-world information (because staff know the day-to-day operations).
  • Increased motivation and loyalty.

Methods of Employee Involvement:

1. Consultation: Managers seek opinions from employees or their representatives (like a staff council) before implementing changes.

2. Trade Unions: Organisations that represent employees in negotiating wages, benefits, and working conditions with management (this is known as collective bargaining).

3. Worker Directors: Employees elected to sit on the company's board of directors, giving workers a direct say in strategic decisions. (This is high-level involvement, common in some European countries).

Improving Communication and Relations

Good communication is the foundation of trust. Businesses should aim for:

  • Open, two-way communication (listening to employees, not just telling them what to do).
  • Regular meetings, internal newsletters, and accessible HR policies.

Managing relations effectively means having formal procedures for grievances and disciplinary action, and being prepared to negotiate fairly with employee representatives.

Did You Know? In many countries, trade union influence is declining in the private sector, but they remain highly influential in public sectors (like transport or education), where they play a crucial role in preventing disputes.

Key Takeaway: Strong relations, often facilitated through consultation or trade unions, reduce conflict and improve decision quality by ensuring employees feel heard and respected.