Components of SHRM:

Human Capital management

•The term HCM can refer both to a business strategy and a set of modern IT applications and
other technologies that are used to implement that strategy. Though sometimes used
interchangeably, the terms related HR, HRMS, and HRIS do have subtle distinctions:

•HR: Refers to a set of traditional employee management functions that includes hiring, job
and position management, HR compliance, and reporting.
•HCM: Encompasses the same processes, but also includes workforce rewards and talent and
workforce management.
•Talent management: Looks at the strategic management of talent throughout the talent
lifecycle. It includes sourcing and recruiting candidates, goal and performance management,
learning and career development, talent review, and succession management.
•Workforce rewards: Refers to all HR functions that manage any monetary or nonmonetary
rewards including compensation, benefits, or payroll.
•Workforce management: Involves all HR functions that are related to positive and negative
time management including time and labor and absence management.
•HRMS: Refers to the set of applications and other technologies that support and automate
HR processes throughout the employee lifecycle. While the terms HCM and HRMS are often
used synonymously, HCM puts particular emphasis on the strategic approach to managing
employees.
•HRIS: Originally referred to keeping administrative employee records. It has been largely
replaced by the term HRMS. In practice, HRMS and HRIS are virtually interchangeable terms.
Human capital management (HCM) is the set of
practices an organization uses for recruiting,
managing, developing, and optimizing
employees to increase their value to the
company. Done right, human capital
management results in:
• Hiring the right talent
• Having all needed skill sets in the company’s
workforce
• Managing employees effectively
• Increasing productivity 
 Valuation of human resources in a strategic
level
• 1) Historical Cost Method:
• 2) Replacement Cost Method:
• 3) Economic Value Method
• 4) Standard Cost Method:
• 5) Present Value Method
• 6) Current Purchase Power Method
• 7) Opportunity Cost Method
 HR cost
• Fixed and variable cost
• Opportunity cost
• The value of money over time
• Estimated value of employee time
• Cost-benefit and cost-effectiveness analysis
• Utility as a weighted sum of utility attributes
• Conjoint analysis
• Sensitivity and break-even analysis
 Investment Perspective in HR
• When employees are viewed as variable costs, there
is little recognition of the firm’s contributions to their
training and the costs of recruiting and training
replacements.
• Human capital is not often included in the
determination of an organization’s business capital
• HUMAN CAPITAL: 1) highly skilled, 2)
knowledgeable, 3) stable labor force
 HR INVESTMENT considerations
• MANAGEMENT VALUES
– Values and philosophies of senior management are
communicated through HR policies and practices
– How employees are treated is a reflection of their
values and communicates whether organization view
employees from an investment perspective.
– Those adopting an investment perspective seek to
enhance the value of their human capital, pr at the
very least, prevent their depreciation
 HR INVESTMENT considerations
• RISKS AND RETURN ON INVESTMENT IN HR
– Investment in HR is more risky since employer does
not own the resource unlike machines or technology
– IN order for investments in HR to be attractive, the
returns must be great enough to overcome risks.
– Investment in HR may be long-term and benefits may
not be direct (I.e., loyalty, organizational
commitment, etc)
 HR INVESTMENT considerations
• ECONOMIC RATIONALE FOR INVESTMENT IN TRAINING
– Specific vs. general training in human capital theory
(Gary Becker, Nobel Laureate - Economics)
• Specific training - skills that are specific to the organization
• General training - skills that are transferable to other
employees and other organizations.
• Employers are generally reluctant to lay-off employees they
have invested in specific training
• however, the distinction between general and specific
training is misleading. Few skills are non-transferable.
 HR INVESTMENT considerations
• UTILITY THEORY
– Attempts to determine the economic value of human
resource programs, activities and procedures.
• To what extent can the results of HR programs be
quantified?
• ROI considerations particularly in training
 HR INVESTMENT considerations

• OUOTSOURCING AS AN ALTERNATIVE TO INVESTMENT IN HR

– Investments in HR should support organizational strategy
(vertical alignment)
– Strategic outsourcing is advocated where
• world-class capabilities and a strategic advantage can not be
developed
• outsourcing is clearly cheaper
• dependency on suppliers can be avoided
– Many HR functions have been outsourced: executive
search, executive compensation, etc.
 Mergers and Acquisitions
• What are the negative implications of mergers
and acquisitions to the investment perspective
in HR?

• Identify at least three ways in which the

investment perspective in HR can still be
upheld even during mergers and acquisitions.
INVESTMENT IN TRAINING & DEVT
• Investments in employability
– job security from being employable not from
being employed
– social security vs. job security
• Increased investment and time spent in
training
– apprenticeship training
– mandatory training time
 INVESTMENT IN TRAINING & DEVT

• On-the-job Training
– cross traini
– self-instruction (CBT)
– personal career and development plans
• Investments in Management Development
– Job rotation programs
– cross-functional assignments
– executive development programs
– mentoring and coaching programs
 INVESTMENT IN TRAINING & DEVT

• Prevention of skill obsolescence

– rapid changes in technology
– expectancy theory vs. human capital theory
• employee’s expectation of their ability to acquire new
skills and the perceived reward instrumentality of such
skills explain employee’s motivation for skill
acquisition
• Many models in preventing skill obsolescence - HP,
Intel, IBM, Motorola; the emergence of corporate
universities.
 INVESTMENT IN TRAINING & DEVT

• Reductions in career plateauing

– occurs when employees have occupied a job for
some period, have mastered all aspects of the
job, and have few prospects for promotion
– creates resentment and a sense of futility
– natural consequence of lck of organizational
growth or change
– can be reduced by constant inventory of
potentials vs performance
INVESTMENT PRACTICES FOR RETENTION

• Organizational Cultures emphasizing Interpersonal Relationship

Values Focusing on Technical Employees
• Effective Selection Procedures
• Equitable compensation and benefits
• Job enrichment and satisfaction
• Practices providing for work-life balance
• Creating confidence in the organization’s future
• Focusing on Technical Employees
• Liberal HR Policies (e.g. Transfer)
• Effective management of diversity
• Prevention of sexual harassment
 INVESTMENT PRACTICES FOR RETENTION
• Organizational Cultures emphasizing Interpersonal
Relationship Values
– respect for people
– team orientation
– “fearless” culture
– positive relationships with superiors Improved
Retention: median
– absence of conflict
was 14 mos longer
– participation in decision making
– informal cultures
– information sharing
– organizational support for employees
 INVESTMENT PRACTICES FOR RETENTION
• Effective Selection Procedures
– Person-job fit
– Organization-person fit
– Careful selection
– Valid tests Improved Retention
– Improved interviewing techniques
– Realistic job previews
INVESTMENT PRACTICES FOR RETENTION
• Equitable compensation and benefits
– Fair performance appraisal
– equitable ratios of inputs to outputs
– exclusion of politics in compensation decisions
– communication of compensation structures and procedures
– performance-based compensation
– pay incentives
– benefits that are valued
 INVESTMENT PRACTICES FOR RETENTION
• Job enrichment and satisfaction
– Building increased responsibility
– Autonomy
– Knowledge of results
– meaningful work
– Enhanced job latitude
– Job satisfaction

• When high performing employees feel undervalued,

they tend to have higher turnover rates
 INVESTMENT PRACTICES FOR RETENTION
• Practices providing for work-life balance
– Alternative work schedules
– Child-care services
– family leave
– Telecommuting
– Flextime

• Unreasonable workloads found to be associated with

turnover
 INVESTMENT PRACTICES FOR RETENTION
• Creating confidence in the organization’s future
– setting clear directions for the future and building confidence in
the vision of the future improve retention

• Focusing on Technical Employees

• Liberal HR Policies (e.g. Transfer)
• Effective management of diversity
• Prevention of sexual harassment
INVESTMENT PRACTICES FOR RETENTION

• Organizational Cultures emphasizing Interpersonal Relationship

Values Focusing on Technical Employees
• Effective Selection Procedures
• Equitable compensation and benefits
• Job enrichment and satisfaction
• Practices providing for work-life balance
• Creating confidence in the organization’s future
• Focusing on Technical Employees
• Liberal HR Policies (e.g. Transfer)
• Effective management of diversity
• Prevention of sexual harassment
INVESTMENTS IN JOB-SECURE WORKPLACES

• Recognition of the costs of downsizing and

layoffs
– often, it is more cost-effective not to downsize
– often not practical because of LIFO practice
• Avoiding business-cycle-based layoffs
– offering employment guarantees
– loaning out employees during downturns
– cost sharing practices
INVESTMENTS IN JOB-SECURE WORKPLACES

• Offering alternatives to layoffs

– direct HR Planning toward employment stability
– placing emphasis on training and retraining
– lean staffing even during prosperity
– maintaining stability with buffers (OT, PT)
– Correcting poor performance and terminating with warranted
– Selecting new employees for long-term
– Using probationary periods effectively
– Hiring non-specialists when possible
– Training for skills needed for next stage of product cycle life
 NONTRADITIONAL INVESTMENT in HR
APPROACHES
• Investment in disabled employees
• Investments in employee health
• Countercyclical hiring
 Formulation of HR strategies
• Three levels of strategy formulation:
Corporate, Business unit and Functional level.

• The process of HR strategy formulation involves a

serious of steps. HR strategy plays a crucial role in any
organisation. Hence all the steps need to be followed
sincerely to come out with a proper practically
implementable policy.
 Setting of Objectives:
• The first step in formulating any policy is to set
the objectives of the policy. In case of HR
strategies the objectives needs to be set
properly by analyzing the
• issues for which the policy is framed,
• Problems to which the policies will be
addressed
• The need for the strategy in the business.
 Evaluating the environment:
• The HR strategies are something which will be
applicable to each human resource in the
organisation who is employed. Hence it is
must to understand the environment of the
organisation n terms of Organisation culture,
climate, policies etc.
 Setting Qualitative targets:
• The people involved in the formulation
process must also set the desired targets in a
qualitative basis. As most of the parameters
involved with human component is not
measurable quantitatively the achievable
targets must be quoted qualitatively.
 Considering Alternatives and deriving
strategy:
• All the available alternative plans strategies
will be evaluated before finalizing a strategy.
This will enable the team to decide the best
possible strategy. Before finalizing the policy
the team has to follow certain more steps.
 Resource Planning:
• This is the final step before the strategy
framing. Here the team will analyze the
resources that are required to implement the
strategy.
 Deriving Action Plan:
• Before going for formulation of strategy the
team has to decide the action plan. This action
plan will led the team know what are the
possible problems that may occur when
implementing the actual HR strategy in the
organisation.
 Present to top management:
• Once all the things are finalized from the team
end then it will present the proposed strategy
in front of the top management. The top
management will probe in the strategy from
all aspects. Any changes, modification in the
framed strategy will be communicated to the
team by the top management. Then the
finalization of strategy will be done.
 Communication of the strategy:
• At the end the HR department will
communicate the finalized strategy to all the
employees of the organisation. Proper
communication of the strategy is equally
important for the success of the
implementation of the strategy.
 Traditional Vs Strategic HRM
• Rigid vs. flexible HR policies
• Reactive vs. proactive
• Fragmented vs. integrated approach
• Conforming vs. partnership
• Short term vs. long term goals
• Transactional vs. transformational leadership style
• Capital & products vs. people & knowledge
• Cost centric vs. Investment centric
• Stringent control vs. Empathy & Leniency
• Division of labour & specialization vs. Cross training & teams