Wednesday, August 27, 2014

Strategic Human Resource Management: A Framework

Below is a fictionalized case study that presents dilemma faced in real organizations. And written by me is the recommended solution to the problem. This has been published in Business Manager Magazine September 2014 edition.

Rakish Iron and Steel Company is a significant player in the iron and steel industry. The company has a workforce of 18,000. With a 21 per cent market share at the national level, it occupies the fourth position in the industry. The company set for itself an ambitious target of securing the third position in three years, the second position in seven years, and industry leadership in ten years. The management of Rakish announced a major change in the business strategy of the company that would lead to the transformation of business operations. Incidentally, it prepared a blueprint for the company and chose product differentiation as its primary strategy for the future. It identified a few segments in the market like the low-value steel market where the competition was negligible. It decided to expand its product line with a focus on the consumers of these low-value products. 

Pursuing this strategy, the management announced a slew of measures aimed at enhancing the width of the product line by adding a few more varieties to it. It made a huge investment commitment in the infrastructure for producing low-value steel. Within a remarkably short span of time, it introduced new products to cater to the market demand for low-value products. The market responded favorably to its new products and the turnover and profit rose appreciably. However, the competing companies understood the game plan of Rakish quickly and reacted by expanding their product line too. The advantage enjoyed by Rakish turned out to be a short-lived one and the major players once again began to dominate the market. 

Once the product differentiation efforts failed, the management of Rakish changed its strategy and adopted a low-cost strategy. This required the organization to be aggressive in sales promotion measures and diligent in cost reduction in fields like marketing, advertising, distribution and services. The cost reduction measures could not help the company for two reasons. One, the cost of marketing did not have a significant influence on the price tag of the product. And two, the cost reduction efforts had a negative fall-out on sales promotion and also on the actual sales performance. Eventually, the company was forced to abandon its low-cost strategy endeavors. 

When the company was almost clueless about its future strategies to accomplish the performance goals, Rajesh Sharma joined the board as the HR Director of the company. Learning about it's ill-fated strategy initiatives, he made a proposal to develop the workforce of the company as a competitive advantage in the market. The board of directors greeted the proposal with suspicion and contempt. They could not believe that the employees could be developed into a formidable force for the organization through proper HR measures and that in due course this would lead to cost reduction and quality enhancement. However having no worthwhile alternative schemes, they set aside their reservations and approved the HR director's proposal. Simultaneously, the directors allowed a huge budgetary support for drastically improving the training infrastructure and the compensation packages. The HR director's proposal began to take shape and the management kept its fingers crossed.

Discussion Questions & Solutions:

1. What could have been the reason for the failure of the earlier strategies of Rakish? 

Rakish Iron & Steel Company was the 4th largest company in the industry having 21% market share. The company set itself an ambitious target of being industry leader in the next 10 years and accordingly prepared a blueprint on how to go about it. The company announced a slew of measures that would lead to transformation of its business operations. Product differentiation was identified as its primary strategy for the future and accordingly few market segments were identified where low-value steel was in demand and competition was negligible. This strategy was very well received by the market initially leading to increase in turnover and profits for the company. However, competing companies were quick to follow suit with similar strategy and began to dominate the market.

One of the reasons for the failure of the strategies of Rakish Iron & Steel Company could be the allocation of resources. The failure to allocate appropriate resources or balance resources to accomplish the strategies frequently implies that some of the plans are not accomplished due to insufficient resources, while other plans are accomplished inefficiently because of too many resources which could be the case here.

Performance Projections: Rakish Iron and Steel Company has designed a strategy to achieve market dominance position and how to go about it i.e. to win in competitive situations. However, before setting its goals, it should have also studied and made note of as to where competition would likely be in the future. It is up to the company's leadership to study, understand the likely future performance levels of key competitors and then set goals accordingly. Data from competitors, key benchmarks, and/or past performance form a valid basis for comparison. Expected future levels of competitor or comparison performance could be used to set and validate Rakish company's own plans and goals. Unless it is done so, Rakish Iron and Steel Company may find itself achieving the goals it has set for itself and still lose - finding itself behind the competition. In a competitive market, it is not good enough to achieve it's goals unless they place the company in a winning position.

2. How do you foresee the future of Mr. Rajesh Sharma's proposal in the light of the competition faced by the company?

Mr. Rajesh Sharma, newly joined HR Director of Rakish Iron and Steel company, learn't about the ill-fated strategic initiatives of the company, made a proposal to develop the workforce of the company as a competitive advantage to secure market dominance position. Mr. Sharma's proposal to develop the workforce would lead to cost reduction and quality enhancement. The Management of the company approved a huge budgetary support for drastically improving the training infrastructure and the compensation packages. The proposal was slowly beginning to take shape.

By definition, plans describe activities or actions that have not yet taken place. Many a times in order to execute the plans, the workforce must possess skills, knowledge, or abilities that they do not currently possess. Without appropriate plans to develop, acquire, or motivate the human resources necessary to carry out desired actions, Rakish Iron and Steel Company may not be able to achieve its strategic objectives.   The workforce may not have the skills, knowledge, or abilities to carry out the actions required for success in the future. Hence Mr. Sharma's proposal may trigger the much needed desired change that will enable the company to achieve its goals.

Organizations must invest in their people to ensure they have the skills for today and to do what is necessary to succeed in the future.

3. What would your proposal have been if you had been the HR Director of the company? 

The following would have been my proposal as HR Director of Rakish Iron & Steel Company:
  • Communicate the strategy and its related action plans to the workforce thus enabling them to know as to what is required of them rather than leaving it to guess work.
  • Workforce Development by ensuring that clear linkages exist between the company's strategic objectives and education and training. Workforce skills are developed based on work demands and workforce needs. Ensure that the training plans are developed based on worker and manager input.
  • Address key issues of training and development, hiring, retention, workforce engagement, involvement, empowerment, and recognition and reward as a part of the human resource plan.   Define appropriate measures and targets for each. 
  • Develop relevant metrics to monitor progress thus sending a clear message to the workforce that the plans are important. Prompt and regular feedback is provided to teams and individuals regarding their performance. Feedback covers both results and processes.
  • Redesigning work to increase worker responsibility. Broadening worker responsibilities; creating self-directed or high performance work teams.
  • Form partnerships with education institutions to conduct student research and develop workers and ensure a supply of well-prepared future employees.
  • Developing gain-sharing or equity building compensation systems for all workers to increase motivation and productivity. Compensation, recognition, and rewards/incentives are provided for results, such as for reductions in cycle time and exceeding target schedules with error-free products or services at less-than-projected cost.

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