Sunday, August 9, 2015

Audit - An Opportunity for Positive Action

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 August 2015 edition.

Hi-Tech Engineering Services Ltd is a company engaged in the business of offering a broad spectrum of engineering, design and consultancy services ranging from concept to commissioning of all types of engineering projects. It has over 3,200 design engineers and technical personnel employed in various engineering disciplines. It offers the best of the industry compensation packages to its employees, and employee satisfaction is quite high with labour turnover under complete control. 

A few months back, the management of Hi-Tech Engineering Services approved a major expansion plan of the company. The General Manager (HR), Mr. Mukesh, assured the management that the entire hiring process would be completed within three months. However, the General Manager of Marketing, Mr. Ganesh, insisted on an HR audit of all the HR policies and practices of the company before embarking on a major recruitment drive of this nature. Mr. Mukesh opposed the idea of HR audit on the ground that the existing parameters like labour turnover, industrial dispute and profitability showed no abnormality and, as such, the HR department and its practices were, according to him, up to the mark. But, Mr. Ganesh stood his ground and insisted that the company must first benchmark the HR practices through an HR audit before determining the level of HR efficiency. The top management finally decided in favour of an HR audit and also decided to hire external consultants to conduct it. Accordingly, Maxweb Consultants were appointed to carry out the HR audit of the company and the necessary instructions were issued to the HR department to cooperate with them. 

The consultants found the HR practices of their client as fairly effective except in the areas of employee hiring and performance evaluation. The recruitment and selection processes, systems and procedures were identified as ineffective. The consultants observed that though the company offered compensation packages that were the best in the industry, the company was not so successful in attracting the best talents due to a few limiting factors in the HR policies and practices. 

The HR audit report included a number of recommendations to improve the ability of the company to attract the best talents. For example, one recommendation was to revise the hiring philosophy of the company. One of the most immediate tasks set for the HR department was to redraft the job specification statement with increased emphasis on the multi-skills of the prospective applicants. The other major recommendation of the consultants was regarding the need to introduce modem techniques for evaluating the performance of the employees. In this regard, the consultants recommended the introduction of the 360-degree or even 720-degree evaluation for all the employees. 

The top management next sought the views of the HR department about the lapses identified by the external HR auditors. In a detailed response, the General Manager (HR) still defended the hiring and performance evaluation practices of the company and insisted on continuing with them, citing the positive results in traditional indicators like labour turnover ratio, productivity, and satisfactory corporate performance. The HR department also maintained that the whole HR audit was an exercise in futility. Though the top management resents the views of the HR people, it does not want to antagonize them. It is taking its own time to make its final views known to one and all. 

Questions for discussions and solutions

1. How do you view the entire development at Hi-Tech Engineering Services Ltd?

Hi-Tech Engineering Services Ltd. offers a broad spectrum of engineering design and consultancy services ranging from concept to commissioning of all types of engineering projects. The company has over 3200 employees in various engineering disciplines, offers best industry compensation packages and has a good employee satisfaction ratio with low labour turnover.

The company has earmarked major recruitment expansion plans to support its business growth objectives and although Mr. Mukesh - GM (HR) assured that the entire hiring process would be completed within 3 months time period, Mr. Ganesh – GM (Marketing) thought so otherwise and insisted to the management of the company to do a thorough HR Audit of all the HR policies and practices of the company before undertaking the recruitment expansion exercise. Obviously Mr. Ganesh would have observed some lapses in the current HR practices of the company and keeping in mind the company’s business growth plans. Mr. Ganesh’s perspective was from another department’s perspective which could be right. The HR department would be oblivious to their own functioning styles and flaws. Hence this was rightly pointed out by Mr. Ganesh.

Although the HR Dept. objected to this move fearing otherwise with reasons, the top management finally decided in favour of an HR audit and hired Maxweb Consultants to carry out HR audit of the company. HR department was instructed to cooperate with the auditors and give them all the necessary information, records, documents, reports, etc…as asked by them. The HR audit report included number of recommendations to improve the ability of the company to attract the best talents.

Top management sought views of the HR department on the audit report which went into defensive mode insisting that its current practices were right  and sought on continuing with them. The HR department termed the entire audit exercise as futile which was not liked by the top management as this seemed to be going against them. The top management was in a fix as to how to get the HR department to accept the audit results and implement the recommendations for improvement without antagonizing them.

2. If you were to be the GM (HR) of Hi-Tech, how would you have acted in this situation?

If I were the GM(HR) of Hi-Tech, I would have welcomed the audit initiative. Firstly, because the company was on a major expansion road and had huge hiring plans. Hence, to ensure that it meets its expansion objectives and that there would no issues post the expansion, it needed to get it’s systems, policies, procedures, etc… updated in line with the best industry practices and also ensure that the current laid down one’s are being followed. An audit methodology would be apt for this. 

Maxweb Consultants who carried out HR Audit of the company recommended many improvement initiatives for attracting the best talents. Example: One of the recommendations was to redraft job specification statement with increased emphasis on multi-skills of the prospective applicants. This recommendation is in line with industry best practices. These days having just one skill set is not enough for the entire career tenure. One needs to demonstrate ability to handle multiple tasks over a period of time. This is a future employer’s requirement. The consultants also recommended introduction of modern performance evaluation techniques like 360-degree or 720-degree evaluations.

The audit exercise initiated by the management of the company is in an investment effort by them to improve its HR systems. Hence, it should be reacted from a developmental perspective. It is also natural that after an audit exercise is done and once the audit findings are disclosed, the auditee’s which in this case was the HR Dept. of the company and the GM (HR) start defending themselves and their actions and look for supporting evidences to perpetuate their claim. It is futile maintaining a stand that the entire audit exercise was an effort in waste and will not do any good for improving the policies, systems, procedures of the company. Rather one should move on. Have a look at the audit recommendations, from it identify the one’s which are from a strategic perspective that can impact the business and one’s from an operational, day to day running the business of an organization perspective. Categorize the audit findings as High, Medium or Low importance and plan action accordingly.

3. How should the top management proceed in the present situation?

It is good that the top management initiated a thorough HR audit of the company’s HR policies and practices before embarking on a major recruitment expansion plan. This shows that there was planning effort by the management of the company in order to get its HR systems right, rather a preventive measure to ensure that no issues recur later and that it’s recruitment expansion and business objectives are aligned and fully met.

Once the audit exercise has been completed and results of the audit findings are known to all relevant stakeholders, the top management should take the stakeholders into confidence and in consultation with them develop action plans for areas recommended for improvement. The top management should support the GM (HR) and his team in their efforts by providing them the necessary resources to execute the action plan. It should be made known that post audit, there would be no heads rolling, rather there would be support from the management side to improve. Once that fear of being faulted and removed as a result of the lapse identified by way of an audit is done away with, then everyone will willingly participate. There will be no defensive actions or behaviors. 

There could be regular review meetings to determine progress on the audit results and do course correction, if any, if observed that the action plan execution has deviated from its path. The top management should demonstrate commitment by way of its involvement and participation in the review meetings. There should be a top-down approach.

4. Is there any need for an HR audit in the company since it is not only a non-statutory requirement but also a fee-based service?

In order to become a full-fledged Business Partner, HR Departments need to not only regularly examine whether they are doing things right but also ask whether they are doing the right things. A HR audit will cover the organization's Policies, Systems, Processes, Practices and Capabilities from a strategic perspective. Thus, this HR Audit will help the HR department at Hi-Tech Engineering Services Ltd. to meet the objectives of the company that is of helping it to both identify efficiency and effectiveness issues as well as develop short-term and long-term solutions to overcome such challenges. 

Through the audit findings, an action plan can be developed to address the findings and ensure that during the next audit they do not recur again. Thus by having regular periodic audits & by taking action on the audit findings, Hi-Tech Engineering Services will be on the path to continuous systems improvement. It is also to be noted that an audit provides information not only on key measurements, strengths and areas of enhancement but also points out opportunities that a business can leverage to become an employer of choice and meet its long-range goal of attracting, recruiting, on-boarding, deploying, developing, rewarding, leading and retaining talented employees. 

Hence the need for an HR audit is fully justified at Hi-Tech even though it is fee-based. The entire audit exercise should be looked at from a fact finding perspective and to identify opportunities for improvements and not as a fault finding exercise and then to lay blame on others after the audit findings are disclosed. 

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