Whether an organisation employs one, one hundred or one thousand people, human resource management (HRM) is an essential practice for all business today. In an ever increasing competitive environment, complicated by ever increasing regulation, the manner in which organisations deploy and engage the people asset can be the difference between success and failure.
'Human resource management is a strategic and coherent approach to the management of an organisation's most valuable assets: the people working there who individually and collectively contribute to the achievement of its objectives' (Armstrong, M. (2003) Human Resource Management Practice, Kogan Page Limited)
Historically many small and medium sized businesses perceived HRM as the preserve of 'Big Business' with little or no application for them. However, increasing employment regulation coupled with increasing labour cost and diminishing labour resources has placed the issue of HRM firmly on the agenda for all employers. This paper will address the case for time and effort to be committed to the development and sustained implementation of HRM in all business, but in particular in small and medium sized enterprises (SMEs). The topic will be dealt with in two parts:
1. The legal imperative
2. Competitive advantage
References and examples will be drawn from European legislation and practice reflecting the author's experience and operating arena. There are, however, many shared principles and similarities in the legislative frameworks of first world developed economies. These shared principles and similarities apply equally to the concepts of good practice referenced in part two of this paper.
The Legal Imperative
The level of regulation is increasing across all aspects of business. Employment regulation within the EU Member States is a constant today. In fact there are so many changes and initiatives taking place that one could refer to a revolution and not an evolution of labour law. In Ireland, in the last fourteen years, there have been one hundred and sixty five legislative changes or EU directives in respect of labour law. This has been mirrored across the EU. From equality to health and safety to working time to consultation to the protection of young people and part time workers, there has been substantial change in the relationships between employer and employee. With very few exceptions, these changes impact all employers. With these changes has come enforcement, with Member States, in consultation with their social partners, working endlessly towards creating an even playing field. Ireland has recently created the National Employment Regulatory Authority, whose specific brief is to create an environment of compliance on a par with financial and tax compliance.
Across the EU all employment legislation carries substantial penalties and fines for lack of compliance, sufficient to put many organisations (particularly small enterprises) out of business. Financial penalties aside, regulation and the attendant bureaucracy aside, a more worrying aspect of this raft of legislation (and this applies as much in the USA) is the issue of guilt and innocence. In the western world we hold dear to the principle of 'innocent until proven guilty'. In labour law it appears that the employer must prove that 'they didn't do it'. Employers are guilty until they prove their innocence. This fact alone has major implications for any employer, large or small.
A further development in an EU context is the concept of vicarious liability or, as an employer, your responsibilities for the actions of others. Today employers are not only responsible for their own actions, but equally for the actions of their employees and their suppliers, in a work context and in any social context that can be deemed an extension of the work environment e.g., the Christmas party, drinks on a Friday evening etc.
It is an imperative for any employer to ensure that they understand the legislation governing the work place and that they implement robust HR policy. The current legislative framework has for the first time allowed for criminal prosecution (as opposed to civil prosecution) for serious breaches. This has seen, in the recent past, company officers charged with manslaughter in worst case scenarios. Fines can be as high as €250,000 in one-off cases and as much as €2,000 per record plus €650 per day per record for breaches of the working time legislation. These are serious financial penalties and they are being enforced.
Furthermore employees are now much more aware of their rights and much quicker to seek redress. In fact in many cases the employee is more aware than the employer. It is often said today that the employment law arena has become the new personal claims arena.
To fail to deal with these issues is, in the author's view, paramount to reckless trading. It places entire businesses at risk, and it places the professional reputation of the Principle and company officers on the line, exposing those individuals to substantial personal financial risk and potentially criminal prosecution.
To address this risk and to minimise exposure is not a difficult process. There are many companies and professionals in the market place who can provide, particularly to the small business, a cost effective and comprehensive solution. Developing an HR policy handbook, tailored to a company's specific needs, is a positive and straightforward first step. Such a document, if consistently applied, sets the basics of the employment relationship and provides for a sound foundation for both employer and employee alike.
The vast majority of cases decided against employers at Tribunal eventuate because of the absence of any documented HR policy. The view taken by Tribunal is simply 'you may not have intended to break the law but in the absence of any policy you probably did'. This underlines the comment earlier of the need to prove innocence. In the absence of documented HR policy it is practically impossible to prove one's innocence.
In today's world one cannot ignore labour law. To suggest that it is only applicable to large organisations is a mistake. To claim that one does not have the time because one is too busy with the business of running a Vets Practice is akin to suggesting that one is too busy driving a car to pay attention to the rules of the road. It is the law, you do not have a choice and to ignore it is to place you and your colleagues at considerable risk unnecessarily.
'Big Brother' and the 'Nanny State' are some of the polite terms one hears in response to the perceived interference of the State apparatus in the affairs of business--particularly in the context of employment law. Is there, however, a case to be made for HRM apart from the legal imperative? Setting aside the inevitable form filling and record keeping bureaucracy that is attendant with most legislation, there are benefits to be gained from HRM even if one opts to implement it at the most basic level--simple legal compliance. In fact the vast majority of employment law is the State catching up with best practice. There is no attempt in the legal framework to remove the prerogative of the business owner to run their business as they see fit. What it does insist upon that it is done fairly and equitably.
At the outset of this paper it was stated that that HRM is about the people asset. HRM practices are about getting the best return on that asset. In a Small Animal Veterinary Practice as in any professional services organisation the single largest cost is the employee complement. It is often interesting to observe the reaction of an employer to the misuse of a piece of equipment either in terms of its under usage or careless use. There can be a sense of outrage because of the capital investment and employees' failure to appreciate this investment. On the other hand the mismanagement of employees costing ten times, twenty times as much will be over looked.
In any organisation it is the employees that deliver output, quality and customer satisfaction. A leader's function is to provide strategy and structure. It is a leader role to ensure that there is nothing in the way of the employee delivering their job role.
Employees, or at least ninety nine percent of them, come to work to do a good job. As employers that is all we want of them. It seems like the perfect arrangement. So what goes wrong? More often than not it is what the leadership of the organisation does not do that causes the problem.
Starting with HR policy, many organisations fail to develop a basic HR handbook which lays down the basic employment relationship, leading to inconsistency and inequities. Job descriptions which clearly and unambiguously define an individual's job role and expectations are either absent or so out of date that they have little relevance. Performance management is either nonexistent or so subjective that it serves to de-motivate. Strategic plans and operational plans are treated as 'confidential' issues that cannot be shared with employees. Training and development is perceived as a reward and not a necessity. Employees are given lots of accountability and responsibility but no empowerment. Poor performance is not dealt with and is in fact rewarded in a perverse manner. The better performers are given more work and less support whilst the converse is true of the poorer performer.
In such a scenario it will never be possible to gain the best from the most important asset. Unfortunately this is the situation in many organisations today. Ask yourself if your organisation lives with any, some or all of the scenarios described above. If the answer is yes, then the organisation is wasting valuable assets and is operating with less than acceptable performance/productivity returns. It is losing opportunity and is less competitive than those organisations that have addressed these issues.
Developing a HRM strategy for an organisation does require time, money and effort. A consistently implemented HRM strategy leads to the development of a strong culture. It is estimated through research that organisations that achieve a strong and consistent culture gain a productivity return of one/two hour's productivity per employee per day compared to organisations who do not invest in this area.
Is there a case for a HRM strategy beyond the legal imperative? Without a doubt good HRM will deliver up to 25% productivity increase. Any investment made will be quickly repaid. In addition the benefits accrued in de-risking the business will provide a greater level of security and long term viability for the business. All in all it does help the business owner/employer sleep better at night.