HR Economics .ppsx

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H R Management is a technique by which the
purpose and objectives of a particular human
group are determined, defined, clarified and
completed.
H R Economics is the study of economic
contribution of H R to organisational activities.

H R ECONOMICS
• All human activities in the world have an economic
reason/ result.
(except those between parents and children)
– Especially, the activities in a business organisation
– Even those in non-profit/ charity organisations – they
have to have money to keep operating.
• HR cannot function in an island.
• Thus the HR activities have to dovetail
to the organisation’s objectives, and the
organisation’s economic goals.
• That is why we look at ‘HR Economics’.

Evolution of HR Management
1. HR management started when man started
living in groups.
– In the above illustration, men are killing the deer and
woman is waiting to cook.
– Job description, division of labour, performance
management and appraisal, etc. are quite apparent.

1. HRM started when man started living in
groups.
2. Continued during
1. Agricultural revolution

groups.
2. Continued during
2. Community living

groups.
2. Continued during
2. Community living
3. Invention of pottery, tools, etc.

groups.
2. Continued during
2. Community living
4. Bulk production

1. HRM started when man started living in groups.
2. Continued during
2. Community living
4. Bulk production
5. Setting up of industry & Migration of labour

groups.
2. Continued during
2. Community living
4. Bulk production
5. Setting up of industry & Migration of labour
6. Industry and I T revolutions

And to ECONOMICS OF HUMAN RESOURCE

Employee
Recruitment
Success
Reward

HR ACTIVITES
An analysis of HR activities in an organisation can
be divided into three categories.
They are:
Efficiency
Effectiveness
Impact

Efficiency
ACTIVITIES & PROCESSES
 Organisation designing & workforce planning,
 Recruitment & selection,
 Compensation & benefits,
 Industrial relations,
 Training,
 Internal mobility,
 Talent management,
 Coaching, and
 Downsizing.

Effectiveness
HRM OUTCOMES
Employee engagement,
Retention,
Absenteeism,
Competency levels,
Performance,
Employee costs, and
Talent metrics.

Impact
ORGANISATIONAL OBJECTIVE
Profit,
Market value/ share,
Turnover,
Productivity,
Quality,
Customer satisfaction,
Legitimacy, and
Prestige/ moral values.

Employee

Business Objectives
Required structure to support
business objectives
Required structure to support
business objectives
Roles & responsibilities/
Job Profile
Measure current/ available
competences
Inventory of
existing/
available
HR
Do we need to
change existing
head count?
Replacement for
attrition
Forecast
manpower needs
Recruitment &
Selection
Increase
Head count
No
Yes
Decrease Head count
-Attrition
-VRS
-Retrenchment
Training &
Development

Organisation Structure
WHAT IS
 An organisation structure is the term used to
define how employees of a company work
together to support their mission.
 An organisational structure indicates the method
that an organisation employs to delineate lines
of communication, policies, authority and
responsibilities.

Organisation Structure
PURPOSE
The purpose of an organisational structure
is to clearly define roles and
responsibilities of employees.

TYPE OF STRUCTURE
PYRAMIDAL / HIERARCHICAL
FLAT
FUNCTIONAL
OPERATIONAL / DIVISIONAL

Pyramidal Organisation
The pyramidal shape of a company’s
organisational chart reflects a hierarchy.

Hierarchical Organisation
Executives are at the top of the chart;
Middle Management follows; and
Lower-ranking employees are at the
bottom.

The Pyramidal Organisation Structure
largely dictates to whom all employees
report.
The layers are differentiated by
designations.

– for example

Advantages of a hierarchical structure
Clear lines of authority and reporting within the
business;
A clearer understanding of employee roles and
responsibilities;
Accountability for actions or decisions at
different management levels;
Clear career paths and development
prospects which can motivate employees;

Opportunities for employees to specialise
and develop expertise in their field;
Close supervision of employees through a
narrow span of managerial control; and
A culture of loyalty towards teams,
departments and organisation as a whole.
Advantages of a hierarchical structure

Disadvantages of a hierarchical structure
Complicated chains of command which can
slow down decision-making;
Delays in communicating vertically through the
levels and horizontally between teams;
Less flexibility to adapt and react to
environmental and market pressures;
Disconnect of employees from top-level
management;

A strain on the employee-manager
relationship due to lack of autonomy;
Difficulties collaborating outside of the
team or dealing with team rivalry; and
Considerable amount of corporate
overhead to support the many
management layers.
Disadvantages of a hierarchical structure

FLAT ORGANISATION
A flat organisation refers to an
organisation structure with a few or no
levels of management between
management and staff level employees.
The flat organisation supervises
employees less, while promoting their
increased involvement in the decision-
making process.

Flat Organisation – for example
Director
Employee
Manager
Manager
Employee
Employee
Employee
Employee

Advantages of a flat structure
Cost structure of a business is improved,
Improves employee morale,
Less miscommunication,
Less dominance in the workplace, and
Improves employee retention.

Disadvantages of a flat structure
Bad decisions can be made under the
guise of expertise,
It can lead to a lot of wasted time,
Can limit productivity,
Not scalable when high levels of growth
over a short period is achieved,
Lack of work-life balance,
Can encourage power struggles, and
Lack of responsibility definition.

Functional organisation
Under a functional organisational structure,
employees are classified according to their
function in an organisational chart. This
chart shows the role hierarchy (e.g.,
President, Vice President, Finance, Sales,
Customer Service, Administration, etc.).

Functional organisation

Advantages of Functional organisation
Grouped by knowledge and skills facilitating to
achieve high performance;
Roles and responsibilities are fixed, facilitating
easy accountability for the work;
The hierarchy is clear and transparent reducing
number of communication channels;
Communication is frictionless within the
department;

Advantages of Functional organisation
Work is not duplicated;
Because of job security, employees tend to be
loyal to the organization;
Employees have a clear career growth path;
and
Cooperation is excellent within the department.

Disadvantages of Functional organisation
Departments develop an insular, self-interested
mentality –
functional managers pay more attention to their own
departments and ignore others’ interests.
Weak communication is among the departments
and lack of teamwork;
Employees may have little concern or curiosity
about events outside their group;

Disadvantages of Functional organisation
As the organisation grows larger, managing
functional areas becomes challenging. Each
department may start behaving like a small
company, i.e., the “silo” effect;
Functional departments may be more
committed to departmental goals rather than
organiational goals; and
Employees do not learn any new skills, and their
roles don’t change often, causing stagnation.

Operational Organisation structure
• The Operational/ divisional structure is
organised around products, projects, or markets.
A divisional structure encompasses a set of
relatively autonomous units governed by a
Corporate Office.
• The operating divisions are relatively
independent and consist of products and
services that are different from those of the other
divisions.
• The divisional structure can be organised in one
of four ways - by geographic area, by product or
service, by customer, or by process.

Operational Organisation
– for example
C E O
President –
SBU 2
President –
SBU 3
President –
HR
President –
SBU 1
President –
Finance
Vice President
[Technical]
Vice President
[Finance]
Vice President
[Manufacturing]
Vice President
[HR]
General Manager
Production – [Unit 1]
General Manager
Production – [Unit 2]
General Manager
Quality Assurance
General Manager
Industrial Relations

Advantages of Operational organisation
Clear accountability;
Separate strategic and operational control;
Divisional managers can concentrate on
responsible area and can improve performance;
Enhances ability to respond quickly to
changes in external environment;
Enhances development of general
managerial talent;

Advantages of Operational organisation
Leads to competitive spirit within the
organisation;
Allows new business and new products to be
added easily;
makes the task of planning and control by the
corporate office more manageable;
Provides greater decentralisation of authority;
Sharply focuses on accountability for
performance.

Disadvantages of Operational organisation
It can be very expensive, due to requirement
of functional specialists, duplication of staff
services, facilities and personnel and better
qualified divisional managers;
Chance of differences in image and quality
may occur across divisions;
There is an urge to focus on short-term
performance, because divisional performance is
measured on ROI and revenue growth;

Disadvantages of Operational organisation
May become difficult to achieve
synergies across SBUs; and
Corporate office may become unaware
of key developments that could impact on
the corporation.

to be continued

HR Economics .ppsx

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