Human Resources Risk Management — Case study

    1. Success of an organistation depends on its people – they make or mar an organisation. ‘Human resources’ is a term used to refer to how people are managed by organisations. The field has moved from a traditionally administrative function to a strategic one that recognises the link between talented and engaged people and organisational success. The field draws upon concepts developed in Industrial/Organisational Psychology and System Theory. Human resources have, at least two related interpretations depending on context. The original usage was in economics, where it was traditionally called labour, one of four factors of production viz., land, labour, capital and enterprise. This perspective is changing because of ongoing research into more strategic approaches to HR. Today ‘human resources development’, goes beyond just organisations and national economies, and encompasses global developments. However, the traditional meaning of HR — Human resources management within corporations and businesses refers to the individuals — department — within an organisation that deals with recruiting, training, retaining and removing — in short, managing people.

Human Resources and Risks :

    HRD has a role in risk management — for example :

•      People per se are a source of risk, e.g., shortage of employees, people doing sloppy work, people frequently committing mistakes, individuals refusing to take on additional responsibility or people leaving within a short time after completion of a one-year training programme and above all, key persons leaving the organisation.

•      People are important for handling risk, e.g., using their ingenuity and being proactive in solving unexpected problems and unforeseen situations, employees going the extra mile for the good of the organisation, a key employee redesigning his/her own job to improve performance, or an employee persuading a talented friend to apply for a position in the organisation.

•      HRD contributes to the synergy of the organisation, where the sum of the whole is greater than the sum of the parts.

    2. The risks are :

•      attrition at a rate more than industry average.

•      lack of commitment to the job exhibited by sloppy work.

•      people committing or repeating the same mistake.

•      people shunning responsibility.

•      people not completing assignment within the prescribed time frame.

•      trainees leaving within a short period of completing their training.

    HR covers people working at all levels. In short, HRD’s activities would cover from ‘president to peon’.

    3.1 The function of the HRD is to ensure congenial working environment in an organisation and thereby extracting the best out of everyone for the benefit of the organisation. This is achieved by :

•      clear job description.

•      adequate training.

•      selecting right people — by checking background, education and experience of the candidate.

•      reasonable clarity about growth prospects within an organisation.

•      motivating individuals to do more than expected to ensure individual growth.

•      motivating — encouraging people to innovate in performing their assignments.

•     avoiding shocks by having a clear succession plan for key functions — that is — developing leaders.

•      dialogue with key personal at regular intervals to understand issues and the dialogue should be both at the individual and group levels.

•      timely ‘performance appraisal’ and ensuring timely encouragement to avoid dissatisfaction and attrition.

•      quick reprimand and punishment for failures.

•      establishing clear lines of communication with labour leaders.

    3.2 The organisation needs to periodically evaluate and review its :

•      HR strategy, policy design and processes

•      Employee compensation, equity plans

•      Retirement and benefit plans

•      Executive and labour contracts

•      Employment and labour law compliance

•      Executive and management structure

•     Cultural compatibility/change readiness assessment

•      Communications audit

•      Development of transition plan — key tasks/activities

    Regular monitoring of these issues will ensure that HR risks are kept within manageable levels.

4. Extended scope of Human Resources :

    Human resources include more than regular full-time employees. They include: all management and labour personnel, family and non-family members, full-time and part-time people, and or seasonal and year-around employees. In fact with the advent of concept of outsourcing, external contractors, and consultants and contract employees are also a part of the review of HRD.

5. Managing Human Resource Risk :

    Risk specialists have traditionally focussed mostly on important causes of risk, such as weather, disease and natural calamities, and ways to deal with these risks. Risk management has paid little attention to human resources and human calamities, such as divorce, chronic illness, accidental death or the impact of interpersonal relations on businesses and families. Including human resources in risk management reflects the fact that people are fundamental to accomplishing organisational goals. Human resources affect operations such as : production, financial and marketing decisions. People can help in or obstruct accomplishing what managers have planned. Smaller family businesses do not escape the impact of people. In these businesses as in larger businesses, people are a source of risk and are important to the business’ ultimate success or failure. Overdependence on family members to manage HR can at times negatively affect family business effectiveness and efficiency because of over-powering character of a family member.

6. Implementation of Risk Management :

Effective HR activities are necessary to keep human resources in harmony with the risk management tools adopted by the management team. Risk management decisions are carried out by people. Having the ‘right’ people in place, trained, motivated and rewarded are essential to success in risk management.

7. This month’s case study is on Human Resources Risk Management :

Corporate Consultants Private Limited are a leading consultancy company in the field of media and entertainment. The company is one of the top ten firms in the industry and has some of the leading companies in the region as its clients. The company also has some of the best names in media, advertisement and entertainment on its advisory board, among its consultants and full-time staff.

Of late, retaining key personnel especially at senior management level has become an issue. The Chairman of the company is concerned at the growing instances of employees leaving at short notice and few instances of complaints of insubordination and also of victimisation.

Hence, the company seems to be facing some HR problems which could have serious consequences on client relationship, retention and on the operations of the company.

The Chairman has approached you as an HR consultant to diagnose the malaise and devise a strategy.

8.1 The plan devised is to :

 have a detailed discussion with the :

•  Chairman himself to understand from him his perception of the organisation and the reasons for the problem.

•  the existing key personnel on one-to-one basis.

•  some of the middle-level executives.

•  some of the members of the staff including helpers in the organisation.

•  meet the key people in the clients organisation who were being serviced by individuals who have left the organisation during the last six months.

•  compile and study compensation plan in the industry and the organisation.

•  if possible meet some of the executives who have left the organisation during the last six months.

The plan was discussed with the chairman who approved of the same and assisted in identifying the clients and executives — who had left the organisations for inputs.

The HR consulted in the absence of detailed employee records first studied the data available on the existing executives and those who had left the organisation during the last six months. He especially concentrated on identifying the status of their family relationships and problems.

8.2 The HR consultant and his team after two months of going through records and holding several meetings identified the following :

•  Mr. A — the so-called right-hand man of the Chairman — had created a coterie of about four midlevel executives and was abrasive and authoritative with his peers thus alienating his colleagues and others in the office — resulting in those juniors working with him ignored even the other seniors in the office, resulting in insubordinate behaviour.

•  lack of availability of family data of senior and midlevel executives.

•  lack of system of annual appraisal and discussion with the concerned executive.

•  lack of a plan identifying growth prospects following the good old saying ‘either you are moving up or moving out’.

9. The HR consultant recommended :

•  immediate removal of Mr. A and at least two of his colleagues out of four, who were supposed to be very close to him.

•  introduction, maintance and annual updating of employee family data.

•  introducing a system of annual appraisal of the entire staff by the department head and discussion with the appraisee.

•  introducing a system of annual appraisal of the senior and mid-level executives by the managing director along with the HR consultant followed by a discussion with the appraisee.

• ?a ballot appraisal of the managing director by senior and midlevel executives.

•  holding of an annual office get-together including everyone from the ‘president to the peon’.

• holding bi-annual gathering of senior and mid level executives with spouses.

•  holding of quarterly meeting with the senior and midlevel executives to review company operations and plans including financial targets.

•  having a succession policy as it is a family controlled operation.

•  identifying a successor for every key assignment in every department to avoid shocks on sudden attrition.

•  development of job specification.

•  developing a recruitment policy after considering business growth plans.

10. The first recommendation was immediately accepted and acted upon — which acted as shock therapy. This gave visible results by improving discipline in the office and client service.

The managing director personally called on some of the key clients and deputed senior executives to others. This improved client relationship thus avoided loss of clients. This was the damage control strategy suggested by the HR consultant.

11. The HR consultant got the assignment to look into other recommendations and identify a midlevel executive from the organisation to assist him and take over the function of HR executive probably in addition to his executive assignment — thus opening an opportunity for a deserving individual for improving his prospects.