HR in an Organization Part- 1: Human Resources and Six Stigma

Summary

In most of the organizations in India, we see a question mark associated with capability of Human Resource function. People question the ability of HR to bring in a sustainable and impactful change and more often, the function is relegated to processors than being a strategic partner or a change agent. Their job is confined to fulfilling the demands raised by the business . This is my take on what are the major taunts HR has to face, why they have created such lowly image and what can they do to change their perception.

Introduction

What is function of DNA in human body? Well, we all know that DNA gives us our characteristics and features but do they have any active role in a body-from a day to day perspective? Do they help in daily energy creation for the body or fight infection or carry nutrients and energy to all part of the body? Well, as much as I know about the medical science, perhaps answer to all these questions is a ‘No’. DNA gives structure and basic characteristics and ability to emerge victorious in different situations. But do they really do a job to propel things for daily needs?  Well not directly. Cells and blood need to do that job themselves as DNA has enabled them with basic strength. Does that mean we do not need DNA or DNA’s importance is less?

Human Resource is one of the most potentially powerful among the enabling functions in an organization. However, the potential largely remains untapped as not many organization and their HR leaders lay down a strong foundation for HR in the beginning. Once the organization grows and attain a certain way of working, then the drive of HR can only bring in incremental changes in one off areas unless there is a strong management drive in a top-down fashion. Yet, we cannot blame only management and managers for current state of HR function in the country. HR function also has some shortfalls and hence is unable to establish a credible image.

Below are some of the most common allegations on HR.

Six Stigma of HR

Stigma 1: HR is there to organize birthday and other celebrations or off-sites parties. That is their major KRA.

Stigma 2: HR makes us do unnecessary work like filling and evaluating performance documents, filling joining forms, go through performance discussion or career counseling etc. These activities waste our productive time.

Stigma 3: They make unnecessary and unfriendly policies which put more constraints than process.

Stigma 4: They don’t give us the due hike during appraisal and deduct money from our salary without any reason.

Stigma 5: They only need to process the resumes and they falter there too. Recruitment delays often delay our projects.

Stigma 6: They do not act as per business requirement. What do they do after all?

HR has managed to earn enough bad names for themselves. Most of the organizations treat HR as necessary but transactional function only. The reasons could be many. Either due to lack of support from business or lack of willingness from themselves, HR doesn’t get involved in bringing in change or creates a vision for itself. The inertia makes them evade action as they are afraid of consequences. The below points are perhaps most common reasons for failure of HR and will cover almost eighty percent of the source of the problems.

Why do we have such bad name for HR

•    Inertia: We often notice inertia in HR to try something new whose result or consequences are unknown. Hence, same old practices are continued as a part of checklist without considering the impact.
• .     Inability to convince: Buyout from management for HR drive in organization often leads to weaker HR. Sometimes the management is adamant on a call but mostly it is inability of HR to put a strong argument in their favor. The weak argument is mainly a combination of point 3 and 4 below.
• .     Lack of knowledge:  Inability to contribute effectively in business meetings degenerates the impression of HR. Lack of understanding of recruitment need, business plans and gap between scale of growth of business and HR processes are some major reasons why business start doubting the capability of the function.
•    No future plans: Most of the HR’s vision shall stem out of organization’s plans in terms of business. However, there are some plans which HR needs to make for itself and act proactively. For example, adopting new systems and have an agile HR team shall be conceived during early days. Growing team manually and then looking for a system often leads to lot of double work like data migration, restructuring of team etc. All these double efforts slow down the HR function and shows lack of planning and vision from HR- for their own function. Thus credibility to support other functions diminishes further.
•    Non value-add work: HR has created a reputation a non-favorable image by repeatedly doing non-value add work. Thus people consider them more as processing agents than change agents.  
•     Lack of clear communication:  HR often tends to create a bubble around and their communication is often nebulous.  There could be several reasons for the same. First reason can be that HR does not have any say in the organization and hence by communicating they do not want to commit. Secondly, their lack of knowledge about the subject is forcing them to get into a shell so their lacuna remains unexposed. Third and most interesting one is that HR feels empowered as they have access to performance and compensation system and are part of such discussion with most impactful people in organization. Hence, parting with any information means parting of their power and hence the communication with people is kept to minimum.

6/6 corrections: Six solutions for six problems and six stigmas

1.       Lay out a plan and share: HR needs to layout an action plan and share with relevant people. They need to prioritize and start attacking the low hanging fruits to ensure people start trusting their action. HR should also be able to classify value add and non-value adding work and invest their time accordingly. It is important to choose correct and relevant HR theories and implement selected but impactful few instead of going for all possible HR theories available.
2.    Talk the language most understood:  HR people should be able to talk about numbers and that is how they can gain confidence of people in business. Manpower cost at every level, possible ways of improvements, fulfillment of open position, and potential savings due to grooming of internal talent are some hard numbers which will help in building credibility and respect for the HR. 
3.    Be a catalyst: HR are catalysts and it is the people who need to undergo the change to bring in the desired product which is new culture. Hence they need to include the managers and people while putting down the process. Improving the manager capability can reduce the burden on HR for being the catalyst for change. By bringing in some effective measures and communication, HR can trigger a chain reaction of desirable change.
4.    Show agility: HR should have a swift action technique and also shall be able to change their game plan if required. Often, HR sticks to their plan without a Plan B in place and eventually realizes the need of the alternative plan when it is probably too late to react. Within HR, recruitment function often faces such situation if put against a stiff or critical hiring target.  
5.    Create an employer brand:  HR can help in being employer of choice by adopting and propelling right recruitment and people development practice in the organization. The interaction and kind of platform given to people can attract right talent into the system. Most often, the efforts in giving right opportunities and having quality discussion with people reap short term as well as long term positive results for the organization.
6. Leave crisis mode: HR often get into firefighting mode. Examples can be many. Attrition management, people unhappy with appraisal rating and dissatisfaction with team/manager are some of the most common reasons where HR starts acting when most of the damage is already done. Proactive approach towards hitting the major cause of attrition in the group, enabling and structuring the productive and effective communication between employee and manager/ skip level manager are some of the basic steps HR can initiate.

To end..

The problems, reasons and solutions can never be generalized hundred percent. But a good portion of problems remain common, irrespective of size and nature of organization. I have also tried not to solve problem of any organization but just list a few observations. HR will never have ‘one solution fits all’ but if a substantial portion is targeted through some common learning, nothing like it!

Effective Structure of HR Function

Last evening was having a casual discussion with one of my HR friends who share another common interest with me of being a classical music fan. As discussion delved deeper into nitty-gritty of music, he mentioned a very interesting difference between western and Indian classical group music. Western orchestra has specific piece allocated to each individual/ section of instrument. Trumpet, violin, keyboard, saxophone all have their part well defined without any interference from any other instrument. Everything is finely orchestrated and we get the finest music to our ears. Indian classical music on the other hand, just defines the raga and the rhythm or taal when two or more classical musician come together. So when maestros meet, all they know the basic framework within which they need to operate. Within those defined rules and with a common objective of quality music, they work freely, competing with and complementing each other in a healthy way while producing a masterpiece. One is willingly ready to go solo or to take or surrender the lead during the entire orchestration depending on his command over the particular section of the composition and what suits the audience best.

As HR, it immediately rang a bell to me. We were looking at classical divisional structure and contemporary matrix structure through these two forms of music. HR in an organization also has a similar two choices available. They can choose to do a well-defined piece without interfering into other areas- the classical divisional structure. The other option can be to work freely with a common defined objective and simultaneously collaborating with others and creating an experimental symphony, something similar to a matrix structure. Matrix structure as we know, is arrangement where people are aligned to a vertical and horizontal teams simultaneously and have multiple reporting relationship. It is important to evaluate whether a matrix organization with more project based structure will be suitable or not for the particular organization. Just to refresh, any organization’s structure must exist to establish power and authority and define roles and responsibility for greater efficiency while achieving the desired objective.

Human resource has some critical sub functions. Some prominent functions within HR are talent acquisition, talent management, compensation and benefit, organization development, leadership and development, payroll and shared services. Sometimes functions like communication or immigration are also mapped under human resources. Though there can be ‘N’ number of functions under HR, but all actions of HR will fall under three buckets namely

•  Attract talent
•   Develop talent and
•   Retain talent

Since the prime three ask from HR are all interlinked like a train of gear, we need to have greater cohesiveness between functions as we cannot go targeting only one aspect at a time. All three need to be collectively raised as triplets without being partial towards one.

Figure 1: Interlocking of Aims of HR

As a function, HR needs to support the employee base at every point of time, from selection process to joining and till the point employee chooses to be in the organization. Hence, before we get into structure of organization, we need to understand the interventions different HR functions need to make at different juncture of employee life cycle. The below figure illustrates the same.

Figure 2: Employee Lifecycle and HR Functions in Action

Do we need matrix structure? Can we have HR functions with their role defined and confined?

This question reminds me of a famous watch company who used to teach their officers a basic watch inspection during the induction process at the time of joining. The idea behind was to inculcate a customer centric mindset. If any employee receives any complaint about the company’s watch anywhere, they should be able to offer the required help. HR too should have a similar mindset. They should be able to offer solution to an employee in need. We rarely see a case where people approach their business partner or compensation or payroll person for a specific query pertaining to that person’s area of expertize only. Employees generally approach their ‘HR’ for a solution irrespective of HR’s prime sub-function. It all depends on how much connect the HR person is able to establish with the employee. We see many cases where a hiring recruiter is able to establish personal connect with his hire and that connect never gets eclipsed till the hire stays in the system. If HR is assuming roles in two or more functions of HR, chances of having greater connect with the employees and ability to offer on the spot solution are higher.

Advantages of a team or matrix structure

As we have seen that at every stage of employee life cycle, there is intervention of two or more different HR functions. The interventions or actions of HR function(s) at every stage acts as input for other HR functions involved during next phase of employee life cycle. For instance, salary offered by hiring team initially act as a feed for talent management during performance pay out and the performance evaluation provides starting point for payroll as well as training function. Having participation from other functions of HR while setting up processes for one will ensure that between two processes gaps are plugged and there is a smooth handshake while passing on for required action during the employee lifecycle.

Some of the noted advantages of team structure in HR are as below

•   Provides a new learning opportunity to people in HR
• Retention of HR professional goes up as they keep getting newer opportunities
•  Co-ownership provides greater involvement and better coordination of task
• Improves communication within the team
• Close interaction with many people helps in breaking the shackles of silos and one’s ability to reach out improves
• Work becomes more system dependent than person dependent as a person’s back up is continuously created
•  Reduces blame game after failure of any HR process as processes are co-created by different people
• Proper handshake between two HR functions over employee life cycle.

The other side of the coin

If matrix or co working promotes so much synergy then why there is a hesitation? Human resource as a function requires some very specialized skills and deal with very confidential data. A complete matrix structure will dilute the function and will jeopardize the confidentiality of employee data. For instance, payrolling is a specialized function. Any organization would like to have zero payroll error and because of high impact associated, the provision to experiment is kept at minimal. Same way talent acquisition, compensation, talent management and payroll teams, all have the confidential compensation data at various points. Some of the data points can be of HR team itself or management team. Hence the sensitivity is very high. To avoid revealing of entire data to one individual, division of employee data among HR functions is important. A talent acquisition person doesn’t know about raises an employee gets post joining. The payroll person only knows the final salary to be processed and not the history of changes and so on. This helps in avoiding major conflicts and infringement into one’s privacy. There are many other reasons also why matrix structure can boomerang if not orchestrated with caution. Some of the notable disadvantages are

• Probability of free riding by an individual in the group is high
• Psychological stress on employees can be high as they need to manage two or more leaders with aggressive timelines and different working style
• There can be bias towards or against a particular project or individual.
• There can be pulling of resources between two teams
• Inability to prioritize between different jobs creates problem in team as well as a perception of being bias goes out.
• Clarity on KRA is less since people are involved in too many jobs.
• Power struggle between individuals as well as between teams goes up
• Performance management becomes difficult as there could be two or more evaluating managers and assigning weightage to every job may not reach consensus
• Additional cost of resources as sometimes team tend to hire extra resource since no one is able to give a dedicated time to one area only.

With due credit to all the advantages of pure matrix structure, we cannot ape it from text books in practical situations. This caused the emergence of a new structure which originates from matrix and end up in divisional structure. The structure uses 3Ps (process, policies and people) of HR to form the base with cross functional collaboration. On top of the base, individual superstructures can be built. With this approach, every individual function will be aware of the strength and weaknesses of the others. They will be aware of the load capacity of every function since they all are aware and have contributed to bricks and mortar of which the other function is made of. Similarly, it might be good to start up with matrix organization to propel HR in an organization but as the organization grows, we need champion of a process to keep it propelling within the system.

Figure 3: Possible Structure of HR

Conclusion

The debate can be endless as every organization will have different needs. Organization who have some of the HR processes outsourced, may not promote lot of cross functional working as information shall not be divulged to an outsider. An evolved organization will also minimal cross functional processes as they have most of the HR structure evolved. They would like to continue with evolved process, Hence, not too much of experimentation will happen. On the other hand, young organizations need to have more cross functional actions as they set up their HR processes. The collaborative efforts can bring greater synergy, a HR process with everyone aligned to it and less iteration in the process as group knowledge would have gone in. This is the time when HR has to do their capability building and hence experience of every professional will be vital. If an organization decides to go for a matrix structure, hiring of few specialists and a pool of generalist will be more appropriate. Going for vertical structure from beginning may create water tight compartments. This may create lot of friction, communication gap and disconnect between two HR processes. In case the organization has matured in terms of people processes and policies, specialists could add more value to the entire value chain of HR. After what point of time they would like to undergo a metamorphism from matrix to divisional structure, that is a call to take. The call may be subjective but surely options need to be evaluated carefully.

Recruitment Cost: Often misrepresented in absence of holistic approach

Recruitment Cost: Often misrepresented in absence of holistic thought

Summary

Recruitment cost is important for all organization. Some costs are direct, some are indirect.

All organizations need to ensure that they build up a cost effective process over a period of time. This can be done by building a scalable and cost effective process. The targeted processes for improvement shall be from the quadrant making the maximum impact on cost of talent acquisition. Any company can strategize depending on repeatability and scalability of process to optimize the hiring cost.

-X-

Early in the morning while handing over my cup of tea today, my wife asked me for twenty thousand rupees to get some household things; essential for smooth running of the kitchen and household. Obviously my first answer was a “no” as I found that amount to be obnoxiously high. Not anticipating a possible rebut, I was taken off guard when was asked that “do you really have an idea that how much goes into running the household?” That was followed by a list of regular daily, weekly and monthly expenses and some miscellaneous heads which we will incur this month. This monologue-ish discussion was like a haunting reminder of my last evening’s discussion with my head of HR when I presented him my figures on cost of hiring. My financial acumen was challenged twice in less than half a day span.

I tried to make a proactive approach to join the band wagon of all recruitment heads who talk about latest fad, ‘cost per hire’. My over enthusiasm and tall claims of maintaining cost per hire in mid- four digits fell flat when he mentioned that within three quarters, the recruitment expenditure has crossed the allocated budget for the entire year. Cost per hire as per my data and his were almost in ratio of 1:2. The impression gone to him must be that either I was completely wrong with my data or I am trying to misrepresent the fact. Either way, my professional image and next year’s recruitment budget planning were all set for a hit. Hence it was time for a deep dive into the issue and look at some of the grave mistakes I made.

Support functions are the cost centers and hence most of the organizations track the expenses marked against these heads closely. The manhattan of recruitment cost is invariably taller than all other functions in Human Resources, even if it is conservatively marked. However, we still miss out on certain expense heads while calculating or budgeting the hiring cost thus leading to a war of emails between recruitment team and finance department. Sometimes, miscellaneous small factors collectively are so impactful that our entire planning can collapse if these factors are ignored. It is important to look at things in total and not to overlook even small contributors. Later, based on impact they can be considered or ignored. Let us look at all the possible costs incurred during hiring.

The recruitment cost can be divided into two major types- direct and indirect costs. Direct cost is cost incurred to directly produce the offers. Referral bonus, payments to consultants or recruitment advertisements can be termed as direct costs. They can be further classified as fixed and variable- fixed being one-time cost for the year like payments to job portals while variable costs are costs incurred per hire.  

Indirect costs are the cost which enables a person to join the organization rather than directly contributing towards hiring process. Costs like relocation, administrative cost, infrastructure cost salary of hiring team and travel cost of interview panel and candidates are typical indirect expenditures. Indirect costs are often missed out while calculating cost per hire and hence people see considerable difference in their estimates and actual figure provided by the finance department.

Break up of Recruitment Expenditure

Figure: Classification of Recruitment Cost

Direct Cost

Payments to Job Portals: Job portals are key source of resume especially where volume hiring at lower level is involved. Typically organizations pay an annual subscription fees for the same. Since the cost for the year remains fixed irrespective of benefits reaped from the portal’s database, the cost is considered as fixed cost for the year. If we can manage to get more people from portals, cost per hire can be reduced considerably.   

Recruitment Advertisements/ Job Fairs: This is very similar to job portal cost. Most of such expenditures are planned as a company fixes the number of advertisement they will go for or job fairs they will participate in. These calls are taken mostly in the beginning of the recruitment period thus it can safely be considered as a direct fixed cost.

Payments to Placement Vendors: Most of the mid to senior level hiring is done from the profiles received from the placement vendors who specialize in getting in touch with active job seekers and providing the relevant profiles to the employer. Complex skillsets are also hired through placement consultant. In turn, they take certain fees per hire they provide to the company. Overall cost is directly proportional to the number of hires a company takes from the vendor.

Employee Referral: It is similar to payment to vendors but here payment is to employees who help in bringing right candidate to the interview process. The payment here is also on per hire basis. This cost is more beneficial in long run as it gives a sense of ownership and helps in creating a stronger cohesive bond among the employees.

Welcome Kit and Other Joining Goodies: At the time of joining, many companies incur certain costs on welcome kit, induction training and other goodies offered at the time of joining. In order to be employee friendly and show the new employee that he is welcomed in the organization, these days a lot of companies are spending significantly to showcase them as better employer compared to their competitors.

Indirect Costs

Candidate/ Interview Panel Travel: Candidates or recruitment panel often travel for the closure of position. The cost of travel includes lot of associated price tags like stay in a hotel, food, local transfers etc. Generally for senior level hiring, associated costs tend to go up.

Settling allowance/ joining bonus: To attract people in competitive market and yet maintain an internal parity with existing employees, employers do offer a settling allowance or joining bonus over and above the offered salary with a certain locking period. This cost also helps in retention of new employee.

Relocation Assistance: When a person joins the organization from other city; most of the organizations arrange for initial accommodation, relocation of goods and family, finding accommodation and other related expenses. These expenses are pretty high per candidate and hence any organization would like to keep it to minimum or confined to critical or senior profiles only.

Administrative Cost: Administrative cost can be fixed or variable. However, often it is variable as it is impacted by number of people joining the organization. This is miscellaneous expense head where costs can be related to documentation, background verification, joining formalities etc. However, some portion can be part of indirect fixed cost as it is minimum cost which an organization had to bear.

Venue/ Infrastructure Cost: Many a times an organization needs to hire a venue or interviewing facility for recruitment mainly owing to lack of infra-structure. The volume of candidates to be handled, seniority of candidate or location of candidate may lead to hiring of infrastructure as one of case. Thus, this cost may be unavoidable at times but due to being sporadic in nature, cannot be correlated to overall recruitment expense. 

Salary Cost: Most important, yet most ignored. Recruitment team’s salary shall do justice to the volume and complexity of hiring done by the organization. The number of people in talent acquisition team and kind of talent hired shall deliver value to the organization. Apart from salary, other overheads like cost of occupying a seat, medical and statutory benefits offered also cannot be ignored completely. Hence talent acquisition managers shall be adept to optimize the productivity within the given budget.

How companies manage their cost

Any company would like to have minimal financial dent on their pocket while getting their resource on-boarded. Money saved can always be showcased as returns of amount invested, be it shareholders for large firms or venture capitalists for young start-ups.

Lot of organizations, especially global IT software firms, has dedicated sourcing team to ensure that recruitment pipeline never runs dry. As nature of profile is defined and often repetitive, internal sourcing teams do a wonderful job as they mature over a period of time. There can be times when direct costs like referral bonus and placement consultants’ fees may not be curbed entirely and an organization shall be prepared for the same. Some companies also have innovative referral schemes or a slab based agreement with placement vendors to reduce the amount paid per hire.

Depending on the infra-structure and size of company, some of the administrative and indirect costs may not be applicable. For instance, many companies have built their own interviewing facilities and guest houses. These steps are taken keeping some long term plan in mind. Though it may appear a very minuscule amount but for bigger companies, it can be significant. In India, a fortnight’s accommodation to newly joined person may cost anything between twenty to forty thousand rupees to the company. Hence, if a company is hiring two hundred people from other locations, the impact can be in excess of sixty lacs per annum. Hence, many companies have decided to create their own lodging space. Depending on economies of scale, organizations often land up in a deal with travel agents, hotels, cab services and other hospitality sector vendors.

Some self-help portals also help in curbing administrative cost. These portals can be used to generate employee id, upload recruitment documents and other similar jobs which require least guidance or human intervention. This helps many organizations to partially eliminate the administrative cost. 

The salaries of recruitment professionals have significant impact on overall cost of recruitment. Hence lot of organizations where processes are not matured and more manual, believe in higher number of contractual professionals. Matured organizations where processes are automated, go for lesser number of people in their team but look for skilled professionals to manage the process. These calls also depend on type and number of profiles a company is looking for and the work environment of the geography. Where lesser skilled people are hired and manual work is more, a contractual but large recruitment team may work better.

Recruitment Cost can never be planned completely

After understanding different types of cost and the possibilities of different strategies that any organization can adopt, it is also imperative for organizations to understand that cost for talent acquisition can never be estimated in the beginning of year with cent per cent accuracy. Reasons can be many but some of them can be

•  Recruitment targets may vary owing to changes in business objectives. Talent acquisition cannot stop their work due to budgetary constraint if business has legitimate demand for resources.
• Charges for external services can vary. Recruitment depends heavily on external services of placement consultants and job portals.
• Changes in government norms like minimum wages, ESIC or PF in turn affect other associated cost directly as well as indirectly. Some payments to external vendors may be  directly in proportion to such changes.
• Talent acquisition may have to adopt new strategies as counter-move to competitor’s new moves.
• Employer branding exercise cannot be predicted as it will also depend on company’s financials and business plans made available to the public. If company has great financials and future plans to boast, employer branding exercise can be limited to minimum.
• A company may prefer hiring talent from same city to reduce the cost of hiring but cannot restrict opportunity for out-station candidates.

Conclusion

To conclude, an organization may select all or only certain costs to track depending on severity assigned to the recruitment cost. Yet, a consistent and holistic approach only will help people in bringing realistic perspective in hiring. Sometimes in order to cut costs, organizations try to be over stringent. The idea shall not be to curtail all costs but to have justified costs and have cognizance of the expenditures made. Once people start realizing the expenses made, the ways to optimize cost will also come through.

However, recruitment cost can be controlled but to an extent. The stance any organization takes depends on the organization’s vision for next few years. However, it is always good to plan for eighty percent of the budget as some unforeseen factors will always dent the budget.