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Chapter -3
HUMAN RESOURCE MANAGEMENT IN INFORMATION
TECHNOLOGY (IT) INDUSTRY
3.1. The Emergence of Knowledge Economy
The knowledge economy encompasses all jobs, companies, and industries in
which the knowledge and capabilities of people, rather than the capabilities of
machines or technologies, determines competitive advantage. Of the 19.5
million jobs that are projected to be created in the United States from 1998 to
2008, 19.1 million of them will be in the service sector (Hecker, 2001)1. From
retail sales to computers to biotechnology, these jobs will be more knowledge-
intensive in their demands on workers and organizations. Although the service
sector is an obvious place to find more knowledge intensive work, the
manufacturing sector is also becoming more dependent on knowledge and
human capabilities as microprocessors and computers pervade almost every
facet of work.
The knowledge economy came into existence as a result of the
commercialization of information and communication technologies what is
collectively known as information technology (Burton-Jones, 1999)2. The rapid
development of computers and microprocessors has made it possible to
collect and use vast amounts of information from a variety of sources in a
more integrative and interactive manner than ever before. Networking and
connectivity coupled with the Internet, have made it possible for information to
be acquired and shared globally, so that proximity -no longer determines the
ability of people to work together collaboratively. Combined these forces have
dramatically altered business and everyday life.
In this information -Intensive economy, competitive advantage is based
primarily on the application of knowledge, and not all of the data, intelligence,
and wisdom, with which a global company needs to compete can be found in
one place (Doz, Santos, & Williamson, 2001)3. Increasingly, knowledge is
dispersed around the world. Furthermore, the cost of overcoming distance is
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falling rapidly for commodities that are mobile, such as capital, goods, arid
information. Consequently these commodities' are readily accessible to firms
that previously faced limitations because of their geographic location.
Knowledge, rather than the concrete characteristics of goods or services or
the mechanics of production processes, is becoming the defining
characteristic of economic activities. The impact of knowledge is pervasive in
both the "old economy" as well as the "new economy." Human know-how is a
crucial component in virtually everything we produce, and it determines how
we produce valued goods and services. As Don Tapscott (1996)4 asserts,
more, added value is created by 'brain than brawn.
Many agricultural and industrial jobs are becoming knowledge work. Already,
almost 60% of all American workers are knowledge workers and eight of ten
new jobs are in information- intensive sectors of the economy. The factory of
today is as different from the industrial factory of the old economy as the old
factory from the craft production that preceded it. Farms are operated with
agricultural equipment brimming from chips. Cargo is shipped in containers
loaded by giant computer-controlled cranes or in jumbo jets loaded with
software.
The knowledge economy is about adding ideas to products and turning new
ideas into new products.
There are smart clothes with chips in the collar; smart vehicles brimming with
microprocessors that do a hundred new things every year; smart maps that
tell a trucker's location and automatically change tyre pressure according to
the weather and road conditions, smart radios that store the traffic report for
you when you want it; smart houses that manage energy, protect you from
intrusion, and run a bath for you before you arrive; smart elevators that phone
in when they're getting sick; and smart greeting cards that sing to you.
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Products like those described by Tapscott have six key attributes that
distinguish them from products that were available in the past. These
attributes are the following (Botkin, 1999)5.
1. They learn. The more you use them, the smarter they get. The more
you use them, the smarter you get, too. For example, some word
processing programs create customized dictionaries and automatically
correct spelling errors.
2. They improve with use. They are enhanced, rather than depleted,
when used. They grow up instead of being used up; Internet banking
for example, can be customized over time to reflect a patron's
transaction patterns.
3. They anticipate. They know what you want; they recommend what you
might want next. Grocery scanners use the customer's current basket
of goods to automatically generate coupons on the back of receipts to
stimulate future sales.
4. They are interactive. There is two-way communication between you
and them. Hardcorps Sports sells a ski jacket woven with a genetically
engineered "phase change material" developed by Outlast Inc., which
turns warmer when the skier is cold and automatically cools down if the
slopes are sunny.
5. They remember. They record and recall your past actions to develop a
profile. Nearly every Internet sales operation has sophisticated
customer profile systems to encourage related purchases.
6. They are customized. They are uniquely configured to your individual
specifications in real-time-at no additional cost. Injection devices for
diabetics can adjust insulin dosages to respond to current blood sugar
levels and activity levels
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The knowledge economy has even spawned a new type of global, knowledge
based organization, labeled a "metanational" by Doz, Santos, and Williamson
(2001). In contrast to global organizations that view the world as a single,
fairly homogeneous market, or multinationals that see each country as a
district segment, these metanationaI organizations view the world as a global
canvas dotted with pockets of technology, market intelligence and capabilities.
Thus, metanationals are able to capitalize on the synergies of global
commonalities while adapting to specialized opportunities generated by local
capabilities. Metanationals see untapped potential in these pockets of
specialist knowledge that are scattered around the world. And, by sensing and
mobilizing this dispersed knowledge metanationals are able to innovate more
effectively than their rivals. Rather than promoting a universal set of products
that are globally competitive, metanationals weave together a tapestry of
many local specialized capabilities to create local customization with global
reach.
The complexity of this type of organization requires extensive knowledge
management at all levels to achieve what Bartlett and Ghoshal (1993)6 refer
to as "distributed entrepreneurship." Bartlett and Ghoshal argue that this
explains why Asea Brown Boveri (ABB), an electro technical firm with
worldwide operations, has turned the conventional design of its HR activities
inside out to achieve radical decentralization. In ABB, frontline managers are
responsible for creating and pursuing opportunities, whereas midlevel
managers review and develop supporting initiatives and top management
establishes a strategic mission and supporting standards. Consequently, the
corporate HR staff consists of single managers since employees are recruited
and developed at the level of the frontline business operations, and the
managers of entrepreneurial business units have wide discretion in the size,
scope, and allocation of HR activities.
To sum up, knowledge is becoming the primary component of virtually all
products, services, and work activities. The effective production,
accumulation, and handling of knowledge are becoming key sources of
competitive advantage distinguishing businesses industries and nations.
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Characteristics of Knowledge Economy
Numerous researchers, consultants, and authors have attempted to capture
the key factors that distinguish the .knowledge economy. However, since
there is no universal agreement on specific characteristics that distinguish
knowledge-based competition from other economic forms this is a challenging
task. Furthermore, there is no universal agreement on terminology. New
concepts have necessitated new jargons and some of it is more descriptive
and widely accepted than others. Table 3.1 summarizes eleven
characteristics of the knowledge economy that have been proposed by some
of the leading thinkers on this topic.
Table 3.1 Eleven Characteristics of the Knowledge Economy
Knowledge Economy,
Characteristic
Definition
Symbolic goods/
Digitization
Electronic symbols representing information about that physical' goods that'
we need to know to conduct the transactions (for example, details of a
banking transaction): human communication, delivery of government
programs execution health care, business transactions all become based
on ones and zeros.
Demassification Reduced dependency on the need for physical concentration massing (co
location) of labor, materials, and money.
Boundary less enterprise
/ Globalization
Knowledge transcends firm, industry, and national boundaries;
organizations have time and space-independence; work can be performed
from a variety of locations.
Viriualization Physical things can become virtual, such as corporations, teams, auction
sites, and so on.
Connectedness/
Unpredented partnering/
Integration internet
working
Interconnection within and between organizations and institutions; inter
connections between businesses and customers; no one organization can
have all the knowledge needed, so partnering is essential.
Disintermediation Elimination of the intermediaries in economic activity-anything that stands
between producers and consumers.
Convergence Bringing together different economic sectors to create new products and
services (for example, telecommunications).
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Knowledge Economy,
Characteristic
Definition
Personalization / Mass
customization /
Prosumption
Fitting products and services to the unique needs of individual customers.
Consumers become involved in the actual production process of their
knowledge, information, and ideas become part of the product specification
process.
Dynamic pricing Pricing decisions change based on time and place as products and services
are constantly updated and shifted.
Immediacy Business is transacted in real time; enterprises continuously and
immediately adjust to changing business conditions; product life cycles
become shorter.
Customer communities Customers talk with other customer on a local and global scale (for
example, Amazon.com).
Sources: Tapscott (l996); Burton – Jones (l999) Bird & Henderson (2001)
First, the knowledge economy uses technology to create symbolic goods
(Burton-Jones, 1999). Electronic symbols represent information that we need
to know about physical goods to conduct business, such as a banking
transaction. These electronic symbols-ones and zeros-digitize human
communication the delivery of government programs, the execution of health
care and business transactions (Tapscott, 1996). Furthermore, electronic
symbols can be transmitted and received instantaneously and worldwide.
Thus, a firm's knowledge resources must include the ability to create and
manage these symbols.
Second, the knowledge economy places comparatively little reliance on the
need for physical concentration or massing of labor, materials, and money.
Previously, it was necessary to co-locate these resources in order to produce
goods and services. Now, the same efficiencies can be realized through what
one author calls "demassification" (Burton-Jones, 1999). Labor, materials, and
money can be combined from locations dispersed across the globe.
Programmers in India and California, for example, can simultaneously work
on developing the same software program.
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This means a firm must be able to manage a workplace that is dispersed and
does not provide the same kind of embedded structure associated with
physical proximity and plant layout common in the industrial economy.
Third, the knowledge economy has no defined boundaries (Burton-Jones,
1999; Tapscott, 1996). Knowledge transcends firm, industry, and even
national borders. Needed knowledge resides in no single place. Organizations
have both time and space independence, so work can be performed from a
variety of locations. The proliferation of Palm Pilots TM, laptops, and other
connectivity technologies everywhere, from the airport to the restaurant to the
automobile, attests to the portability of work. This means that firms must be
able to manage workflows that take place 24/7/365.
Fourth, technology makes it possible to transform physical entities into virtual
ones. A virtual corporation is one without walls and without permanent
employees. It relies on contractual relationships with suppliers and
distributors, and it has a contingent workforce (Cortada & Woods, 1999)7.
Teams can be assembled from all over the world and can work together
without having to be in the same location at the same time. Virtualization
offers benefits of increased flexibility and breadth of resources but also in-
troduces complicated challenges in terms of coordination and maintaining
consistent purposes.
Fifth, computers and the Internet make it possible for organizations and
institutions to become increasingly interconnected. Information can be shared
and ad hoc partnerships can be created and dissolved to meet situational
needs. This unprecedented partnering is necessitated by the fact that no
single organization can have all of the knowledge it needs to compete
successfully (Botkin, 1999). Consequently, firms must develop new skills for
knowledge management activities that capitalize on their expanded reach.
Businesses are more interconnected with their customers in ways not
possible in the past. Relationship marketing and individually targeted
advertising create a uniquely "personal" impersonal relationship. It is now
unusual, for example, to make a catalog purchase without being asked for
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your email address, so that the Company can keep a customer posted on
upcoming specials and new products. This suggests that the talent pool for an
organization is likely to include customers and employees of the firms
providing raw materials and the firm's own human resources.
Sixth, the middleman is (mostly) eliminated in business transactions between
an organization and its customers as well as between an organization and its
employees. Tapscott calls this factor disinintermediation. It is: the elimination
of anything that stands between producers and consumers. The erosion of
travel agencies, full service gas stations financial service intermediaries, and
similar transaction roles illustrates this trend. This phenomenon is also oc-
curring in HR as more organizations, such as Dell Computer Corporation,
adopt electronic HR delivery systems. These delivery systems allow
employees and managers to get what they need when they need it (and
without using an HR middleman). Activities that merely transmit information or
transfer objects from one location to another are particularly vulnerable.
Disintermediation underscores the need to add considerable value in order to
maintain viability in the emerging knowledge economy and to ensure that this
contribution is well recognized
Seventh, the knowledge economy brings together different economic sectors
that in the past functioned as separate entities. Boundaries between
industries, organizations, units, and technologies are becoming blurred. For
example, the telecommunications industry is a combination of the old
telephone industry with television, computers, and content providers. This
convergence has yielded such products as "smart telephones," which can be
used for talking, reading email, surfing the Internet, and so on. These fluid
boundaries place a premium on the ability to continuously learn, unlearn, and
relearn at all organizational levels. The knowledge economy is also
introducing new areas of competition among economic sectors. Rivalry is not
limited to product functionality but can focus, as well, on the basic nature of
the solution being offered. Consider, for example, the contest currently taking
place between personal computer and microprocessor allies (such as IBM
and Compaq), who intend to maintain power on the desktop, and interface
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firms (such as Oracle and Sun Microsystems), who intend to move computing
power to the network. Redefined solutions mean that firms will need to be
able to quickly and efficiently develop new capabilities.
Eighth, the knowledge economy increasingly operated to provide tailored
products and services that meet the unique needs of individual customers.
Termed "personalization," "mass consumption," or "prosumption," they all
refer to consumers taking an active role in the production process as their
knowledge, information, and ideas become part of the product specification
process (Baird & Henderson, 2001; Botkin, 1999; Tapscott, 1996). As a case
in point, Dell Computer Corporation has pioneered mass customization in the
personal computer manufacturing industry. Along with this, the lines between
products and services are becoming quite fuzzy as firms increasingly bundle
services with their tangible products (that is, information hotlines for
everything from cookbooks to clothing to appliances to computers) and
service businesses make efforts to provide some form of tangible deliverable
with their services (that is, hardbound financial portfolio displays or frequent
user cards for many types of retail outlets). Consequently, organizations need
to be able to continuously augment their creative capabilities and capacity for
innovation.
Ninth, in the knowledge economy, pricing becomes more dynamic (Baird &
Henderson, 2001)8. That is, pricing decisions change based on time and
place, since products and services are constantly updated and shifted. Prices,
like products, can be tailored to individual customers. In addition, technology
advances make it easy, quick, and inexpensive to comparison shop in virtual
space. Moreover, the firms whose products and services are being compared
have much less control over the process than ever before. As a result, firms
will need to develop new ways to influence consumer behavior that rely on
loose ties and building relationships rather than on conventional advertising
and special pricing policies.
Tenth, in the knowledge economy business is often transacted in real time,
that is, there are no, delays between steps in the process. Successful
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companies continuously adjust to changing business conditions and they can
do so immediately. Aircraft manufacturers that have implemented enterprise
resource planning systems for example, automatically initiate the production
of components in their supplier's factory when an order is placed for a plane.
Furthermore, product life cycles have become much shorted. Firms such as
Intel routinely invest in the manufacturing capabilities that enable them to
scale up production the same time they are working on the technology
breakthroughs that will create the next generation microprocessor. Oftentimes
it feels like -businesses are running the fast-forward button on a videotape
player. The speed of action in the knowledge economy means that firms must
be agile, resourceful, and adept at interpreting events and making sense of
the environment on the fly.
Finally, the knowledge economy has created customer communities.
Customers can talk with other customers on local and, global bases. They can
talk and share information, and do so in real time. Reactions from other
consumers are readily available to evaluate products and services as diverse
as videos and movies, national parks, restaurants, and automobiles. Thus
knowledge sharing takes place both among organizations and among
customers. This means that firms must learn how to influence individuals and
ideas in their environment with greater adeptness and subtlety than ever
before.
All in all, the knowledge economy has a multitude of characteristics that
present new challenges for businesses. Gone are the days of "slack" (periods
of time between processes within a firm, or periods' of time between steps in
transactions outside of the firm). Slack was often achieved by maintaining
large inventories of raw materials and finished products, to accommodate
unpredictable fluctuations in demand. Furthermore, Henry Ford's mass
production technology, which could produce lots of cars efficiently (as long as
they were all the same kind) has given way to mass customization
technologies that are so sophisticated that they can provide individually
tailored products and services with the same or better efficiency as
standardized product on processes. Globalization is more than a meaningless
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buzz word; markets for products, services, and labor are truly international.
People can work at home, organizations can exist in virtual reality, and
industries can be converged in ways never before dreamed possible. Finally,
the pace of change has become fast, very fast.
Competing in the Knowledge Economy
Winners in the knowledge economy will have to outdistance their competitors
on three different levels (Doz, Santos, & Williamson, 2001):
1. Competing on the sensing plane
2. Competing on the mobilizing plane
3. Competing on the operating plane
At the highest level, organizations will have to constantly search out
knowledge that could lead to the development of new products and services.
They must do this by identifying sources of relevant technologies,
competencies, and understanding about leading-edge customers. Of course,
other organizations will be doing the same thing, so a real premium will be
placed on finding that knowledge that others don't discover or on being able to
interpret the vast array of available data more accurately, more insightfully,
and more quickly than others. Organizations need the ability that hockey star
Wayne Gretzky had: not skating to where the hockey puck is but skating to
where it will be. This level of competition Is called “competing on the sensing
plane” and is much like prospecting. It requires such competencies as
reconnaissance and discovery. Competing on the sensing plane enables
organizations to create the future.
Once useable knowledge is discovered, it must be mobilized to create a
product or service. Doz, Santos, and Williamson (2001) suggest that firms
create “magnets” which are organizational structures that attract knowledge
from different parts of the corporation (and sometimes with the help of
customers) to central locations, where it can be integrated and applied. To
achieve this, firms must have core competencies (integrated knowledge sets
within an organization that distinguish it from its competitors and deliver value
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to customers) to provide an effective basis for selection and assimilation
(Bohlander, snell and Sherman 2001)9.
Pioneering new products and services requires innovation. Creative
capabilities are needed to quickly develop the products, process and services
that customer want at the competitive price; to find new solutions to old
problems and to adopt familiar solutions to changing circumstances. This level
of competition is called “competing on the mobilizing plane” and requires,
among others, entrepreneurship and mobilization competencies
Finally, in the knowledge economy as in the old economy knowledge must be
operationalized to create and distribute the products or services. This more
traditional level of competition is evermore fierce as organizations look for
efficiencies throughout their entire value chains. Linkages among suppliers,
distributors, customers and other institutions are crucial for eliminating non-
value adding steps. This level of competition is called “Competing on the
operating plane” and requires, among other factors, efficiency and flexibility
competencies.
Together the competencies necessary to compete effectively in the
knowledge economy constitute what Dave Ulrich (1997)10 calls “organizational
capabilities”. Organizational capabilities are the DNA, of competitiveness.
Just as an individual blessed with good DNA (for example intelligence and
athleticism) has a potential advantage in life, that advantage must be realized
through development, application, and opportunity. The same is true for
organizational capabilities
Having the capabilities is a necessary but not sufficient, condition for success.
Organizations must also be able to develop those capabilities apply them, and
match them to opportunities.
To sum up, competition in the knowledge economy requires succeeding on
three levels sensing, mobilizing, and operationalizing. Different competencies
are needed for different levels of competition. The combination of
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competencies needed for succeeding across all three levels is collectively
known as organizational capabilities. Human resource management plays a
significant role in creating and developing the organizational capabilities
needed for competing in the knowledge economy.
3.2 HRM in the knowledge economy
The nature and characteristics of work in the knowledge economy herald new
opportunities for HRM. To maximise benefit from knowledge assets, a fourfold
contribution from HRM is proposed. In the knowledge economy, HRM must:
Provide expertise in understanding and defining firm-level strategic
knowledge capabilities;
Develop and manage knowledge workers by leveraging the knowing -
learning -doing nexus;
Build knowledge value as an organizational as well as an individual
asset; and
Minimize the organization’s knowledge risk (Andrews 2003)11
associated with loss of requisite capability and knowledge.
Strategic knowledge capabilities
The most significant contribution that HRM can make is strategic. We have
seen that knowledge capabilities underpin strategy in the knowledge
economy, and HRM practitioners are well placed to understand and define the
organization’s strategic knowledge capabilities. Strategic knowledge
capabilities comprise the 'core competence' (Ulrich and Smallwood 2003)12 of
the organization (i.e. what it is good at now) and emerging capabilities to
sustain future performance. As such they comprise knowledge and skill areas
that contribute value to the organization, offer real or potential competitive
advantage, and are hard to replace.
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Understanding strategic knowledge capabilities is at the hub of HRM in the
knowledge era. For example, the aim of recruitment and selection in the
knowledge economy is to source high caliber talent possessing a range of
skills and capabilities related to the strategic knowledge areas. A key
challenge is selecting employees who are capable of contributing to the
organization in a variety of ways now and in the future, rather than simply
filling the current vacancy. This requires long-term planning with senior
management and the flexibility to hire when the talent is available. The focus
is a flexible and agile workforce. Partnering with external organizations for
specialist knowledge when required will become more commonplace.
The knowing-learning-doing nexus
Given that the competitive advantage of an organization resides in the abilities
of its employees, knowledge workers and the capacity they contribute are
fundamental to success. Peter Drucker introduced the terms 'knowledge work'
and 'knowledge worker' in the early 1960's (Drucker 1993)13. However, what
would have then been described as a rare type of work is now increasing in
prevalence and economic significance (Andrews 2000; Andrews and
Delahaye 2000). According to the Australian Bureau of Statistics, knowledge
workers now represent 38% of all employed persons in the Australian labour
force, and the fastest-growing occupations are in knowledge work (ABS
website 2003).
Knowledge workers identify and solve challenging and complex problems,
relying on imagination and creativity and high levels of education and skills.
Importantly, they move beyond applying existing codified knowledge to
working with inferences from the body of knowledge (Lockett and Legge
1993)14. Knowledge work is characterized by ambiguity, complexity, and long
feedback cycles. Thus, knowledge workers are employed for their ability to
think for themselves and their work involves a high degree of autonomy.
Collaboration is also a key element of knowledge work and involves building
and maintaining relationships both inside and outside the organization.
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The characteristics of knowledge work throw the spotlight on HRM and its
management of the knowledge workforce. The autonomy of knowledge
workers, their interdependencies with others, and the long feedback cycles
typical of their work pose clear challenges for traditional approaches to
performance management. Traditional performance management focuses on
narrowly-defined tasks or job roles and observable outputs rather than long
term and diffuse contributions. In today's economy, performance management
must be re-conceptualized with knowledge work in mind. The process by
which people obtain results becomes much less significant and the focus
shifts to managing outcomes, many of which are long-term and difficult to
attribute to individuals. For HRM professionals, the key switch is from one of
performance management to performance support or performance facilitation.
In addition, HRM must tap into the intrinsic motivations of knowledge workers.
Knowledge workers are self-motivated, curious and passionate about
learning, and have a strong desire for exposure to new ideas and
perspectives from both inside and outside their primary knowledge discipline.
HRM has a key role to play in creating rich work opportunities. A specific
example relevant here is provided by Sveiby and Simons (2002)15 who noted
that after 15 years working in the same field for the same company,
professionals experience anger, frustration and burnout. The 'career plateau'
(Sveiby 2002) transcends professions and creative workers are thought to be
particularly vulnerable. Obviating or minimizing the impact of professional
burnout is a worthwhile area of focus for HRM.
It is noteworthy that whilst technical discipline based knowledge has
traditionally defined professional work, additional 'generic' capabilities
(abilities to adapt, learn, collaborate and share knowledge) are essential
attributes of knowledge work. For knowledge workers, learning and work are
intimately connected. Current approaches to training and development that
view professional development as 'on-top-of', or supplementing an employee's
work are challenged. Learning and professional development is relevant to
knowledge workers to the extent that it is intimately connected with the
context of their ongoing work. Further, knowledge workers' self-motivation to
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learn suggests that the control over the diagnosis and design of professional
development activities are best given to the knowledge workers themselves.
Learning and development that is 'just-in-time' to support the current context
of the knowledge work will be more common. HRM professionals have a key
role to play in supporting the ongoing development of knowledge workers, but
many of the current ways in which that support is provided may be revised.
Build knowledge value
The essence of managing knowledge is to build knowledge value for the
organization and leverage that value for competitive advantage. The value for
the organization is not derived from simply providing access to information.
People create value from information by doing something with it (Andrews
2003b). Specifically, applying knowledge to real life opportunities is the source
of value creation leverage comes from making knowledge and expertise
available firm wide. For example, an emphasis on sharing knowledge and
expertise across the enterprise is likely to improve both efficiency and
innovation.
Thus, the important shift for HRM is to build knowledge value as an
organizational as well as an individual asset. The focus for HRM is the whole
organization as a system, rather than the sum of its parts. In addition to
supporting the management of knowledge, HRM practitioners as knowledge
brokers have a vital role in terms of knowing what the strategic knowledge
capabilities of the organization are and where the pockets of skill and
expertise lie (both inside and outside the organization). HRM is uniquely
positioned as the facilitator of knowledge and value creation.
Building knowledge value spans the breadth of HRM activities. A primary
function is the rapid deployment of skill and knowledge. For example,
currently the emphasis in training and professional development programs is
on the provision, coordination and monitoring of training opportunities for
individual employees. This emphasis must shift to developing the strategic
knowledge capabilities of the organization in such a way that they may be
rapidly developed and deployed. The challenge for HRM is to offer
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personalized development opportunities to underpin the organization’s needs
for responsiveness and agility.
Facilitating knowledge transfer between individuals, groups, and from outside
to inside the organization (and vice versa) becomes critical to building
organizational capability. Ideally, HRM has established relationships across
the organization based on understanding of business needs. This pivotal role
will assist HR to anticipate and plan for emerging knowledge needs.
Knowledge Risk
In addition to leveraging organizational knowledge, a new focus for HRM is to
minimize knowledge risk. Knowledge risk refers to the real or potential loss of
knowledge either through under-utilization or loss of valuable hard to replace
knowledge when people leave the firm (Andrews 2003a). A typical example of
knowledge risk is associated with the aging workforce. A recent investigation
(APS Commission 2003)16 by the Australian Public Service (APS)
Management Advisory Committee (MAC) (APS Commission 2003) found that
the APS has an ageing profile with an increasing proportion of mature-aged
workers, particularly at senior management levels, and declining youth
employment. Approximately 30% of APS employees are aged between 45
and 54, compared with 19% a decade ago, and this age group is clustered at
higher classification levels. The report also indicates a likely departure of a
significant proportion of its current workforce, estimated at 23%, by 2008.
Management of this risk begins with an assessment and the development of
strategies to mitigate the impact of potential knowledge risk. Traditional
approaches to workforce planning in many organizations tend to address
current and short-term resource needs for organizational units individually, by
developing employees' skills and knowledge through training and
development, or acquiring skills and knowledge with recruitment. The current
approach emphasizes 'head count'. From a knowledge management
perspective, HRM must focus on 'head contents' instead. In the knowledge
economy forecasting future knowledge requirements for the whole
organization in the medium and long-term is of primary importance. In
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particular, the focus becomes one of identifying where the 'knowledge risk' is.
Workforce planning involves mitigating this risk. This requires an intimate
knowledge of the strategic knowledge capabilities and how they are
supported.
Transforming HRM in the knowledge economy
The idea that people and the knowledge they possess is the organization’s
most valuable asset is not new. The shift in the terminology from over 20
years ago from 'Personnel Management' to 'Human Resources Management'
signaled what some claimed was a metamorphosis for the profession. This
altered the conceptualization and practice of HR from a series of ad hoc
functions, and evolved it into its role of corporate strategist (Kramar, McGraw
and Schuler 1997)17. The transition was a significant one for the profession of
HRM, because it was different from personnel management: it promised
strategic contribution through integrated activities that confirmed employees
as assets to be nurtured and developed. Today, the central role of individual
and organizational capabilities is significantly amplified with the advent of the
knowledge economy. Commanding a central role in realizing value from
knowledge assets is proposed as the new strategic role for HRM.
What is the nature of the transition proposed for HRM? How does this
translate to the functional areas of HRM? Table 3.2 presents a summary of
the traditional approaches to HRM and the shift required in the knowledge
economy. The areas represent the elements of HRM that offer the greatest
opportunity to acquire, build and retain organizational capability.
Knowledge management presents HRM with the opportunity to become
pivotal to the strategic management of the organization and a catalyst for
knowledge creation and building value. This involves more than just
relabelling Human Resources - it is a fundamental paradigmatic shift for HRM
and senior management. The transformation begins with viewing HRM
through a 'knowledge lens' and repositioning the functions in relation to
strategic knowledge capabilities. Managing knowledge workers, building value
from knowledge, and assessing knowledge risk are also new requirements of
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HRM in the knowledge economy. It is proposed that HRM must respond to the
key challenges presented by the knowledge economy and command a central
position in realizing value from knowledge assets as a strategic role for HRM.
Table 3.2. HRM in the Knowledge Economy
HRM Focus
Traditional HRM HRM in the Knowledge Economy
Strategy Develops HR strategy to align with
business strategy
HRM contributes to business strategy
development as the expert on strategic
knowledge capabilities
Knowledge acquisition, creation, and
utilisation is definitional to business
strategy
Recruitment
and Selection
Seek and select resources
Describe job requirements and fill
vacancies
Select from pool of applicants
available at the time the vacancy
is identified
Identify, attract and sustain talent
Seek out high caliber talent
Focus is on a flexible, agile
workforce
Partner with external providers of
knowledge
Identify alternative forms of
Remuneration
Training and
Development
Develop individual skills and
competencies
Plan and coordinate training
programs
Provide and monitor professional
development Programs
Focus is on individual skill -
acquisition
Develop individual and organizational
capability
Recognize the nexus between
learning, knowing and doing
Focus is on personalized capability
development embedded in work
Build 'time - to - capability' by
accelerating learning
Identify and share excellent
practices
Facilitate knowledge networks
Build organizational capability by
facilitating knowledge transfer
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HRM Focus
Traditional HRM HRM in the Knowledge Economy
Workforce
Planning
A focus on 'head count – address
current land short-term resource
needs by organizational unit
Identify current and short-term
resource needs
Develop skills to meet needs via
training and development
A focus on 'head contents' - manage
knowledge value and risk for the
whole organization
Forecast knowledge required in
strategic knowledge domains for the
medium and long term
Rapidly develop and deploy
knowledge sets of employees
(individuals and teams)
Performance
Management
Monitor and modify individual
performance
Reduce or eliminate undesirable
behaviours and set desired
behaviours to enhance individual
performance
Reinforce organizational culture
Monitor adequate compliance with
policies and procedures
Knowledge worker productivity
Manage outcomes characterized by
long feedback cycles (rather than
managing inputs and processes)
Retain skilled knowledge workers and
key knowledge in strategic knowledge
domains
Tap into knowledge worker intrinsic
motivations
Enhance team/business unit
performance
Source : Whicker, L. M., Andrews, K. m. (2004) "HRM in the knowledge
economy : Realizing the potential", Asia Pacific journal of human resource,
Vol 42(2) pp8.
3.3 Role of Human Resource Management in the Knowledge
Economy.
Don Tapscott (1996: 260) argues that "the human resources function in
general, and human resource professionals is particular, should be uniquely
positioned to provide leadership for the transformation of the enterprise."
However, rather than being an agent of change and adaptation, the HR
function is too often slow to respond. As Tapscott notes, "Although some
human resource professionals are rising to the challenge, too many are not.
The basic problem is that in the first era, human resource professionals were
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mere suppliers of human resource functions, such as staffing needs and
compensation planning. This may have made a lot of sense during a period of
stability and steady growth. But as we move into the digital economy, the
human resource profession needs to reinvent itself and forge partnerships
with others in the organization for the transformation of the corporation.
How should HRM adapt to the knowledge economy? The three questions
that are useful for addressing this issue.
What is HRM work?
Who does HRM work?
How will technology change the HRM function?
What Is Human Resource Management Work?
In the knowledge economy, HRM work will not be confined to its conventional
functions of staffing, training and development, performance management,
and so on. Human resource management work in the knowledge economy
includes both activities that overlap with other traditional business functions
(for instance, finance, marketing, strategy) and some that are nontraditional
(for instance, knowledge management). For this reason, HRM is no longer
simply focused on "managing people" in the conventional meaning of the
phrase. Human resource management is now responsible for managing the
capabilities that people create and the relationships that people must develop.
Who Does Human Resource Management Work?
HR profession still do much of the traditional HR work, although some of that
work has been outsourced. (staffing, benefits, and so on) or digitized (for
example, electronic HR.). Furthermore, a substantial portion of conventional
HRM work is now being done by line managers and professionals from other
fields, such as information technology, or in other parts of the organization,
such as the entrepreneurial units of ABB mentioned previously. In the
knowledge economy, as HRM work expands, responsibility for HR will truly be
jointly shared among HR managers, employees, and external vendors.
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How Will Technology Change the Human Resource Management
Function?
By increasing administrative efficiency, technology allows HR to have fewer
staff making more value-added contributions to their organizations. The rapid
evolution of electronic-HR delivery systems is pushing more information in
more usable formats to employees and managers who can use it directly for
the benefit of their organizations. In terms of conventional transactions, HR is
being disintermediated. However, technology promises to impact HR in ways
far beyond simply automating clerical activities.
Twenty-one HR systems professionals have identified the following
technology trends affecting HR that are in various stages of becoming
realities.
1. Fast and cheap access to accurate real time HR information.
Access and the ability to analyze, assess, interpret, manipulate,
leverage, and share the information effectively will be key to giving
organizations a strategic edge. Successful data mining will be made
possible by the use of data warehouses with their ability to consolidate
internal and external information with powerful analytical tools.
2. Ubiquitous access to information to improve employee
effectiveness and efficiency. This means working from anywhere and
at anytime. The size, format, and footprint of technology deliverables
will move from departmental desktop devices operating under the full
control of the user organization to a mixture of hand-held, pocket-sized,
integrated devices and wireless linkages that provide needed access
on a real time basis to centralized processing and data storage
capabilities. Instant access to all needed knowledge and to essential
meaningful data will be a keystone for the successful enterprise.
3. A variety of analytics and decision trees. These expert systems will
"walk" managers through every step of a decision about people issues.
The information the manager receives at each step in the decision
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process will vary depending on his or her answers to previous
questions and will provide the manager with estimates of the risks
associated with each alternative. In familiar and somewhat predictable
environments, analytical systems will provide "predictor" algorithms that
help anticipate and forecast possible problems, such as turnover,
recruitment, pay, and employee relations down to the individual
employee level. For more chaotic settings, what-if scenarios will
provide virtual reality simulations that will enable managers to tryout
ideas and test different courses of action to make better people
decisions.
4. Smart self-service. This is self service expanding to communicate
through smart phones and handheld personal data assistants (PDAs).
Much of the new Web self-service will reduce the need for call centers
and most employee self-service will be entirely Web-based. In addition,
natural language speech recognition enables intuitive application to be
implemented, and while speech recognition is in the early stages of
acceptance, it will be a factor in twenty-first century self service. For
both employee and Manager, self service will have to be more intuitive
than ever. This will include push and pull technology, content that is
filtered and relevant for the person in the role(s) they are performing
and event driven, as well.
5. Customized content. Human resource management systems in the
twenty-first century will enable employees to perform optimally by
providing knowledgeable content that has been filtered based on the
employee's role(s) in the organization. The vendors of the future will
provide not only the transactional systems necessary for this
infrastructure but they will also become the "aggregators" of content for
their customers and provide a wide range of hosting as the demand for
better, faster, and cheaper, technology support prevails.
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Human Resource Management Roles
Much current thinking in HRM suggests that its practices must be integrated
around common themes. It is proposed that HRM roles can provide a logical
basis for constructing common themes that support an organization stability to
adapt to the demands of the knowledge economy. Moreover, many authors
propose that HRM roles should encompass more than HRM practices.
Indeed, whatever it takes, even stepping outside of traditional HRM activities:
That is what the HRM function should be doing to contribute to organizational
effectiveness. Roles provide more flexibility than functions. Roles reduce rigid
functional boundaries and facilitate adaptation and adjustment.
New Roles and New Challenges for Human Resource Management
To effectively compete in the knowledge economy, organizations will need
HRM that is role-based (that is, not tied to specific functional responsibilities,
as in the past) and contributes directly to the creation of organizational
capabilities. Four roles are identified that make it possible to create those
needed capabilities human capital steward, knowledge facilitator, relationship
builder, and rapid deployment specialist (see Table 3.3).
Table 3.3 New Roles and New Challenges for Human Resource
Management in the Knowledge Economy
New Roles for HRM New Challenges for HRM
Human Capital Steward Intellectual capital is not owned by the employer but is
bought and sold in human capital markets.
Workers are volunteers or free agents.
Market controls replace (most) employment contracts.
HRM must ensure that the organization's human capital is
available capable, effective, and grows in value.
HRM must broker HR services, such as talent acquisition,
learning, and so forth.
HRM must leverage human capital (that is, focus on doing
the right things and gaining maximum output for a given
input).
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New Roles for HRM New Challenges for HRM
There is a greater dependence on key knowledge workers
and ensuring they are attracted and retained.
There will be higher entry-level requirements for
employment.
Careers replace jobs
Knowledge Facilitator There is an increased emphasis on learning and encouraging
people to learn continuously.
There is a necessity to manage knowledge (acquisition,
dissemination, and so forth).
The organization must tap into all employees' knowledge as
sources of innovation.
HRM must facilitate the sharing of knowledge acquired by
employees.
HRM must determine how to reward knowledge acquisition
and sharing.
Information must be made available and accessible to
employees.
Firms must act on the new knowledge and insights, and
abandon obsolete behaviors.
Relationship Builder There is an increased emphasis on cross-functional
teamwork.
Technology will make information more accessible and will
join people together in different ways.
HRM must build networks and shared people communities
around the strategic objectives of the business to ensure
competitiveness.
The HRM function will focus externally and internally and look
more like operations management, dealing with vendors and
managing the supply chain.
Rapid Deployment Specialist The new goal for HRM will be to manage markets, some of
which will be rapidly changing markets. HRM will anticipate
what rapidly changing product markets and business
strategies will require by way of human capabilities and find
ways to deliver it.
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New Roles for HRM New Challenges for HRM
Work assignments are fluid, involving responsibility for results
rather than tasks.
The future resides in the capacity to design a versatile,
evolving, flexible HRM architecture that supports on
increasing pace of change. The organizational infrastructure
needs to be reconfigurable, that is, elements of information,
business processes, and organizational design must be
capable of being combined in different ways to meet
situational needs.
Common purpose and core values supplant fight managerial
control systems and job descriptions.
Widespread shoring of organizational information is
necessary.
Source : Braton J., Gold J. (2001) HRM : Theorey and Practice, London :
Routledge, pp.34-35
Human Capital Steward
A recent Business Week article proclaims "The turn of the millennium is a turn
from hamburgers to software. Software is an idea hamburger is a cow. There
will still be hamburger makers in the twenty-first century, of course, but the
power, prestige, and money will flow to companies with indispensable
intellectual property".
In the Creative Economy, the most important intellectual property isn't
software or music or movies. It's the stuff inside employee’s heads. When
assets were physical things like coal mines, shareholders truly owned them.
But when the vital assets are people, there can be no true ownership (by
anyone other than the individual employee). The best that corporations can do
is to create an environment that makes the best people want to stay.
Human capital is the knowledge, skills, abilities, and experience unique to all
individual employees. The collective human capital of all of an organization's
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employees forms a unique resource that distinguishes it from other
organizations and provides the basis for other firms of competitive advantage.
The new role of human capital steward requires accumulating, concentrating,
conserving, complementing, and recovering the collective knowledge, skills,
and abilities within an organization. To keep up in the knowledge economy,
organizations will need to develop a deep reservoir of talent among
employees' and free agents. Human resource management professionals
must develop competencies and commitment among employees. The role of
HR will focus on keeping the best minds and thinkers engaged.
Human capital stewardship prescribes a relationship between the organization
and its employees in which the organization leads without dominating and
facilitates followers without controlling them. Stewardship allows for a
relationship between organizations and employees in which each makes
significant, self-responsible contributions to organizational success (Daft,
1999).
Some of the challenges facing the human resource management function as
stewards of human capital include the following.
Intellectual capital is not owned by the employer but is bought and sold in
human capital markets. How do you find and obtain that intellectual capital?
Do you rent or purchase that intellectual capital?
Workers are volunteers or free agents. How do you attract, motivate and
retain volunteers? How do you facilitate volunteer’s identification with the
organization? Nonprofit and volunteer organizations deal with these issues on
a daily basis. How can HRM adapt practices from these organizations for
knowledge workers in private corporations?
Market contracts replace (most) employment contracts. Employment contracts
are more long-term; market contracts are more short-term and project-based.
How do you obtain the needed level of commitment from workers who have
market rather than employment contracts?
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Human resource management must ensure that the organization's human
capital is available, capable, and effective, and that it grows in value. How do
you manage employee flows (into, within, and out of the organization) to
ensure the maximum continuous capability? Some of the best college football
teams produce consistently winning teams over time by balancing the mix of
experienced and novice players to win both now and in the future.
Furthermore, like organizations in the knowledge economy, these football
teams constantly worry about key players being attracted to professional
status before completing their college careers.
Human resource management must broker HR services, such as talent
acquisition, learning, and so forth. How do you find the HR services that are
available and that could help your organization? How do you choose among
providers? How do you integrate disparate service providers into a cohesive
whole?
Human resource management must leverage human capital (that is, focus on
doing the right things and gaining maximum output for a given input). How do
you combine human capital for maximum output? How do you combine
human and other capital for maximum output?
There is a greater dependence on key knowledge workers and ensuring they
are attracted and retained. How do you create a work environment that adapts
to meet the needs of key workers? How do you sense and respond to the
needs of key workers?
There will be higher entry-level requirements for employment. How do you
challenge and motivate knowledge workers? How do you create opportunities
for personal growth among knowledge workers?
Careers replace jobs. How do you balance the need for corporate as well as
professional identification and commitment? How do you create an
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environment that best utilizes temporary talent as long as you have it? How
do you match the needs of the corporation and the needs of temporary talent?
Policies regarding proprietary information become more challenging to design.
What policies should govern non-compete agreements? How is proprietary
information defined and distinguished from tacit knowledge that must be
shared in a boundary less organization?
Knowledge Facilitator
It is not enough to simply hire talented employees and put them to work. For
an organization to gain a competitive advantage in the knowledge economy, it
must be able to create and disseminate knowledge among its employees and
often among its customers, suppliers, and the firms that make complementary
products, as well. This knowledge sharing can range from the mundane
simple fix of a computer problem shared by an employee via email to the
reengineering of a process disseminated throughout all units in the
organization via a training program to ensuring that products made by other
organizations make full use of a firm's product functionality. As Intel
discovered not only was it essential for its own employees to share
technology advances among themselves, it was equally important for firms
making the software and hardware that uses their microprocessors to
incorporate new concepts into their products. Cutting age technology allows
employee in the lower levels of organizations to seize opportunities and get
breakthrough ideas to the market first. Language barriers are eroding.
Employees and freelancers anywhere in the world will soon be able to
converse in numerous languages online without the need for translators.
A new role for HRM is to facilitate organizational learning and knowledge
sharing between employees, among departments, throughout the
organization, and with external co-producers. Some of the challenges facing
HRM in this role include the following.
There is an increased emphasis on learning and encouraging people to learn
continuously. How do you find people who want to learn? How do you
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encourage employees to learn continuously? How do you facilitate continuous
learning? How do you retain work life balance with continuous learning?
There is a need to manage knowledge and data actively and directly
(acquisition, dissemination, and so forth). How can knowledge be acquired
and made available to those who need it when they need it? How should
knowledge be managed? What types of information systems best meet
organizational needs?
The organization must tap into all employees’ knowledge as sources of
innovations. How do you identify sources of employee knowledge? How do
you elicit that knowledge from employees?
Human resource management must facilitate the sharing of knowledge
acquired by employees. What types of mediators facilitate the sharing of
knowledge? How much knowledge sharing should be computer mediated and
how much should be face-to-face?
Human resource management must determine how to reward knowledge
acquisition and sharing. Rewarding knowledge acquisition may be the easier
challenge of the two. How do you get employees to share knowledge that,
once shared, will no longer provide them with a personal competitive
advantage and will make them expendable?
Information must be made available and accessible to employees. How much
information should be made available to employees? How do you make
information available to employees? What information formats facilitate
effective communication? How do you both make information widely acces-
sible and still retain proprietary confidentiality?
New knowledge must lead to new behaviors. Knowledge is of little use unless
a firm is able to-adjust its actions, decisions, and relationships to capitalize on
the insight. What organizational capabilities are crucial for a firm to use
knowledge more adeptly, quickly, and creativity? What processes enable
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rapid learning, unlearning, and relearning? How can employees maintain a
consistent focus for their efforts while constantly incorporating new ideas?
Relationship Builder
Along with facilitating the sharing of knowledge within an organization,
another important new HRM role is that of relationship builder. In an
increasingly fast-paced and turbulent environment, more emphasis will be
placed on the relationships created and sustained among employees within
and across organizations. Rather than building assets on their balance
sheets, companies will develop partnerships, oftentimes creating intense
collaborators out of a company's fiercest rivals.
In the new role of relationship builder, the HRM function will create programs
and practices that enable employees to encourage, facilitate, nourish, and
sustain relationships among fellow employees, customers, suppliers, firms in
complementary arenas, and at times, even rivals. The power of relationships
is in creating synergy within the organization and across the marketplace.
Agile combinations of employees who have developed, relationship networks
can create more value for the organization than the mere sum of their
individual contributions.
One of the lessons, from the work on complex adaptive systems is that
relationships hold the key to organizational resourcefulness and resilience.
The ways in which people interact substantially determine the extent to which
the full benefits of their capabilities are realized by a firm. Some of the
challenges facing HRM in this role include the following
There is an increased emphasis on cross-functional teamwork. How do you
organize optimal team structures? How do you create a whole that is greater
than the sum of its parts? How do you achieve balance between individual
(functional) loyalties and team identification? How do you create and dissolve
project teams and sustain high performance? There is no single, correct
answer. W. L. Gore and Associates rely on what they term a "lattice structure"
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that emphasizes integration, whereas Technical and Computer Graphics
(TCG) relies on a cellular form that emphasizes flexible autonomy.
Technology will make information more accessible and join people together in
different ways. What technologies can link people together? How do you train
people to maximize the effectiveness of these technologies? How do you
minimize communication failures? What dimensions of social capital are
required to translate technology advances into competitive advantage?
Human resource management may be able to capitalize on the structural links
created by enterprise resource planning (ERP) systems, for example, to
enrich other forms of social capital.
Human resource management must build networks and shared people
communities around the strategic objectives of the business to ensure
competitiveness. How do you persuasively communicate the organization's
strategic objectives? How do you build commitment to those objectives when
much of your workforce has only a partial relationship with the organization?
Kaplan and Norton suggest that HRM can use individual balanced scorecards
to effectively communicate strategic themes and to gain commitment across
diverse constituencies.
The HRM function will focus externally and internally and look more like
operations management, dealing with vendors and managing the supply
chain. How do you gain the trust of other members of the supply chain? What
information do you share among members of the supply chain? How do you
maximize effectiveness and efficiency in the supply chain?
Rapid Deployment Specialist
The rapid pace and constantly changing environment that many organizations
and industries confront creates another new challenge and new role for HRM:
the rapid deployment specialist.
Competitive advantage gained by bringing new products to the market before
competitors will be short-lived. Technology, and a variety of different ways to
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create value, will allow competitors to meet or exceed such advantages
almost instantaneously. Rather than creating and sustaining a long-term
competitive advantage that is defended over time, many organizations in the
knowledge economy will instead opt for short-term, in – and - out, guerrilla-like
tactics, which allow them to take advantage of fleeting opportunities in the
marketplace. Once the advantage has been achieved, these organizations will
move on to the next opportunity. Many whole companies will be intentionally
ephemeral, formed to create new technologies or products only to be
absorbed by sponsor companies when their missions are accomplished.
Other firms will design their strategies around maneuverability to reflect their
turbulent and unpredictable market places.
Consequently, the HRM function will be required to rapidly assemble,
concentrate, and deploy specific configurations of human capital to achieve
mission - specific strategic goals. Organizations will use various combinations
of HRM approaches (such as training, exporting work offshore, and looking for
ways to "de-skill" certain jobs) while enriching others to accomplish these
objectives.
Fortunately, improved information technologies are available, or are being
developed, to facilitate this. However, the challenge for HRM in the knowledge
economy is substantial and significantly different from HRM in the twentieth
century. Some of the challenges facing HR in this role include the following.
The new goal for HRM will be to manage the contributions individuals make to
specific external markets, some of which will be rapidly changing markets.
Increasingly, HRM will need to emphasize and understand events taking
place beyond the borders of the firm. Human resource management will
anticipate what rapidly changing product markets and business strategies will
require by way of human capabilities and find ways to deliver it. How can you
anticipate what human capabilities may be needed to enact business
strategies? How can you prepare human capabilities when markets change
rapidly? What mix of core and contingent workers provides maximum
flexibility and maximum effectiveness?
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Work assignments are fluid, involving responsibility for results rather than
tasks. How do you define what people will do in their work assignments? How
do you coordinate across work assignments that are fluid? How do you
manage careers when work assignments are fluid? How do you design
effective performance measurement systems when the objectives are
evolving?
The future resides in the capacity to design a versatile, evolving, flexible HRM
architecture that not only supports but also sets the agenda for an increasing
pace of change. The organizational infrastructure needs to be reconfigurable,
that is, elements of information, business processes, and organizational
design must be capable of being combined in different ways to meet
situational needs. What types of information are needed for rapid
deployment? How do you utilize employees as intact teams that are
redeployed, as project workers working on several projects simultaneously,
and as components in a self-organizing system?
Common purpose and core values supplant tight managerial control systems
and job descriptions. How do you ensure that needed work gets done? How
do you coordinate across jobs and between organizational functions? How do
you achieve order without chaos?
Widespread sharing of organizational information is necessary. How do you
share information widely? Who gets access to what information? How do you
prevent disclosure of proprietary information?
One thing is certain: The HRM profession is at the epicenter of profound
transformation. It has never been so visible or so venerable. Much like the
proverbial dog that chases cars we may ask, who do we do once we have
caught the car? Human Resource Management can either fail to take
advantage of the opportunity and become less important, while other groups
assimilate these new roles, or it can carve out a new territory by assuming
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these new roads, ones that can lead to both greater prominence and greater
impact.
3.4 Historical Overview of Developments in the Indian BPO Sector
The changes in the Indian economy over the last 15 years or so have been
responsible for the growth of the information technology sector and, after that,
the BPO industry. From its independence in 1947 to 1991, India adopted a
"mixed economy" approach (emphasizing both private and public enterprise)
which effectively reduced entrepreneurship and global competitiveness both
necessary for national growth. Despite the formalities of much centralized
planning for decades, the Indian economy failed to reach its potential and, in
fact, hit bottom in 1991. India experienced a double digit rate of inflation,
decelerated industrial production, a very high ratio of borrowing to the GNP,
and a dismally low level of foreign exchange reserves. Foreign reserves
became so low that they were barely able to meet the cost of three weeks
imports. The Indian government pledged gold to the Bank of England to meet
the country's foreign exchange requirements. The World Bank and the IMF
agreed to bailout India on the condition that it changed from a regulated
regime to a "free market economy." To meet these challenges, the
government announced a series of economic policies beginning with the
devaluation of the rupee, followed by new industrial, fiscal, and trade policies.
A number of reforms were made in the public sector, and controls over the
banking sector and foreign investments were liberalized. Since these reforms,
the economy has become dynamic and vibrant, and foreign investments have
accelerated significantly. The World Bank forecasts that by 2020 India could
become the world's fourth largest economy (Budhwar, 2001)18 .
The liberal reforms implemented by the government set the stage for India to
emerge as a superpower in the BPO industry in the early twenty-first century.
The growth of the BPO sector was made possible by the already established
information technology sector and the availability of a large number of
technically literate English-speaking people in India. An analysis of the
available information from secondary sources indicates that BPO is now the
fastest growing industry in India, and India is considered the "electronic
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housekeeper" of the world. BPO services are typically provided by Information
Technology enabled Services (ITeS). According to NASSCOM (National
Association of Software and Service Companies), there are more than 450
Indian ITeS-BPO companies (Bhatnagar, 2005)19.
The main activities or areas covered by the BPOs include customer care,
such as remote maintenance, help desk, and sales support; finance and
administration, examples of which are data analysis, medical transcription,
insurance claims, and inventory management; and HR and payment services
including payroll, credit-card services, check processing, and employee
leasing. In addition, the BPO industry has expanded into engineering and
design, animation, market research, network consultancy and management,
remote education, and content development (i.e., digital content, LAN
networks, and application maintenance). BPO activities wherever knowledge
processing is required are all on the increase. Examples of KPO include
intellectual property research, legal and medical research, R&D, analytical
services like equity research, information security services such as risk
assessment and management, bioinformatics (for example, genome
sequencing, protein modeling, and toxicology studies), and procurement and
global trade (Christopher, 2005)20
Broadly speaking the Indian BPO industry can be divided into six categories.
1. Captive Units set up by global companies that outsource their back-
office operations from India.
2. Indian Third-Party Vendors that execute transactions and processes for
international clients.
3. Joint Ventures between international BPO companies and Indian
partners.
4. Indian IT Software Companies that have added BPO to their service
portfolio.
5. Global BPO Players who set up call centers in India (for example,
Convergys).
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6. Global Consultancies (such as Accenture) who have been advising
their clients on outsourcing and are now leveraging this experience into
providing actual BPO service (Economist Intelligence Unit, 2002)21.
The most prevalent form of BPOs operating in India is that of either Captive
Units or the Third-Party Vendors.
Main Factors in the Explosive Growth of the Indian BPO Industry
The Indian BPO industry's initial focus was on creating a strong and reliable
platform, using technology as a selling point, thus building on the success of
the Indian software industry of the late 1990s. Then it moved to the level of
infrastructure development where technology is increasingly used as a
differentiator and for bettering the quality of service delivery. This evolution in
offering quality of service has been possible for two main reasons.
First, India has what is known as "people attractiveness." India produces over
two million English-speaking graduates every year who are ready to work for
salaries that are as much as 80 percent lower than those paid to their
Western counterparts. This availability of technical and computer-literate
human resources who can offer lower response time with efficient and
effective service makes India a magnet for multinational corporations (MNCs).
Second, India presently enjoys the advantage of "location attractiveness."
Enormous savings are possible for foreign firms by outsourcing their
processes to India because of the availability of a relatively inexpensive but
strong and established infrastructure that offers telecom services, improved
international bandwidth, technology parks, a well-developed software industry,
and an existing base of blue-chip companies already operating there.
In addition, many Indian BPOs have successfully adopted several global
industry standards such as SEI-CMM, ISO, TQM, Six Sigma Quality, and
COPC. Furthermore, with an emphasis on a secured environment, Indian
BPO’s are adopting standards such as ISO 17799, BS7799, COB IT, and
ITSM. The government now provides a more conducive regulatory
environment for global corporations with incentives like the ten year tax
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holiday and rebates in custom duties. Of course, the round the clock
advantage for western companies due to the huge time difference between
India and United States/United Kingdom offers them a competitive advantage
over their rivals. At present, the United States and United Kingdom together
account for nearly 80 percent of the existing IT and BPO offshoring in India.
What is really a revelation for top managers in Western MNCs is that
employees of similar talent and skills cost much less in India than in the
United States or Europe. For example, an Indian entry-level staff member
earns between $150 and $250 per month, which results in annual savings of
$30,000 for every BPO employee. According to McKinsey, if a bank shifts the
work of 1,000 people from the United States to India, about $18 million is
saved annually. Similarly, giant U.S. pharmaceutical firms can reduce the cost
of new drug development, currently estimated at between $600 million and
$900 million, by as much as $200 million if the work is outsourced to India.
Such cost savings are evidenced from the cost of a recently built new center
for Standard Chartered Bank in Chennai (Madras), which was $33 million-a
fraction of what a similar building would cost in the western world (Chengappa
and Goyal, 2002)22.
India also enjoys various advantages over its nearest competitors, Ireland and
the Philippines, in the BPO industry. For example, in comparison to Indian
centers recruiting over 100,000 employees, only about 18,000 and 8,000-
10,000 people are recruited by Ireland and the Philippines, respectively.
Ireland and the Philippines have 150 and 70 centers, respectively.
Accordingly, the revenue earned by the Irish and Philippines centers is very
little compared to those in India which has over 450 BPO companies. The
annual salaries of graduates in the United States, Ireland, Singapore, and the
Philippines are $28,000; $19,500; $16,000; $2,900, respectively. In India, the
average annual salary is around $2,400. Interestingly, in China, salaries are
even lower at around $2,000 a year. However, China does not have the same
number of English-speaking graduates available. Moreover, in comparison to
India, which produces over 2,100,000 graduates annually, China, the
211
Philippines, Ireland, and Singapore produce 950,000; 380,000; 42,200; and
12,500 graduates, respectively. India's "people" and "location" advantages
have made it more attractive to global corporations, and it currently has a
dominant position in the BPO industry. The Indian BPO sector has been
forecasted to grow at an annual rate of fifty percent and employ as many as
one million people by 2008 (McKinsey, 1999)23.
3.5 Emerging HRM Problems in the BPO Industry in India
Despite the growing success of Indian BPO industry, analysts and media
reports have started to focus on problems and challenges facing the sector.
According to the global management consulting firm, Diamond Kluster
International's 2005 "Global IT Outsourcing Study," the number of clients
prematurely terminating an outsourcing relationship has doubled to 51
percent, while the number of clients satisfied with their offshoring providers
has decreased from 79 percent to 62 percent. The issues related to poor
infrastructure of reckless start-ups as a source of dissatisfaction in India have
also been discussed (Pande, 2005)24. Although outsourcing continues to help
Western firms save significant sums of money despite such concerns, these
problems are real and growing and have the potential to make India less
attractive for BPO. Hence, there is a critical need to address such issues
effectively. Many troubles facing the Indian BPO industry relate directly to the
management of human capital. For example, the 2005 "global offshoring
outsourcing summit" of the Indo-American Chamber of Commerce noted
several trends which will shape the future of Indian BPO industry. Some of the
challenges include annual turnover rates ranging from 20 to 80 percent and
an imbalance in the demand and supply of a skilled and talented workforce.
There is also an emerging shortage of manpower at the mid-management
level. The basic "cost-effective" model of Indian BPOs appears to be
weakening as the wages continue to rise annually by 10-20 percent, and in
some cases, revenues are declining. There is an increasing scarcity of the
appropriate skills gained through the education system, which is low on
quality and relevance. Because of shortages, hiring new talent has become
more expensive. In 1999, the average pay packet of an entry-level agent was
$160-$180; now it is $300-$350.
212
Due to high attrition rates, every employee who quits costs the company
another $900-$1,100 to recruit and train a replacement. Finding the right
candidate is now becoming a problem. At present for every 100 applicants in
Mumbai, just one or two make the cut. Four years ago, the success rate was
20 percent Apart from this, BPO employees are experiencing problems
related to stress, sexual and racial abuse, and dissatisfaction at work. The
literature on HRM practices in the Indian BPO industry is scant and offers little
guidance on how to remedy such problems by effectively managing human
resources.
3.6 Human Resource Management System in India.
The research work carried out by Budhwar et.al. (2006)25 at 51 BPO’s brought
out the problems and challenges facing the ITES – BPO sector.
Many Indian entrepreneurs, and gradually the Indian government, are
realizing the importance of the boom created by the country's BPO sector and
are taking steps to foster it. India has a new IT law that aligns it with 11 other
countries in compliance with common e-commerce rules that allow for legally
valid paperless transactions and legal transfers. The government has ended
its monopolies on long distance and Internet bandwidth. Such facilities and
resources are encouraging firms to create BPOs in India (The Economist,
2004). In the midst of such economic developments, the nature and role of the
HR function is also changing and evolving (Saini and Budhwar,2004)26.
The personnel function in India originated in the 1920s, when concern for
labor welfare in factories resulted in the Trade Union Act of 1926 that gave
formal recognition to workers' unions. The Royal Commission of 1932
recommended the appointment of labor officers, and the Factories Act of 1948
laid down the duties and qualifications of labor welfare officers. Such
developments formed the foundation of the personnel function in India (Saini
and Budhwar, 2004). However, the influence of social contacts, caste,
relationships, and politics on Indian HRM policies and practices remains
prominent (Sparrow and Budhwar, 1997)27. This creates an interesting tussle
213
between existing strong social traditions (such as the importance of social
contacts and one's affiliation to a particular group) and the pressure to move
to modern professionalism (i.e., pressure to formalize and rationalize
management systems).
HRM practices need to be consistent with a systematic and rationalized
employment system. For example, the adoption of formal testing of job
applicants, job evaluation, training needs analysis, training evaluation, and
performance-related pay are activities associated with highly structured
systems. To a great extent, such an approach is clearly observable in
outsource contact centers (OCCs) operating in developed nations. Batt and
Moynihan (2002)28 summarize OCC work under three categories, namely,
mass production, professional services, and hybrid mass customization. Such
a categorization seems to be valid for BPOs operating in India as well.
However, less research evidence exists regarding structured employment
systems in Indian organizations where rules about practices such as
recruitment, training, promotions, and lay-offs are ad hoc and are subject to
easy manipulation by employers. Furthermore, social, cultural, economic, and
political factors exert a strong influence on Indian HRM policies and practices
(Budhwar and Sparrow, 2002)29. At times, selection, promotion, and transfer
are based on ascribed status and social and political connections, so there is
a strong emphasis on collectivism-family and group attainments take
precedence over work outcomes (Budhwar and Khatri, 2001)30. Similarly,
Sharma (1984)31 reported that staffing is primarily governed by familial,
communal, and political considerations. Motivational tools are more likely to
be social, interpersonal, and even spiritual. In such conditions, the employees'
orientation emphasizes personalized relationships rather than performance
(Kanungo and Mendonca, 1994)32. These matters suggest that Indian HRM
systems are less formal and rationalized. On the other hand, multinational
companies, for many reasons (such as control and coordination), may adopt
global standardized policies and practices in their subsidiaries around the
world (Bjorkman, 2004)33. Given the sector's rapid growth and the involvement
of a large number of both national and multinational firms, and a significant
214
impact of Indian BPOs on the global economy, understanding the nature of
the HRM systems of Indian BPOs is crucial.
Work and Organization of Indian BPOs:
The BPO firms in India are spread over various sectors, such as IT and
software services, accounting and finance, consulting, telecommunications,
banking and insurance, health, pharmaceuticals, energy, and travel. A range
of both inbound and outbound activities such as customer care, remote
maintenance, data conversion, inventory management, web development,
personal loans, HR (recruitment, training, MIS, Six Sigma), health care,
network consultancy, animation, knowledge services, analytics, software and
content development, supply chain, R&D, and risk management are carried
out by these firms.
Generally, BPO operators (especially those working in call centers) work in
large offices on workstations placed in cubicles and are connected to a
telephone / computer system. They wear headphones in order to talk for long
periods, and most of the information needed during a conversation is
displayed on their computer screens. The operators must interact with the
customers in a specific format. They must follow the required instructions and
are under constant observation. All the BPOs adopt strict quality control
mechanisms such as call monitoring, testing calls for accent and language,
conversation content, and client satisfaction. Some organizations have Six-
Sigma control charts, and most have regular audits. The BPOs use both
remote call listening-in and team leaders and supervisors on the floor to check
and monitor every operator's performance.
On average, the ratio of operators to supervisors is 12 to 1. The usual work
shift is eight hours, during which each operator gets a one-hour or one-hour-
and-fifteen minute break, which includes lunch/dinner and two tea breaks.
Their log-in time is also monitored. Clear targets, long sittings, monotonous
work, and, at times, abusive clients make the operators' work very
challenging.
215
The emerging picture of Indian BPO operators is similar to their OCCs
counterparts in developed countries. They seem to be adopting a tightly
controlled structure that is cost efficient, bureaucratic, and has a customer-
oriented philosophy which results in monotonous activities carried out by
operators on "graveyard shifts" (to serve UK/U.S. clients at late hours) with
usually timed bathroom breaks. Media reports denote such BPOs as the
"new-age sweatshops," and people working in them as "cyber coolies" who
are fresh graduates, lack core competencies, and have little chance of
climbing the corporate ladder (George, 2005)34.
Most firms had more or less similar organizational structures consisting of four
to seven vertical levels of management with different designations. As shown
in Table 3.4, 90 percent of the sample firms had an HR department, and the
average HR department had 20 employees. HR Manager is the most used
designation in the sample firms (37 percent), followed by GM and HR
Director. The top HR personnel are given an average of 20 days training
annually (for more details, see Table 3.4). Most HR departments had roughly
three layers: Vice President, HR Manager, and Executives. Information
related to HRM is regularly communicated to the top director who can be
CEO, COO, or CMD of the firm. Most companies hold a regular fortnightly or
monthly meeting between the top HR manager and top directors in which
information related to recruitment, HR targets, key HR metrics, attrition,
satisfaction, surveys, and market trends is shared.
Table 3.4 Details for HR Department and HR Managers
Presence of HR department/HR manager 90%
Name of HR department HRM = 39%
Personnel = 2%
HRD = 37%
Others = 22%
Title of senior HR personnel HR Manager = 37%
HR Director = 16%
General Manager = 20%
Others = 27%
216
Total number of people employed in HR department Up to 5 = 37%
6--10 = 24%
11-15 = 8%
16--20 = 14 %
21 and above = 17%
Recruitment of HR/ Personnel manager Indian Company = 27%
Indian University = 33%
From a MNC = 40%
Average annual training received by senior HR manger Up to 10 days = 55%
11-20 days = 21 %
21-30 days = 15 %
31 days and above = 9%
Source : Budhwar et.al. (2006) "The dynamics of HRM systems in Indian BPO
Firms" , Journal of Labour Research Vol. 27 (3), pp.348.
Against the established norms of traditional Indian companies where HR still
plays a very reactive role (Budhwar and Sparrow, 1997), their results show a
clear emphasis on allowing the HR function in the sampled BPO firms to play
a strategic role. As shown in Table 3.5, most firms have an HR strategy
(written or unwritten) and a corporate policy for HRM (94 percent).
Furthermore, HRM is represented at the board level and integrated into the
corporate strategy from the outset, and the contents of the HR strategy are
translated into clear work programs (94 percent). A majority of the firms
reported that their HRM function has become more proactive over the last
three years (77 percent). These results are comparable to those firms
operating in western nations, especially in Europe (Brewster and Hegewisch,
1994)35; and confirm the growing strategic nature of HRM Schuler and
Jackson, 1999)36.
217
Table 3.5 Scenario of Strategic HRM in BPOs Operating in India
Presence of HR at board level 84%
HR manager reporting directly to CEO or equivalent 94%
HRM considerations built into organizational strategy At the outset = 76%
At consultation level = 14%
At implementation level = 10%
Presence of HR strategy Written = 82%
Unwritten = 18%
HR strategy translated in to clear work programs 94%
HR function became proactive over the last three years 77%
Firms having corporate policy for HRM practices 94%
Explicit efforts made by firm to align business and HR / Personnel
strategies
69%
Involvement of HR department in strategic planning process 75%
HR manager viewed as business partners and agents of change 58%
Source : ibid pp.349
Perhaps due to the nature of the BPO industry or the Indian context, none of
the sample firms had any part-time employees. All the employees in their
sample were permanent except for some contractual employees for
housekeeping and other types of cleaning activities. The percentage of female
employees at the junior management level was higher in the research units
(54:46) as compared to the senior managerial levels, which were dominated
by men. This was similar to operations in Western countries (Bain and Taylor,
1999)37. The average age of employees at different levels of management
was also similar in all the research companies. The average age at the junior
management level ranged between 20 to 26 years, at middle level between
24 to 32 years, and at senior levels, the average age is 45 years.
Considering the strong demands of the BPO industry for women employees,
the Factories Act of 1948 in India has been amended to allow women on late
night shifts (Sifynews, 2005)38. The next issue to be tackled by both the
218
government and employers is to safeguard the employees, women in
particular, from sexual and racial abuse received from overseas clients. This
is emerging as an important factor as some employees are quitting. Some
BPOs have started to develop a "black list" of abusive clients and put them on
their "do not call list" (Baliga, 2005).
Recruitment
The results highlight the adoption of a formal and structured approach to
recruitment in most of the sampled BPO units. Typically, employees were
recruited both from within and outside the organization at all levels using a
mixture of approaches including consultants, job advertisements, campus
interviews, employee referrals, and walk-ins. The responsibility for the
recruitment process was shared by both the HR manager and the operations
manager. A number of interviewees remarked that not only were there no
part-time employees, but also the employment system does not seem to be
changing in this direction.
The BPOs want new employees to have specific skills including good
command of the English language, even tone of voice, persuasiveness,
positive approach, communication skills, accent, attitude, energy level,
computer knowledge, and voice modulation. Similarly, various criteria, e.g.
previous experience, identification of relevant skills, aptitude and personality,
and methods, e.g., a systematic, formal, and a thorough approach involving
different tests and a number of levels of interviews, are adopted to select new
employees. Most research firms had a probation period of up to six months.
The survey results showed that in 90 percent of the sampled BPOs, new hires
were analyzed for desired personal skills and competencies prior to the selec-
tion decision. Similarly, 79 percent of all new hires were given a selection test
of some type. Furthermore, on average, a candidate went through four levels
of interviews before a final hiring decision was made.
Despite the large number of graduates from Indian universities, BPOs have
started to experience problems in finding personnel. The majority of HR
managers interviewed reported some bad recruiting experiences. Advertising
219
openings in newspapers or magazines tends to result in too many
applications with little potential, and selecting candidates from a large
candidate pool is both time-consuming and costly. Another serious problem
was that of acquiring a new employee after a formal job offer has been made.
At times, after getting the appointment letter, the candidates do not accept but
instead use the offer as leverage to get a different job or higher compensation
in their preferred organization. Due to the similarity of popular Indian names,
another dilemma arises when the same candidate's name and profile comes
to an organization from two or three different consultants. In such a case, the
HR manager has difficulties determining if these are different candidates with
the same name or the same candidate who has been making the rounds at
different placement agencies.
The literature on Indian HRM practices (Budhwar and Sparrow, 2002)
suggests a strong influence of social relations, informal networks, and one's
caste and religion on recruitment practices. However, their investigation
showed that this did not seem to be the case in the Indian BPO industry. In
fact, companies were looking for referrals from present employees. Moreover,
they used rigorous procedures to select the most appropriate and qualified
candidate from the referred applicants. This approach is helping BPO firms to
acquire more competent employees.
Training and Development.
Like the recruitment practices, training and development activities were also
both formal and structured in their BPO sample. Apart from in-house training
facilities, external training consultants were also used. The main areas of
training identified by BPOs are the entry-level voice training, entry-level
process training, interpersonal skills, and products and work systems training.
In addition, induction process and an emphasis on voice and accent are other
key training areas. The time devoted to on-the-job and off-the-job training
given to agents varied dramatically in their sample firms from a few days to
two months. In addition, poor performers were given a regular update. A
similar approach was adopted in outsourcing centers operating in the United
Kingdom (Callaghan and Thompson, 2002)39.
220
Typically, the employee's training needs were systematically analyzed. A
needs assessment were conducted as part of the quarterly performance
appraisal. Methods identified for assessing training needs included supervisor
requests based on performance and quality feedback, appraisal results, and
the monitoring by the training department; training audits; and supervisor
requests based on analysis of projected business. Training effectiveness was
evaluated through systematic performance tests and informal feedback from
managers. Some centers conducted weekly skills tests and tend to rely on
trainers from both inside and outside the company.
A number of captive units send selected personnel from different functional
areas overseas for training (mainly to the United Kingdom and the United
States). The goal was to train and make the staff aware about the culture,
philosophy, values, and the "way of doing thing” of their BPO. Despite the
formal approach to employee development, the interviewed HR managers
reported some problems with the training programs. First, some companies
did not have a sufficient training budget. Second, HR managers also reported
the scarcity of training experts in some specific areas (such as quality control
and new interventions). Third, some employees were highly selective about
training programs and took into account whether a particular training program
will enhance their resume and market value. Accordingly, either they find
some way to avoid training or, if they are required to go, they do not attend
seriously. At times HR managers are under pressure to train a specific
number of employees in a given time period. However, on a particular day
they might not be able to meet their target as the employees needing training
may be on a different shift or not available.
Furthermore, the growing short age of skilled workers in foreign languages,
training in foreign languages must become a priority of Indian BPOs. There is
a potential demand for over 160,000 foreign language professionals in Indian
BPOs by 2010, but only 40,000 Indians will qualify. This will create a supply
side constraint (Jayachandran, 2005)40 -something to be seriously considered
by both trainers and relevant institutes.
221
Performance Appraisal and Compensation:
A formal and structured approach to the performance appraisal system was
common in most of the Indian BPOs under study. BPO firms typically had
monthly or a quarterly appraisal system. All the firms had structured format
and a clear set of parameters for appraisals. Performance appraisal in all the
call centers emphasized results. The general trend was that the immediate
supervisor appraises the employee and gave his / her report to the employee.
After the employee reads the appraisal, it must be signed before submission
to the section head. If required, adjustments are made by involving the section
head. At times, the section head also appraises his section employees. A
number of issues related to future movement or cross-functional movement
within the company as well as training needs identification, key performance
areas, and possible targets to be achieved were analyzed.
However, considering the nature of the BPO industry, most HR managers
were convinced that performance appraisal is essential and believe that over
a short period of time employees either accept it as a fact of life or quickly
adapt. There certainly appears to be scope for improvement in the existing
system within the Indian BPOs. For example, in the present system there is
relatively little participation of individual employees regarding their goal setting
(though few companies claim they are doing it). Perhaps a more participative
approach could be beneficial. This had been the experience of some Indian
BPO firms that have tried it.
All the call centers had a standard wage structure and provided a competitive
compensation package to attract and retain employees. The pay and benefit
scheme is attached to grade, total work experience, and employee
performance and skills. The bonus schemes were individual based at the
junior management level in all the sample firms. However, it was level-based
for middle and senior managers. Most BPOs based their compensation
packages on market trends by getting information from regular surveys (by
consultants and professional bodies) and by benchmarking their packages
against the best payers. In addition, the performance appraisal results played
222
an important role in deciding compensation and increments. Performance
appraisal activities were quite similar to the Western outsourcing centers.
Employee Turnover and Retention
All the respondents reported employee turnover as one of the major
challenges facing the Indian BPO industry. They reported somewhere
between 15 to 50 percent attrition in their organizations. However, other
sources indicate that turnover in fact, is much higher, and is the most pressing
problem for Indian BPOs. The main reasons for employees leaving include
better career opportunities outside India, monotonous and stressful work,
leaving for higher studies, strong job market, attracted to branded companies,
health-related reasons, lack of career advancement, job security, and growth
prospects elsewhere. The situation in Indian BPOs resembles the "electronic
sweatshop image" highlighted by Frenkel et al. (1999)41. Sometimes people
leave as they find the work not to their taste.
It has been noted that the less than ideal quality of work-life balance is an
important contributor to the high and increasing attrition level. For example,
working during the night shifts creates health and social problems for workers.
Amongst employers, however, there was a consensus that plenty of job
candidates were available. To some extent, this is true. However, finding the
right person is becoming more and more challenging over time, and future
shortages of employees loom on the horizon.
Many BPOs are adopting some basic measures to retain employees,
including salary surveys to stay abreast of the market, culture-building
exercises for employees, exit surveys, counseling, employee development
programs, rewards and recognition, as well as increased pay and benefits.
However, employees complain about favoritism by the management towards
selected individuals regarding appraisals and promotions. Furthermore,
management frequently is reported to act as a closed system, i.e., not ready
to accept employee feedback, which leads to a sense of frustration and, ulti-
mately, resignation.
223
To overcome concerns, some of the software and IT-based companies have
taken specific steps to increase employee retention
Employee involvement is a proven tool to motivate and retain employees and
could be useful in the Indian BPOs. In the West, there has been continuing
interest in getting workers more involved in various processes, such as
decision-making and information sharing (Wilkinson, 1998)42. Employee
participation may contribute to employees' growth needs and sense
achievement (Heller, 1998)43 through a better utilization of their skills and
potential.
The main motivators for BPO employees were found to be money (good
salary), career opportunities, and work environment were rated higher than
others such as benefits (including facilities), recognition at work, growth,
company brand name, opportunities for personal growth, and better treatment
from clients. The interviewed HR managers clearly believed that effective
HRM systems in Indian BPOs are very important as the problem of obtaining,
motivating, and retaining talent will be crucial for the survival of units in the
ever-increasing and highly competitive national and international business
environment. .
Table 3.6. Employee Involvement Practices in BPOs Operating in India
1 Devolvement of task or operational decision-making to the
lowest level
16%
2 Devolvement of responsibility for quality to the lowest level 59%
3 Autonomous work groups/Quality circles or groups 90%
4 Newsletters/In-House publications 43%
5 Corporate intranet 90%
6 Team Meetings 98%
7 Employee forums or focus groups 67%
8 Management presentations 61%
9 Suggestion schemes 88%
224
10 Employee opinion surveys 57%
11 Works councils or other consultative committees / Trade Union
representation
15%
Source : ibid pp.354
The main messages emerging from the analysis of existing literature are that
the work set-up of Indian BPOs is highly structured, tightly controlling,
bureaucratic, formalized, monitored, and scripted, though aiming for a "total
customer satisfaction" philosophy. Most HR practices of recruitment, training,
compensation, and performance appraisal are formal and structured. These
activities are similar to outsourcing centers operating in developed countries.
The emphasis on career development and training appears to be somewhat
less in the Indian BPOs compared to their Western counterparts, perhaps
because India's BPO industry is still evolving, and management does not feel
the need to invest in employee career development, mainly due to the
presence of a large number of available graduates.
However, farsighted managers and policymakers are realizing that there are
many human issues in the Indian BPO industry which need serious attention if
the industry is to continue enjoying its current success, including increasing
attrition rates, psychological health and stress-related problems of employees,
developing career-related policies, provision of more workplace flexibility, and
creating a more interesting and enhanced work environment.
A good first step would be for India's BPO industry to begin to address the
emerging and critical issues. For example, outsourcing is an established
phenomenon in the West where workplace stress has been acknowledged as
undermining productivity. As a result, specific training is provided to
employees related to job stress management. This is perhaps an approach for
Indian BPOs as well, where less than 4 percent of the focus during training is
on stress management issues (Business Line, 2003)44. In addition, all the
Indian BPOs employ only full-time employees. For an industry growing at 50
225
percent yearly, even if millions of graduates are available, Indian BPOs are
soon likely to face a shortage of skilled and trained labor. Therefore,
considering part-time workers appears timely so that the vast resources of
talented Indian women who may wish to work fewer, and more flexible, hours
would be available.
The design of work systems in the BPOs under study was very formal and
bureaucratic. Perhaps, to some extent, this is appropriate given the nature of
the industry. However, in the long run, as already evidenced by an increasing
attrition and other problems, the existing systems must be modified to provide
flexibility and empower employees, helping them develop proper career
progression. Moreover, there is a need to create open systems in which
employees can give feedback to their managers and expect them to be
responsive. A trend towards empowering via involvement has already been
initiated by Indian BPOs (see Table 3.6). Nevertheless, serious efforts are
needed to inculcate such phenomena into the core philosophy of Indian
BPOs, where a well structured and rationalized HRM approach can
significantly improve employee relations with management and enhance
overall organization competitiveness and performance. This is crucial for
organizations that must attract and retain talented employees and maintain
good relations to remain globally competitive. However along with strict
structuring of the tasks there is a need for flexibility, employee, employment
and a healthy and simulating work environment. The information technology
industry in India is discussed in the next chapter.
226
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