People are critical to the success of any business. Employee performance can be an asset or a liability to a business. As an HR professional, you will play a vital role in the success of your business. Good human resource management (HRM) is essential for companies of all sizes. In this article, we will look at the fundamentals of HRM.
We will start with a brief description of HRM and HR. Then we'll dive into the seven basic principles of HRM that you need to know to understand what it does. We will finish with some information on technical terms, such as HRIS (Human Resources Information System).
What is human resources management?
Let's start with a brief definition. Human Resource Management, or HRM, is the practice of managing people to achieve better performance.
For example, if you hire people in a company, you look for people who fit the company culture, because they will be happier, stay longer and be more productive than people who do not fit the company culture.
Another example is engagement. Engaged employees are more productive, deliver better quality work and make customers happier. This means that if we can find ways to make employees more engaged, we help the company.
The HR department provides the knowledge, tools, training, legal advice, administration and talent management that are essential for maintaining and developing a business.
Human resource management therefore boils down to optimising the performance of the company through better human resource management. The next question is: who are these human resources?
What is a human resource?
It may seem a little strange to refer to people as "human resources". Human resources are all the people who, in one capacity or another, work for or contribute to an organisation.
These people make up the workforce of an organisation. They can be regular employees, for example, but also contractors. Particularly with the rise of the gig economy, more and more people are starting to work for an organisation on a contractual basis without having a traditional employment contract.
These people include independent contractors, workers supplied by contracting companies, on-call workers and temporary agency workers.
An independent contractor may be under contract for years with the same organisation, while a temporary worker may work in 20 different companies in a year. Since these people are all involved in the company to a different degree, the way they are managed and involved in the organisation must also be different.
In addition, there are more and more non-humans at work in the company.
In this case we are talking about the increase of robotisation. Robots are more and more involved in daily work and the interaction between man and machine is becoming more and more essential for the success of the organisation. Although these machines are not considered "human resources", they should be included in some way, as they are part of the workforce.
The seven basic principles of HR
When we talk about human resource management, there are several elements that are considered cornerstones for effective HRM policies.
These cornerstones are:
- Recruitment and selection
- Performance management
- Learning and development
- Succession planning
- Compensation and benefits
- Human resources information systems
- HR data and analysis
Recruitment and selection
Recruitment and selection are probably the most visible elements of HR. We all remember our first interview, don't we?
Recruiting candidates and selecting the best ones to come and work in the company is a key HR responsibility. People are the lifeblood of the organisation and finding the best candidates is an essential task.
The request for new hires usually starts when a new position is created or an existing position becomes available. The line manager then sends the job description to HR and HR starts recruiting candidates. In this process, HR can use different selection tools to find the best person to do the job. These include interviews, different assessments, reference checks and other recruitment methods.
Sometimes, when there are a lot of applicants, HR may deploy screening tools. These tools separate the wheat from the chaff when it comes to suitable candidates. Successful candidates then move on to the next stage, where they are interviewed and further assessed.
Performance management
Once employees are on board, performance management becomes important. Performance management is the second pillar of HR. It is about helping people to perform at their best at work, in order to improve the company's results.
In general, employees have a defined set of responsibilities that they have to take care of. Performance management is a structure that allows employees to get feedback on their performance - to achieve their best performance.
Examples include formal one-to-one performance reviews, 360-degree feedback instruments that also take into account the evaluation of peers, customers and other relationships, and more informal feedback.
Companies typically work with an annual performance management cycle, which involves planning, monitoring, reviewing and rewarding employee performance. The result of this process is that employees are categorised as high and low performers, and as high and low potential.
Successful performance management is largely a shared responsibility between HR and management, where the line manager is usually the leader and HR supports him/her. Good performance management is crucial. Employees who are empowered to reach their full potential improve the efficiency, sustainability and profit margin of a company. Employees who consistently underperform may not fit their role or the culture of the company. It may be necessary to dismiss them.
Learning and development
People are the product of their life experiences, the country and time in which they grew up, and a range of cultural influences. Within HR, learning and development ensures that employees adapt to changes in processes, technology and societal or legal developments.
Learning and development helps employees to retrain and improve their skills. Learning and development (L&D) is driven by HR and good policies can be very helpful in moving the organisation towards its long-term goals.
Many organisations have a pre-defined budget for training and development efforts. This budget is then allocated to employees, with trainees, future leaders and other high potentials often receiving more training opportunities than others. Individuals may come to a company with very different knowledge and experience. L&D offers employees a way to bridge the skills gap and become leaders. A well-known framework that links performance management to L&D activities is the 9-box grid. Based on the assessments of people's performance and potential, the HR department and managers can advise different development plans.
Succession planning
Succession planning is the process of making contingency plans for the departure of key employees from the company. If, for example, a key senior manager leaves, having a replacement ready will ensure continuity and can result in significant savings for the company.
Succession planning is often based on performance evaluations and continuous training efforts. This results in the creation of a talent pool. This is a pool of qualified candidates who are ready to take up (senior) positions in the event of someone's departure. Building and maintaining this pool is essential for good human resource management.
Compensation and benefits
Another fundamental element of HR is pay and benefits. Fair compensation is essential to motivate and retain employees. One of the fundamental principles of HR management in relation to compensation is to ensure equity and fairness.
Making an appropriate salary offer is a key element in attracting the best talent. This offer should be balanced with the company's budget and profit margins. HR should monitor salary increases and establish merit standards. HR may also conduct a salary audit from time to time.
Compensation includes primary and secondary compensation. Primary pay involves the direct payment of money in exchange for work, which is often a monthly salary and sometimes performance-based pay.
Secondary benefits are any non-monetary rewards. These can include extra holidays, flexible working hours, childcare, pensions, a company car and laptop, and much more.
The aim here is to reward people in a way that motivates them.
Human resource information system
The last two fundamental HR elements are not HR practices, but tools for improving HR. The first is the human resources information system, or HRIS. An HRIS supports all of the cornerstones discussed above. For example, for recruitment and selection, HR professionals often use an applicant tracking system, or ATS, to track applicants and hires.
For performance management, a performance management system is used to track individual objectives and implement performance reviews.
In the area of training and development, a learning management system (LMS) is used for internal content distribution, and other HR systems are used to track training budgets and approvals.
Payroll specialists often use a payroll system, and there are also digital tools that enable effective succession planning.
All of this functionality can often be achieved in one system - the HRIS. Sometimes, however, the management of these functionalities is split between different HR systems.
The bottom line is that there is a strong digital element to HR work, which is why HRIS is the last element to be considered when talking about the basics of HR.
HR data and analytics
The last of the HR fundamentals revolves around data and analytics. Over the past fifty years, HR has taken a big step forward in becoming more data-driven.
The HR information systems we have just discussed are essentially data capture systems. The data in these systems can be used to make better and more informed decisions.
An easy way to track critical data is through the use of HR indicators or HR KPIs. These are specific measures that address the situation of a company in relation to a given measure. This is called HR reporting.
This reporting focuses on the current and past state of the organisation. Through HR analytics, HR can also make predictions. For example, workforce needs, turnover intentions, the impact of the candidate (recruitment) experience on customer satisfaction, and many more.
By actively measuring and reviewing this data, HR can make more data-driven decisions. These decisions are often more objective, which makes it easier to find management support for these decisions.
Conclusion
You now know the 7 fundamentals of HR management. None of these HR fundamentals stand alone. They all interact and influence each other. Think of these 7 fundamentals as building blocks - good management of each fundamental contributes to the strength of the next. Collectively, these HR fundamentals enable a workforce to not only perform better, but to perform at its best.
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