Zenith Systems LTD provides hardware and software services customized to clients’ requirements. It is a subsidiary of a US company. The UK company is based in Slough and has four major departments: information systems, services, specialized support staff and marketing. The company has grown very rapidly since it was established tHRee years ago, initially with the close guidance and support of the parent firm. There are about 650 employees, most of them recruited during the last two years. Labour turnover so far is fAIrly low (8 per cent). Extensive use is made of various forms of numerical flexibility. Around 150 employees are on short-term contracts, mainly of between two and three years’ duration; another 100 or so work part-time. In addition the firm has sub-contracting arrangements with suppliers to fulfil the client demands that its own project teams are unable to achieve. Overtime and flexible working hours are an accepted feature of the work. The nature of the business means that employees have to be technically adept and highly flexible in response to specifications of what their clients want. They work in project teams that can vary in membership, forming and disbanding as projects require.
The strategic goals of the business are to achieve sustained growth by the development and marketing of innovative systems and the provision of ever-improving levels of service to clients. The nature of the business clearly indicates that competitive success can only be achieved and sustained by developing and maintaining human capital advantage. A high-performance work system (HPWS) based largely on practice in the parent company is BEIng intrODuced, priority being given to the introduction of rigorous recruitment and selection procedures, extensive and relEVAnt learning and development activities, incentive pay systems and performance management processes.
A comprehensive human resource information system (HRIS) had been installed. The US Chief Executive has overruled the HR Director’s recommendation that an employee attitude survey should take place on the grounds that it was too soon – there were more pressing priorities. The HR Director was unhappy about this but intended to raise the matter again, making a more powerful business case than in his first attempt.
Three months later the HR Director sat down to think again about how to proceed. He had spent some time researching the concept of human capital management (HCM) in order to consider its relevance to Zenith Systems and, if it were relevant, how it could usefully be applied, what sort of business case could be made for it and how it might be developed, assuming the business case was made and accepted. He examined the data already available from the HRIS, including:
●head count and diversity information;
●a qualification and skills inventory;
●labour turnover and absence figures (but not costed);
●pay data in the form of average pay and compa-ratios;
●training statistics (number of days, costs);
●costs of recruitment.
The HRIS software also incorporated a data warehousing facility that enabled the user to assemble their own data and relate them to benchmarking data and financial information, customer information and other critical business data.
This seemed to provide a good basis for developing an HCM approach. The financial performance data in terms of sales, net profits, return on capital employed and added value were obviously available and the HR Director knew that regular surveys were taking place to measure client satisfaction.
He then spent some time with his colleagues gaining an understanding of the business drivers of the organization. He established that these were: innovation and product development, client acquisition and retention, achieving high levels of service to customers, and meeting the performance expectations of the owners. He also confirmed the list of the key performance indicators (KPIs) used by Zenith, which included financial measures such as added value, income generated, profitability, productivity measures such as added value per employee, operational measures such as successful completion of projects, customers acquired and retained, new products launched successfully and customer service measures such as levels of satisfaction and service levels. He established that the information required to monitor achievements in relation to the KPIs was available and used by management.
He also decided that the while HCM was mainly concerned with measuring business and people performance and using the metrics as a guide to future action, it was also about measuring the performance of the HR function.
He decided therefore that he was in a position at least to start the process of HCM, bearing in mind what could be invoLVed and setting out what metrics might be used, covering both business/people performance and the evaluation of HR. He needed to consider how they would be used and to plan its future development.
Reading the literature (eg Angela Baron and Michael Armstrong, 2007, Human Capital Management, Kogan Page), he appreciated that HCM was not an all or nothing affair and that its introduction could and indeed should be staged. It is not a good idea to do too much too soon. Priorities have to be established in the light of an understanding of the business drivers and KPIs and the degree to which useable information is readily available. He referred to the schedule set out below and decided to use it as a checklist of what needed to be done and the priorities involved, bearing in mind always that the main purpose of HCM is to support the achievement of business goals. His intention was to make the maximum use of available information but to propose the collection and analysis of new data if they were important as a means of enhancing the effectiveness of the process. He would have to produce a persuasive business case for the programme he envisaged.
Possible stages in the introduction of HCM
Data (internal – benchmarked where appropriate)
Basic 1– readily available people data
· Attrition (incidence and cost)
· Absenteeism/sickness (incidence and cost)
· Work-force composition (skills analysis)
· Training days per employee
· Trend analysis
· Comparative analysis
· Reports on performance to line managers
· Remedial action (immediate and strategic):
- attraction and retention policies
- absence management policies
- human resource plans
- employee relations policies
Basic 2 – HR quantitative performance data
· Achievement of agreed service levels
· Response rates to requests for advice or services
· Time to fill vacancies
· Cost of recruitment
· Ratio of HR costs to total costs
· Ratio of HR staff to employees
· Monitor performance of HR
· Identify areas for improvement
· Reports to HR staff on performance
Intermediate 1 – employee opinion data
· Employee questionnaire
· Engagement and commitment survey
· Reward survey
· Performance management survey
· Identify and take action on general employee issues concerning commitment, engagement, motivation and morale
· Identify and take action on specific employee issues
· Reports to line managers on performance
· Guide to longer-term HR strategies
Data (internal – benchmarked where appropriate)
· Measurement of impact of HR policies and practices on business performance
· ROI calculations on training and other HR activities
· Guide the development of business and HR strategy
· Support business cases for HR initiatives
Prepare recommendations on how human capital management could be introduced and developed in Zenith Systems and make out the business case for doing so.
The aim of this case is to enable those studying it to understand the principles of human capital management. There is plenty of CHOice on the approach to be used as long as it is realistic and businesslike. Quite a lot of basic employee data are available but more may be required, eg the cost of labour turnover and absence. There is a strong case for surveying levels of employee engagement and, because of the SOPhisticated nature of the Zenith operation, for comparing the results of such a survey with business performance indicators as a means of evaluating the effectiveness of HR practices, indicating the direction of HR strategy, and providing information to line managers on their effectiveness as people managers.
A business case for HCM could refer to points such as these:
●Develop an understanding of what translates human capital into business value as a basis for developing realistic HR and business strategies.
●Establish a clear line of sight between HR interventions and business success.
●Demonstrate that HR practices produce value for money in terms of, for example, return on investment.
●Provide data for internal reports that identify areas for improvement in HR practice.
●Provide data for internal reports that indicate levels of people performance in the organization and identify areas for improvement.
●Provide data for internal reports on the effectiveness of line managers as people managers.
●Provide data for internal reports on the effectiveness of the HR function and identify areas for improvement.
●Provide information on the value of the organization’s human capital.
●Provide data for external reports that demonstrate that the organization is implementing innovative and productive policies to enhance the value obtained from its human capital.