1.3 Today’s HRM Challenges

All departments within an organization must prove their value and their ability to contribute to the overall business strategy; the same is true with human resource management (HRM). As companies are becoming more concerned with cutting costs, HRM departments must show the value they add to the organization by aligning with business objectives. Being able to add value starts with understanding some of the challenges businesses face and finding ways to reduce a negative impact on the business. This section will discuss some of the HRM challenges, and the rest of this text will dive into greater detail about how to manage these challenges.

Containing Costs

If you were to ask most business owners what their biggest challenges are, they will likely tell you that cost management is a major contributor to the success or failure of their business. In most businesses today, the people part of the business is the place most likely to face cuts when the economy isn’t doing well.

Consider the expenses that involve the people part of any business:

1. Health-care benefits
2. Training costs
3. Hiring process costs
4. And many more…

These costs cut into the bottom line of any business. The trick is to figure out how much, how many, or how often benefits should be offered, without sacrificing employee motivation. A company can cut costs by not offering benefits or pension plans. But if its goal is to hire the best people, a hiring package without these items will most certainly not get the best people. Containment of costs, therefore, is a balancing act. Human resource (HR) managers must offer as much as they can to attract and retain employees without offering too much, as this can put pressure on the company’s bottom line. We will discuss ways to alleviate this concern throughout this book.

For example, there are three ways to cut costs associated with health care:

1. Shift more of the cost of health-care-benefit plans to employees.
2. Reduce the benefits offered.
3. Change or better negotiate the plan.

Health care costs companies approximately $4,003 per year for a single employee and $9,764 for employees with families. This equals roughly 83% and 73% of total health-care costs for single employees and employees with families, respectively.^[1] One possible strategy for containing the cost of health-care plans is to implement a cafeteria plan. Cafeteria plans started becoming popular in the 1980s and have become standard in many organizations.^[2] This type of plan gives all employees a minimum level of benefits and a set amount to spend on flexible benefits, such as additional health care or vacation time. It creates more flexible benefits, allowing employees, based on their family situation, to choose which benefits are right for them. For example, a mother of two may choose to spend her flexible benefits on health care for her children, while a single, childless woman may opt for more vacation days. In other words, these plans offer flexibility, while also saving money.

Another way to contain costs is by offering training. While this may seem counterintuitive as training does cost money up front, it can actually save money in the long run. Consider how expensive a sexual harassment lawsuit or wrongful termination lawsuit might be. For example, Continental Pipeline & Facility Ltd. in Tumbler Ridge, B.C., was fined $150,000 in October 2015 for failing to provide its workers with the information, instruction, training, and supervision needed to ensure their health and safety after one of their workers was pinned by a 317 kilogram (700 pound) pipe.^[3] Some simple training up front (costing less than the lawsuit) likely would have prevented this from happening. Training employees and management on how to work within the law, thereby reducing legal exposure, is a great way for HR to cut costs for the organization as a whole.

The hiring process and the cost of turnover in an organization can be very expensive. Turnover refers to the number of employees who leave a company in a particular period of time. By creating a recruiting and selection process with cost containment in mind, HR can contribute directly to cost-containment strategies company wide. In fact, the cost of hiring an employee, or replacing an old one (turnover), can be as high as $9,777 for a position that pays $60,000 per year.^[4] By hiring smart the first time, HR managers can contain costs for their organization.

In a survey reported on by the Sales and Marketing Management newsletter, 85% of managers say that ineffective communication is the cause of lost revenue.^[5] Email, instant messaging, text messages, and meetings are all methods of communication in business. An understanding of communication styles, personality styles, and channels of communication can help managers be more effective in their communication, resulting in cost containment. In HRM, we can help ensure our people have the tools to communicate better, and contain costs and save dollars in doing so.

One cost-containment strategy for US businesses has been offshoring. Offshoring refers to the movement of jobs overseas to contain costs. It is estimated that 3.3 million US jobs will be moved overseas by 2015.^[6] According to the US Census Bureau, most of these jobs are information-technology (IT) jobs, as well as manufacturing jobs. This issue is unique to HRM, as the responsibility for developing training for new workers and laying off domestic workers will often fall under the realm of HRM.

Of course, cost containment isn’t only up to HRM and managers, but as organizations look at various ways to contain costs, human resources can certainly provide solutions.

Technology

Technology has greatly impacted human resources and will continue to do so as new technology is developed. Through use of technology, many companies have virtual workforces that perform tasks from nearly all corners of the world. When employees are not located just down the hall, management of these human resources creates some unique challenges. For example, it creates an even greater need for multicultural or diversity understanding. Since many people will work with individuals from across the globe, cultural sensitivity and understanding is the only way to ensure the use of technology results in increased productivity, rather than decreased productivity due to miscommunication.

Technology also creates a workforce that expects to be mobile. The rise of smart phones and social networking has impacted human resources, and many companies now disseminate information to employees via these methods. Of course, technology changes constantly, so the methods used today will likely be different in one year, or even six months from now. Because of the ability to work from home, or anywhere else, many employees may request and even demand a flexible schedule to meet their own family and personal needs. Productivity can be a concern for all managers in the area of flextime, and another challenge is ensuring fairness to other workers when one person is offered a flexible schedule.  Many companies, however, are going a step further and creating virtual organizations, which don’t have a physical location (cost containment) and allow all employees to work from home or the location of their choice. As you can imagine, this creates concerns over productivity and communication within the organization.

In addition, there are a large variety of databases available to perform HRM tasks. For example, databases are used to track employee data, compensation, and training. There are also databases available to track the recruiting and hiring processes. Of course, the major challenge with technology is that it’s constantly changing nature, which can impact all practices in HRM.

Cyberloafing, a term used to describe lost productivity as a result of an employee using a work computer for personal reasons, is another concern created by technology. One study performed by Nucleus Research found that the average worker uses Facebook for 15 minutes per day, which results in an average loss of 1.5% of productivity.^[7] Some workers, in fact, use Facebook over two hours per day during working hours. Restricting or blocking access to the Internet, however, can result in angry employees and affect motivation at work.

Technology can also create additional stress for workers. Increased job demands, constant change, constant emailing and texting, and the physical aspects of sitting in front of a computer can be not only stressful, but also physically harmful to employees.

The Economy

Tough economic times in a country usually results in tough times for business too. High unemployment and layoffs are clearly HRM and managerial issues. If an HR manager works for a unionized company, union contracts are the guiding source when having to downsize in response to a tough economy.

Besides union restrictions, the legal restrictions on who is let go and the process followed to do it should be on the forefront of any manager’s mind when they are required to lay off people because of a poor economy. Dealing with performance issues and measuring performance can be considerations when it is necessary to lay off employees.

Likewise, in a growth economy, the HR manager may experience a different kind of stress. Massive hiring to meet demand might occur if the economy is doing well. For example, McDonald’s restaurants had to fill 600 positions throughout Las Vegas and held hiring-day events in 2010.^[8] Imagine the process of hiring this many people in a short period of time. The same recruiting and selection processes used under normal circumstances will be helpful in mass-hiring situations.

The Changing and Diverse Workforce

HR managers should be aware that the workforce is constantly changing. For example, a recent report by Statistics Canada indicates that the proportion of men working full-time fell by 10% from 1976 to 2010; in contrast, the full-time employment rate of women increased by 17% in the same time period. The study also found that full-time employment for Canadians under the age of 29 (not including full-time students) has fallen significantly, most notably between 2007 and 2014.^[9] Our workforce is also better educated. In 2012, about 54% of Canadians aged 15 and over had trade certificates, college diplomas, or university degrees. This indicates an increase of 21% since 1990. In 2006, 41% of the Aboriginal population aged 25 to 64 years had post-secondary certification (although 34% of working-age Aboriginals do not have a high school diploma, compared to 15% of the non-aboriginal population). In addition, 51% of recent immigrants reported having university degrees.^[10]

It is expected that over the next 10 years, over 40% of the workforce will retire, and there will not be enough younger workers to take the jobs once held by the retiring workforce.^[12] As you can imagine, this will create a unique staffing obstacle for human resources and managers alike as they try to find talented people in a pool that doesn’t have enough people to perform the necessary jobs. The reason for this increase in retirement is the aging baby boomer population. Baby boomers can be defined as those born between the years 1946 and 1965, according to Statistics Canada. They are called “baby boomers” because there was a large increase in babies born after soldiers came back from World War II. As of 2011, Canada has more people over the age 65 than under the age 15. The boomer generation makes up 27% of our population.

The impact of the baby boomer generation on our country and on HRM is huge. First, the retirement of baby boomers results in a loss of a major part of the working population, and there are not enough people to fill those jobs that are left vacant. Second, the baby boomers’ knowledge is lost upon their retirement. Much of this knowledge isn’t formalized or written down, but it still contributes to the success of business. Third, elderly people are living longer, and this results in higher health-care costs for all currently in the workforce.

As a result of the aging workforce, HR managers should review current workers’ skill levels and monitor retirements and skills lost upon those retirements, which is part of strategic planning. Having knowledge about current workers and skills, as well as predicting future workforce needs, will be necessary to deal with the challenges of an aging workforce.

Another challenge, besides a lack of workers, is the multi-generational workforce. Employees between the ages of 17 and 68 have different values and different expectations of their jobs. Any manager who tries to manage workers from varying generations will likely have some challenges. Even compensation preferences are different among generations. For example, the traditional baby boomer built a career during a time of pensions and strongly held values of longevity and loyalty to a company. Compare the benefit needs of this person to someone who is younger and expects to save through a pension plan, and it is clear that the needs and expectations are different.^[13] Throughout this book, we will discuss compensation and motivational strategies for the multi-generational workforce.

Ethics

A discussion of ethics is necessary when considering the challenges of HR. Much of the discussion surrounding ethics happened after the early to mid-2000s when several companies were found to have engaged in gross unethical and illegal conduct, resulting in the loss of billions of dollars for shareholders. Consider the statistics: only 25% of employees trusted their CEO to tell the truth, and 80% of people said that employers have a moral responsibility to society.^[14] Based on these numbers, an ethical workplace is important not only for shareholder satisfaction but for employee satisfaction as well. Companies are seeing the value of implementing ethics codes within the business.

Many HR departments have the responsibility of designing codes of ethics and developing policies for ethical decision making. Some organizations hire ethics officers to specifically focus on this area of the business. Out of 400 HR professionals surveyed, 48% had an ethics officer who reported to either the CEO or the HR executive.^[15] According to Steve Miranda, chief human resources officer for the Society for Human Resource Management (SHRM), “[the presence of an ethics officer] provides a high-level individual with positional authority who can ensure that policies, practices, and guidelines are effectively communicated across the organization.”^[16]

For example, the insurance company Allstate recently hired a chief ethics and compliance officer (CECO) who offers a series of workshops geared for leaders in the organization “to reinforce to key executives that maintaining high ethical standards starts at the top.”^[17] In addition, the CECO monitors reports of ethics complaints within the organization and trains employees on the code of ethics or code of conduct. A code of ethics is an outline that explains the expected ethical behaviour of employees. For example, General Electric (GE) has a 64-page code of conduct that outlines the expected ethics, defines them, and provides information on penalties for not adhering to the code. The code of conduct is presented below. Of course, simply having a written code of ethics does little to encourage positive behaviour, so many organizations (such as GE) offer stiff penalties for ethics violations. Developing policies, monitoring behaviour, and informing people of ethics are necessary to ensure a fair and legal business.

The following is an outline of GE’s code of conduct:^[18]

• Obey the applicable laws and regulations governing our business conduct worldwide.
• Be honest, fair, and trustworthy in all your GE activities and relationships.
• Avoid all conflicts of interest between work and personal affairs.
• Foster an atmosphere in which fair employment practices extend to every member of the diverse GE community.
• Strive to create a safe workplace and to protect the environment.
• Through leadership at all levels, sustain a culture where ethical conduct is recognized, valued, and exemplified by all employees.