Sunday, April 10, 2016

Put formal HR function in place and strengthen it

Below is a fictionalized case study that presents dilemma faced in real organizations. And written by me is the recommended solution to the problem. This has been published in Business Manager Magazine April 2016 edition.

Akshay Sales Corporation is a partnership firm established in the year 1994 at Surat, Gujarat. The founder and the CEO of this firm is Mr Amar Patel. This firm is the distributor, wholesaler and supplier of all types of wood working, laminate pressing, shoes PU adhesive and SR rubber adhesive for foam and flooring and mattress. Akshay is one of the top five performers in this type of business out of about 50 Small and Medium Enterprises (SMEs) in its region of operations. Being an experienced firm it also enjoys good competitive edge over others in business. The average turnover of this partnership firm is Rs. 24 crores whereas the strength of its workforce is 348 employees including clerical supervisory and managerial categories.

Akshay is well known for achieving customer satisfaction, ensuring timely delivery, innovating new designs, and honoring commitment to buyers. However, the critical and thorny issue of this firm is the talent management and retention. The human resource management system of Akshay is very much traditional and similar to any typical Indian SME. This firm does not have a specific manager or officer with HR responsibility. Most basic HRM functions such as recruitment and salary fixation are done by the line managers either by themselves or in consultation with the CEO of the firm. In recruitment it seeks professional competencies among the potential candidates and also offers competitive pay packages. In most cases the promotion is given to the employees based on the assessment and recommendation of the line managers.

As regards the talent management, the major problem for Akshay is in retaining the talented people with the firm for longer duration. This problem persists despite the abundant availability of skilled people in labour market. Akshay offers financial incentives to employees at highly competitive rates as a retention device but without much success. The firm has no record of conducting any form of formal skill training for its employees. This is because the CEO of the firm Mr. Amar Patel strongly believes that employee training can only worsen the problem of talent retention as the well-trained employee is more likely to leave the firm-seeking greener pastures. Consequently, this firm ruled out training as a solution to the problem of high attrition. In Akshay, the attrition related issues remain untamed and continue to affect the plans and future growth prospects of the firm. During temporary recession, it was decided lay off the people to lessen the wages cost resulting in to draining out the talent people. Remained only were average performers. After recovering from recession, when managers reached out to sacked people offer them to rejoin, it came out as a shocking surprise to the management that most of them refused to rejoin on some pretext or the other. Now the problem before the managers and CEO is to employ not only the good people but also to retain them. The organisation suffered business as it started getting complaints about poor logistics and quality of products. In all likelihood, this issue may worsen in coming times as the competitors may adopt aggressive style with using their ex-workers knowledge about the important business information of Akshay Sales corporation. CEO has asked the managers to come forward with a blue print to address the problem.

Questions for discussions
  1. What is your assessment of the whole situation in Akshay Sales Corporation from HR perspective?
  2. According to you what specific steps are to be taken by Akshay to tackle the problem of rising attrition rate?
  3. What should be long-term strategy of this firm in terms of HR policy, procedure, and practice?
Solutions

Established in 1994 in Surat Gujarat, Akshay Sales Corporation, a partnership firm headed by Amar Patel is a leading top 5 distributor, wholesaler and supplier of all types of wood working, laminate pressing, shoes PU adhesive and SR rubber adhesive for foam and flooring and mattress in the SME Segment. The company being well established & experienced in its line of business enjoyed a market competitive edge. It was well known for achieving customer satisfaction, ensuring timely delivery, innovating new designs and honoring commitment to buyers. The company clocked a turnover of 24 crores and had a workforce strength of 348 employees across all cadres.
 
Akshay Sales Corporation was doing very well as far as its business was concerned however like all traditionally ownership managed companies, it was facing the challenge of managing attrition. The company did not believe in having a full time professional HR team. The HR functions like recruitment, salary, promotion, etc…were managed by the functional manager’s themselves in consultation with the CEO. Hence there was never a full-time HR person looking into all HR functions and issues given that the company had 348 employees but the functional manager’s themselves managing it as additional responsibility whenever it came up. This was the first HR issue facing the company and probably the root cause.
 
Secondly promotion was based on assessment and recommendation by the managers to the CEO. Hence the company lacked a formal employee evaluation, feedback and promotion methodology. Chances of bias coming in as a consequence were very high and disgruntled employees leaving the company simply because of them being overlooked for promotion were there. This was another issue facing the company in talent management & retention.

Thirdly there was no formal training plan on upgrading the skills & competencies of the workforce in line with the changing dynamic business environment. The CEO believed that by training it’s employees, they would seek better prospects. Mr. Patel should have thought for himself and for his company as to what is suited to his buiness strategy better – having a well trained employee and performing or rather having an employee who is not performing and not trained and as a result is stuck in the same job in the same company. There is absence of an strategy or lack of direction as far as employee skills up gradation and training goes. 

Lastly when there was slowdown in business, the company decided to reduce its employee strength to lessen the cost of wages on its balance sheet. As a result, talented employees left the company and only average performers remained. When the recession tide was over, the company reached out those sacked employees and offered them to rejoin which they vehemently refused. As a result, the company’s business suffered and it started getting complaints about poor logistics and quality of it’s products and services. There were chances that the sacked employees would join other competing firms and that they would use their knowledge about the important business information of Akshay Sales corporation thereby threating it’s immediate business prospects and long term sustainability. Clearly this act states lack of long term HR vision of the company, about where it wants to be and where it wants to go as far as its employees are concerned. All these actions are short-term minded. There is no long term Focus on the Future.

In any industry, employees are to be treated as assets of an organization and not as costs. Also the HR function should be on par with the business functions of the company and not treated merely as side function doing only recruitment & salary.

The following few steps should be taken by Akshay Sales Corporation immediately to tackle the problem of rising attrition rate and other HR related issues plaguing it.
 
Firstly appoint an experienced, professional and full time HR Head who is preferably from the same industry background as Akshay Sales Corporation so that HR function is in tune with the business activities, it’s requirements and can fully support it.

Secondly the HR Head should be empowered to take decisions for betterment of the company. HR should be allowed to function independently reporting directly to the CEO. By allowing HR to function independently as if it were a business department itself there would be reduced chances of biasness in its activities and as a consequence there would be healthy work environment in the company.

Third introduce Compensation, Recognition, and Rewards / Incentives to retain it’s existing employees as well as to recruit and hire new talent. These should be influenced purely by performance measures and for generating business growth ideas and reinforcing them on the job. By introducing such Rewards & Recognition schemes, the employees will get a sense of belonging to the company and will feel valued. Thus they will get more engaged with the company which is not so in current scenario and an engaged employee will perform more and contribute more to the growth and development of the company. As an employee grows, the company also grows and the same hold true in reverse.

Lastly but the not least, Develop training plans based on employee and manager input. There should be clear linkages between the business strategic objectives of Akshay and education and training. Skills to be developed based on business demands and employee needs.

The long term strategy for Akshay Sales Corporation in terms of its HR Policy, Procedure and Practice should be to invest in their employees to ensure they have the skills for today and to do what is necessary to succeed in the future. The CEO should aim towards building a work climate that addresses the needs of its employees. Recruitment and training are tools to enhance the work climate. Employees should be incentivised such as bonuses or other rewards, for developing additional career-enhancing skills. Provide for employee support and benefits depending on their different needs like health care, education (both work and non-work related), maternity, paternity and family – illness leave, etc…Make available special activities and services for the employees.

Develop formal career plans for each employee. Evaluate progress against the plans and make adjustments where necessary to ensure that they remain relevant. Companies that provide career development opportunities are four times less likely to lose talent in the next year than companies that do not. 
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