With steep increase in talent demand, organisations had to devise new ways to attract and retain talent while staying cost efficient
In 1974, Larsen & Toubro became the first organisation to have a Human Resource Development function
On 16th February, 1912, the first steel ingot was rolled out of a steel plant in Sakchi (now Jamshedpur in Jharkhand) – a momentous day in the history of industrial India. In the same year, the plant introduced the “eight hour working day”, much before it became an official norm and legislation the world over. Soon, various other benefits and welfare schemes for employees were introduced. The company was Tata Steel, today one of India’s largest conglomerates.
The eight-hour working day may sound inconsequential in today’s times of virtual workplaces, work-life balance and flexi-work, but it marked the beginning of an era in corporate history when business realised that the secret of building a sustainable enterprise was to ensure that their employees were cared for and were the fuel not only for the growth of the company but also for the economy.
This was again reinforced in 1914 when Henry Ford doubled the wages of factory workmen and limited the number of working hours to eight per day soon after Ford Motor Company came out with the Model T. He argued that when wages are low, uncertainty dogs the marketplace and growth is weak. However, when wages are high and steady, business is more secure because workers earn enough to become good customers. Ford arguably is one of the first business leaders to have articulated what economists call “the virtuous cycle of growth”.
More than a century later, not much has changed–organisations that get their people equation right are still the ones that stay ahead of the competition. Research by Hewitt Associates’ suggests that employee engagement is correlated with critical business measures that include total shareholder return (TSR), sales growth, employee turnover, retention and productivity. The research also shows that extraordinary companies that have an engagement score of 60 per cent or higher have an average five-year TSR of greater than 20 per cent whereas companies that have engagement scores between 40 per cent and 60 per cent have only a 5.6 per cent average TSR. The factors that create and sustain employee satisfaction, engagement, delight, have been the Holy Grail for businesses success since the advent of the industrial age. HR didn’t start as a form of social justice. The HR function, as we know it today, was born in the minds of visionary capitalists who could foresee that the only way to build an organisation that stands the test of time is to master the art of humane management.
History, as they say, is not made of big bangs but of soft whispers which we fail to notice. Various thoughts, ideas, experiments have contributed to shaping the HR function as we see it today. In this issue of People Matters, we travel down the by-lanes of corporate history to discover the events, small and big that contributed towards shaping the function as we see it today and go forth in time to speculate how the function will span out in the years to come.
The age of blue-collared workers
The concept of managing people has existed from the day organisations came into being. However, people management as a discipline began in India in 1916 when TATA Steel established the welfare department, which was to become the personnel management function and later evolve into the HR function.
This was the time when organisations were involved in building tangible products and were manufacturing intensive. The profile of the people to be managed was mainly skilled and unskilled workmen or blue-collared workers. The managerial cadre was expected to take care of themselves. Though record keeping of employee information was the prime responsibility of the function, it was also the caretaker, the mouthpiece and the welfare officer of employees in some organisations.
In the West, however, this was the time when management became rooted in science and captured in processes, inspired by Taylor’s Principles of Scientific Management, published in 1911. It was believed that there was one best way to work and this was determined through time and motion studies determining the most effective use of human capabilities in the production process. Post that, the work could be divided into pieces and the number of tasks to be completed by a worker could be computed. These findings formed the basis of piece-rate pay systems seen as the most efficient way to motivate employees.
During this time, workplace practices were left to the organisations as governments had very little influence on such processes. Soon, World War II (1939-45) began. The war had a tremendous impact on the human relations movement as people had to be mobilised in large numbers. Driven by the need to categorise a large number of individuals in military service, systematic efforts began to classify workmen around occupational categories in order to improve recruitment and selection process. This was the genesis of job descriptions and later became a base to design appropriate compensation programs, evaluate individual employee performance etc.
In 1946, Peter Drucker, laid out a vision of the corporation as a social institution in his book “Concept of the Corporation” which he continued to explore in the Practice of Management (1954) and Managing for Results (1964). Peter Drucker was not alone in this quest of establishing corporations as social systems. Fritz Roethlisberger, in his summary of Hawthorne experiments, described organisations as “social systems”. Managers were now realising that employee productivity and motivation had a significant impact on a firm’s profitability and that employees were not only motivated by money but also by social and psychological factors.
Two years after the World War II ended in 1945, India gained independence. It also marked the beginning of the trade union or the labour union movement in the country. This later led to the formation of a formal Personnel and Industrial Relations (IR) function in all organisations and the development of an academic discipline on Personnel and IR, which was to focus on compliance, law and welfare for employees and to be the mediator between employers and factory workmen. This development was important considering that the country was getting back on its feet and corporations had a major role to play in building the economy.
From personnel to HR
As India developed, education was no longer a privilege for the select few. Access to education was trickling down to those who had previously been denied this fundamental right and this in turn gave birth to a new profile of employees who had higher aspirations and were also more cognizant of their duties. This was also the time when many companies were established, leading to the generation of a wide variety of jobs apart from the black and white distinction of ‘management’ and ‘shop floor’. Increased number of opportunities meant shortage of talent because of rising demand and more awareness among workmen gave rise to trade unions, management-employee conflict etc.
Organisations were faced with two distinct challenges: Managing labour unions and getting talent (white-collared employees) for the new category of jobs, which needed an educated workforce. This shift in organisational challenges also changed the role of the welfare officer or the personnel manager. S/he had to be abreast of not only the labour legislations that governed organisations but also be deft while handling negotiations with the labour unions and identifying new sources of talent.
Seeing the need for more talent, organisations started investing in training and skill development institutes such as the Technical Institute for Training of Apprentices, Craftsmen and Engineering graduates, Administrative Staff College of India, Tata Management Training Centre and SBI Staff Development College. Courses on personnel management and industrial relations were also introduced to enable people managers to manage the new workforce. The additional responsibility of legislative compliance required collection, analysis and reporting of voluminous data and that in turn increased the administrative tasks of the function leading to excessive usage of papers and forms.
With widened scope of responsibilities and changing demographics, the personnel function was gradu-ally transforming into the Human Resource Management function. The scope of the personnel manager or the welfare officer was widened further with the use of applied behavioural science in people management. Inspired by the management thinkers such as Abraham Maslow, Peter Drucker, Douglas McGregor etc of the west, the Indian Society of Applied Behavioural Sciences (ISABS) was established in 1972.
The concept of Human resource management was taking shape in India. In 1974, Larsen & Toubro became the first organisation to have a Human Resource Development function under of the guidance of Dr T.V. Rao and Dr. Uday Pareek, who emphasized the importance of developing people in house to address the talent needs of the business.
1990s till date: From manufacturing to services
The corporate landscape witnessed radical changes post-liberalization – Shift toward services, increased competition, technological breakthroughs and influence of management thinkers from the West. With the steep increase in talent demand, what McKinsey coined as the “War for talent”, organisations had to devise new ways to attract and retain talent while staying cost efficient to stay ahead of the competition.
This created the need for specialist functions and domains. Employee compensation, which was traditionally handled by the accounts function, called for a specialist who could devise competitive pay structures making way for global compensation & benefits (C&B) firms and C&B specialists. The requirement of the Information Technology (IT), Information technology Enabled Services (ITES) followed by other services industry required hiring in large numbers leading to the creation of the first generation of recruiters and talent acquisition specialists.
As the nature of business changed, so did the profile of employees and the nature of the workplace. Organisations were increasing in size and spread across locations. There was no longer one shop floor to manage. Instead, there were virtual workplaces, 24/7 offices and above all the risk of losing people to competition and hence losing business. All of these led to the need to convert people management into predictable processes. This, in turn, led to the creation host of consultants who could create these solutions, the application of technology in HR to reduce administrative burden and the development of a parallel industry to which transactional activities could be outsourced.
All of these enabled the HR function to scale up at the pace of the business. On the flipside, however, in a bid to scale up, HR lost its human interface. The increasing number of opportunities led to rising employee turnover, which was detrimental to the business. This led to questions on HR’s relevance, and the perception of HR as a cost centre populated by paper pushers, event managers etc. It is in this context, that the debate about HR being a “strategic business partner”, a term coined by Dave Ulrich in 1996 and HR getting a seat at the business table is rooted and continues to be discussed today.
The times ahead...
Welfare to Personnel to Business Partner, the function has seen various phases of evolution and some argue that as organisations change the HR function may even cease to exist, while others say that the next phase of HR evolution will be marked by data and analytics.
Few companies have already started using data and analytics for people management with Google being the pioneer. Google, where the HR division is called People operations is based on what they call the three third principle. The HR function comprises of three distinct categories of people –one third of them are generalists HR, one third are strategy consultants and the remaining one third are statisticians, physicists, data scientists etc. All people decisions in Google from hiring process, compensations & benefits, talent management to the shape of the cafeteria, the work stations, the office space are made on the basis of data and analytics. In order to manage the ever increasing span of operations they have a special division called People Analytics which comprises of data miners, psychologists and MBAs. One of the famous data driven endeavours of the company is Project Oxygen, Google’s quest to build a better boss or at least indentify what makes a good one. As a part of the project the analytics team looked at a combination of performance review data and employee surveys to determine whether there was a significant difference between theimpact of best and worst bosses. Debunking HR myths is also an important function of the analytics team. For example, employees’ belief that those posted in headquarters got faster promotions and better projects was proved wrong by the analytics team based on data. Looking at the Google example and how the application of data has made the company one of the best places to work for makes a case for data driven people management in the future.
While it is for time to tell if Google’s way is the way people will be managed in the future, people management, irrespective of the shape or form it may be in, will continue to exist because its main role is to make people and organisations more effective: a role that will never become redundant.