Human Resource Controlling in Small and Medium-Sized Enterprises

Components and Possible Approaches


Bachelor Thesis, 2011

66 Pages, Grade: 2,0


Excerpt


Table of Contents

Acknowledgment

Abstract

List of Figures

List of Tables

List of Appendices

List of Abbreviations

1. Introduction
1.1. Motivation
1.2. Objectives
1.3. Methodology
1.3.1. Research Philosophy
1.3.2. Research Approach
1.3.3. Research Strategy
1.3.4. Research Choice
1.3.5. Research Time Horizon
1.3.6. Research Technique and Procedure
1.3.7. Sampling Method
1.4. Structure

2. Literature Review HR-Controlling in General and in SMEs
2.1. HRM
2.2. Controlling
2.3. Elements and Dimensions of HR-Controlling
2.3.1. Definition and Goals
2.3.2. Dimensions
2.3.3. HR-Controlling in the Scope of Strategic and Operational Tasks
2.3.4. Controlling of HR Functions
2.3.4.1. HR Planning
2.3.4.2. HR Recruiting
2.3.4.3. HR Development
2.3.5. Instruments of HR-Controlling
2.3.5.1. Measuring HRM Effectiveness: Audit and Analytical Approach
2.3.5.2. Balanced Scorecard and HR Scorecard
2.3.5.3. Human Capital Management and Its Applications for HRC
2.3.6. Legal Aspects of HR-Controlling
2.3.7. Interim Conclusion
2.4. HR-Controlling in SMEs
2.4.1. SMEs Definition
2.4.2. HRM in SMEs
2.4.3. Challenges and Requirements of HR-Controlling in SMEs
2.4.4. Possible Instruments of HR-Controlling in SMEs
2.4.4.1. HR Scorecard
2.4.4.2. Key Measurements
2.4.5. Empirical Evidence of HR-Controlling in SMEs

3. Empirical Findings
3.1. Conceptual Basis of the Expert Interview
3.2. Results of the Primary Data Collection
3.3. Discussion
3.3.1. Comparison of HR-Controlling in Blue-Chips and SMEs
3.3.2. Managerial Implications for HRM in SMEs
3.3.3. Possible Approaches for HR-Controlling in SMEs

4. Summary
4.1. Conclusion on Secondary Empirical Investigation
4.2. Conclusion on Primary Empirical Investigation
4.3. Recommendations for HR-Controlling in SMEs

Reference List

Appendix

“Though your balance sheet´s a model of

what balance sheets should be,

Typed and ruled with great precision

in a type that all can see;

Though the grouping of the assets is

commendable and clear,

And the details which are given more

than usually appear;

Though investments have been valued

at the sale price of the day,

And the auditor’s certificate shows

everything O.K.;

One asset is omitted – and its worth

I want to know,

The asset is the value of the men

who run the show.”[1]

(Sir Matthew Webster Jenkinson)

Acknowledgment

This bachelor thesis is dedicated to my parents who supported me with constructive advice during my academic career. Moreover, I would like to thank all participants of the expert interviews. Their valuable information has been build upon my knowledge about human resource controlling obtained today. In that regards, I would like to thank Dr. Maria Engels from the Schmalenbach-Gesellschaft, Cologne and Ralf Spickermann from the Deutsche Gesellschaft für Personalführung, Düsseldorf who helped me to contact these experts in the area of HR-Controlling. A special thanks to Prof. Dr. Joachim Sandt who has been very supportive during the entire progress of writing my bachelor thesis. He has always been a magnificent supervisor and I appreciate his help.

Abstract

The comprehensive application of human resource controlling (HRC) instruments for measuring the contribution of human resource management (HRM) to corporate success is already fully implemented in larger corporations. In small and medium-sized enterprises (SMEs), however, HRC is predominantly insufficiently used. Knowing that, the research focused on components and possible approaches for HRC in SMEs. The research methodology combines the evaluation of relevant academic literature and primary data uncovered out of four expert interviews. The collected data revealed that the application of the controlling process which contains goal definition, performance measurement and comparison, variance analysis and corrective actions can enhance effectiveness and efficiency of HRM activities. Accordingly, an integrated HRC requires instruments which are operational and strategically aligned, relevant, goal and future oriented. Assessing the impact of HRM activities, possible controlling instruments are the balanced scorecard with its learning and growth perspective mainly important for HRM and the human resource scorecard (HRSC) which evaluates HRM activities in the scope of value creation for workforce success. Related measurements are, for instance, the audit and analytical approach, the full-time equivalent, the human resource portfolio and applications out of human capital management. Having compared HRC in larger corporations and SMEs, the research concludes that possible approaches for HRC should be implemented by executing a project and for further improvement of already existing HRC systems the introduction of a HRSC might be appropriate. Finally, HRC in SMEs should be based on an integrated HRM in order to evaluate and control HR activities operationally and strategically.

Human resource management HR-Controlling Small and medium-sized enterprises

List of Figures

Figure 1 Strategy underlying HRM practices

Figure 2 Controlling-concepts and controlling process

Figure 3 Control cycle of HRC

Figure 4 HR portfolio

Figure 5 Implementing HR activities into the corporate strategy

Figure 6 Model for deriving `original´ HR costs

List of Tables

Table 1 Overview research questions, objectives, and data collection methods

Table 2 Industry examples: application of a balanced scorecard in the area of HR

Table 3 Definition of SMEs according Art. 2 SME User Guide

Table 4 Definition of SMEs according Section 267 German Commercial Code

Table 5 HR measures in the scope of the value creation process

Table 6 Overview interview participants

Table 7 Results of primary data collection (excerpt) 31-36

Table 8 Comparison and assessment of HRC in Blue-Chips and SMEs

List of Appendices

Figure A Research `onion´ model

Table A Distinctive steps in quantitative and qualitative research

Table B Main instruments to evaluate secondary and primary data

Table C Different types of probability and non-probability sample approaches

Table D HR roles and its value-added focus

Table E Total outcome of the closed questions of the expert interviews

List of Abbreviations

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1. Introduction

1.1. Motivation

Companies compete in a complex and dynamic world in which management is forced to conform to changing conditions. These conditions change with tremendous acceleration and, particularly, human resource management (HRM) faces significant requirements regarding flexibility and accountability of its policies. HRM has to ensure not only that its activities are linked with the corporate strategy, but also that human resource (HR) managers are able to reliably quantify their contribution within the organization by applying the principles of HR-Controlling (HRC). HRC as a component of HRM is well established and it is an integrated part in Blue-Chips and larger corporations; however, in small and medium-sized enterprises (SMEs), HRC is far less systematically applied.[2] Indeed, large corporations and SMEs are both competing for human capital (HC) which is “the skills, talent, and knowledge that a company’s employees possess.”[3] The question is not whether SMEs should implement HRC; rather important is the answer to the question how HRC can be implemented in SMEs.[4] Therefore, this thesis aims at identifying key issues of HRC in SMEs, its components and possible approaches.

1.2. Objectives

This section presents the objectives which guide through the whole thesis at hand. Based on the evaluation of relevant literature concerning the elements, areas of application, and major instruments of HRC in large corporations, this thesis focuses on identifying possible approaches of HRC in SMEs. Subsequently, data gathered from expert interviews with HR managers is combined with secondary data and serves as a root position in order to uncover prerequisites for an introduction of HRC in SMEs and its managerial implications for HRM. Further, this thesis contains a comparison of the application level of HRC in large corporations and SMEs. Finally, this thesis explores potential recommendations and guidelines that can be used by HR managers of SMEs to implement HRC instruments. Table 1 provides an overview of the research question, research objectives, detailed subsidiary questions, and data collection methods for this thesis.

Table 1: Overview research questions, objectives, and data collection methods

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1.3. Methodology

The methodology describes the research process applied to answer the research question presented above. The generic research methodology is based on the research `onion´ model[5] which guides the researcher to “depict the issues underlying the choice of data collection methods.”[6] Each layer represents a distinctive step within the research process. The combination of each layer leads to the research design. The particular selection within each layer which is used in this thesis is pinpointed with a black frame. The individual components of the research `onion´ model represent the following aspects: research philosophy, research approach, research strategy, research choice, research time horizon, and the research data collection method.

1.3.1. Research Philosophy

The first layer of the research `onion´ model represents, as to be found in the appendix figure A, the research philosophy; this layer pinpoints the reflection of epistemological– and ontological considerations. Epistemological considerations play an important role when it comes to the research strategy. Likewise, “it concerns the question of what is […] regarded as acceptable knowledge in a discipline”[7] and asks whether the social world can be examined with equal procedures as the natural science. Ontological considerations deal with the nature of social science and call into question “whether social entities can […] be considered objective entities that have a reality external to social actors, or whether they can […] be considered social constructions built up from the perceptions […] of social actors.”[8] Since the thesis’s core research objective is to reveal possible approaches of HRC in SMEs within a qualitative scope, the research philosophy focuses on interpretivism with regards to the epistemological orientation and according to ontological considerations on constructionism. The underlying assumption of interpretivism is that the whole needs to be examined to understand a phenomenon; hence, the researcher considers the subjective implication of social behavior based on the “differences between people and the objects of the natural sciences.”[9] As an ontological angle, constructionism undertakes the notion that social behavior is not definite and that social participants adapt their implications permanently.[10]

1.3.2. Research Approach

The second layer of the research `onion´ model reflects the distinction between the deductive and inductive research approach. Applying the deductive approach, the researcher develops a certain hypothesis based on already existing theory, data and knowledge. Afterwards, the theory may be revised based on the data collection, the empirical findings and the confirmation of the hypothesis. The inductive approach aims to derive theory out of observations and findings. Some large-scale studies can be considered as inductive studies deriving quantitative data; however, the deductive approach is typically associated with a quantitative research strategy, whereas the inductive approach is associated with a qualitative research strategy.[11] Given the nature of the research objective and the fact that literature related to HRC in SMEs rarely exists, the researcher decides to apply an inductive approach for this thesis.

1.3.3. Research Strategy

The third layer of the research `onion´ model highlights the research strategy. For this thesis, the action research has been selected in order to address specific issues with regards to HRC in SMEs. Action research can be conducted according to a five step model: observe, plan, act, and reflect.[12] Based on an interactive application, the problem solving procedure tries to identify results and predictions about personal and organizational change, which can be applied directly in practice.[13]

1.3.4. Research Choice

The fourth layer of the research `onion´ model pinpoints the research choice concerning the application of a mono method, a mixed method and/or a multi-method. The research choice reflects to which extent a quantitative, a qualitative, or a mixed approach is used. The quantitative approach focuses on the testing of theories and the data gathered is quantified. The qualitative approach, instead, investigates data in the light of words and tries to develop reliable theory. Although, this kind of distinction appears significantly strict, “it is necessary to be careful about hammering a wedge between them too deeply.”[14] Both approaches can be applied complementary in a research project. Likewise, secondary and primary data collection analysis leads to the exploration of quantitative and qualitative data.[15] In that regards, this thesis focuses on a mixed method which is the combination of quantitative facts gathered out of secondary data and qualitative facts uncovered out of expert interviews.

1.3.5. Research Time Horizon

The fifth layer of the research `onion´ model differentiates among cross-sectional and longitudinal research time horizons. Whereas the cross-sectional approach relies on a sample of elements from the population of interest that are measured at a single point in time, the longitudinal approach focuses on the study of one research entity at multiple time points.[16] Since the main research objective of this dissertation is to explore a current situation in the first place and postprincipio to derive managerial implications for HRC in SMEs out of expert interviews, a cross-sectional format fits best.

1.3.6. Research Technique and Procedure

The sixth layer of the research `onion´ model illustrates the research technique or method. While a research design enables the researcher with a framework in order to compile data, the research method is a procedure for assembling data. A research method involves a particular research instrument[17] and, henceforth, the type of research method reflects the decision about the specific instrument or technique which is applied.[18] Research techniques can be classified in three categories: exploratory research, descriptive research, and causal research.[19] The research process of this paper at hand starts with a descriptive technique in order to describe the characteristics of HRC in Blue-Chips and concludes with an exploratory technique which increases the researcher´s familiarity with the research problem and identifies possible approaches for HRC in SMEs.[20]

The basis of answering the research question encompasses secondary and primary data collection. “Secondary data consist of information that already exists somewhere, having been collected for another purpose. Primary data comprises information collected for the specific purpose at hand.”[21] Further, secondary data has been raised by other researchers and is mainly considered being advantageous and of high quality.[22] Nevertheless, the researcher should always investigate whether the research findings are reliable and valid. Since in one point in time secondary data may not be sufficient anymore, recent data needs to be uncovered which leads to the decision of engaging in the collection of primary data.[23]

In order to collect primary data, the researcher conducts predominantly a qualitative structured interview. The structured interview, “sometimes called a standardized interview, entails the administration of an interview schedule by an interviewer.”[24] The structured interview research technique is widely used and accepted. The researchers aim is to emphasize the standardized research process. The interview contains both open and closed questions with different response formats, such as numerical/bi-polar, verbal, or a frequency response format[25]. The researcher aims to identify possible approaches for HRC in SMEs by administering the structured interview research procedure. This thesis covers the structured interview with its guideline, aims and questions in Chapter 3.

1.3.7. Sampling Method

A sample is a segment of the concerned population assorted to stand for the population as an entity. A sample can be quantified as “a subset of the population. The method of selection may be based on a probability or a non-probability approach.”[26][27] Due to potentially high probability sampling costs and the qualitative approach, the participants of the expert interviews are selected on a non-probability sampling procedure. Since the research topic is rather specific and the selection of population members is obvious, it is relatively easy to enforce a judgment sample. The author therefore expects interviewees who are well-fitting prospects for appropriate data regarding HRC in SMEs.

1.4. Structure

This thesis is divided into four chapters. Chapter 1 serves as the introduction and states therefore the motivation for the topic and outlines the research objectives. Additionally, the introduction clarifies the utilized methodology with its research philosophy, approach, strategy, choice, time horizon, and data collection method.

Chapter 2 of this paper starts with the identification of the conceptual frame for HRM and controlling; thereupon, HRC with its goals and dimensions is considered and continues with the reflection of HRC instruments. Furthermore, Chapter 2 describes legal aspects of HRC, challenges and requirements of HRC in SMEs, possible instruments of HRC in SMEs, and concludes with the analysis of empirical evidence of HRC in SMEs.

Succeeding this section, Chapter 3 incorporates the evaluation of the conducted expert interviews. Based on the assembled data, the chapter shows a comparison of HRC in Blue-Chips and SMEs, managerial implications for HRM in SMEs and possible approaches for HRC in SMEs.

Chapter 4 concludes this bachelor thesis with a summary of the gathered secondary and primary data, including possible approaches, managerial implications, and recommendations for HRC in SMEs.

2. Literature Review HR-Controlling in General and in SMEs

2.1. HRM

Definition and Goals

The scope of HRM can be defined as “the policies, practices, and systems that influence employees’ attitudes, behavior, and performance.”[28] Moreover, HRM undertakes actions which enhance effectiveness and efficiencies of HR policy. These activities are depicted within the following HR functions: HR planning, HR recruiting, HR performance-management, HR training and development, compensation and benefits, and industrial relations.[29] HRM mainly aims for utilizing those actions that enable employees to fulfill corporate requirements and accomplish corporate goals; thereby, value-added HRM focuses on an increase of company performance. Figure 1 displays the strategic HRM practices which lead to company performance.[30]

Figure 1: Strategy underlying HRM-practices

illustration not visible in this excerpt

Source: Noe et al. (2003), p. 5

Based on a strategic HR architecture, HRM translates and implements the corporate strategy. In the scope of value creating activities, a strategic HR architecture incorporates, firstly, the HR function which is represented by HR professionals with strategic competencies, secondly, a HR system which provides a setting for strategically oriented activities, and thirdly, the influence on employees’ behavior.[31]

HR Roles in the Scope of Value-Added Measurements

The four roles fulfilled by a HR department are the strategic management of HR policy, transformation and change management, company infrastructure management, as well as employee contribution management. All four types can be distinguished by HR activities in two dimensions, namely, strategic and operational focus and processes and people. Since HR roles differ in their scope and, therefore, in their application level of value creation, it is important to measure HR activities with regards to the most striking HR roles; a survey revealed that the strategic-partner role is of greatest importance, followed by the change-agent role, the employee-advocate role and the administrative-expert role.[32] However, the various HR roles in perspective to its value-added focus differ.[33]

2.2. Controlling

Definition and Goals

No uniform definition of controlling exists in relevant academic literature; thus, there are different views on controlling goals, tasks, and spread.[34] However, controlling is understood as a control-system that supports the decision-making process of the management, as a service function which advises and reliefs the management, and as a cross-sectional function implemented across all areas of a corporation.[35] In addition, controlling is a system of governance which coordinates planning, managing and controlling the information supply in a goal-oriented manner.[36]

Four controlling perspectives are considered: controlling as a provider for information, controlling for planning and supervision, controlling as coordination, and controlling as rationality assurance.[37] “Controlling is a kind of navigation function”[38] and supports strategic and operational management. Whereas strategic controlling focuses on essential elements of a planned business development, operational controlling stresses classic business activities, such as cost accounting and control as well as auditing.[39]

Controlling Concepts and Controlling Process

Since the early 1980’s, there have been some controlling variants emerged that apply to individual functional areas, such as HR, specific organizational forms, different company levels and its individual business applications, such as project-controlling. Figure 2 provides an overview about possible controlling-concepts[40] and the general controlling process.[41]

Figure 2: Controlling-concepts and controlling process

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Source: Adapted from Wunderer & Schlagenhaufer (1994), pp. 7-8, Jansen (2008), p. 15

Controlling of Intangibles

Controlling of intangibles includes the evaluation of value-added activities of human, customer, supplier, investor, process, location, and innovation capital. HC, representing HR’s intangible asset is increasingly understood as one of the key drivers for economic success. There are numerous models for mapping and measuring intangibles. Even if committed to different objectives for different audiences, all models aim for a transparent and efficient intangible management.[42] Since, HRC provides decision-relevant information with regards to HC, the next part of this thesis stresses elements and dimensions of HRC.

2.3. Elements and Dimensions of HR-Controlling

2.3.1. Definition and Goals

HRC combines applications taken from the controlling and HR functions. This includes operational and strategic controlling tasks, such as planning, control and variance analysis. Hence, HRC is a planning-oriented, integrated evaluation tool for optimizing benefits of HR activities.[43] “Checking the results of a decision against its expectations shows executives what their strengths are, […] and where they lack […] information.”[44] HRC in that respect, aims to ensure an economical evaluation of HR activities and processes. More detailed, HRC supports management within the decision-making process, provides a methodology to determine relevant key performance indicators (KPIs) for measuring HR contribution to company success and optimizes HR utilization. Moreover, HRC increases transparency of HR expenses, controls goal-oriented, and improves efficiency and effectiveness of HR activities.[45][46] Hence, HRC can be defined as the planning and control-based, integrative evolutionary thinking, and counts for the purpose of supporting HRM decisions in the scope of their economic and social consequences.[47] Figure 3 illustrates how HRC tasks are implemented by means of information processing in a control cycle.[48]

Figure 3: Control cycle of HRC

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Source: Armutat (2010), p. 30

2.3.2. Dimensions

In the scope of the already explained controlling concepts in Chapter 2.2., HRC can be classified based on the following three perspectives. The first perspective deals with cost-controlling which is the periodic planning of HR costs. The second perspective involves efficiency-controlling which examines the productivity of HR activities. Finally, the third perspective concerns effectiveness-controlling which identifies the profit contribution of HR activities to corporate success.[49] Another description is the combination of three levels of HRC. The target level can be distinguished between strategic and operational HRC. The former supports strategic HR and evaluates mainly the contribution of HR in reference to the execution of the corporate strategy; the latter, in contrast, concentrates on operational HR for a result-oriented resource allocation. The second level focuses on the type of information HRC gathers which can be differentiated by means of quantitative versus qualitative information. Quantitative HRC develops tangible metrics (KPIs), while qualitative HRC techniques provide data which describes attributes of facts as numerical form. Thirdly, the controlling-perspective level incorporates on the one hand process-oriented HRC which focuses on the effect of internal HR activities and on the other hand, factor-oriented HRC in which the scope lies in the impact of external HR activities.[50]

2.3.3. HR-Controlling in the Scope of Strategic and Operational Tasks

Strategic HRC can contribute to the strategic planning and decision-making process done by management.[51] Furthermore, strategic HRC evaluates corporate initiatives in order to ensure a sustainable future for the company by controlling HR in both quantitative and qualitative terms.[52] The main tasks of strategic HRC are the integration of HR within the corporate strategy, long-term HR planning, evaluation of the implementation-rate regarding the corporate strategy, and entrepreneurial orientation of HRM.[53] Related instruments of HRC on the strategic level are, for instance, HR portfolios or HR risk-management. A HR portfolio applies a modified BCG-Matrix (Boston Consulting Group) in which employees are classified in order to derive strategically relevant long-term recommendations. Strategic HRC considers HR risk-management to evaluate “bottle-neck” risk, “motivational risk”, “loyalty-risk”, “exit-risk”, and “adaption-risk”.[54]

Operational HRC can contribute to planning and decision-making on the operational level which is based on requirements of the strategic level. Furthermore, operational HRC refers to a shorter time period. HRC therefore, aims to evaluate HRM regarding the firm’s infrastructure and employee contribution.[55] The quantitative evaluation, thereby, focuses primarily on costs and economic variables. The qualitative evaluation of HRM pinpoints the quality and effectiveness of processes, thinking and behavior patterns of leadership and HRM. Operational HRC thus performs quantitative analysis for planned versus actual comparisons and conducts an employee survey regarding to a qualitative analysis.[56] Just to reiterate, tasks of strategic HRC serves for a performance increase of HRM in its role as strategic-partner and change-agent, while actions of operational HRC focus on HRM in its role as employee-advocate and as administrative-expert.

Taking the situation of the RAG AG[57] as an example for the application of HRC in the scope of strategic and operational tasks; since 2005, the HR-function is considered to be an equal partner in shaping the corporate strategy. According to the RAG AG, HR has a key-role in facilitating the future development of the company. The corporate strategy is developed, in the author’s view, in a two-way linkage which “allows for consideration of human resource issues during the strategy formulation process.”[58] The evaluation of the HR management strategy (HRMS) and, therefore, of HR activities is integrated into the corporate controlling cycle. Quantitative and qualitative KPIs serve to measure to which extent the corporate and HR goals are achieved by reviewing variances at HRC meetings within every corporate subsidiary.[59]

2.3.4. Controlling of HR Functions

The controlling-perspective level with its distinction between process-oriented and factor-oriented HRC serves as the basis for the following discussion of controlling within the standard HR functions of planning, recruiting and development. For the aforementioned HR functions specific metrics are explained as an example.

2.3.4.1. HR Planning

HR planning aims, in general, for the target and task oriented allocation of employable human resources for a specified or indefinite time period. It encompasses, for instance, HR recruitment planning, workforce management as well as HR cost planning. Therefore, HR planning describes the process of planning for all employees. HRC supports line management process with regards to HR quantity, time, and costs. The full-time equivalent (FTE) serves as an example for a measurement within the factor-oriented planning of HR quantity. In order to determine staff vacancies and overhangs within the HR planning period, HRC firstly derives FTE out of the number of employees which will be available across the time period. Afterwards, the ratio out of the unplanned fluctuation-rate within FTE and the total FTE is the basis for HR recruiting or respectively, a HR reduction.[60] Since the impact on every participant of the planning process is rather high, the process-oriented HRC monitors the efficiency and effectiveness of the HR planning process. Like the factor-oriented HRC, the process-oriented HRC of HR planning can be categorized among quantity, time, and costs. HRC measures the number of HR planning processes, the time consumed for planning, and occurred costs with respect to the allocated HR capacity needed.[61]

2.3.4.2. HR Recruiting

The main purpose of HR recruiting is to detect potential employees that fit the corporate culture. It serves as a fender between HR planning and the real allocation of new employees[62] ; thus, HR recruiting determines the suitability of potential candidates in order to fill HR vacancies. Regarding HR recruiting tasks, factor-oriented HRC considers three criteria: acquisition success, selection success, and campaign success.[63] The most important criterion in this case is the campaign success with its measurements like the number of applicants per apprenticeship-training-position and the number of job interviews in relation to the number of applicants measured in percent. A rather small ratio of job interviews in relation to the number of applicants could be due to wrong HR advertising campaigns. Process-oriented HRC in terms of HR recruiting evaluates the efficiency and effectiveness of the HR procurement process. Efficiency measurements depict the ratio of the number of applications, job-interviews and hires per procurement process. Another measurement depicting effectiveness is, for example, the number of procurement processes per HR recruiting employee.[64] Again, since the primarily goal of HR recruiting is to cover the staffing requirements, HRC measures the duration of procurement processes in cost-benefit terms. The `time-to-fill´ in days is distilled out of the ratio between the total of procurement duration time in days and the number of procurement processes.[65]

2.3.4.3. HR Development

The primary purpose of HR development is to prepare and improve the employee’s efficiency, performance, and competencies with respect to the corporate strategy.[66] As an example, the portfolio of HR development at Porsche AG strategically encompasses corporate goal-oriented development programs for the whole workforce – especially for young professionals and executives. Moreover, HRM at Porsche AG utilizes management tools, change management, and succession-planning.[67] HRC evaluates activities in the area of the selection of potential candidates, job-related development and retention of staff through career planning and development within the company. In the scope of factor-oriented HRC are both, the identification and analysis of employees’ potentials and skills. In this context, the HR portfolio and the first-rate talent index are described in the following. The HR portfolio, as stated above, is a modified BCG-Matrix and serves as a basis for possible promotions or HR planning and recruiting. Figure 4 shows the four different classifications of employees according to their performance and potential levels.

Figure 4: HR portfolio

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Source: Adapted from Kosub (2010), p. 11

The first-rate talent index assesses the availability of high-potential candidates for possible management positions. The first-rate talent index is the ratio of the sum of identified high-potentials divided by the total number of employees. Additionally, this index examines the average time needed to develop high-potentials amongst employees. In response to the respective findings, the development program for high potentials or the succession planning may be revised, if the time period between identification and promotion into a management function is comparably long.[68] Process-oriented HRC is the evaluation of HR development internally utilizing analysis measurements like: training hours per HR development employee and the proportion of HR development costs to total HR costs[69]. HR training as a core instrument of HR development can be monitored along specific process costs such as planning, execution, and evaluation of coaching-activities.[70]

2.3.5. Instruments of HR-Controlling

HRM should be based on reliable information about the effectiveness of the HR function. Thus, the application of HRC instruments is necessary to increase the acceptance of line managers for the HR function and the accountability for its policies.[71] Possible HRC instruments are described in the following part of this thesis.

2.3.5.1. Measuring HRM Effectiveness: Audit and Analytical Approach

The audit approach is a self-assessment of the HR function and serves as an overarching instrument of measuring HRM effectiveness. The audit approach aims to analyze and improve the service level and quality of HRM. Furthermore, the audit approach focuses on future-oriented and systematic evaluations of all levels within HRM. Possible audit instruments are employee surveys, workshops, and studies by external experts.[72] A study[73] shows a low incidence of internal and external assessments. While 53 percent of the companies surveyed indicated `no internal assessment carried out´; 11 percent of respondents indicated almost `no internal assessments had been conducted´.[74] The above stated instruments can be tailored to the company characteristics regarding the HR strategy and goal audit, the HR activity audit and the HR process audit. The philosophy of the audit approach is characterized as an argumentation of HRC, HR managers and the employees affected by HR activities. HRC should continuously scrutinize HR activities in order to detect changes and develop constructive suggestions.[75]

The analytical approach focuses on “(1) determining whether the introduction of a program or practice […] has the intended effect or (2) estimating the financial costs and benefits resulting from an HRM practice.”[76] The analytical approach aims for a comprehensive evaluation of all HR programs according to their impact on the organization. Thus, the analytical approach identifies the associated degree of change of a specific program. Further, it examines the monetary value of a program, including related expenses and benefits.[77] For instance, the four-level model by Kirkpatrick (1975) can be used to measure the impact of training. The model examines, relative to the participants, the reaction or satisfaction with post-course evaluation surveys, the learning curve with work samples, the behavior or transfer success such as customer surveys and the results or impact on business metrics.[78] The monetary value of a program can be determined with the use of a cost comparison analysis, cost-benefit analysis or cost-effectiveness analysis. The economic review incorporates the identification of the problem, the estimated costs for problem solving, the profit improvement through problem solving, and the cost-benefit ratio of the contemplated solution.[79]

2.3.5.2. Balanced Scorecard and HR Scorecard

The Balanced Scorecard (BSC) is the fundamental idea of a HR Scorecard (HRSC). Based on the corporate strategy, the BSC encompasses four perspectives which are essentially related in a cause-and-effect relationship.[80] First, the financial perspective which focuses on the monetary outcome of the corporate strategy with generic measures like return on investment (ROI) or economic-value added (EVA). Second, the customer perspective is designed to measure and report attributes related to customers. Generic measures, like customer satisfaction and time-to-market outline the preferred market segments in which a company wants to gain a competitive advantage. Third, mangers examine with the internal-business-process perspective the essential processes that are most crucial for the organization by evaluating, for example, the quality or number of new product introductions. The fourth perspective is the learning and growth perspective. It considers the corporate ability to build and maintain competitive knowledge and to change in order to meet the market’s needs and wants. HRM has three core outcome measures that are important, which are employee satisfaction, retention, and productivity. In particular, HRC evaluates the related drivers such as employee training, information system capabilities, motivation, empowerment, and corporate alignment.[81] Table 2 contains industry examples concerning the application of a BSC in the area of HR.

Table 2: Industry examples: application of a BSC in the area of HR

illustration not visible in this excerpt

Source: Wunderer & Jaritz (2006), pp. 361-364

Kaplan and Norton declared, “the Balanced Scorecard strategy map provides a framework to illustrate how strategy links intangible assets to value creating processes,”[82] Kaplan and Norton also indicated “specific measures concerning employee skills […] and organizational alignment, companies have devoted virtually no effort for measuring either the outcomes or the drivers of these capabilities.”[83] The following HRSC approach can be utilized to close that gap of insufficient measurements and provides, thereby, a seven-step model for implementing HR’s strategic role and a process for developing the HRSC.

The seven-step model aims at integrating the HR architecture[84] by means of performance measurements based on the corporate strategy. These value-added measurements of HR activities are embedded into a meaningful cause-and-effect relationship. This relationship, essentially, connects and aligns HR activities with the corporate strategy. Hence, it is the prerequisite for achieving corporate goals.[85] Figure 5 illustrates how HR activities are implemented into the corporate strategy.

Figure 5: Implementing HR activities into the corporate strategy

illustration not visible in this excerpt

Source: Adapted from Becker, B. (2001), p. 37

Overall, the HRSC strategy enables to “manage HR as a strategic asset and demonstrate HR´s contribution”[86] towards the economic success of a corporation. The process for deriving a HRSC is described by using an example of a possible Research & Development (R&D) function, since this function is considered to be importantly influential on revenue growth caused by product innovation and, thus, customer satisfaction. The first step is to develop a HR measurement system based on the identification of HR deliverables. In case of R&D, HR has to ensure both a sustainable and highly qualified workforce. The second step is the creation of a high-performance work system which serves as a tool to check to which degree an identified deliverable is achieved. Thirdly, the HR system alignment identifies actions which have to be considered in order to develop the deliverables. In case of R&D, this might be a competency model which identifies certain employee skill-sets or ensures benefit packages required for corporate deliverables. The final step is to relate valid efficiency measures to former identified deliverables. Taking the R&D example, this might be the cost per hire.[87]

[...]


[1] Flamholtz, E. (1999). Human Resource Accounting. Boston: Kluwer Academy. p. 29

[2] Söffker (2008), p. 7

[3] Kaplan & Norton (02/2004), p. 3

[4] Geighardt (05/2007), p. 7

[5] For further information see Appendix Figure A: Research `onion´ model

[6] Saunders et al. (2009), p. 106

[7] Bryman & Bell (2007), p. 16

[8] Bryman & Bell (2007), p. 22

[9] Bryman & Bell (2007), p. 19

[10] Bryman & Bell (2007), p. 23

[11] Bryman & Bell (2007), pp. 11-21

[12] Norton, L. (2009), p. 69

[13] Reason & Bradbury (2001), p. 105

[14] Bryman & Bell (2007), p. 29

[15] For further information see Appendix Table A: Distinctive steps in quantitative and qualitative research

[16] Bryman & Bell (2007), p. 55, p. 60

[17] For further information see Appendix Table B: Main instruments to evaluate secondary and primary data

[18] Bryman & Bell (2007), pp. 39-41

[19] Armstrong & Kotler (2007), p. 103

[20] Churchill & Iacobucci (2002), p. 122

[21] Armstrong & Kotler (2007), p. 103

[22] Bryman & Bell (2007), p. 325

[23] Wild & Diggines (2009), p. 84

[24] Bryman & Bell (2007), p. 210

[25] Bryman & Bell (2007), p. 265

[26] Bryman & Bell (2007), p. 182

[27] For further information see Appendix Table C: Different types of probability-/non-probability sample approaches

[28] Noe et al. (2003), p. 5

[29] Dowling & Welch (2005), p. 4

[30] Noe et al. (2003), p. 5

[31] Becker, B. et al. (2001), pp. 12-13

[32] Wunderer & Jaritz (2006), pp. 75-78

[33] For further information see Appendix Table D: HR-roles and its value-added focus (excerpt)

[34] Jung (2003), p. 5

[35] Ziegenbein (2004), p. 21

[36] Horváth (1993), p. 322

[37] Weber, J. (2007), p. 31

[38] Horváth (1993), p. 323

[39] Becker, H. (1993), pp. 4-5

[40] Wunderer & Schlagenhaufer (1994), pp. 7-8

[41] Jansen (2008), p. 15

[42] Weber, J. et al. (2006), pp. 16-21

[43] Wunderer (1991), p. 272

[44] Drucker (2006), p. 120

[45] Becker, D. et al. (2006), p. 5

[46] Jansen (2008), pp. 20-21

[47] Wunderer & Jaritz (2006), p. 14

[48] Armutat (2010), p. 30

[49] Wunderer & Jaritz (2006), p. 16

[50] Armutat (2010), pp. 21-25

[51] Jansen (2008), p. 83

[52] Papmehl (1990), p. 129

[53] Wunderer & Schlagenhaufer (1994), p. 16

[54] Jansen (2008), pp. 83-90

[55] Jansen (2008), pp. 91-92

[56] Wunderer & Schlagenhaufer (1994), p. 16

[57] The core business of the RAG AG is assessing and processing German coal. Since September 2006, RAG AG is a part of Evonik Industries.

[58] Noe et al. (2003), p. 60

[59] Weber, U. (2007), pp. 169-172

[60] Schmitz (2010), pp. 63-67

[61] Schmitz (2010), pp. 71-73

[62] Noe et al. (2003), p. 195

[63] Hentze & Kammel (1993), p. 174

[64] Hentze & Kammel (1993), pp. 175-176

[65] Jansen (2008), pp. 187-188

[66] Flinders & Gamble (2005), p. 105

[67] Meyer & Rust (2007), pp. 100-110

[68] Kosub (2010), pp. 109-112

[69] Wunderer & Schlagenhaufer (1994), pp. 50-52

[70] Schulte (1989), p. 24

[71] Noe et al. (2003), p. 656

[72] Wunderer & Jaritz (2006), pp. 303-304

[73] Wunderer et al. (1997), p. 9, company survey: 1997, Germany, N=93

[74] Wunderer & Jaritz (2006), pp. 431-432

[75] Hentze & Kammel (1993), pp. 141-143

[76] Noe et al. (2003), p. 660

[77] Noe et al. (2003), pp. 660-661

[78] Kosub (2010), p. 117 and Spencer Jr. (1986), pp. 10-18

[79] Wunderer & Jaritz (2006), pp. 269-272

[80] Kaplan & Norton (1996), pp. 30-31

[81] Kaplan & Norton (1996), pp. 25-29, p. 44, pp. 129-136

[82] Kaplan & Norton (03-04/2004), p. 2

[83] Kaplan & Norton (1996), p. 144

[84] Becker, B. et al. (2001), p. 12

[85] Becker, B. (2001), pp. 36-52

[86] Becker, B. (2001), pp. 53

[87] Becker, B. (2001), pp. 54-56

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Details

Title
Human Resource Controlling in Small and Medium-Sized Enterprises
Subtitle
Components and Possible Approaches
College
International University of Applied Sciences
Grade
2,0
Author
Year
2011
Pages
66
Catalog Number
V177181
ISBN (eBook)
9783640987719
ISBN (Book)
9783640987924
File size
1088 KB
Language
English
Keywords
HR, HRC, HR-Controlling, HR-Scorecard, SMEs, Human Capital Management, Human Resource Controlling, Human Resources
Quote paper
Alexander Michalski (Author), 2011, Human Resource Controlling in Small and Medium-Sized Enterprises, Munich, GRIN Verlag, https://www.grin.com/document/177181

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