Process for evaluating the internal alignment of HR system


In this article we are giving an interesting case of AW Manufacturing Company and despite the organization identifying strategic drivers and making serious attempt to implement could not achieve the requisite goals.

This case describes a relatively simple diagnostic process for evaluating the internal alignment of the HR system—that is whether elements of the HR system reinforce reach other rather than work at cross-purposes. The AW story also sheds light on the destructive impact of misalignment on an organization’s labor force.

AW is a diversified manufacturer with an international production and distribution system. While the company has been very successful in recent years (it generated $ 2 billion in revenues in 2004), the senior management team has developed a new strategic plan for the business that forecasts double-digit increases in both revenues and cash flow over the next three years. Most members of the organization consider this plan extremely aggressive, especially in light of the fragmented and highly competitive nature of AW’s industry. Moreover, these projections have come at a time when AW has faced considerable difficulty in hiring and retaining the best workers (especially in R&D capacities)

To achieve their two optimistic financial goals, AW’s top management team has identified four strategic drivers they believe should guide the business during the next five years:

* Reduce new-product development times.
* More customer focus and responsiveness.
* Higher productivity.
* Develop and successfully manage several joint ventures.

We can characterize AW’s current organizational structure and HRM system as follows:

* The organizational structure consists of many functional “silos,� with little cross-functional communication or coordination.

* The HR function has a silo structure as well. Recruiting, selection, performance management, compensation, and HR planning and strategy generally operate autonomously and efficiently.

* Hr managers reliably and properly administer compensation and benefit programs and hire people as requested, but line managers frequently describe them as over focused on compliance and cost reduction at the expenses of business –problem resolution.

* Jobs reflect traditional (i.e. narrow) definitions; for example, machinists tend to work on only machine or type of part. The company has few team-based work structures and decision processes.

* Recruiting and selection efforts center on filling current openings. The company gives little consideration to hiring for potential or “promo ability.� Managers make hiring decisions on the basis of resume screening and interviews; they use no formally validated selection tests.

* The organization devotes considerable resources to skills development for new and continuing employees. Training systems emphasize general skills and are provided to all employees.

* Performance –appraisal and management –development system have existed for many years at AW. However, many employees describe the performance–management process as “routine� and not particularly influential on individual, team, or business unit behavior In addition, line managers frequently complain about the time required to complete these evaluations.

* Compensation is generally not contingent on individual, work group or firm performance. Any pay increases go proportionally to all workers. As a rule, the company does not differentiate pay between the lowest-and highest –performing workers in any given job.

What conclusions can we draw about the internal alignment of AW firm’s HR systems?

The company has asked independent experts to conduct a survey whether their HR system can meet the strategy desired. The survey has asked individuals from two focus groups of 100 or so individuals from mid to senior management levels to estimate the degree to which the various HR management sub systems work together. The objective of this is to get a comprehensive picture of the current internal alignment of the company’s HR systems.

Taking a close look at the survey results at AW one could see that several elements in the HR system are internally inconsistent Both the selection and performance appraisal process are outdated and do not generate the kind of competency AW needs now or will require in the future. Similarly AW does not have the level and mix of compensation to attract the requisite talent. Its compensation structure design is not in alignment to reflect the current team structure. While the HR system provides the Vice President of HR with the kind of efficient numbers asked to provide to the CEO. But the HR system is undermining HR ability to contribute to value creation. The survey data reveal a very clear message that the HR system of AW is not currently configured to implement the company’s intended strategy.