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Chapter -3

HUMAN RESOURCE MANAGEMENT IN INFORMATION

TECHNOLOGY (IT) INDUSTRY

3.1. The Emergence of Knowledge Economy

The knowledge economy encompasses all jobs, companies, and industries in

which the knowledge and capabilities of people, rather than the capabilities of

machines or technologies, determines competitive advantage. Of the 19.5

million jobs that are projected to be created in the United States from 1998 to

2008, 19.1 million of them will be in the service sector (Hecker, 2001)1. From

retail sales to computers to biotechnology, these jobs will be more knowledge-

intensive in their demands on workers and organizations. Although the service

sector is an obvious place to find more knowledge intensive work, the

manufacturing sector is also becoming more dependent on knowledge and

human capabilities as microprocessors and computers pervade almost every

facet of work.

The knowledge economy came into existence as a result of the

commercialization of information and communication technologies what is

collectively known as information technology (Burton-Jones, 1999)2. The rapid

development of computers and microprocessors has made it possible to

collect and use vast amounts of information from a variety of sources in a

more integrative and interactive manner than ever before. Networking and

connectivity coupled with the Internet, have made it possible for information to

be acquired and shared globally, so that proximity -no longer determines the

ability of people to work together collaboratively. Combined these forces have

dramatically altered business and everyday life.

In this information -Intensive economy, competitive advantage is based

primarily on the application of knowledge, and not all of the data, intelligence,

and wisdom, with which a global company needs to compete can be found in

one place (Doz, Santos, & Williamson, 2001)3. Increasingly, knowledge is

dispersed around the world. Furthermore, the cost of overcoming distance is

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falling rapidly for commodities that are mobile, such as capital, goods, arid

information. Consequently these commodities' are readily accessible to firms

that previously faced limitations because of their geographic location.

Knowledge, rather than the concrete characteristics of goods or services or

the mechanics of production processes, is becoming the defining

characteristic of economic activities. The impact of knowledge is pervasive in

both the "old economy" as well as the "new economy." Human know-how is a

crucial component in virtually everything we produce, and it determines how

we produce valued goods and services. As Don Tapscott (1996)4 asserts,

more, added value is created by 'brain than brawn.

Many agricultural and industrial jobs are becoming knowledge work. Already,

almost 60% of all American workers are knowledge workers and eight of ten

new jobs are in information- intensive sectors of the economy. The factory of

today is as different from the industrial factory of the old economy as the old

factory from the craft production that preceded it. Farms are operated with

agricultural equipment brimming from chips. Cargo is shipped in containers

loaded by giant computer-controlled cranes or in jumbo jets loaded with

software.

The knowledge economy is about adding ideas to products and turning new

ideas into new products.

There are smart clothes with chips in the collar; smart vehicles brimming with

microprocessors that do a hundred new things every year; smart maps that

tell a trucker's location and automatically change tyre pressure according to

the weather and road conditions, smart radios that store the traffic report for

you when you want it; smart houses that manage energy, protect you from

intrusion, and run a bath for you before you arrive; smart elevators that phone

in when they're getting sick; and smart greeting cards that sing to you.

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Products like those described by Tapscott have six key attributes that

distinguish them from products that were available in the past. These

attributes are the following (Botkin, 1999)5.

1. They learn. The more you use them, the smarter they get. The more

you use them, the smarter you get, too. For example, some word

processing programs create customized dictionaries and automatically

correct spelling errors.

2. They improve with use. They are enhanced, rather than depleted,

when used. They grow up instead of being used up; Internet banking

for example, can be customized over time to reflect a patron's

transaction patterns.

3. They anticipate. They know what you want; they recommend what you

might want next. Grocery scanners use the customer's current basket

of goods to automatically generate coupons on the back of receipts to

stimulate future sales.

4. They are interactive. There is two-way communication between you

and them. Hardcorps Sports sells a ski jacket woven with a genetically

engineered "phase change material" developed by Outlast Inc., which

turns warmer when the skier is cold and automatically cools down if the

slopes are sunny.

5. They remember. They record and recall your past actions to develop a

profile. Nearly every Internet sales operation has sophisticated

customer profile systems to encourage related purchases.

6. They are customized. They are uniquely configured to your individual

specifications in real-time-at no additional cost. Injection devices for

diabetics can adjust insulin dosages to respond to current blood sugar

levels and activity levels

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The knowledge economy has even spawned a new type of global, knowledge

based organization, labeled a "metanational" by Doz, Santos, and Williamson

(2001). In contrast to global organizations that view the world as a single,

fairly homogeneous market, or multinationals that see each country as a

district segment, these metanationaI organizations view the world as a global

canvas dotted with pockets of technology, market intelligence and capabilities.

Thus, metanationals are able to capitalize on the synergies of global

commonalities while adapting to specialized opportunities generated by local

capabilities. Metanationals see untapped potential in these pockets of

specialist knowledge that are scattered around the world. And, by sensing and

mobilizing this dispersed knowledge metanationals are able to innovate more

effectively than their rivals. Rather than promoting a universal set of products

that are globally competitive, metanationals weave together a tapestry of

many local specialized capabilities to create local customization with global

reach.

The complexity of this type of organization requires extensive knowledge

management at all levels to achieve what Bartlett and Ghoshal (1993)6 refer

to as "distributed entrepreneurship." Bartlett and Ghoshal argue that this

explains why Asea Brown Boveri (ABB), an electro technical firm with

worldwide operations, has turned the conventional design of its HR activities

inside out to achieve radical decentralization. In ABB, frontline managers are

responsible for creating and pursuing opportunities, whereas midlevel

managers review and develop supporting initiatives and top management

establishes a strategic mission and supporting standards. Consequently, the

corporate HR staff consists of single managers since employees are recruited

and developed at the level of the frontline business operations, and the

managers of entrepreneurial business units have wide discretion in the size,

scope, and allocation of HR activities.

To sum up, knowledge is becoming the primary component of virtually all

products, services, and work activities. The effective production,

accumulation, and handling of knowledge are becoming key sources of

competitive advantage distinguishing businesses industries and nations.

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Characteristics of Knowledge Economy

Numerous researchers, consultants, and authors have attempted to capture

the key factors that distinguish the .knowledge economy. However, since

there is no universal agreement on specific characteristics that distinguish

knowledge-based competition from other economic forms this is a challenging

task. Furthermore, there is no universal agreement on terminology. New

concepts have necessitated new jargons and some of it is more descriptive

and widely accepted than others. Table 3.1 summarizes eleven

characteristics of the knowledge economy that have been proposed by some

of the leading thinkers on this topic.

Table 3.1 Eleven Characteristics of the Knowledge Economy

Knowledge Economy,

Characteristic

Definition

Symbolic goods/

Digitization

Electronic symbols representing information about that physical' goods that'

we need to know to conduct the transactions (for example, details of a

banking transaction): human communication, delivery of government

programs execution health care, business transactions all become based

on ones and zeros.

Demassification Reduced dependency on the need for physical concentration massing (co

location) of labor, materials, and money.

Boundary less enterprise

/ Globalization

Knowledge transcends firm, industry, and national boundaries;

organizations have time and space-independence; work can be performed

from a variety of locations.

Viriualization Physical things can become virtual, such as corporations, teams, auction

sites, and so on.

Connectedness/

Unpredented partnering/

Integration internet

working

Interconnection within and between organizations and institutions; inter

connections between businesses and customers; no one organization can

have all the knowledge needed, so partnering is essential.

Disintermediation Elimination of the intermediaries in economic activity-anything that stands

between producers and consumers.

Convergence Bringing together different economic sectors to create new products and

services (for example, telecommunications).

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Knowledge Economy,

Characteristic

Definition

Personalization / Mass

customization /

Prosumption

Fitting products and services to the unique needs of individual customers.

Consumers become involved in the actual production process of their

knowledge, information, and ideas become part of the product specification

process.

Dynamic pricing Pricing decisions change based on time and place as products and services

are constantly updated and shifted.

Immediacy Business is transacted in real time; enterprises continuously and

immediately adjust to changing business conditions; product life cycles

become shorter.

Customer communities Customers talk with other customer on a local and global scale (for

example, Amazon.com).

Sources: Tapscott (l996); Burton – Jones (l999) Bird & Henderson (2001)

First, the knowledge economy uses technology to create symbolic goods

(Burton-Jones, 1999). Electronic symbols represent information that we need

to know about physical goods to conduct business, such as a banking

transaction. These electronic symbols-ones and zeros-digitize human

communication the delivery of government programs, the execution of health

care and business transactions (Tapscott, 1996). Furthermore, electronic

symbols can be transmitted and received instantaneously and worldwide.

Thus, a firm's knowledge resources must include the ability to create and

manage these symbols.

Second, the knowledge economy places comparatively little reliance on the

need for physical concentration or massing of labor, materials, and money.

Previously, it was necessary to co-locate these resources in order to produce

goods and services. Now, the same efficiencies can be realized through what

one author calls "demassification" (Burton-Jones, 1999). Labor, materials, and

money can be combined from locations dispersed across the globe.

Programmers in India and California, for example, can simultaneously work

on developing the same software program.

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This means a firm must be able to manage a workplace that is dispersed and

does not provide the same kind of embedded structure associated with

physical proximity and plant layout common in the industrial economy.

Third, the knowledge economy has no defined boundaries (Burton-Jones,

1999; Tapscott, 1996). Knowledge transcends firm, industry, and even

national borders. Needed knowledge resides in no single place. Organizations

have both time and space independence, so work can be performed from a

variety of locations. The proliferation of Palm Pilots TM, laptops, and other

connectivity technologies everywhere, from the airport to the restaurant to the

automobile, attests to the portability of work. This means that firms must be

able to manage workflows that take place 24/7/365.

Fourth, technology makes it possible to transform physical entities into virtual

ones. A virtual corporation is one without walls and without permanent

employees. It relies on contractual relationships with suppliers and

distributors, and it has a contingent workforce (Cortada & Woods, 1999)7.

Teams can be assembled from all over the world and can work together

without having to be in the same location at the same time. Virtualization

offers benefits of increased flexibility and breadth of resources but also in-

troduces complicated challenges in terms of coordination and maintaining

consistent purposes.

Fifth, computers and the Internet make it possible for organizations and

institutions to become increasingly interconnected. Information can be shared

and ad hoc partnerships can be created and dissolved to meet situational

needs. This unprecedented partnering is necessitated by the fact that no

single organization can have all of the knowledge it needs to compete

successfully (Botkin, 1999). Consequently, firms must develop new skills for

knowledge management activities that capitalize on their expanded reach.

Businesses are more interconnected with their customers in ways not

possible in the past. Relationship marketing and individually targeted

advertising create a uniquely "personal" impersonal relationship. It is now

unusual, for example, to make a catalog purchase without being asked for

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your email address, so that the Company can keep a customer posted on

upcoming specials and new products. This suggests that the talent pool for an

organization is likely to include customers and employees of the firms

providing raw materials and the firm's own human resources.

Sixth, the middleman is (mostly) eliminated in business transactions between

an organization and its customers as well as between an organization and its

employees. Tapscott calls this factor disinintermediation. It is: the elimination

of anything that stands between producers and consumers. The erosion of

travel agencies, full service gas stations financial service intermediaries, and

similar transaction roles illustrates this trend. This phenomenon is also oc-

curring in HR as more organizations, such as Dell Computer Corporation,

adopt electronic HR delivery systems. These delivery systems allow

employees and managers to get what they need when they need it (and

without using an HR middleman). Activities that merely transmit information or

transfer objects from one location to another are particularly vulnerable.

Disintermediation underscores the need to add considerable value in order to

maintain viability in the emerging knowledge economy and to ensure that this

contribution is well recognized

Seventh, the knowledge economy brings together different economic sectors

that in the past functioned as separate entities. Boundaries between

industries, organizations, units, and technologies are becoming blurred. For

example, the telecommunications industry is a combination of the old

telephone industry with television, computers, and content providers. This

convergence has yielded such products as "smart telephones," which can be

used for talking, reading email, surfing the Internet, and so on. These fluid

boundaries place a premium on the ability to continuously learn, unlearn, and

relearn at all organizational levels. The knowledge economy is also

introducing new areas of competition among economic sectors. Rivalry is not

limited to product functionality but can focus, as well, on the basic nature of

the solution being offered. Consider, for example, the contest currently taking

place between personal computer and microprocessor allies (such as IBM

and Compaq), who intend to maintain power on the desktop, and interface

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firms (such as Oracle and Sun Microsystems), who intend to move computing

power to the network. Redefined solutions mean that firms will need to be

able to quickly and efficiently develop new capabilities.

Eighth, the knowledge economy increasingly operated to provide tailored

products and services that meet the unique needs of individual customers.

Termed "personalization," "mass consumption," or "prosumption," they all

refer to consumers taking an active role in the production process as their

knowledge, information, and ideas become part of the product specification

process (Baird & Henderson, 2001; Botkin, 1999; Tapscott, 1996). As a case

in point, Dell Computer Corporation has pioneered mass customization in the

personal computer manufacturing industry. Along with this, the lines between

products and services are becoming quite fuzzy as firms increasingly bundle

services with their tangible products (that is, information hotlines for

everything from cookbooks to clothing to appliances to computers) and

service businesses make efforts to provide some form of tangible deliverable

with their services (that is, hardbound financial portfolio displays or frequent

user cards for many types of retail outlets). Consequently, organizations need

to be able to continuously augment their creative capabilities and capacity for

innovation.

Ninth, in the knowledge economy, pricing becomes more dynamic (Baird &

Henderson, 2001)8. That is, pricing decisions change based on time and

place, since products and services are constantly updated and shifted. Prices,

like products, can be tailored to individual customers. In addition, technology

advances make it easy, quick, and inexpensive to comparison shop in virtual

space. Moreover, the firms whose products and services are being compared

have much less control over the process than ever before. As a result, firms

will need to develop new ways to influence consumer behavior that rely on

loose ties and building relationships rather than on conventional advertising

and special pricing policies.

Tenth, in the knowledge economy business is often transacted in real time,

that is, there are no, delays between steps in the process. Successful

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companies continuously adjust to changing business conditions and they can

do so immediately. Aircraft manufacturers that have implemented enterprise

resource planning systems for example, automatically initiate the production

of components in their supplier's factory when an order is placed for a plane.

Furthermore, product life cycles have become much shorted. Firms such as

Intel routinely invest in the manufacturing capabilities that enable them to

scale up production the same time they are working on the technology

breakthroughs that will create the next generation microprocessor. Oftentimes

it feels like -businesses are running the fast-forward button on a videotape

player. The speed of action in the knowledge economy means that firms must

be agile, resourceful, and adept at interpreting events and making sense of

the environment on the fly.

Finally, the knowledge economy has created customer communities.

Customers can talk with other customers on local and, global bases. They can

talk and share information, and do so in real time. Reactions from other

consumers are readily available to evaluate products and services as diverse

as videos and movies, national parks, restaurants, and automobiles. Thus

knowledge sharing takes place both among organizations and among

customers. This means that firms must learn how to influence individuals and

ideas in their environment with greater adeptness and subtlety than ever

before.

All in all, the knowledge economy has a multitude of characteristics that

present new challenges for businesses. Gone are the days of "slack" (periods

of time between processes within a firm, or periods' of time between steps in

transactions outside of the firm). Slack was often achieved by maintaining

large inventories of raw materials and finished products, to accommodate

unpredictable fluctuations in demand. Furthermore, Henry Ford's mass

production technology, which could produce lots of cars efficiently (as long as

they were all the same kind) has given way to mass customization

technologies that are so sophisticated that they can provide individually

tailored products and services with the same or better efficiency as

standardized product on processes. Globalization is more than a meaningless

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buzz word; markets for products, services, and labor are truly international.

People can work at home, organizations can exist in virtual reality, and

industries can be converged in ways never before dreamed possible. Finally,

the pace of change has become fast, very fast.

Competing in the Knowledge Economy

Winners in the knowledge economy will have to outdistance their competitors

on three different levels (Doz, Santos, & Williamson, 2001):

1. Competing on the sensing plane

2. Competing on the mobilizing plane

3. Competing on the operating plane

At the highest level, organizations will have to constantly search out

knowledge that could lead to the development of new products and services.

They must do this by identifying sources of relevant technologies,

competencies, and understanding about leading-edge customers. Of course,

other organizations will be doing the same thing, so a real premium will be

placed on finding that knowledge that others don't discover or on being able to

interpret the vast array of available data more accurately, more insightfully,

and more quickly than others. Organizations need the ability that hockey star

Wayne Gretzky had: not skating to where the hockey puck is but skating to

where it will be. This level of competition Is called “competing on the sensing

plane” and is much like prospecting. It requires such competencies as

reconnaissance and discovery. Competing on the sensing plane enables

organizations to create the future.

Once useable knowledge is discovered, it must be mobilized to create a

product or service. Doz, Santos, and Williamson (2001) suggest that firms

create “magnets” which are organizational structures that attract knowledge

from different parts of the corporation (and sometimes with the help of

customers) to central locations, where it can be integrated and applied. To

achieve this, firms must have core competencies (integrated knowledge sets

within an organization that distinguish it from its competitors and deliver value

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to customers) to provide an effective basis for selection and assimilation

(Bohlander, snell and Sherman 2001)9.

Pioneering new products and services requires innovation. Creative

capabilities are needed to quickly develop the products, process and services

that customer want at the competitive price; to find new solutions to old

problems and to adopt familiar solutions to changing circumstances. This level

of competition is called “competing on the mobilizing plane” and requires,

among others, entrepreneurship and mobilization competencies

Finally, in the knowledge economy as in the old economy knowledge must be

operationalized to create and distribute the products or services. This more

traditional level of competition is evermore fierce as organizations look for

efficiencies throughout their entire value chains. Linkages among suppliers,

distributors, customers and other institutions are crucial for eliminating non-

value adding steps. This level of competition is called “Competing on the

operating plane” and requires, among other factors, efficiency and flexibility

competencies.

Together the competencies necessary to compete effectively in the

knowledge economy constitute what Dave Ulrich (1997)10 calls “organizational

capabilities”. Organizational capabilities are the DNA, of competitiveness.

Just as an individual blessed with good DNA (for example intelligence and

athleticism) has a potential advantage in life, that advantage must be realized

through development, application, and opportunity. The same is true for

organizational capabilities

Having the capabilities is a necessary but not sufficient, condition for success.

Organizations must also be able to develop those capabilities apply them, and

match them to opportunities.

To sum up, competition in the knowledge economy requires succeeding on

three levels sensing, mobilizing, and operationalizing. Different competencies

are needed for different levels of competition. The combination of

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competencies needed for succeeding across all three levels is collectively

known as organizational capabilities. Human resource management plays a

significant role in creating and developing the organizational capabilities

needed for competing in the knowledge economy.

3.2 HRM in the knowledge economy

The nature and characteristics of work in the knowledge economy herald new

opportunities for HRM. To maximise benefit from knowledge assets, a fourfold

contribution from HRM is proposed. In the knowledge economy, HRM must:

Provide expertise in understanding and defining firm-level strategic

knowledge capabilities;

Develop and manage knowledge workers by leveraging the knowing -

learning -doing nexus;

Build knowledge value as an organizational as well as an individual

asset; and

Minimize the organization’s knowledge risk (Andrews 2003)11

associated with loss of requisite capability and knowledge.

Strategic knowledge capabilities

The most significant contribution that HRM can make is strategic. We have

seen that knowledge capabilities underpin strategy in the knowledge

economy, and HRM practitioners are well placed to understand and define the

organization’s strategic knowledge capabilities. Strategic knowledge

capabilities comprise the 'core competence' (Ulrich and Smallwood 2003)12 of

the organization (i.e. what it is good at now) and emerging capabilities to

sustain future performance. As such they comprise knowledge and skill areas

that contribute value to the organization, offer real or potential competitive

advantage, and are hard to replace.

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Understanding strategic knowledge capabilities is at the hub of HRM in the

knowledge era. For example, the aim of recruitment and selection in the

knowledge economy is to source high caliber talent possessing a range of

skills and capabilities related to the strategic knowledge areas. A key

challenge is selecting employees who are capable of contributing to the

organization in a variety of ways now and in the future, rather than simply

filling the current vacancy. This requires long-term planning with senior

management and the flexibility to hire when the talent is available. The focus

is a flexible and agile workforce. Partnering with external organizations for

specialist knowledge when required will become more commonplace.

The knowing-learning-doing nexus

Given that the competitive advantage of an organization resides in the abilities

of its employees, knowledge workers and the capacity they contribute are

fundamental to success. Peter Drucker introduced the terms 'knowledge work'

and 'knowledge worker' in the early 1960's (Drucker 1993)13. However, what

would have then been described as a rare type of work is now increasing in

prevalence and economic significance (Andrews 2000; Andrews and

Delahaye 2000). According to the Australian Bureau of Statistics, knowledge

workers now represent 38% of all employed persons in the Australian labour

force, and the fastest-growing occupations are in knowledge work (ABS

website 2003).

Knowledge workers identify and solve challenging and complex problems,

relying on imagination and creativity and high levels of education and skills.

Importantly, they move beyond applying existing codified knowledge to

working with inferences from the body of knowledge (Lockett and Legge

1993)14. Knowledge work is characterized by ambiguity, complexity, and long

feedback cycles. Thus, knowledge workers are employed for their ability to

think for themselves and their work involves a high degree of autonomy.

Collaboration is also a key element of knowledge work and involves building

and maintaining relationships both inside and outside the organization.

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The characteristics of knowledge work throw the spotlight on HRM and its

management of the knowledge workforce. The autonomy of knowledge

workers, their interdependencies with others, and the long feedback cycles

typical of their work pose clear challenges for traditional approaches to

performance management. Traditional performance management focuses on

narrowly-defined tasks or job roles and observable outputs rather than long

term and diffuse contributions. In today's economy, performance management

must be re-conceptualized with knowledge work in mind. The process by

which people obtain results becomes much less significant and the focus

shifts to managing outcomes, many of which are long-term and difficult to

attribute to individuals. For HRM professionals, the key switch is from one of

performance management to performance support or performance facilitation.

In addition, HRM must tap into the intrinsic motivations of knowledge workers.

Knowledge workers are self-motivated, curious and passionate about

learning, and have a strong desire for exposure to new ideas and

perspectives from both inside and outside their primary knowledge discipline.

HRM has a key role to play in creating rich work opportunities. A specific

example relevant here is provided by Sveiby and Simons (2002)15 who noted

that after 15 years working in the same field for the same company,

professionals experience anger, frustration and burnout. The 'career plateau'

(Sveiby 2002) transcends professions and creative workers are thought to be

particularly vulnerable. Obviating or minimizing the impact of professional

burnout is a worthwhile area of focus for HRM.

It is noteworthy that whilst technical discipline based knowledge has

traditionally defined professional work, additional 'generic' capabilities

(abilities to adapt, learn, collaborate and share knowledge) are essential

attributes of knowledge work. For knowledge workers, learning and work are

intimately connected. Current approaches to training and development that

view professional development as 'on-top-of', or supplementing an employee's

work are challenged. Learning and professional development is relevant to

knowledge workers to the extent that it is intimately connected with the

context of their ongoing work. Further, knowledge workers' self-motivation to

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learn suggests that the control over the diagnosis and design of professional

development activities are best given to the knowledge workers themselves.

Learning and development that is 'just-in-time' to support the current context

of the knowledge work will be more common. HRM professionals have a key

role to play in supporting the ongoing development of knowledge workers, but

many of the current ways in which that support is provided may be revised.

Build knowledge value

The essence of managing knowledge is to build knowledge value for the

organization and leverage that value for competitive advantage. The value for

the organization is not derived from simply providing access to information.

People create value from information by doing something with it (Andrews

2003b). Specifically, applying knowledge to real life opportunities is the source

of value creation leverage comes from making knowledge and expertise

available firm wide. For example, an emphasis on sharing knowledge and

expertise across the enterprise is likely to improve both efficiency and

innovation.

Thus, the important shift for HRM is to build knowledge value as an

organizational as well as an individual asset. The focus for HRM is the whole

organization as a system, rather than the sum of its parts. In addition to

supporting the management of knowledge, HRM practitioners as knowledge

brokers have a vital role in terms of knowing what the strategic knowledge

capabilities of the organization are and where the pockets of skill and

expertise lie (both inside and outside the organization). HRM is uniquely

positioned as the facilitator of knowledge and value creation.

Building knowledge value spans the breadth of HRM activities. A primary

function is the rapid deployment of skill and knowledge. For example,

currently the emphasis in training and professional development programs is

on the provision, coordination and monitoring of training opportunities for

individual employees. This emphasis must shift to developing the strategic

knowledge capabilities of the organization in such a way that they may be

rapidly developed and deployed. The challenge for HRM is to offer

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personalized development opportunities to underpin the organization’s needs

for responsiveness and agility.

Facilitating knowledge transfer between individuals, groups, and from outside

to inside the organization (and vice versa) becomes critical to building

organizational capability. Ideally, HRM has established relationships across

the organization based on understanding of business needs. This pivotal role

will assist HR to anticipate and plan for emerging knowledge needs.

Knowledge Risk

In addition to leveraging organizational knowledge, a new focus for HRM is to

minimize knowledge risk. Knowledge risk refers to the real or potential loss of

knowledge either through under-utilization or loss of valuable hard to replace

knowledge when people leave the firm (Andrews 2003a). A typical example of

knowledge risk is associated with the aging workforce. A recent investigation

(APS Commission 2003)16 by the Australian Public Service (APS)

Management Advisory Committee (MAC) (APS Commission 2003) found that

the APS has an ageing profile with an increasing proportion of mature-aged

workers, particularly at senior management levels, and declining youth

employment. Approximately 30% of APS employees are aged between 45

and 54, compared with 19% a decade ago, and this age group is clustered at

higher classification levels. The report also indicates a likely departure of a

significant proportion of its current workforce, estimated at 23%, by 2008.

Management of this risk begins with an assessment and the development of

strategies to mitigate the impact of potential knowledge risk. Traditional

approaches to workforce planning in many organizations tend to address

current and short-term resource needs for organizational units individually, by

developing employees' skills and knowledge through training and

development, or acquiring skills and knowledge with recruitment. The current

approach emphasizes 'head count'. From a knowledge management

perspective, HRM must focus on 'head contents' instead. In the knowledge

economy forecasting future knowledge requirements for the whole

organization in the medium and long-term is of primary importance. In

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particular, the focus becomes one of identifying where the 'knowledge risk' is.

Workforce planning involves mitigating this risk. This requires an intimate

knowledge of the strategic knowledge capabilities and how they are

supported.

Transforming HRM in the knowledge economy

The idea that people and the knowledge they possess is the organization’s

most valuable asset is not new. The shift in the terminology from over 20

years ago from 'Personnel Management' to 'Human Resources Management'

signaled what some claimed was a metamorphosis for the profession. This

altered the conceptualization and practice of HR from a series of ad hoc

functions, and evolved it into its role of corporate strategist (Kramar, McGraw

and Schuler 1997)17. The transition was a significant one for the profession of

HRM, because it was different from personnel management: it promised

strategic contribution through integrated activities that confirmed employees

as assets to be nurtured and developed. Today, the central role of individual

and organizational capabilities is significantly amplified with the advent of the

knowledge economy. Commanding a central role in realizing value from

knowledge assets is proposed as the new strategic role for HRM.

What is the nature of the transition proposed for HRM? How does this

translate to the functional areas of HRM? Table 3.2 presents a summary of

the traditional approaches to HRM and the shift required in the knowledge

economy. The areas represent the elements of HRM that offer the greatest

opportunity to acquire, build and retain organizational capability.

Knowledge management presents HRM with the opportunity to become

pivotal to the strategic management of the organization and a catalyst for

knowledge creation and building value. This involves more than just

relabelling Human Resources - it is a fundamental paradigmatic shift for HRM

and senior management. The transformation begins with viewing HRM

through a 'knowledge lens' and repositioning the functions in relation to

strategic knowledge capabilities. Managing knowledge workers, building value

from knowledge, and assessing knowledge risk are also new requirements of

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HRM in the knowledge economy. It is proposed that HRM must respond to the

key challenges presented by the knowledge economy and command a central

position in realizing value from knowledge assets as a strategic role for HRM.

Table 3.2. HRM in the Knowledge Economy

HRM Focus

Traditional HRM HRM in the Knowledge Economy

Strategy Develops HR strategy to align with

business strategy

HRM contributes to business strategy

development as the expert on strategic

knowledge capabilities

Knowledge acquisition, creation, and

utilisation is definitional to business

strategy

Recruitment

and Selection

Seek and select resources

Describe job requirements and fill

vacancies

Select from pool of applicants

available at the time the vacancy

is identified

Identify, attract and sustain talent

Seek out high caliber talent

Focus is on a flexible, agile

workforce

Partner with external providers of

knowledge

Identify alternative forms of

Remuneration

Training and

Development

Develop individual skills and

competencies

Plan and coordinate training

programs

Provide and monitor professional

development Programs

Focus is on individual skill -

acquisition

Develop individual and organizational

capability

Recognize the nexus between

learning, knowing and doing

Focus is on personalized capability

development embedded in work

Build 'time - to - capability' by

accelerating learning

Identify and share excellent

practices

Facilitate knowledge networks

Build organizational capability by

facilitating knowledge transfer

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HRM Focus

Traditional HRM HRM in the Knowledge Economy

Workforce

Planning

A focus on 'head count – address

current land short-term resource

needs by organizational unit

Identify current and short-term

resource needs

Develop skills to meet needs via

training and development

A focus on 'head contents' - manage

knowledge value and risk for the

whole organization

Forecast knowledge required in

strategic knowledge domains for the

medium and long term

Rapidly develop and deploy

knowledge sets of employees

(individuals and teams)

Performance

Management

Monitor and modify individual

performance

Reduce or eliminate undesirable

behaviours and set desired

behaviours to enhance individual

performance

Reinforce organizational culture

Monitor adequate compliance with

policies and procedures

Knowledge worker productivity

Manage outcomes characterized by

long feedback cycles (rather than

managing inputs and processes)

Retain skilled knowledge workers and

key knowledge in strategic knowledge

domains

Tap into knowledge worker intrinsic

motivations

Enhance team/business unit

performance

Source : Whicker, L. M., Andrews, K. m. (2004) "HRM in the knowledge

economy : Realizing the potential", Asia Pacific journal of human resource,

Vol 42(2) pp8.

3.3 Role of Human Resource Management in the Knowledge

Economy.

Don Tapscott (1996: 260) argues that "the human resources function in

general, and human resource professionals is particular, should be uniquely

positioned to provide leadership for the transformation of the enterprise."

However, rather than being an agent of change and adaptation, the HR

function is too often slow to respond. As Tapscott notes, "Although some

human resource professionals are rising to the challenge, too many are not.

The basic problem is that in the first era, human resource professionals were

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mere suppliers of human resource functions, such as staffing needs and

compensation planning. This may have made a lot of sense during a period of

stability and steady growth. But as we move into the digital economy, the

human resource profession needs to reinvent itself and forge partnerships

with others in the organization for the transformation of the corporation.

How should HRM adapt to the knowledge economy? The three questions

that are useful for addressing this issue.

What is HRM work?

Who does HRM work?

How will technology change the HRM function?

What Is Human Resource Management Work?

In the knowledge economy, HRM work will not be confined to its conventional

functions of staffing, training and development, performance management,

and so on. Human resource management work in the knowledge economy

includes both activities that overlap with other traditional business functions

(for instance, finance, marketing, strategy) and some that are nontraditional

(for instance, knowledge management). For this reason, HRM is no longer

simply focused on "managing people" in the conventional meaning of the

phrase. Human resource management is now responsible for managing the

capabilities that people create and the relationships that people must develop.

Who Does Human Resource Management Work?

HR profession still do much of the traditional HR work, although some of that

work has been outsourced. (staffing, benefits, and so on) or digitized (for

example, electronic HR.). Furthermore, a substantial portion of conventional

HRM work is now being done by line managers and professionals from other

fields, such as information technology, or in other parts of the organization,

such as the entrepreneurial units of ABB mentioned previously. In the

knowledge economy, as HRM work expands, responsibility for HR will truly be

jointly shared among HR managers, employees, and external vendors.

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How Will Technology Change the Human Resource Management

Function?

By increasing administrative efficiency, technology allows HR to have fewer

staff making more value-added contributions to their organizations. The rapid

evolution of electronic-HR delivery systems is pushing more information in

more usable formats to employees and managers who can use it directly for

the benefit of their organizations. In terms of conventional transactions, HR is

being disintermediated. However, technology promises to impact HR in ways

far beyond simply automating clerical activities.

Twenty-one HR systems professionals have identified the following

technology trends affecting HR that are in various stages of becoming

realities.

1. Fast and cheap access to accurate real time HR information.

Access and the ability to analyze, assess, interpret, manipulate,

leverage, and share the information effectively will be key to giving

organizations a strategic edge. Successful data mining will be made

possible by the use of data warehouses with their ability to consolidate

internal and external information with powerful analytical tools.

2. Ubiquitous access to information to improve employee

effectiveness and efficiency. This means working from anywhere and

at anytime. The size, format, and footprint of technology deliverables

will move from departmental desktop devices operating under the full

control of the user organization to a mixture of hand-held, pocket-sized,

integrated devices and wireless linkages that provide needed access

on a real time basis to centralized processing and data storage

capabilities. Instant access to all needed knowledge and to essential

meaningful data will be a keystone for the successful enterprise.

3. A variety of analytics and decision trees. These expert systems will

"walk" managers through every step of a decision about people issues.

The information the manager receives at each step in the decision

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process will vary depending on his or her answers to previous

questions and will provide the manager with estimates of the risks

associated with each alternative. In familiar and somewhat predictable

environments, analytical systems will provide "predictor" algorithms that

help anticipate and forecast possible problems, such as turnover,

recruitment, pay, and employee relations down to the individual

employee level. For more chaotic settings, what-if scenarios will

provide virtual reality simulations that will enable managers to tryout

ideas and test different courses of action to make better people

decisions.

4. Smart self-service. This is self service expanding to communicate

through smart phones and handheld personal data assistants (PDAs).

Much of the new Web self-service will reduce the need for call centers

and most employee self-service will be entirely Web-based. In addition,

natural language speech recognition enables intuitive application to be

implemented, and while speech recognition is in the early stages of

acceptance, it will be a factor in twenty-first century self service. For

both employee and Manager, self service will have to be more intuitive

than ever. This will include push and pull technology, content that is

filtered and relevant for the person in the role(s) they are performing

and event driven, as well.

5. Customized content. Human resource management systems in the

twenty-first century will enable employees to perform optimally by

providing knowledgeable content that has been filtered based on the

employee's role(s) in the organization. The vendors of the future will

provide not only the transactional systems necessary for this

infrastructure but they will also become the "aggregators" of content for

their customers and provide a wide range of hosting as the demand for

better, faster, and cheaper, technology support prevails.

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Human Resource Management Roles

Much current thinking in HRM suggests that its practices must be integrated

around common themes. It is proposed that HRM roles can provide a logical

basis for constructing common themes that support an organization stability to

adapt to the demands of the knowledge economy. Moreover, many authors

propose that HRM roles should encompass more than HRM practices.

Indeed, whatever it takes, even stepping outside of traditional HRM activities:

That is what the HRM function should be doing to contribute to organizational

effectiveness. Roles provide more flexibility than functions. Roles reduce rigid

functional boundaries and facilitate adaptation and adjustment.

New Roles and New Challenges for Human Resource Management

To effectively compete in the knowledge economy, organizations will need

HRM that is role-based (that is, not tied to specific functional responsibilities,

as in the past) and contributes directly to the creation of organizational

capabilities. Four roles are identified that make it possible to create those

needed capabilities human capital steward, knowledge facilitator, relationship

builder, and rapid deployment specialist (see Table 3.3).

Table 3.3 New Roles and New Challenges for Human Resource

Management in the Knowledge Economy

New Roles for HRM New Challenges for HRM

Human Capital Steward Intellectual capital is not owned by the employer but is

bought and sold in human capital markets.

Workers are volunteers or free agents.

Market controls replace (most) employment contracts.

HRM must ensure that the organization's human capital is

available capable, effective, and grows in value.

HRM must broker HR services, such as talent acquisition,

learning, and so forth.

HRM must leverage human capital (that is, focus on doing

the right things and gaining maximum output for a given

input).

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New Roles for HRM New Challenges for HRM

There is a greater dependence on key knowledge workers

and ensuring they are attracted and retained.

There will be higher entry-level requirements for

employment.

Careers replace jobs

Knowledge Facilitator There is an increased emphasis on learning and encouraging

people to learn continuously.

There is a necessity to manage knowledge (acquisition,

dissemination, and so forth).

The organization must tap into all employees' knowledge as

sources of innovation.

HRM must facilitate the sharing of knowledge acquired by

employees.

HRM must determine how to reward knowledge acquisition

and sharing.

Information must be made available and accessible to

employees.

Firms must act on the new knowledge and insights, and

abandon obsolete behaviors.

Relationship Builder There is an increased emphasis on cross-functional

teamwork.

Technology will make information more accessible and will

join people together in different ways.

HRM must build networks and shared people communities

around the strategic objectives of the business to ensure

competitiveness.

The HRM function will focus externally and internally and look

more like operations management, dealing with vendors and

managing the supply chain.

Rapid Deployment Specialist The new goal for HRM will be to manage markets, some of

which will be rapidly changing markets. HRM will anticipate

what rapidly changing product markets and business

strategies will require by way of human capabilities and find

ways to deliver it.

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New Roles for HRM New Challenges for HRM

Work assignments are fluid, involving responsibility for results

rather than tasks.

The future resides in the capacity to design a versatile,

evolving, flexible HRM architecture that supports on

increasing pace of change. The organizational infrastructure

needs to be reconfigurable, that is, elements of information,

business processes, and organizational design must be

capable of being combined in different ways to meet

situational needs.

Common purpose and core values supplant fight managerial

control systems and job descriptions.

Widespread shoring of organizational information is

necessary.

Source : Braton J., Gold J. (2001) HRM : Theorey and Practice, London :

Routledge, pp.34-35

Human Capital Steward

A recent Business Week article proclaims "The turn of the millennium is a turn

from hamburgers to software. Software is an idea hamburger is a cow. There

will still be hamburger makers in the twenty-first century, of course, but the

power, prestige, and money will flow to companies with indispensable

intellectual property".

In the Creative Economy, the most important intellectual property isn't

software or music or movies. It's the stuff inside employee’s heads. When

assets were physical things like coal mines, shareholders truly owned them.

But when the vital assets are people, there can be no true ownership (by

anyone other than the individual employee). The best that corporations can do

is to create an environment that makes the best people want to stay.

Human capital is the knowledge, skills, abilities, and experience unique to all

individual employees. The collective human capital of all of an organization's

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employees forms a unique resource that distinguishes it from other

organizations and provides the basis for other firms of competitive advantage.

The new role of human capital steward requires accumulating, concentrating,

conserving, complementing, and recovering the collective knowledge, skills,

and abilities within an organization. To keep up in the knowledge economy,

organizations will need to develop a deep reservoir of talent among

employees' and free agents. Human resource management professionals

must develop competencies and commitment among employees. The role of

HR will focus on keeping the best minds and thinkers engaged.

Human capital stewardship prescribes a relationship between the organization

and its employees in which the organization leads without dominating and

facilitates followers without controlling them. Stewardship allows for a

relationship between organizations and employees in which each makes

significant, self-responsible contributions to organizational success (Daft,

1999).

Some of the challenges facing the human resource management function as

stewards of human capital include the following.

Intellectual capital is not owned by the employer but is bought and sold in

human capital markets. How do you find and obtain that intellectual capital?

Do you rent or purchase that intellectual capital?

Workers are volunteers or free agents. How do you attract, motivate and

retain volunteers? How do you facilitate volunteer’s identification with the

organization? Nonprofit and volunteer organizations deal with these issues on

a daily basis. How can HRM adapt practices from these organizations for

knowledge workers in private corporations?

Market contracts replace (most) employment contracts. Employment contracts

are more long-term; market contracts are more short-term and project-based.

How do you obtain the needed level of commitment from workers who have

market rather than employment contracts?

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Human resource management must ensure that the organization's human

capital is available, capable, and effective, and that it grows in value. How do

you manage employee flows (into, within, and out of the organization) to

ensure the maximum continuous capability? Some of the best college football

teams produce consistently winning teams over time by balancing the mix of

experienced and novice players to win both now and in the future.

Furthermore, like organizations in the knowledge economy, these football

teams constantly worry about key players being attracted to professional

status before completing their college careers.

Human resource management must broker HR services, such as talent

acquisition, learning, and so forth. How do you find the HR services that are

available and that could help your organization? How do you choose among

providers? How do you integrate disparate service providers into a cohesive

whole?

Human resource management must leverage human capital (that is, focus on

doing the right things and gaining maximum output for a given input). How do

you combine human capital for maximum output? How do you combine

human and other capital for maximum output?

There is a greater dependence on key knowledge workers and ensuring they

are attracted and retained. How do you create a work environment that adapts

to meet the needs of key workers? How do you sense and respond to the

needs of key workers?

There will be higher entry-level requirements for employment. How do you

challenge and motivate knowledge workers? How do you create opportunities

for personal growth among knowledge workers?

Careers replace jobs. How do you balance the need for corporate as well as

professional identification and commitment? How do you create an

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environment that best utilizes temporary talent as long as you have it? How

do you match the needs of the corporation and the needs of temporary talent?

Policies regarding proprietary information become more challenging to design.

What policies should govern non-compete agreements? How is proprietary

information defined and distinguished from tacit knowledge that must be

shared in a boundary less organization?

Knowledge Facilitator

It is not enough to simply hire talented employees and put them to work. For

an organization to gain a competitive advantage in the knowledge economy, it

must be able to create and disseminate knowledge among its employees and

often among its customers, suppliers, and the firms that make complementary

products, as well. This knowledge sharing can range from the mundane

simple fix of a computer problem shared by an employee via email to the

reengineering of a process disseminated throughout all units in the

organization via a training program to ensuring that products made by other

organizations make full use of a firm's product functionality. As Intel

discovered not only was it essential for its own employees to share

technology advances among themselves, it was equally important for firms

making the software and hardware that uses their microprocessors to

incorporate new concepts into their products. Cutting age technology allows

employee in the lower levels of organizations to seize opportunities and get

breakthrough ideas to the market first. Language barriers are eroding.

Employees and freelancers anywhere in the world will soon be able to

converse in numerous languages online without the need for translators.

A new role for HRM is to facilitate organizational learning and knowledge

sharing between employees, among departments, throughout the

organization, and with external co-producers. Some of the challenges facing

HRM in this role include the following.

There is an increased emphasis on learning and encouraging people to learn

continuously. How do you find people who want to learn? How do you

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encourage employees to learn continuously? How do you facilitate continuous

learning? How do you retain work life balance with continuous learning?

There is a need to manage knowledge and data actively and directly

(acquisition, dissemination, and so forth). How can knowledge be acquired

and made available to those who need it when they need it? How should

knowledge be managed? What types of information systems best meet

organizational needs?

The organization must tap into all employees’ knowledge as sources of

innovations. How do you identify sources of employee knowledge? How do

you elicit that knowledge from employees?

Human resource management must facilitate the sharing of knowledge

acquired by employees. What types of mediators facilitate the sharing of

knowledge? How much knowledge sharing should be computer mediated and

how much should be face-to-face?

Human resource management must determine how to reward knowledge

acquisition and sharing. Rewarding knowledge acquisition may be the easier

challenge of the two. How do you get employees to share knowledge that,

once shared, will no longer provide them with a personal competitive

advantage and will make them expendable?

Information must be made available and accessible to employees. How much

information should be made available to employees? How do you make

information available to employees? What information formats facilitate

effective communication? How do you both make information widely acces-

sible and still retain proprietary confidentiality?

New knowledge must lead to new behaviors. Knowledge is of little use unless

a firm is able to-adjust its actions, decisions, and relationships to capitalize on

the insight. What organizational capabilities are crucial for a firm to use

knowledge more adeptly, quickly, and creativity? What processes enable

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rapid learning, unlearning, and relearning? How can employees maintain a

consistent focus for their efforts while constantly incorporating new ideas?

Relationship Builder

Along with facilitating the sharing of knowledge within an organization,

another important new HRM role is that of relationship builder. In an

increasingly fast-paced and turbulent environment, more emphasis will be

placed on the relationships created and sustained among employees within

and across organizations. Rather than building assets on their balance

sheets, companies will develop partnerships, oftentimes creating intense

collaborators out of a company's fiercest rivals.

In the new role of relationship builder, the HRM function will create programs

and practices that enable employees to encourage, facilitate, nourish, and

sustain relationships among fellow employees, customers, suppliers, firms in

complementary arenas, and at times, even rivals. The power of relationships

is in creating synergy within the organization and across the marketplace.

Agile combinations of employees who have developed, relationship networks

can create more value for the organization than the mere sum of their

individual contributions.

One of the lessons, from the work on complex adaptive systems is that

relationships hold the key to organizational resourcefulness and resilience.

The ways in which people interact substantially determine the extent to which

the full benefits of their capabilities are realized by a firm. Some of the

challenges facing HRM in this role include the following

There is an increased emphasis on cross-functional teamwork. How do you

organize optimal team structures? How do you create a whole that is greater

than the sum of its parts? How do you achieve balance between individual

(functional) loyalties and team identification? How do you create and dissolve

project teams and sustain high performance? There is no single, correct

answer. W. L. Gore and Associates rely on what they term a "lattice structure"

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that emphasizes integration, whereas Technical and Computer Graphics

(TCG) relies on a cellular form that emphasizes flexible autonomy.

Technology will make information more accessible and join people together in

different ways. What technologies can link people together? How do you train

people to maximize the effectiveness of these technologies? How do you

minimize communication failures? What dimensions of social capital are

required to translate technology advances into competitive advantage?

Human resource management may be able to capitalize on the structural links

created by enterprise resource planning (ERP) systems, for example, to

enrich other forms of social capital.

Human resource management must build networks and shared people

communities around the strategic objectives of the business to ensure

competitiveness. How do you persuasively communicate the organization's

strategic objectives? How do you build commitment to those objectives when

much of your workforce has only a partial relationship with the organization?

Kaplan and Norton suggest that HRM can use individual balanced scorecards

to effectively communicate strategic themes and to gain commitment across

diverse constituencies.

The HRM function will focus externally and internally and look more like

operations management, dealing with vendors and managing the supply

chain. How do you gain the trust of other members of the supply chain? What

information do you share among members of the supply chain? How do you

maximize effectiveness and efficiency in the supply chain?

Rapid Deployment Specialist

The rapid pace and constantly changing environment that many organizations

and industries confront creates another new challenge and new role for HRM:

the rapid deployment specialist.

Competitive advantage gained by bringing new products to the market before

competitors will be short-lived. Technology, and a variety of different ways to

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create value, will allow competitors to meet or exceed such advantages

almost instantaneously. Rather than creating and sustaining a long-term

competitive advantage that is defended over time, many organizations in the

knowledge economy will instead opt for short-term, in – and - out, guerrilla-like

tactics, which allow them to take advantage of fleeting opportunities in the

marketplace. Once the advantage has been achieved, these organizations will

move on to the next opportunity. Many whole companies will be intentionally

ephemeral, formed to create new technologies or products only to be

absorbed by sponsor companies when their missions are accomplished.

Other firms will design their strategies around maneuverability to reflect their

turbulent and unpredictable market places.

Consequently, the HRM function will be required to rapidly assemble,

concentrate, and deploy specific configurations of human capital to achieve

mission - specific strategic goals. Organizations will use various combinations

of HRM approaches (such as training, exporting work offshore, and looking for

ways to "de-skill" certain jobs) while enriching others to accomplish these

objectives.

Fortunately, improved information technologies are available, or are being

developed, to facilitate this. However, the challenge for HRM in the knowledge

economy is substantial and significantly different from HRM in the twentieth

century. Some of the challenges facing HR in this role include the following.

The new goal for HRM will be to manage the contributions individuals make to

specific external markets, some of which will be rapidly changing markets.

Increasingly, HRM will need to emphasize and understand events taking

place beyond the borders of the firm. Human resource management will

anticipate what rapidly changing product markets and business strategies will

require by way of human capabilities and find ways to deliver it. How can you

anticipate what human capabilities may be needed to enact business

strategies? How can you prepare human capabilities when markets change

rapidly? What mix of core and contingent workers provides maximum

flexibility and maximum effectiveness?

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Work assignments are fluid, involving responsibility for results rather than

tasks. How do you define what people will do in their work assignments? How

do you coordinate across work assignments that are fluid? How do you

manage careers when work assignments are fluid? How do you design

effective performance measurement systems when the objectives are

evolving?

The future resides in the capacity to design a versatile, evolving, flexible HRM

architecture that not only supports but also sets the agenda for an increasing

pace of change. The organizational infrastructure needs to be reconfigurable,

that is, elements of information, business processes, and organizational

design must be capable of being combined in different ways to meet

situational needs. What types of information are needed for rapid

deployment? How do you utilize employees as intact teams that are

redeployed, as project workers working on several projects simultaneously,

and as components in a self-organizing system?

Common purpose and core values supplant tight managerial control systems

and job descriptions. How do you ensure that needed work gets done? How

do you coordinate across jobs and between organizational functions? How do

you achieve order without chaos?

Widespread sharing of organizational information is necessary. How do you

share information widely? Who gets access to what information? How do you

prevent disclosure of proprietary information?

One thing is certain: The HRM profession is at the epicenter of profound

transformation. It has never been so visible or so venerable. Much like the

proverbial dog that chases cars we may ask, who do we do once we have

caught the car? Human Resource Management can either fail to take

advantage of the opportunity and become less important, while other groups

assimilate these new roles, or it can carve out a new territory by assuming

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these new roads, ones that can lead to both greater prominence and greater

impact.

3.4 Historical Overview of Developments in the Indian BPO Sector

The changes in the Indian economy over the last 15 years or so have been

responsible for the growth of the information technology sector and, after that,

the BPO industry. From its independence in 1947 to 1991, India adopted a

"mixed economy" approach (emphasizing both private and public enterprise)

which effectively reduced entrepreneurship and global competitiveness both

necessary for national growth. Despite the formalities of much centralized

planning for decades, the Indian economy failed to reach its potential and, in

fact, hit bottom in 1991. India experienced a double digit rate of inflation,

decelerated industrial production, a very high ratio of borrowing to the GNP,

and a dismally low level of foreign exchange reserves. Foreign reserves

became so low that they were barely able to meet the cost of three weeks

imports. The Indian government pledged gold to the Bank of England to meet

the country's foreign exchange requirements. The World Bank and the IMF

agreed to bailout India on the condition that it changed from a regulated

regime to a "free market economy." To meet these challenges, the

government announced a series of economic policies beginning with the

devaluation of the rupee, followed by new industrial, fiscal, and trade policies.

A number of reforms were made in the public sector, and controls over the

banking sector and foreign investments were liberalized. Since these reforms,

the economy has become dynamic and vibrant, and foreign investments have

accelerated significantly. The World Bank forecasts that by 2020 India could

become the world's fourth largest economy (Budhwar, 2001)18 .

The liberal reforms implemented by the government set the stage for India to

emerge as a superpower in the BPO industry in the early twenty-first century.

The growth of the BPO sector was made possible by the already established

information technology sector and the availability of a large number of

technically literate English-speaking people in India. An analysis of the

available information from secondary sources indicates that BPO is now the

fastest growing industry in India, and India is considered the "electronic

208

housekeeper" of the world. BPO services are typically provided by Information

Technology enabled Services (ITeS). According to NASSCOM (National

Association of Software and Service Companies), there are more than 450

Indian ITeS-BPO companies (Bhatnagar, 2005)19.

The main activities or areas covered by the BPOs include customer care,

such as remote maintenance, help desk, and sales support; finance and

administration, examples of which are data analysis, medical transcription,

insurance claims, and inventory management; and HR and payment services

including payroll, credit-card services, check processing, and employee

leasing. In addition, the BPO industry has expanded into engineering and

design, animation, market research, network consultancy and management,

remote education, and content development (i.e., digital content, LAN

networks, and application maintenance). BPO activities wherever knowledge

processing is required are all on the increase. Examples of KPO include

intellectual property research, legal and medical research, R&D, analytical

services like equity research, information security services such as risk

assessment and management, bioinformatics (for example, genome

sequencing, protein modeling, and toxicology studies), and procurement and

global trade (Christopher, 2005)20

Broadly speaking the Indian BPO industry can be divided into six categories.

1. Captive Units set up by global companies that outsource their back-

office operations from India.

2. Indian Third-Party Vendors that execute transactions and processes for

international clients.

3. Joint Ventures between international BPO companies and Indian

partners.

4. Indian IT Software Companies that have added BPO to their service

portfolio.

5. Global BPO Players who set up call centers in India (for example,

Convergys).

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6. Global Consultancies (such as Accenture) who have been advising

their clients on outsourcing and are now leveraging this experience into

providing actual BPO service (Economist Intelligence Unit, 2002)21.

The most prevalent form of BPOs operating in India is that of either Captive

Units or the Third-Party Vendors.

Main Factors in the Explosive Growth of the Indian BPO Industry

The Indian BPO industry's initial focus was on creating a strong and reliable

platform, using technology as a selling point, thus building on the success of

the Indian software industry of the late 1990s. Then it moved to the level of

infrastructure development where technology is increasingly used as a

differentiator and for bettering the quality of service delivery. This evolution in

offering quality of service has been possible for two main reasons.

First, India has what is known as "people attractiveness." India produces over

two million English-speaking graduates every year who are ready to work for

salaries that are as much as 80 percent lower than those paid to their

Western counterparts. This availability of technical and computer-literate

human resources who can offer lower response time with efficient and

effective service makes India a magnet for multinational corporations (MNCs).

Second, India presently enjoys the advantage of "location attractiveness."

Enormous savings are possible for foreign firms by outsourcing their

processes to India because of the availability of a relatively inexpensive but

strong and established infrastructure that offers telecom services, improved

international bandwidth, technology parks, a well-developed software industry,

and an existing base of blue-chip companies already operating there.

In addition, many Indian BPOs have successfully adopted several global

industry standards such as SEI-CMM, ISO, TQM, Six Sigma Quality, and

COPC. Furthermore, with an emphasis on a secured environment, Indian

BPO’s are adopting standards such as ISO 17799, BS7799, COB IT, and

ITSM. The government now provides a more conducive regulatory

environment for global corporations with incentives like the ten year tax

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holiday and rebates in custom duties. Of course, the round the clock

advantage for western companies due to the huge time difference between

India and United States/United Kingdom offers them a competitive advantage

over their rivals. At present, the United States and United Kingdom together

account for nearly 80 percent of the existing IT and BPO offshoring in India.

What is really a revelation for top managers in Western MNCs is that

employees of similar talent and skills cost much less in India than in the

United States or Europe. For example, an Indian entry-level staff member

earns between $150 and $250 per month, which results in annual savings of

$30,000 for every BPO employee. According to McKinsey, if a bank shifts the

work of 1,000 people from the United States to India, about $18 million is

saved annually. Similarly, giant U.S. pharmaceutical firms can reduce the cost

of new drug development, currently estimated at between $600 million and

$900 million, by as much as $200 million if the work is outsourced to India.

Such cost savings are evidenced from the cost of a recently built new center

for Standard Chartered Bank in Chennai (Madras), which was $33 million-a

fraction of what a similar building would cost in the western world (Chengappa

and Goyal, 2002)22.

India also enjoys various advantages over its nearest competitors, Ireland and

the Philippines, in the BPO industry. For example, in comparison to Indian

centers recruiting over 100,000 employees, only about 18,000 and 8,000-

10,000 people are recruited by Ireland and the Philippines, respectively.

Ireland and the Philippines have 150 and 70 centers, respectively.

Accordingly, the revenue earned by the Irish and Philippines centers is very

little compared to those in India which has over 450 BPO companies. The

annual salaries of graduates in the United States, Ireland, Singapore, and the

Philippines are $28,000; $19,500; $16,000; $2,900, respectively. In India, the

average annual salary is around $2,400. Interestingly, in China, salaries are

even lower at around $2,000 a year. However, China does not have the same

number of English-speaking graduates available. Moreover, in comparison to

India, which produces over 2,100,000 graduates annually, China, the

211

Philippines, Ireland, and Singapore produce 950,000; 380,000; 42,200; and

12,500 graduates, respectively. India's "people" and "location" advantages

have made it more attractive to global corporations, and it currently has a

dominant position in the BPO industry. The Indian BPO sector has been

forecasted to grow at an annual rate of fifty percent and employ as many as

one million people by 2008 (McKinsey, 1999)23.

3.5 Emerging HRM Problems in the BPO Industry in India

Despite the growing success of Indian BPO industry, analysts and media

reports have started to focus on problems and challenges facing the sector.

According to the global management consulting firm, Diamond Kluster

International's 2005 "Global IT Outsourcing Study," the number of clients

prematurely terminating an outsourcing relationship has doubled to 51

percent, while the number of clients satisfied with their offshoring providers

has decreased from 79 percent to 62 percent. The issues related to poor

infrastructure of reckless start-ups as a source of dissatisfaction in India have

also been discussed (Pande, 2005)24. Although outsourcing continues to help

Western firms save significant sums of money despite such concerns, these

problems are real and growing and have the potential to make India less

attractive for BPO. Hence, there is a critical need to address such issues

effectively. Many troubles facing the Indian BPO industry relate directly to the

management of human capital. For example, the 2005 "global offshoring

outsourcing summit" of the Indo-American Chamber of Commerce noted

several trends which will shape the future of Indian BPO industry. Some of the

challenges include annual turnover rates ranging from 20 to 80 percent and

an imbalance in the demand and supply of a skilled and talented workforce.

There is also an emerging shortage of manpower at the mid-management

level. The basic "cost-effective" model of Indian BPOs appears to be

weakening as the wages continue to rise annually by 10-20 percent, and in

some cases, revenues are declining. There is an increasing scarcity of the

appropriate skills gained through the education system, which is low on

quality and relevance. Because of shortages, hiring new talent has become

more expensive. In 1999, the average pay packet of an entry-level agent was

$160-$180; now it is $300-$350.

212

Due to high attrition rates, every employee who quits costs the company

another $900-$1,100 to recruit and train a replacement. Finding the right

candidate is now becoming a problem. At present for every 100 applicants in

Mumbai, just one or two make the cut. Four years ago, the success rate was

20 percent Apart from this, BPO employees are experiencing problems

related to stress, sexual and racial abuse, and dissatisfaction at work. The

literature on HRM practices in the Indian BPO industry is scant and offers little

guidance on how to remedy such problems by effectively managing human

resources.

3.6 Human Resource Management System in India.

The research work carried out by Budhwar et.al. (2006)25 at 51 BPO’s brought

out the problems and challenges facing the ITES – BPO sector.

Many Indian entrepreneurs, and gradually the Indian government, are

realizing the importance of the boom created by the country's BPO sector and

are taking steps to foster it. India has a new IT law that aligns it with 11 other

countries in compliance with common e-commerce rules that allow for legally

valid paperless transactions and legal transfers. The government has ended

its monopolies on long distance and Internet bandwidth. Such facilities and

resources are encouraging firms to create BPOs in India (The Economist,

2004). In the midst of such economic developments, the nature and role of the

HR function is also changing and evolving (Saini and Budhwar,2004)26.

The personnel function in India originated in the 1920s, when concern for

labor welfare in factories resulted in the Trade Union Act of 1926 that gave

formal recognition to workers' unions. The Royal Commission of 1932

recommended the appointment of labor officers, and the Factories Act of 1948

laid down the duties and qualifications of labor welfare officers. Such

developments formed the foundation of the personnel function in India (Saini

and Budhwar, 2004). However, the influence of social contacts, caste,

relationships, and politics on Indian HRM policies and practices remains

prominent (Sparrow and Budhwar, 1997)27. This creates an interesting tussle

213

between existing strong social traditions (such as the importance of social

contacts and one's affiliation to a particular group) and the pressure to move

to modern professionalism (i.e., pressure to formalize and rationalize

management systems).

HRM practices need to be consistent with a systematic and rationalized

employment system. For example, the adoption of formal testing of job

applicants, job evaluation, training needs analysis, training evaluation, and

performance-related pay are activities associated with highly structured

systems. To a great extent, such an approach is clearly observable in

outsource contact centers (OCCs) operating in developed nations. Batt and

Moynihan (2002)28 summarize OCC work under three categories, namely,

mass production, professional services, and hybrid mass customization. Such

a categorization seems to be valid for BPOs operating in India as well.

However, less research evidence exists regarding structured employment

systems in Indian organizations where rules about practices such as

recruitment, training, promotions, and lay-offs are ad hoc and are subject to

easy manipulation by employers. Furthermore, social, cultural, economic, and

political factors exert a strong influence on Indian HRM policies and practices

(Budhwar and Sparrow, 2002)29. At times, selection, promotion, and transfer

are based on ascribed status and social and political connections, so there is

a strong emphasis on collectivism-family and group attainments take

precedence over work outcomes (Budhwar and Khatri, 2001)30. Similarly,

Sharma (1984)31 reported that staffing is primarily governed by familial,

communal, and political considerations. Motivational tools are more likely to

be social, interpersonal, and even spiritual. In such conditions, the employees'

orientation emphasizes personalized relationships rather than performance

(Kanungo and Mendonca, 1994)32. These matters suggest that Indian HRM

systems are less formal and rationalized. On the other hand, multinational

companies, for many reasons (such as control and coordination), may adopt

global standardized policies and practices in their subsidiaries around the

world (Bjorkman, 2004)33. Given the sector's rapid growth and the involvement

of a large number of both national and multinational firms, and a significant

214

impact of Indian BPOs on the global economy, understanding the nature of

the HRM systems of Indian BPOs is crucial.

Work and Organization of Indian BPOs:

The BPO firms in India are spread over various sectors, such as IT and

software services, accounting and finance, consulting, telecommunications,

banking and insurance, health, pharmaceuticals, energy, and travel. A range

of both inbound and outbound activities such as customer care, remote

maintenance, data conversion, inventory management, web development,

personal loans, HR (recruitment, training, MIS, Six Sigma), health care,

network consultancy, animation, knowledge services, analytics, software and

content development, supply chain, R&D, and risk management are carried

out by these firms.

Generally, BPO operators (especially those working in call centers) work in

large offices on workstations placed in cubicles and are connected to a

telephone / computer system. They wear headphones in order to talk for long

periods, and most of the information needed during a conversation is

displayed on their computer screens. The operators must interact with the

customers in a specific format. They must follow the required instructions and

are under constant observation. All the BPOs adopt strict quality control

mechanisms such as call monitoring, testing calls for accent and language,

conversation content, and client satisfaction. Some organizations have Six-

Sigma control charts, and most have regular audits. The BPOs use both

remote call listening-in and team leaders and supervisors on the floor to check

and monitor every operator's performance.

On average, the ratio of operators to supervisors is 12 to 1. The usual work

shift is eight hours, during which each operator gets a one-hour or one-hour-

and-fifteen minute break, which includes lunch/dinner and two tea breaks.

Their log-in time is also monitored. Clear targets, long sittings, monotonous

work, and, at times, abusive clients make the operators' work very

challenging.

215

The emerging picture of Indian BPO operators is similar to their OCCs

counterparts in developed countries. They seem to be adopting a tightly

controlled structure that is cost efficient, bureaucratic, and has a customer-

oriented philosophy which results in monotonous activities carried out by

operators on "graveyard shifts" (to serve UK/U.S. clients at late hours) with

usually timed bathroom breaks. Media reports denote such BPOs as the

"new-age sweatshops," and people working in them as "cyber coolies" who

are fresh graduates, lack core competencies, and have little chance of

climbing the corporate ladder (George, 2005)34.

Most firms had more or less similar organizational structures consisting of four

to seven vertical levels of management with different designations. As shown

in Table 3.4, 90 percent of the sample firms had an HR department, and the

average HR department had 20 employees. HR Manager is the most used

designation in the sample firms (37 percent), followed by GM and HR

Director. The top HR personnel are given an average of 20 days training

annually (for more details, see Table 3.4). Most HR departments had roughly

three layers: Vice President, HR Manager, and Executives. Information

related to HRM is regularly communicated to the top director who can be

CEO, COO, or CMD of the firm. Most companies hold a regular fortnightly or

monthly meeting between the top HR manager and top directors in which

information related to recruitment, HR targets, key HR metrics, attrition,

satisfaction, surveys, and market trends is shared.

Table 3.4 Details for HR Department and HR Managers

Presence of HR department/HR manager 90%

Name of HR department HRM = 39%

Personnel = 2%

HRD = 37%

Others = 22%

Title of senior HR personnel HR Manager = 37%

HR Director = 16%

General Manager = 20%

Others = 27%

216

Total number of people employed in HR department Up to 5 = 37%

6--10 = 24%

11-15 = 8%

16--20 = 14 %

21 and above = 17%

Recruitment of HR/ Personnel manager Indian Company = 27%

Indian University = 33%

From a MNC = 40%

Average annual training received by senior HR manger Up to 10 days = 55%

11-20 days = 21 %

21-30 days = 15 %

31 days and above = 9%

Source : Budhwar et.al. (2006) "The dynamics of HRM systems in Indian BPO

Firms" , Journal of Labour Research Vol. 27 (3), pp.348.

Against the established norms of traditional Indian companies where HR still

plays a very reactive role (Budhwar and Sparrow, 1997), their results show a

clear emphasis on allowing the HR function in the sampled BPO firms to play

a strategic role. As shown in Table 3.5, most firms have an HR strategy

(written or unwritten) and a corporate policy for HRM (94 percent).

Furthermore, HRM is represented at the board level and integrated into the

corporate strategy from the outset, and the contents of the HR strategy are

translated into clear work programs (94 percent). A majority of the firms

reported that their HRM function has become more proactive over the last

three years (77 percent). These results are comparable to those firms

operating in western nations, especially in Europe (Brewster and Hegewisch,

1994)35; and confirm the growing strategic nature of HRM Schuler and

Jackson, 1999)36.

217

Table 3.5 Scenario of Strategic HRM in BPOs Operating in India

Presence of HR at board level 84%

HR manager reporting directly to CEO or equivalent 94%

HRM considerations built into organizational strategy At the outset = 76%

At consultation level = 14%

At implementation level = 10%

Presence of HR strategy Written = 82%

Unwritten = 18%

HR strategy translated in to clear work programs 94%

HR function became proactive over the last three years 77%

Firms having corporate policy for HRM practices 94%

Explicit efforts made by firm to align business and HR / Personnel

strategies

69%

Involvement of HR department in strategic planning process 75%

HR manager viewed as business partners and agents of change 58%

Source : ibid pp.349

Perhaps due to the nature of the BPO industry or the Indian context, none of

the sample firms had any part-time employees. All the employees in their

sample were permanent except for some contractual employees for

housekeeping and other types of cleaning activities. The percentage of female

employees at the junior management level was higher in the research units

(54:46) as compared to the senior managerial levels, which were dominated

by men. This was similar to operations in Western countries (Bain and Taylor,

1999)37. The average age of employees at different levels of management

was also similar in all the research companies. The average age at the junior

management level ranged between 20 to 26 years, at middle level between

24 to 32 years, and at senior levels, the average age is 45 years.

Considering the strong demands of the BPO industry for women employees,

the Factories Act of 1948 in India has been amended to allow women on late

night shifts (Sifynews, 2005)38. The next issue to be tackled by both the

218

government and employers is to safeguard the employees, women in

particular, from sexual and racial abuse received from overseas clients. This

is emerging as an important factor as some employees are quitting. Some

BPOs have started to develop a "black list" of abusive clients and put them on

their "do not call list" (Baliga, 2005).

Recruitment

The results highlight the adoption of a formal and structured approach to

recruitment in most of the sampled BPO units. Typically, employees were

recruited both from within and outside the organization at all levels using a

mixture of approaches including consultants, job advertisements, campus

interviews, employee referrals, and walk-ins. The responsibility for the

recruitment process was shared by both the HR manager and the operations

manager. A number of interviewees remarked that not only were there no

part-time employees, but also the employment system does not seem to be

changing in this direction.

The BPOs want new employees to have specific skills including good

command of the English language, even tone of voice, persuasiveness,

positive approach, communication skills, accent, attitude, energy level,

computer knowledge, and voice modulation. Similarly, various criteria, e.g.

previous experience, identification of relevant skills, aptitude and personality,

and methods, e.g., a systematic, formal, and a thorough approach involving

different tests and a number of levels of interviews, are adopted to select new

employees. Most research firms had a probation period of up to six months.

The survey results showed that in 90 percent of the sampled BPOs, new hires

were analyzed for desired personal skills and competencies prior to the selec-

tion decision. Similarly, 79 percent of all new hires were given a selection test

of some type. Furthermore, on average, a candidate went through four levels

of interviews before a final hiring decision was made.

Despite the large number of graduates from Indian universities, BPOs have

started to experience problems in finding personnel. The majority of HR

managers interviewed reported some bad recruiting experiences. Advertising

219

openings in newspapers or magazines tends to result in too many

applications with little potential, and selecting candidates from a large

candidate pool is both time-consuming and costly. Another serious problem

was that of acquiring a new employee after a formal job offer has been made.

At times, after getting the appointment letter, the candidates do not accept but

instead use the offer as leverage to get a different job or higher compensation

in their preferred organization. Due to the similarity of popular Indian names,

another dilemma arises when the same candidate's name and profile comes

to an organization from two or three different consultants. In such a case, the

HR manager has difficulties determining if these are different candidates with

the same name or the same candidate who has been making the rounds at

different placement agencies.

The literature on Indian HRM practices (Budhwar and Sparrow, 2002)

suggests a strong influence of social relations, informal networks, and one's

caste and religion on recruitment practices. However, their investigation

showed that this did not seem to be the case in the Indian BPO industry. In

fact, companies were looking for referrals from present employees. Moreover,

they used rigorous procedures to select the most appropriate and qualified

candidate from the referred applicants. This approach is helping BPO firms to

acquire more competent employees.

Training and Development.

Like the recruitment practices, training and development activities were also

both formal and structured in their BPO sample. Apart from in-house training

facilities, external training consultants were also used. The main areas of

training identified by BPOs are the entry-level voice training, entry-level

process training, interpersonal skills, and products and work systems training.

In addition, induction process and an emphasis on voice and accent are other

key training areas. The time devoted to on-the-job and off-the-job training

given to agents varied dramatically in their sample firms from a few days to

two months. In addition, poor performers were given a regular update. A

similar approach was adopted in outsourcing centers operating in the United

Kingdom (Callaghan and Thompson, 2002)39.

220

Typically, the employee's training needs were systematically analyzed. A

needs assessment were conducted as part of the quarterly performance

appraisal. Methods identified for assessing training needs included supervisor

requests based on performance and quality feedback, appraisal results, and

the monitoring by the training department; training audits; and supervisor

requests based on analysis of projected business. Training effectiveness was

evaluated through systematic performance tests and informal feedback from

managers. Some centers conducted weekly skills tests and tend to rely on

trainers from both inside and outside the company.

A number of captive units send selected personnel from different functional

areas overseas for training (mainly to the United Kingdom and the United

States). The goal was to train and make the staff aware about the culture,

philosophy, values, and the "way of doing thing” of their BPO. Despite the

formal approach to employee development, the interviewed HR managers

reported some problems with the training programs. First, some companies

did not have a sufficient training budget. Second, HR managers also reported

the scarcity of training experts in some specific areas (such as quality control

and new interventions). Third, some employees were highly selective about

training programs and took into account whether a particular training program

will enhance their resume and market value. Accordingly, either they find

some way to avoid training or, if they are required to go, they do not attend

seriously. At times HR managers are under pressure to train a specific

number of employees in a given time period. However, on a particular day

they might not be able to meet their target as the employees needing training

may be on a different shift or not available.

Furthermore, the growing short age of skilled workers in foreign languages,

training in foreign languages must become a priority of Indian BPOs. There is

a potential demand for over 160,000 foreign language professionals in Indian

BPOs by 2010, but only 40,000 Indians will qualify. This will create a supply

side constraint (Jayachandran, 2005)40 -something to be seriously considered

by both trainers and relevant institutes.

221

Performance Appraisal and Compensation:

A formal and structured approach to the performance appraisal system was

common in most of the Indian BPOs under study. BPO firms typically had

monthly or a quarterly appraisal system. All the firms had structured format

and a clear set of parameters for appraisals. Performance appraisal in all the

call centers emphasized results. The general trend was that the immediate

supervisor appraises the employee and gave his / her report to the employee.

After the employee reads the appraisal, it must be signed before submission

to the section head. If required, adjustments are made by involving the section

head. At times, the section head also appraises his section employees. A

number of issues related to future movement or cross-functional movement

within the company as well as training needs identification, key performance

areas, and possible targets to be achieved were analyzed.

However, considering the nature of the BPO industry, most HR managers

were convinced that performance appraisal is essential and believe that over

a short period of time employees either accept it as a fact of life or quickly

adapt. There certainly appears to be scope for improvement in the existing

system within the Indian BPOs. For example, in the present system there is

relatively little participation of individual employees regarding their goal setting

(though few companies claim they are doing it). Perhaps a more participative

approach could be beneficial. This had been the experience of some Indian

BPO firms that have tried it.

All the call centers had a standard wage structure and provided a competitive

compensation package to attract and retain employees. The pay and benefit

scheme is attached to grade, total work experience, and employee

performance and skills. The bonus schemes were individual based at the

junior management level in all the sample firms. However, it was level-based

for middle and senior managers. Most BPOs based their compensation

packages on market trends by getting information from regular surveys (by

consultants and professional bodies) and by benchmarking their packages

against the best payers. In addition, the performance appraisal results played

222

an important role in deciding compensation and increments. Performance

appraisal activities were quite similar to the Western outsourcing centers.

Employee Turnover and Retention

All the respondents reported employee turnover as one of the major

challenges facing the Indian BPO industry. They reported somewhere

between 15 to 50 percent attrition in their organizations. However, other

sources indicate that turnover in fact, is much higher, and is the most pressing

problem for Indian BPOs. The main reasons for employees leaving include

better career opportunities outside India, monotonous and stressful work,

leaving for higher studies, strong job market, attracted to branded companies,

health-related reasons, lack of career advancement, job security, and growth

prospects elsewhere. The situation in Indian BPOs resembles the "electronic

sweatshop image" highlighted by Frenkel et al. (1999)41. Sometimes people

leave as they find the work not to their taste.

It has been noted that the less than ideal quality of work-life balance is an

important contributor to the high and increasing attrition level. For example,

working during the night shifts creates health and social problems for workers.

Amongst employers, however, there was a consensus that plenty of job

candidates were available. To some extent, this is true. However, finding the

right person is becoming more and more challenging over time, and future

shortages of employees loom on the horizon.

Many BPOs are adopting some basic measures to retain employees,

including salary surveys to stay abreast of the market, culture-building

exercises for employees, exit surveys, counseling, employee development

programs, rewards and recognition, as well as increased pay and benefits.

However, employees complain about favoritism by the management towards

selected individuals regarding appraisals and promotions. Furthermore,

management frequently is reported to act as a closed system, i.e., not ready

to accept employee feedback, which leads to a sense of frustration and, ulti-

mately, resignation.

223

To overcome concerns, some of the software and IT-based companies have

taken specific steps to increase employee retention

Employee involvement is a proven tool to motivate and retain employees and

could be useful in the Indian BPOs. In the West, there has been continuing

interest in getting workers more involved in various processes, such as

decision-making and information sharing (Wilkinson, 1998)42. Employee

participation may contribute to employees' growth needs and sense

achievement (Heller, 1998)43 through a better utilization of their skills and

potential.

The main motivators for BPO employees were found to be money (good

salary), career opportunities, and work environment were rated higher than

others such as benefits (including facilities), recognition at work, growth,

company brand name, opportunities for personal growth, and better treatment

from clients. The interviewed HR managers clearly believed that effective

HRM systems in Indian BPOs are very important as the problem of obtaining,

motivating, and retaining talent will be crucial for the survival of units in the

ever-increasing and highly competitive national and international business

environment. .

Table 3.6. Employee Involvement Practices in BPOs Operating in India

1 Devolvement of task or operational decision-making to the

lowest level

16%

2 Devolvement of responsibility for quality to the lowest level 59%

3 Autonomous work groups/Quality circles or groups 90%

4 Newsletters/In-House publications 43%

5 Corporate intranet 90%

6 Team Meetings 98%

7 Employee forums or focus groups 67%

8 Management presentations 61%

9 Suggestion schemes 88%

224

10 Employee opinion surveys 57%

11 Works councils or other consultative committees / Trade Union

representation

15%

Source : ibid pp.354

The main messages emerging from the analysis of existing literature are that

the work set-up of Indian BPOs is highly structured, tightly controlling,

bureaucratic, formalized, monitored, and scripted, though aiming for a "total

customer satisfaction" philosophy. Most HR practices of recruitment, training,

compensation, and performance appraisal are formal and structured. These

activities are similar to outsourcing centers operating in developed countries.

The emphasis on career development and training appears to be somewhat

less in the Indian BPOs compared to their Western counterparts, perhaps

because India's BPO industry is still evolving, and management does not feel

the need to invest in employee career development, mainly due to the

presence of a large number of available graduates.

However, farsighted managers and policymakers are realizing that there are

many human issues in the Indian BPO industry which need serious attention if

the industry is to continue enjoying its current success, including increasing

attrition rates, psychological health and stress-related problems of employees,

developing career-related policies, provision of more workplace flexibility, and

creating a more interesting and enhanced work environment.

A good first step would be for India's BPO industry to begin to address the

emerging and critical issues. For example, outsourcing is an established

phenomenon in the West where workplace stress has been acknowledged as

undermining productivity. As a result, specific training is provided to

employees related to job stress management. This is perhaps an approach for

Indian BPOs as well, where less than 4 percent of the focus during training is

on stress management issues (Business Line, 2003)44. In addition, all the

Indian BPOs employ only full-time employees. For an industry growing at 50

225

percent yearly, even if millions of graduates are available, Indian BPOs are

soon likely to face a shortage of skilled and trained labor. Therefore,

considering part-time workers appears timely so that the vast resources of

talented Indian women who may wish to work fewer, and more flexible, hours

would be available.

The design of work systems in the BPOs under study was very formal and

bureaucratic. Perhaps, to some extent, this is appropriate given the nature of

the industry. However, in the long run, as already evidenced by an increasing

attrition and other problems, the existing systems must be modified to provide

flexibility and empower employees, helping them develop proper career

progression. Moreover, there is a need to create open systems in which

employees can give feedback to their managers and expect them to be

responsive. A trend towards empowering via involvement has already been

initiated by Indian BPOs (see Table 3.6). Nevertheless, serious efforts are

needed to inculcate such phenomena into the core philosophy of Indian

BPOs, where a well structured and rationalized HRM approach can

significantly improve employee relations with management and enhance

overall organization competitiveness and performance. This is crucial for

organizations that must attract and retain talented employees and maintain

good relations to remain globally competitive. However along with strict

structuring of the tasks there is a need for flexibility, employee, employment

and a healthy and simulating work environment. The information technology

industry in India is discussed in the next chapter.

226

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