Business Issues Handling From An HR Angle To Deal With Change In Strategy

This article is the 2nd Prize Winner of the Article Writing Contest October 2013

Many organisations of today in the post global financial crisis of 2008 seeks to redefine their strategy to retain their profitability and adapt to the changing needs and wants of the customers . With increasing competition, organizations are feeling the need to protect their customer base from the invading competition. This is possible only through better customer service, knowing customer preferences and providing customers with what is their need. In the recent past technology has been the enabler for companies achieve this objective by tracking every aspect of customer and catering their need. With the dropping demand of new software’s many software manufacturing forms are now trying to enter the software servicing segment of the software industry. This has opened up a new challenge for human resource professionals so to adapt and change the company strategy to effectively meet this challenge.

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The possible ways to deal with the change are as follows:

1. Study the Change in Business model and financial impact on the organisation

2. Identify key challenges

3. Organisational Restructuring to cater to new business processes

4. Change in systems and processes

5. Change in performance appraisal structure

6. Change in compensation system

7. Adapting to the culture transition

Change in Business Model

Key Challenges

Organisational Restructuring

If the organisation seeks to be a services company, the structure should be as proposed below:

Change in Systems and Processes

Change in Performance appraisal

Raw Performance Index =Grade * ((Number of issues handled *Criticality*Customer rating*(time taken/time ideally should be taken)/ (Number of issues assigned)+ years of service – (Number of instances of misconduct *criticality ))

*** Bonus should be provided on the basis of performance index obtained above and not on the basis of a separate potential index which it is currently following . Because the number of years of service is reflected in the performance index calculation itself .

Change in senior management Compensation structure

Problem with stock options as compensation

1. If stock prices decline, the stocks go underwater and company loses talent

2. In case of underwater stocks, repricing or reissue could lead to serious complications.

3. The CEO could take short-term measures just before his vesting period to boost up the stock prices

4. The CEO might not have the incentive to invest in long-term proposals like R&D which bears fruits long after his tenure.

5. Giving too many stock options would result in dilution.

Total Compensation Plan

Introduction of EVA for Executive Bonus calculation

EVA, shorthand for Economic Value Added, is a periodic measure calculated as after-tax operating profits less a charge for capital employed, where the charge is based on the cost of capital (or WACC) times the level of capital employed. The underlying premise of EVA is that if managers focus their efforts on maximizing earnings, subsequent earnings growth may come at the expense of the balance sheet. That is, managers may overinvest in costly capital if they are only concerned with the profit and loss statement. To counter such asset inefficiencies it should replace earnings as the objective in their managerial compensation schemes with EVA.

Culture transition

Based on Hofstede’s model , we can classify the transition as follows:

As a software manufacturer , the culture of the organisation was based on joint decision making in teams and status based on achievement with high level of egalitarianism ( ideal culture for research and development).The uncertainty avoidance was low as unexpected was seen as challenging and expecting . Most operations took place with a long term orientation . However , as a service company , it would need to have a belief in group control and team accomplishment . The communication would be top down and authoritarianism would be demonstrated . Uncertainty avoidance would be high and short term orientation would be preferred since it would be essential for a reliable ,error free ,timely service delivery which will be driven by the rigid guidelines of service document issued by the organisation in response to the request filed by the client.

This article is authored by Uddalak Banerjee And Arijit Das from XLRI

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