A Study of the Effect of HR Practices on Organizational

Health

(Paper Code 100)

Shiva Kakkar

(shiva.kakkar11@bimtech.ac.in)

Sudhanshu Shekhar

(sudhanshu.shekhar11@bimtech.ac.in)

PGDM (Second Year)

and

Manosi Chaudhuri

(manosi.chaudhuri@bimtech.ac.in)

Associate Professor

Organizational Behaviour and Human Resources

Birla Institute of Management Technology,

Plot No. 5, Knowledge Park II, Greater NOIDA

UP-201306, India
CASE REVIEW

Purpose: The world today is one belonging to the knowledge worker. The rise of Information
technology has changed the fundamentals of business. The people working for this sector are its
most valuable assets; their minds serving as the creator of newer and better products. Firms today
are finding it increasingly difficult to attract and retain talented individuals. SMC Insurance Ltd.,
with its wide portfolio of insurance products faces a similar challenge. For an organization to
have the best of the industry working for it, it needs to give the best treatment to them. This is
where Human Resource Practices take the centre stage. Human Resource Practices tend to affect
employee motivation and assure that the organization is in sound health. In a cut-throat
competitive sector like insurance, it is necessary to keep employees motivated for deriving good
organizational performance. The objective of this research is to identify the tacit unexpressed
needs of employees working at an organization and help the organization fulfill these
unexpressed needs and expectations. Through this study, we have tried to identify certain best
practice areas that can make a profound effect on the organization’s working style which can
further help it build an honourable standing among its employees. The case narrates a real life
situation faced at SMC Insurance Ltd. and how this research helped them reach upon a
resolution.

Approach: The research uses primary data collected through a questionnaire filled by the
employees of the company based on a 7 point Likert scale. The questionnaire attempts to capture
the perception of employees towards the various practices that are being followed in the
company and tries to gauge their level of satisfaction with them. Factor Analysis has been used
for analyzing the data.

Findings: This paper provides a framework for improving organizational performance through
better HR practices. The research came out with six areas that tend to have a profound effect on
the employees and their perception of the organization’s working style. To establish itself as a
proactive organization, this organization needs to work with a socio-technical perspective. The
use of newer Information Technology tools, prognostics, better Human Resource Information
Systems (HRIS), along with social initiatives aimed at generating knowledge and increasing
employee trust and morale will guarantee a healthier overall environment.

Keywords: Human Resource Practices, Organizational health, employee satisfaction,

motivation.
1. INTRODUCTION

India has about 300 million people who can afford to buy life, health and pension plan
products. Out of this, only 20% have insurance and that too covers only 25% of their needs
and financial capacity. The remaining 80% have no insurance cover. The life insurance
market of India, therefore, has tremendous growth potential. More and more foreign
companies are setting shop in India. This directly indicates the rising job opportunities in this
sector1. Large scale manpower needs pose intricate problems. As employees get more and
more aware, the bargaining power they possess on the negotiating table increases. Coupled
with newer and better government regulations, rising competition and a volatile target driven
environment, the challenges and opportunities for insurance companies are like never before.
Thus, insurance brokerages have numerous pressing issues on hand. High Attrition rates,
employee dissatisfaction, motivation and training expenses are some of the issues constantly
perplexing the insurance brokerage companies. A careful and critical analysis of these
problems would tremendously benefit the organization, as well as generate valuable
information that can be applied not only to the insurance sector but to other high-attrition
sectors like BPOs (Business Process Outsourcing) as well.

The scope of this study is limited to pointing out the Human Resource (HR) practices needed
to meet the challenges of this industry and give suggestions over the lacunas, if any. This
involves a substantial amount of research to be conducted on the relationship between
employee perceptions of fair treatment and their commitment. Employee commitment results
from a sense of support from the organization, a feeling of acknowledgement and respect for
the individual - factors which come under the umbrella of HR practices. A 2003 research
conducted by the Chartered Institute of Personnel and Development (CIPD), UK highlights
the fact that effective HR practices can have a tremendous impact on the bottom line of a
company. Lastly, it needs to be noted that there is no single ‘best HR practice’. HR practices
are often tailored around the specific needs of an organization. This research tries to analyze
the practices found in the insurance industry and reach to a conclusion.
2. LITERATURE REVIEW
The Human Resource Management (HRM) function today is concerned with much more than
simple filing, record keeping and compensation disbursement. When HRM is integrated
within the organization, it plays a major role in clarifying the firm’s human resource
problems and developing solutions towards it. It is oriented towards collective action, the
individual, interdependence and the future. It is hard to assume that an organization would
continue to survive in the lack of effective HRM strategies In spite of the appealing notion of
strategic HRM, organizations find it extremely difficult to adopt new HR practices. Most
often, they are concerned with short term gains and focus only on current performance rather
than having a comprehensive view of the future. Hence, it can be said that HRM activities
play a major role in ensuring the prosperity and effectiveness of an organization.
Organizational health refers to an organization's ability to achieve its goals based on an
environment that seeks to improve organizational performance and support employee well-
being. Current thinking suggests that organizational performance and employee well-being
are interdependent variables that affect each other and gain from both perspectives being
jointly addressed. Organizational health is a holistic factor that affects each and every
stakeholder of the organization. These include shareholder satisfaction in terms of financial
performance, customer satisfaction, community or regulator satisfaction with regards to
environmental management, management and administration of Human Resources and
Information Technology services, employee satisfaction in employment conditions and work
relations. These factors are something that are totally controllable by the organization and not
based on circumstances. Thus, an organization oriented towards long term sustainability
should strive towards employee empowerment and establish systems that harness the power
of its human capital.

Effectiveness and ineffectiveness of an organization can be studied in terms of certain

criteria’s like performance appraisal, legal compliance, and employee satisfaction, attrition,
training effectiveness and grievance rates among others2. All these are constituents of the
practices followed in an organization. A detailed view of the above mentioned practices is
presented in the following paragraphs:

1. Human Resource Planning: The rapidly changing and ever evolving world has put a
tremendous strain on the availability of human resources. HRP (Human resource
planning) is the analysis of the organization’s HRM needs in a dynamic environment and
development of course of activities that can enable the organization to adapt to change.
The Human Resource Planning Process3 typically consists of 4 steps, namely:
1. Situational Analysis or Environmental Scanning
2. Demand Forecasting for Human Resources
3. Analyzing the current supply of Employees
4. Action Decisions in Human Resource Planning
 There are two types of scenarios a firm can face at this point:
1. Shortage of employees: If the supply of employees is less than the demand, the
organization can go for counter measures like recruitment, moonlighting, etc.
2. Employee Surplus: It has been viewed that decisions in employee surplus conditions
are more difficult to make than in shortage because it involves activities like layoffs,
demotions, retrenchment, terminations, attrition, etc. The most preferable method to
deal with this situation is attrition. Most organizations avoid layoffs and
retrenchment, and depend on attrition i.e. by simply not replacing the people who are
leaving the organization.

2. Performance Appraisal: Performance appraisal is a formal management system that

provides for the evaluation of the quality of an individual’s performance in an
organization. Performance appraisal is done to satisfy a number of organizational
objectives like providing feedback on performance, promotion decisions, assessing
training needs, determining compensation changes, supporting manpower and succession
planning, etc. Appraisal has typically been met with negative views from the employees.
Rather than an effective measurement and communication of performance, appraisal
strikes a chord of fear in the hearts of those appraised. Managers tend to forget that
appraisal does not include coercing employees into acceptance of the goals of the
enterprise, nor does it mean manipulating their behavior to suit organizational needs.

While doing a Performance appraisal some common pitfalls should be kept in mind4:

• Criticism has a negative effect on achievement of goals.

• Praise has little effect one way of the other.
• Performance improves most when specific goals are established.
• Defensiveness resulting from critical appraisal produces inferior performance.
• Coaching should be a day-to-day, not a once-a-year activity.
• Mutual goal setting, not criticism, improves performance.
• Interviews designed primarily to improve a man’s performance should not, at the
same time, weigh his salary or promotion in the balance.
• Participation by the employee in the goal-setting procedure helps produce
favorable results.

3. Training and Development: Training5 is a planned effort by a company to facilitate

employee’s learning of job related competencies. These competencies include
knowledge, skills and behaviors necessary for successful completion of job tasks. A
typical training process has 4 steps:
1. Needs Assessment i.e. who would be trained and what type of training would be
imparted.
 2. Designing the training program through the use of Instructional System Design,
ADDIE model (Analysis, Design, Development, Implementation and Evaluation)
and others.
3. Implementation of training: Implementation refers to the effective transfer of
training to the candidates so that they can apply it to their jobs
4. Training Evaluation: Training evaluation refers to the outcomes needed to
determine whether training is effective. Experts have distributed the evaluation
into four components: Reactions, Learning, Behavior and Results. These four
components later constituted a model, now known popularly as the Kirkpatrick
Model of training evaluation6.

4. Organizational Structure: An organizational structure consists of activities such as

task allocation, coordination and supervision, which are directed towards the
achievement of organizational aims. A structure is defined by systems and processes
that aid communication between were echelons of management. Organizations rely
heavily on a strategy of employing effective communication in order to integrate,
coordinate, and control the information flow to all of an organization’s stakeholders,
employees, suppliers, investors, and customers.

5. Quality of Work environment: This factor deals with various aspects like work life,
hygiene factors, work stress which affect employee motivation and job satisfaction. It
is a relatively new field which is being explored in Human Resource Management.
QWL can also be understood with regard to certain psychological factors that affect
employee work life, like7:
 Skill variety: Employees today want to possess a vast variety of skills in order to
perform different tasks efficiently and increase their market value. This calls for
effective HRP.
 Task Identity: People like to have a feeling of identification with the job i.e. the
satisfaction that one has completed an entire piece of job from beginning to end.
 Task significance: Task significance is the employee’s perceived importance of
the piece of job being done by him or her and its social implications.
 Autonomy: Employees today need a greater amount of freedom and control over
their activities. This calls for tweaks in organizational structuring.
 Regular Feedback: Employees today expect regular feedback and appreciation of
their work.
6. Contemporary HR Practices: Contemporary HR practices include Knowledge
Management and Organizational learning that contribute towards making of a high
performance organization. Knowledge management8 deals with the planning,
organizing, motivating, and controlling of people, processes and systems in the
organization to ensure that its results and productivity are improved and resources
effectively employed.

The concept of Organizational learning (or Learning Organizations) came around first
in the book The Fifth Discipline by Peter Senge. He described them as “places where
people continually expand their capacity to create the results they truly desire, where
new and expansive patterns of thinking are nurtured, where collective aspiration is set
free and where people are continually learning how to learn together.”9
Many experts view Knowledge Management and Organizational learning as similar
concepts. Indeed, the concepts are deeply inter-related. KM can be seen as an
organization’s ability to share and retain the knowledge resources of the firm for
sustained competitive advantage. Meanwhile, OL can be considered as the process of
improving business practices through better knowledge and understanding. More
specifically, OL emphasizes how the learning process can create new knowledge for
developing business practices in a changing environment. It can be said that a
Learning Organization is the ultimate result of all Knowledge management and
organization learning Initiatives.
3. CASE

Sitting in the plush cabin of SMC Insurance Brokerage Pvt. Ltd., Rachit Sahay’s mind was
deliberating on the challenges his new job threw upon him. He was the northern HR head of
SMC India. Having a long experience in the high attrition BPO sector, Rachit hoped that he
would be able to mould SMC easily in order to increase its productivity. Obviously, he was
not getting a lot of success at it. His observation told him that the primary reason for a lot of
operational inefficiencies in the company was the lack of employee motivation. Attrition
rates were sky high and most of the employees complained for one reason or the other. But a
crude hypothesis was hardly enlightening. He needed substantial proof in order to make any
changes and convince the higher management. Rachit was in the middle of his thought
process when the phone on his desk rang. It came from the reception.

“Yes,” Rachit answered.

“Sir, some new trainees are here to meet you.”

“Send them in,” he said realigning his thoughts.

As Rachit sat speculating about the problem, the two trainees entered and wished him.

“OK. So you are Abhinav and… you are, Bharat.” he exclaimed as he sifted through their
resumes that lay in front of him.

“Yes Sir,” they answered in unanimity.

The trainees came from a top ranking business school from the National Capital Region
(NCR). SMC India did not have a formal policy on hiring summer trainees. When Rachit
joined the company, he made it a point to bring some young blood into the organization. He
believed that it would add a new dimension towards looking at things and give rise to a more
creative thought line.

After making them comfortable he made them cognizant of the company’s processes. The
firm had a team of over 100 tele-callers assisting the company in its telephone sales. Each
tele-caller had a team of 7 – 10 people who reported to a group leader. The compensation for
tele-callers was on a fixed-cum-variable basis. The fixed monthly salary ranged between Rs.
6500 to Rs.7500 with added incentives. The group leaders in turn reported to a senior sales
manager. Apart from the telephone support, the company had a 300+ strong sales force of
on-field insurance agents. These were junior sales managers, each having a team of five sales
agents to manage. Ten junior sales managers reported to the sales manager, who in turn,
reported to the senior sales manager. Apart from the sales agents, every other designation had
salaries with both fixed and variable components. The sales agents had only variable salaries.

The primary function of the HR department was to supervise the compensation of the
employees and make policies. This, Rachit thought, was a very passive approach. He wanted
to turn the function into a dynamic one, so that its presence could be felt among the
employees. He explained his viewpoints in great depth to Abhinav and Bharat. After making
the trainees aware of the company’s systems, he asked them to report with a preliminary
analysis the next day.

The trio met the next morning to debate over the issues.

“Sir,” Abhinav started off the conversation, “We thought on the present situation and a
preliminary analysis tells us that though the company has some codified HR policies in place,
there seems to be a lot of ambiguity in the minds of the employees. In fact, this morning we
spoke to some of the employees and found that the nature of complaints was often trivial.
The major sources of dissatisfaction that emerged during our discussions were with regard to
the facilities and remuneration provided, ambiguities related to task allocation, performance
appraisal and career progression. To cut it short, the biggest problem is that the employees
seem to miss a feeling of belongingness to the company. They have a feeling that the
company does not value them.”

“And as a result,” Bharat intervened, “they start believing in the grapevine and speculations.
Thus, even small situations are greatly aggravated.”

“Hmmm...” Rachit sighed. “So what do you suggest we do?”

“A survey, Sir,” Bharat answered. “We need to have a more in-depth look at what lies at the
core of their problems and then target the specific areas. Also, it would serve as a gesture
telling the employees that the company indeed cares for them and is ready to look into their
problems.”

“So how do you plan to do it?” Rachit asked.

“Based on our discussions with the employees, we plan to make a short questionnaire
covering various aspects of Human Resource Management with relevance to the situation
prevailing in the organization. The questionnaire would be based on a 7 point Likert scale
with responses varying from ‘Strongly Disagree’ to ‘Strongly Agree’. The sample size
should be around 50 people, covering designations across all domains in order to get an
unbiased response,” Abhinav replied.

“That is perfect,” Rachit replied, “but I would also like you to use a statistical analysis tool.
You can use SPSS to do a factor analysis of responses. This would identify the underlying
patterns and give us clear cut interpretations of the employees’ responses. Are you
comfortable with it?”

“Absolutely,” they replied in unison. “We shall do it and get back to you as soon as
possible.”

Rachit gave them the green signal and told them to report back within 15 days with the filled
questionnaires and analysis.

The next 15 days were the most hectic for the trainee duo. The most difficult part was to
maintain the correct mix of employees so as to ensure that the research did not get skewed
towards any one group of respondents. Explaining the purpose of conducting the study to the
employees was a laborious task, but was accomplished successfully at last.

The team of two reported back on the assigned date to have another closed door meeting with
Rachit. He could see the nervousness on the faces of his apprentices.

“So, tell me what have we got in here?” he asked.

Abhinav began first.

“Sir, these are the questionnaires and this is the analysis,” he said passing on a thick stack of
printed A4 size sheets to Rachit. “As you can see, in the correlation matrix it appears that the
factor analysis has successfully extracted the important underlining factors for further
exploration and explanation. The KMO value is .685, and the Bartlett’s test is significant
(p=.000), proving that the factor analysis is appropriate. With this analysis, we have proved
that the sampling technique and respondent selection was adequate.”

“To determine the components (factors), we considered a few pieces of information provided
in the output. Firstly we used the Kaiser’s criterion or the eigenvalue rule, whereby only
factors with an eigenvalue of 1.0 or more are retained for further investigation. The
eigenvalue of a factor represents the amount of total variance explained by that factor. After
scanning the values provided in the ‘Total Variance Explained’ table (as shown in Exhibit –
I), we concluded that all the six factors extracted in the process explained almost 80% of
variability. Hence, we considered all the factors important for further investigation.”

“To summarize the entire thing in lucid terms,” Bharat added, “the study identified factors
dealing with six major areas of concern, namely Human Resource Planning, Performance
Appraisal, Organizational Structure, Quality of Work Environment, Contemporary HR
Practices and Training and Development. This is clearly evident from the loading of factors
in the Rotated Component Matrix table shown in Exhibit – II.”

“Please elaborate,” Rachit gestured.

“The first area is human resource planning (HRP). We believe that the recruitment procedure
of the organization is extremely efficient. That is why it is able to cope with the high attrition
rates. But, we also think that the firm can adopt newer and better techniques for human
resource planning. HRP can decide the present and future of a firm. It has a direct impact on
the company’s financials and cost effectiveness. Firing in the dark can never yield accurate
targets. Today, newer and better methods of forecasting and HRP are being used. Statistical
tools and expert analysis can be utilized for reaching at accurate manpower requirements.
HRP is in direct conjunction with training, development and other expenses that a firm will
incur in the future.”

“The second area is performance appraisal. Performance appraisal is an effective method of

measuring employee productivity but it starts losing its sheen if the employees lose their faith
in it. Employees should be made aware of how the appraisal system affects their career and
the gravitas it has on them. Another important matter that should be resolved is the general
perception towards performance appraisal. The negativity attributed to it should be dispensed
away through effective education. Employees should be informed that appraisal is not a
negative or punitive activity, but one that is aimed at increasing organizational productivity.”

“The third area of concern,” said Abhinav, taking charge, “is the organizational structure.
Many employees feel that there is an ambiguity in the organization. Many have multiple
heads to report, making jobs confusing. At some places there is replication of jobs between
different profiles which puts the employees into a delirium. In many cases, the pay scales for
similar jobs have been found to be different. Thus, employees are not able to understand how
they will grow in the organization. This is one of the most important factors causing
demotivation in employees. Also the quality of work life being provided needs to be worked
upon. Employees often compare the benefits they are getting at SMC to the ones their
acquaintances are getting in other firms. We need to supplement them with additional (but
not necessary financial) benefits, like better cafeteria and hygiene facilities.”

“The high scale attrition makes others in the organization question their own survival. We
need to reinforce upon them the fact that the organization cares for them. We may need to put
in an etiquette code for improving relations between middle and lower level employees.
Activities like charting career plans and tax planning for employees can be undertaken which
brings us to our penultimate area, the adoption of contemporary HR practices.”

“Lastly, we found that one of the main causes for high attrition is stress due to the high
pressure of the targets. We believe that if some kind of stress management training can be
provided to help employees, it would greatly benefit the organization.”

The details Rachit heard from his apprentices seemed to be convincing. After a brief pause,
he spoke to the expectant faces seated before him. “It is important to develop and instate a
new culture of trust and confidence among employees so that the organization can build upon
the knowledge of its employees and thereby create everlasting value for its stakeholders.”

“I will look into your recommendations. I sincerely believe that you will be one of the finest
HR professionals in the industry. Best of luck and thank you very much for all the pains you
have undertaken to conduct this study.”

Rachit was in a dilemma. The interns had provided him with valuable data indicating areas of
improvement. Now it was up to him to plan the future course of action.

• How should Rachit implement the suggestions given by the two interns?

• What is the readiness level of the employees and top management of SMC to go in
for such a change?

• What measures should Rachit take to solicit employee cooperation and minimize
employee resistance in the present scenario?

4. ANNEXURE

5.1 Exhibit - I
Extraction Method: Principal Component Analysis
5.2 Exhibit - II
Rotated Component Matrix

Component
1 2 3 4 5 6
13. Recruitment Policies .850 .202 .267 -.119 .018 .165
6. Job Significance .732 -.188 .109 .262 .103 .214
12. HRP and Forecasting .676 .286 .114 .246 .405 -.003

1. Flexi-time systems .578 .262 .529 .046 -.065 .331

17. Joint delegation of -.185 .824 .233 .136 -.072 .185
work
15. Frequency of .228 .823 .110 .181 .303 -.009
Performance
Appraisals
3. HRIS implementation .316 .709 -.117 .183 .170 .148
2. Competitiveness of .059 -.169 .877 .308 -.005 .069
Compensation
8. Significance of .203 .298 .776 -.058 -.087 .036
Organizational
Hierarchy
5. Job analysis .284 .098 .704 -.105 .461 .115
9. Workplace relations -.075 .199 .055 .793 .113 .213
10. Workplace hygiene .345 .194 .032 .748 .127 -.101
and facilities
16. Unity of command .547 .114 .155 .563 -.404 .151
4. Contemporary HR .033 .128 .007 .221 .853 .097
initiatives
14. Career planning of its .155 .181 .042 -.125 .616 .511
employees?
7. Skill based training .307 .049 .110 .070 .070 .878
11. Management .036 .354 .138 .355 .303 .611
Development
Training
6. REFERENCES

1. HR Challenges in Insurance Sector (2008), Hyderabad: ICFAI University Press, pp 124.

2. Bohlander, Snell (2005), Managing Human Resources, Bangalore, India: South Western,
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3. Rothwell, J. (2010), Effective Strategies in Planning, 4th ed., New York: Amacom Books.

4. Grote, Dick (2002), The Performance Appraisal Q & A Book: A survival guide for
Managers, New York: Amacom Publications, pp 22.

5. Noe, Raymond A. (2008), Employee Training and Development, 4th ed., New Delhi:
McGraw Hill Publications.
6. http://www.businessballs.com/kirkpatricklearningevaluationmodel.htm

7. Hackman J & Oldham G (1974), The Job Diagnostic Survey. New Haven: Yale
University.

8. King, William R. (2009), Knowledge Management and Organizational Learning, New

York: Springer Publications, pp 13.

9. Senge, Peter M.(1990), The Fifth Discipline, New York: DoubleDay, pp 3.