Question

Why is it important for a multinational company to ensure that its HR practices are aligned with the business strategy? What indicators could a multinational company use to assess the alignment between its business strategy and HR practices?

Answer 1

Multinational companies are those companies that operate in various countries which may in itself be a challenge. Human resource management is a strategic process of hiring and managing the employees of a company so that they provide a competitive advantage to the company.

Some of the human resource management challenges faced by such companies in developing countries are as follows:

1.     Cultural Differences: Developing countries often have strong ethnic values and cultural practices. Managing human resource from an extremely different culture can be a challenging task for the company, as it is difficult to effectively communicate information to individuals from different cultures and adapt to unfamiliar social practices.

2.     Legal Problems: A developing country may not follow global rules and regulations related to business such as those recommended by WTO. It is the responsibility of the human resource department of the company to ensure that the company abides by such laws, even if they conflict with the policies of the company.

3.     Human Resource Disconnect: For the company to operate smoothly in the developing country, there should be a strong connect with the human resource department of the company in that country. Although modern technology such as video conferencing helps in connecting with teams in different countries, it is difficult to form a human connect overseas.

A multinational company should ensure its human resource practices are aligned with its business strategy as it is the human resource of the company that helps put the business strategies and plans in action. Thus, the human resource department should recruit and train individuals in a manner that the personnel go hand-in-hand with and support the ambitions and business strategy of the company.

A multinational company can use 'key performance indicators' to assess and measure how well its business strategies are aligned with its human resource practices. Some of the indicators are as follows-

1.     Absenteeism Rate: This refers to the number of working days that an employee was absent on. It reflects how motivated and interested an employee is in the work and the company. This, in turn, also reflects whether the human resource has hired individuals who are capable of working towards the objectives of the company.

2.     Turnover Rate: this indicates the number of employees that leave the organization within a specific period of time. It can be voluntary and involuntary. A high turnover rate indicates ineffectiveness on part of the HR, as it reflects less retention or the inability of the employees to work in the company and contribute towards its business strategies as possible reasons.

3.     Employee Productivity Rate: This is calculated by taking several components into account, and shows how well the employee has performed in terms of generating outputs such as a number of sales. A high employee productivity rate ensures the company earns greater profits which is one of the primary goals of a company's business strategy.

4.     Effectiveness of Training and knowledge test: It is a duty of the human resource department to train the newly hired staff as well as the existing staff of the company. This process takes up training costs but develops the employees who are expected to be able to contribute more effectively, smoothly, and efficiently towards the company's goals after the training. Taking knowledge tests of the employees can help in assessing whether the training provided was effective.