11

HRD Audit

The Benefits of HRD Audits: An Example

An MNC that did not have operations in the world’s largest democracy—India—felt that it should have at least a minimal presence. It set up the company’s manufacturing operations in India in the mid-1990s. Being an American company, it recruited American nationals who never stayed beyond a couple of years. Finally, to save costs, the company decided to appoint an Indian CEO. As the managing director of the company, the CEO established great HR systems. He had a workforce that was young in age and was paid a salary that was at least 20 per cent to 30 per cent above the prevailing market standard.

Five years after it was set up and two years after the Indian CEO took over; the company touched a turnover of 100 crore. It was at this juncture that the CEO thought of conducting an HRD audit of his company to assess what more could be done. He and his HRD chief felt that they had done their best in terms of introducing a good performance appraisal system, communication system, training programmes and a number of other initiatives. When an HRD audit was conducted, it was revealed that while employee satisfaction was of a high order, the younger employees were concerned about their career paths and the company’s future. The HRD audit pointed out the need for the company to ‘think long-term’ and offer its younger employees (who were generally loyal to the company and excited to be working there) career progression based on its long-term plans. To this, the CEO remarked that all policies were being dictated by the head office in the USA, and he could do very little to prepare a strategy plan. He also suggested that a turnover of 100 crore meant nothing for the American company and they were simply not concerned about their Indian operations. They merely wanted to be present in the country and were reluctant to even allocate more than a few minutes to discuss India in their annual business planning. Under these circumstances, he could do little to offer a rewarding career to the employees. He admitted that he understood their frustration—he often faced deeply frustrating situations himself.

Finally, after the HRD audit report was discussed, the need for a long-term plan become very important as without it there could be no conceptualization of future growth and how it affected employee morale.

At the end of the exercise, it was decided to summarize the HRD audit report and circulate it among the agenda items for the company’s next annual planning meeting. While presenting the audit report (in the short time allocated), the CEO remarked that on the basis of the report he needed to offer promising careers to employees and, for that to happen, there was no alternative but to expand the company. Given the necessary freedom and support, he felt he could quadruple the annual turnover in the next three years. This caught the attention of the top management, who then suggested that he should present a plan for this. On returning to India, the CEO called all his senior executives together and said that he had made a promise to make the company earn four times more in the current year. They needed to build a strategy plan so that they could grow and offer their staff opportunities to grow too. They brainstormed and came up with a number of alternatives. These were examined and implemented. Today, the company is doing business worth 700 crore.

In this case, the HRD audit led the company to discover its strategy and plan its future. The total amount of money the company spent on the HRD audit was less than 5 lakh. In the following five years they benefited by achieving seven times their prevailing turnover. A 5 lakh investment with 500 crore returns! Such is the potential of an HRD audit. Organizations spend enormous amounts of money on people and people managers. If only they were willing to spend a relatively small amount to get their business functions and HRD investments audited, they would go a long way towards multiplying their business.

Why Conduct an HRD Audit?

In the last two decades, a large number of corporations have established HRD departments, introduced new HRD systems and made structural changes in terms of differentiating HRD function and integrating it with HR function. A good number of CEOs have seen some hope in HRD interventions for most of their problems and challenges. HR systems are people-intensive and require a lot of managerial time. There are examples of corporations where HRD has put itself in the driver’s seat and produced a number of benefits. In today’s competitive world, ‘people’ or employees can give a company much competitive advantage. To get the best out of HR, the latter must be well aligned with the business’s structure, strategies, systems, styles and goals. HR ought to be aligned with both short-term goals and long-term strategies. Without such alignment, HR could become a major liability to corporations. Also, the skills and styles of HR staff, line managers and the top management should synergize with the overall HR goals and strategies. The HRD audit tries to bring about these alignments and synergies.

Having a separate or a dedicated HRD department does not necessarily guarantee good HRD. Good HRD requires the following:

• The top management of the organization must recognize the strategic advantage and critical value addition provided by people.
• The role of HRD must be well carved out.
• Line managers must understand, accept and internalize their own role in development.
• A learning culture should be created in the organization.
• Appropriate HRD systems need to be identified to suit the corporation’s needs, requirements and strategies. The systems then need to be implemented well.
• The systems must be periodically reviewed, aligned and realigned with the organization’s business goals.
• Supportive HR policies need to be formulated and implemented.
• The HRD function must be handled by competent people.
• The styles, beliefs and values of the top management must be aligned to promote a culture of learning and competency building.
• The HRD function and its implementation must periodically be reviewed and renewed.

It is to achieve the last objective that the HRD audit has come into being. An HRD audit is a comprehensive evaluation of the prevailing human resource development structure, strategies, systems, styles and skills in the context of the short- and long-term business plans of a company. The HRD audit attempts to determine the future HRD needs of the company after assessing its current HRD activities and inputs.

Over the last two decades I have pioneered a methodology for auditing the HRD function and implementing it in a number of Indian companies (see Rao, 1999 for the original work on HRD audit). The HRD audit begins with a brief from the CEO and chief of HR, who may set an agenda and determine the focal areas of evaluation. The interview with the top management starts with finding out details of the organization’s future plans, and uses them as a base for outlining its competency requirements. The current competencies, structures, HRD systems, and so on are assessed in terms of their capability to prepare the organization for the future. Suggestions are made regarding the improvements that can be made in order to meet future business goals and plans. The HRD audit is contextual; it uses the available knowledge of the potential of HRD systems to help the corporation achieve its goals.

Characteristics of HRD audit

Some important characteristics of HRD audits are as follows:

HRD audit is comprehensive  The HRD audit begins by building an understanding of future business plans and corporate strategies. While the HRD audit can be performed even in organizations that lack well-formulated future plans and strategies, it is most effective as a tool when the organization already has such long-term plans in place. The HRD audit attempts to answer the following questions:

• Where does the company want to be ten years from now, three years from now and one year from now?

  This question needs to be answered by the top-level management. If the company has long-term plan documents, they need to be reviewed. On the basis of the answer to the question, consultants finalize the subsequent audit strategies and methodology. The consultants make an attempt to identify the nature of core competencies the organization needs to develop in order to achieve its long-term five- to ten-year plans. The consultants also attempt to identify skills that the company needs to develop at various levels (workforce level, supervisor level, junior management level, middle management level, top management level, and so on) and with respect to various functions (finance, production, marketing, and so on). Listing all these core competencies and skills for the future is the starting point of the HRD audit. The HRD audit normally attempts to assess the existing skills and competency gaps in order to achieve the company’s long-term business goals and short-term results. The competencies may deal with technical aspects or managerial aspects, and may be people-related or conceptual.

• What is the current skill base of HRD staff in the company in relation to various roles and role requirements? (Answers contribute to HRD competencies score on the HRD score card.)

  This is assessed through an examination of the qualifications of HRD staff, their job descriptions, training programmes they have attended, and so on. Besides, an attempt is normally made to identify the skill gap in the organization through personal interviews. Training needs and performance appraisal forms provide further insights. Departmental heads and other employees also give inputs about competency and other skill requirements.

• What are the HRD subsystems available today to help the organization build itself a competency base for the present, the immediate future as well as the long term? (Answers contribute to HRD systems maturity score on the HRD score card.)

  The auditors attempt to identify various HRD subsystems that are available to ensure the presence, utilization and development of skills and other competencies in the company. These HRD subsystems have been presented and evaluated in Chapter 2. All the HRD tools in the organization are listed and studied in detail.

• What is the current level of effectiveness of these systems in developing people, and ensuring that adequate levels of human competencies are available in the company? (Answers contribute to HRD systems maturity score on the HRD score card.)

  The effectiveness of each system needs to be assessed. For example, the effectiveness of the performance appraisal system is assessed by discussing systemic efficiency with employees individually and in groups. The auditors look at the appraisal forms and the linkages between appraisal and training, conduct questionnaire surveys to assess the extent to which coaching and other components of other appraisals are being utilized, and conduct the necessary workshops to assess the effectiveness of these systems. Similarly, with regard to induction training, consultants make it a point to meet those who have been through the induction training recently or those who are in the process of being inducted into the company. Their views are noted in order to improve the induction training methodology.

• Is the company’s existing HRD structure sufficient to manage the HRD in the company? (Answers contribute to HRD competencies score on the HRD score card.)

  In the next stage, an attempt is made by the auditors or consultants to examine whether the company’s existing HRD structure can handle its immediate and future HRD needs. This examination will assess the existing skill base of the company’s HRD staff, and its professional preparation, attitudes, values and developmental needs, and the line manager’s perceptions of these issues. In addition to examining the full-time staff, the HRD structure is also assessed in terms of the use of task forces and other mechanisms.

• Are the top management and senior managers’ styles of managing people in tune with the learning culture? (Answers contribute to the HRD culture score on the HRD score card.)

  Here an attempt is made to examine the leadership styles, human relations skills, and so on of senior managers. The extent to which their styles facilitate the creation of a learning environment is examined.

HRD audit examines linkages with other systems  The HRD audit examines linkages between HRD and other systems like total quality management, personnel policies, strategic planning, and so on. Suggestions are made, by evaluating the answers to the aforementioned questions, about the future HRD strategies required by the company, the structure needed to develop new competencies, the systems that need to be strengthened, and the styles and culture that are compatible with the company’s HRD processes, particularly the style of the top management.

HRD audit is business-driven  The HRD audit always keeps business goals in focus. At the same time, it attempts to introduce professionalism into HRD. In keeping the business focus at the centre, the HRD audit attempts to evaluate HRD strategies, structures, systems, staff, skills and styles, and their appropriateness.

The HRD audit is not a problem-solving exercise. It may not be able to provide any solutions to specific problems the organization is facing, for example, those relating to industrial relations, discipline, poor performance, and so on. However, it may be able to illuminate the sources of the problems. It will not give feedback about specific individuals. It will however give feedback about the HRD department, its structure, competency levels, leadership, processes and the influence of HRD on other systems.

Methodology of HRD audit

In order to arrive at answers to the aforementioned questions, auditors use a number of methods. These are described in some detail here.

• Individual interviews: Auditors normally make it a point to interview the top management and senior managers individually. Such individual interviews are essential for capturing their thinking about the company’s future plans and opportunities. Also, by virtue of occupying strategic positions, the top management provides a perspective necessary for a good HRD audit. Individual interviews are also essential when sensitive information, particularly about styles and culture, must be obtained. Union leaders, department heads, some strategic clients and informal leaders are all interviewed individually. In addition, if the organization is small and is manned largely by professionals, an attempt is made to enlarge the coverage and a randomly selected representative sample of employees from different levels and different functions could be interviewed.
• Group interviews: Normally, for the audit of companies with thousands of employees, it is not feasible to meet everyone individually. In my experience, group discussions and interviews are good mechanisms for collecting information about the effectiveness of existing systems. Group interviews are normally conducted for groups of four to eight individuals. It is preferable to have employees drawn from the same or similar levels. This is because in Asian cultures there is a likelihood of inhibition on the part of junior employees to freely express their views in the presence of their seniors. However, it is quite common to have cross-functional representation of employees in the same group. If the organization is large, an attempt is made to conduct group interviews separately for each function, to keep the levels homogenous. In individual and group interviews for HRD audits, the following open-ended questions are normally asked:
  • What do you see as the future growth opportunities and business direction of the company?
  • What skills and competencies does the company have that you are proud of?
  • What skills and competencies do you need at present to run your business or to perform your role more effectively?
  • What are the strengths of your HRD function?
  • What are the areas where your HRD function can do better?
  • What are the strengths of your HRD subsystems (such as performance appraisals, career planning, job rotation, training, quality circles, induction training, recruitment policies, performance counselling, worker development programmes)?
  • What are their weaknesses? How can they be improved?
  • What changes do you suggest to strengthen HRD in your company?
  • How do you think line managers can perform more development roles?
• Workshops: In some cases, large-scale workshops substitute for individual and group interviews. For the workshop, a group of participants ranging from 30 to 300 is assembled in a room and asked to do the HRD audit. Normally, workshop participants work in small groups, either around various HRD subsystems or around different HRD dimensions, do SWOT analyses and make presentations. The workshops can also be used to focus specifically on individual HRD systems like performance appraisals. In my experience, workshop outcomes are usually very good.

  The HRD audit, if conducted through participatory methods, may itself initiate the change process. Even if it does not, it is a potential diagnostic tool and can provide a lot of information to the top management on human processes and help to plan further interventions.

• Questionnaire method: A questionnaire is a very useful tool for benchmarking. TVRLS has developed a comprehensive questionnaire to be administered to company executives. The questionnaire has over 250 items and requires about 90 minutes to complete. It can be administered individually or in a group. I have found it useful to call different groups of respondents selected randomly to a room, explain the objectives and process of the HRD audit and administer the questionnaire then and there. This ensures the uninterrupted answering of the questionnaire and allows one to obtain more credible data because of the personal explanations given by the auditors. A number of other questionnaires have been developed following the first comprehensive HRD audit questionnaire prepared by TVRLS. These questionnaires attempt to assess various dimensions of HRD, including the competency base of HRD staff, the styles of line managers, the implementation of various HRD systems, and so on.
• Observation: Auditors should physically visit the workplace, including the plant, canteen, toilets, training rooms, hostels, hospital, school, residential colony, and so on. These visits and observations are meant to assess the extent to which a congenial and supportive welfare-oriented climate exists in the company. This is essential because employees are not likely to give their best if they do not live in good surroundings, their health and education are not cared for, they lack good communication and other facilities, and their work conditions are poor. The observations can be conducted using a checklist of questions.
• Analysis of secondary data: Analysis of secondary data can provide a lot of insights into the HRD assets and liabilities of the company. For example, in a company that had about 50 HR people, only two were found to have the required technical training in HRD. When an analysis of the training programmes attended by others was carried out, it was found that a large number of them had not attended any HRD programme in the last five years. Such analysis of secondary data can yield many insights. An analysis of age profiles of the employees, the training attended and the minutes of the meetings held help to determine the company’s human assets and liabilities. Such an analysis should also pay attention to the costs incurred by the company in terms of maintaining the HRD infrastructure.
• Analysis of reports, records, manuals and other published literature: The published literature of the company (including annual reports, marked hand-outs, training calendars, personnel manuals, and various circulars issued from time to time) is also likely to be of immense help in assessing the strengths and weaknesses of HRD.

Preparation for audit

The organization has to prepare itself for the audit. Normally, the HR function, systems, competencies, culture and the commitment of the top management come under scrutiny. Diagnoses are particularly painful if things need to improve. In such cases, there is much corrective work to be done and more severe criticism of past actions. Hence, an audit, because it must be self-critical and open to examination, may not always be comforting. An audit actually requires a lot of courage and boldness on the part of the HR department. For these reasons, it has taken much time for HRD audits to gain acceptance and become popular. But once done, an audit can realign the firm’s goals with HRD, help people to drive business better and boost HRD function.

In preparation for the audit, the auditors have to familiarize themselves with the current HRD status. They do this by examining various documents relating to the existing systems and processes.

HRD score card

Rao (1999) introduced the concept of the HRD score card. The score card is a series of four-letter grades assigned by the auditors on the basis of the HRD audit. At the end of the audit, the auditors assign letter grades for the following dimensions:

1. HRD systems maturity, indicating the extent to which the firm has mature (appropriate, well-designed and managed) systems in place
2. HRD competencies maturity, indicating the extent to which the HRD managers have the required competencies to handle the HR function professionally; the extent to which line managers have the attitudes required to learn and grow; HRD styles of the top management; and the extent to which the styles of the top management styles are aligned to the HRD philosophy and facilitate learning among all
3. HRD climate, indicating the extent to which the firm possesses the required HRD culture
4. Business linkages maturity, indicating the extent to which the first three elements (systems, competencies and climate) are aligned to the business goals or organizational objectives

The letter grades range from ‘A+’ to ‘F’, where ‘A+’ indicates an extremely high level of maturity, and ‘F’ indicates an extremely low level or total lack of maturity. The HRD score card helps identify at a glance the areas in which the firm needs to focus. Consider the score card of a hypothetical company, Firm X, in Table 11.1.

Table 11.1 indicates that Firm X has high HR competency levels, both of HR and line staff and reasonably good HRD systems. The HRD culture has not yet fully developed (or the HRD systems have not yet had an impact), and the business linkages of all the systems are weak. The organization should therefore try to ensure the business linkages of the HR systems. The ROI on HR is weak.

 

TABLE 11.1 HRD score card of Firm X

HRD Audit as an OD Intervention

A great deal of work has been done in India on the use of the HRD audit as an organizational development (OD) intervention. This is a unique feature of Indian organizations. Experience in initiating OD, with the aid of the HRD audit, has shown the following results (see Ramnarayan and Rao 2011):

1. In several organizations, the audit has helped to establish organizational systems and processes, such as potential and performance appraisals, career planning, and training and mentoring. Performance appraisals and job rotation are the two most frequently effected changes.
2. In a few companies, the HRD audit has resulted in the formulation of clear-cut policies, including those pertaining to promotion, communication, reward and recognition.
3. In others, attention has been drawn to issues like developing trust, collaboration, team work and quality orientation.
4. In some companies, HRD audits have resulted in greater role clarity and an improved direction for employees in terms of work, leading to higher levels of role efficacy.
5. In a particular organization, the audit started with the issue of future strategies and the top management team could not identify the future plans. The team indicated that the plans came from the multinational head office and the team had no freedom to influence them. The turnover from Indian operations was negligible, and therefore the parent office paid little attention to the corporation. As a result, the top management could not communicate the future of the organization clearly to the employees. This resulted in morale and motivation issues, though not on a very significant scale. The corporation had good practices and the employees were proud of it. On the basis of the HRD audit report that indicated the difficulties of ensuring employee commitment without an appreciation of the company’s future plans, the top management team made it a point to negotiate and plan the future strategies for the company.
6. In another company, the HRD audit indicated the need to develop locals as HRD managers, and the need to reorient the HRD systems to local culture. The company recruited an HRD manager on a short-term basis, who designed a number of HR systems, and also trained the local line managers in HRD. The systems designed were integrated into TPM, ISO 9000 and other such interventions.

These results indicate that an HRD audit is cost-effective and affords many useful insights into how a company’s performance can be improved. While various methods like individual and group interviews, workshops, questionnaires and observation can be used as tools, the success of the audit depends on the efficiency of implementation in the post-audit phase.

HRD audit failures

There are at least two cases of HRD audits that have not yielded any results. In a certain company, the HRD manager was very enthusiastic about getting the HRD audited. The audit report indicated that the state of the company’s HRD was very poor indeed. The staff competencies were rated as poor, the practices were questioned and improvements were suggested. The benchmarking data also indicated that this company was one of the poorest performers in terms of HRD, although in terms of profits it was a leader. Though the audit began with an interview with the CEO, no opportunity was provided to the auditors to make a presentation to the CEO. As a result, the audit report did not receive any attention and the auditors considered the effort a waste.

In another company, the top management commissioned the audit, but got busy with the reorganization of one of the company’s critical marketing functions. In the process, and due to market competition, all the energies of the top management and the HR staff were diverted to the new organizational structure and they did not have an opportunity to learn of the audit’s findings. The auditors felt that some of the audit findings were directly related to business improvements, in terms of the very reorganization the company was planning. But the auditors were unable to engage the attention of the top management. The effort did not result in anything concrete.

These two instances make it clear that the following processes in the HRD audit have the power to initiate and manage change:

• Initial interviews with the top management
• Benchmarking data on the HRD audit questionnaire supplied to the company
• Presentation by the auditors at the end of the audit
• The report itself and the way the report is handled

Results of a Research Study

M. G. Jomon conducted a study to identify factors influencing the use of audits as tools for change. He studied four organizations that had been audited. They were studied about three to four years after the first audit in 1993–94 (Jomon 1998). He tried to assess how the following variables had influenced HRD audits:

• Management styles
• Organizational characteristics
• Profile of the HRD department
• Competency levels of the HRD department
• CEO’s commitment
• HRD chief’s commitment

Jomon’s study indicated the following in each of the four companies:

Post-audit scenario: Organization 1

Soon after the audit in 1993, in Organization 1, the management held a number of meetings and a final action plan was formulated. Though the action plan covered HRD at the policy-making, operational and departmental levels, and contained a joint action plan for the HRD training department, both the reports and the plan were kept confidential. The following changes were effected as a result of the audit exercise:

1. An efficient system was established to assess the potential of people of a higher level based on their key competencies.
2. The promotions policy came to be shared with everyone.
3. Each employee became aware of her/his career path.
4. Mechanisms to help employees plan their work efficiently were set up and employees’ supervising officers helped them to plan their work effectively.
5. Employees began to enter their training programmes with a clear understanding of the knowledge and skills they were expected to acquire from training.
6. Regular circulars, notices and bulletins began to give adequate information to the employees about the company, the market situation, changes in the business environment, and so on.

Post-audit scenario: Organization 2

The audit in Organization 2 was conducted in 1994. The situation in 1997 was as follows:

• There were clear personnel policies, including promotions policy, communication policy, reward and recognition policy, and many others.
• Employees themselves claimed that team spirit at the company was high.
• The performance planning, review and development (PPRD) system had been revamped. A well-structured feedback mechanism was in place.
• KPAs provided role clarity and direction to the employees in terms of their work. Indeed, role clarity was very high among employees.
• External training programmes had been chosen carefully after collecting enough information about their quality and suitability.
• Action-oriented research was very well established, taken seriously and acted upon.

Post-audit scenario: Organization 3

The first audit in Organization 3 was conducted in 1993. A management council meeting was organized to discuss the strengths, weaknesses and recommendations of the audit. Strategic issues related to HRD were also considered at this juncture. The status in 1997 was as follows:

1. Manpower requirements for each department were identified well in advance.
2. Key competencies were identified and a system was in place for assessing the potential of people for higher level responsibilities.
3. Employees also participated and contributed to annual performance plans.
4. KPAs provided role clarity and direction to the employees in terms of their work.
5. Employees themselves testified to a very high level of role efficacy.
6. OD initiatives, research orientation, communication, empowerment and reward systems were yet to be established.
7. The HRD staff, though inadequate in number, was considered highly competent.

Post-audit scenario: Organization 4

In Organization 4, some of the weaknesses highlighted by the audit in 1994 were as follows:

• No potential appraisal system and an ad hoc performance appraisal system
• No system for career planning
• Lack of role clarity
• Poor induction procedure
• Absence of mentoring
• High confusion and friction in values and approach
• Lack of initiative and a mechanical approach to work
• Lack of human orientation
• Mistreatment of operators
• Personnel policies not development-oriented but discipline-oriented

Once the HRD audit report was submitted, the HR chief called all the managerial staff for dinner and presented the findings. Based on the discussions, an action plan was drawn up that, after implementation, brought about the following changes:

1. An efficient potential appraisal system and a systematic performance appraisal system were established.
2. Career planning was done up to the executive level.
3. Role clarity was brought about through identification of KPAs.
4. Systematic induction and training programmes were established.
5. Mentoring was initiated.
6. The level of trust among employees rose.
7. There was a high involvement of employees at all levels.
8. A human orientation was injected into the business process, with opportunities for growth and development provided to all employees.
9. Operators were empowered through various mechanisms and efforts were made towards improving management-operator relationships.
10. All HR-related activities were integrated and began to support developmental activities.

Findings of the study by Jomon

The key findings of the study were as follows:

1. There was a direct relationship between the CEO’s commitment towards HRD and the effectiveness of the HRD function.
2. An interesting revelation was that in all four organizations, the CEO’s commitment towards HRD was rated as being higher than that of the HRD chief. This could have been because of the many communications signed by the CEO that put certain practices and systems into effect. This also ensured a greater acceptance of new practices by the members of the organization.
3. There was, however, a direct relationship between the ratings of the HRD chief’s commitment towards HRD and the effectiveness of the HR function.
4. Management styles also showed a high degree of equivalence with HR effectiveness. Companies scoring high on the average best management styles had more effective HR systems. These companies had a dominant participative style with a back-up professional or organic style. An altruistic management style was seen to have an adverse effect on the effectiveness of the HR function.
5. As far as organizational characteristics were concerned, the following kinds of organizations were able to embrace change and utilize the HRD audit inputs better, leading to a more effective HR function:
   • Middle-aged organizations (established between 1970 and 1990), as compared to old or young organizations
   • Professionally run private organizations, as compared to family-owned organizations or closely held MNCs
   • Service companies, as compared to manufacturing companies
   • Organizations with a flat structure, as compared to hierarchical ones
   • Medium-sized organizations (with 20–40 departments and 1,000–2,000 employees), as compared to very large or very small organizations
   • Organizations with a good employee profile, the criteria for which are as follows:
     • Managerial profile: majority of managers professionally qualified, average age between 30 years and 40 years, with more than eight years of work experience
     • Support staff profile: majority of support staff holding secretarial certificates, average age between 35 years and 45 years, with over 10 years of work experience
     • Worker profile: majority skilled, average age between 35 years and 45 years, with over 10 years of work experience
   • Organizations where management systems were in the process of being set up, as compared to those with a well-established management system
   • Organizations with participative and proactive unions undertaking developmental activities
   • Organizations with employee development budgets, as compared to those with no such allocation

     However, the following organizational characteristics did not seem to have any relation to the utilization of audit inputs or the effectiveness of the HR function:

   • Market positioning.
   • Tendency of groupism among employees.
   • Linkage with industries.
   • Collaborations with institutions
   • Social responsibility
6. In organizations with the following HRD department profile, the utilization of the audit inputs and the resultant effectiveness of the HR department were far better:
   • Department’s age between 7 years and 10 years, as compared to those older than 10 years and younger than seven years
   • Separate and independent HRD function and separate HRD department, as compared to those with departments combined with other functions such as personnel
   • HRD department positioned at a higher level and headed by a vice-president (HRD)
   • HRD department having a flat rather than hierarchical structure
   • Decentralized HRD department with HRD being considered a line function, and the involvement of line managers in the implementation of HRD
   • Adequate HRD staff (that is, around 10 per cent of the total number of managers in the organization), as compared to insufficient/bare minimum staff
   • Average age of 30 years to 40 years for HRD staff, which facilitated better utilization of HRD audit inputs.
   • Young HRD chief (average age 33 years)
   • Good professional profile, with most of the staff having a professional qualification in HR, and a background in behavioural sciences.
   • Experienced HRD staff, with many staff members having 10 or more years of work experience
   • HRD staff who had initiative, were hard-working and spent extra time at the department
   • HRD staff who were members of professional bodies and undertook independent research activities.
7. The organizations with a highly competent HRD staff were able to derive much more benefit from the audit process, resulting in a higher impact on the effectiveness of the HR function.

In fact, in one company, though the HRD department was small and inadequately staffed, the utilization of the HRD audit and its positive effect on HRD practices was high chiefly because of the high competency level of the HRD staff.

Current Status of HRD Audit and Conclusions

The following are some of the organizations in India that have done an HRD audit: Aditya Birla Group, Rajashree Cement, Vikram Cement, Hindalco, Indo-Gulf Fertilisers, Gwalior Grasim, Harihar Fibres, L&T, Crompton Greaves, Gujarat Guardian, Gujarat Gas, Apollo Tyres, Alexandria Carbon Black, Godrej Soaps, GVFL, BPL, Tyco International, Gati Cargo Management Services, Wockhardt Hospitals (Bangalore), Fluent Technologies and Neterwala Group of Companies.

TVRLS offers a certificate education programme in HRD audit. The certificate is intended to prepare candidates to be internal or external auditors. The HRD audit course is meant for those HR executives who already have the qualifications necessary to be HR managers and want to strengthen their competencies.

An HRD audit does not start out intending to be an OD tool. But by virtue of its diagnostic and participative methodology, it seems to work as a change management tool. The interview methodology with its comprehensiveness and the audit methodology that insists on beginning and ending with the top management’s involvement—both have a high potential for initiating processes of change. The audit could be further refined as an OD tool. The audit process involves all the HRD staff and a large number of managers, and makes them conscious of areas where improvements are needed. An HRD audit is needed for realigning and rejuvenating the HR function in any company. It is increasingly likely to become a tool of self-renewal for the HR function.

Exercise

A manufacturing organization with a 1,500 crore turnover is manned by 3,000 employees. Of them, 500 are managerial staff. The total people cost of this company is 155 crore. Table 11.2 shows the break-up of the people cost.

 

TABLE 11.2 People cost in a manufacturing organization

 

If the HR audit costs 10 lakh, including the auditor’s fee and cost of travel and stay, what kind of long-term and short-term benefits are expected with an investment of 10 lakh? Justify financially that your investment in the HR audit is likely to give many times the return.

If three of the junior managers (with an annual CTC each of 8 lakh) do not have the competencies required to perform any productive HR job (as they are not sufficiently qualified) and the HR audit points out this weakness, how much should the company be willing to invest in their training to start receiving returns within one year?

If the audit has indicated that 30 per cent of the senior managers resist change and are proving to be bottlenecks in introducing innovations that could make the company go global, how much do you think the organization should invest in giving them a global exposure and with what benefits?

If a strategy consulting firm has suggested to the company that with the right strategies the company can double its turnover in the next three years, how much do you think the company should invest in building the strategic competencies of the top management?

References

Jomon, M. G., 1998, The Effectiveness of HRD Audit as an OD Intervention, Thesis submitted to AHRD-XLRI Fellow Programme in HRD, Jamshedpur: XLRI.

Ramnarayan, S. and Rao, T. V., 2011, Organizational Development: Accelerating Learning and Transformation, New Delhi: Respone Books (forthcoming).

Rao, T. V., 1999, HRD Audit, New Delhi: Response Books.