HRM - Reward System Of Rio Tinto - Case Study - Assessment Answer

HRM Assignment

Assignment Task

Introduction

Aim:

The aim of this paper is to critically evaluate the HRM practices of the organization, IKEA. IKEA is a multinational company that deals in is innovative furniture which can be assembled easily by the customer (Chopra, 2015). Human Resource Management or HRM represents the processes and systems used by an organization to manage the human resources. This includes aspects like recruitment, training, motivation, rewards, performance assessment, employee loyalty, etc.

Case study:

This paper focuses on the case of IKEA as this company’s HRM has been widely acclaimed in the media in recent times. In a report, Fortune highlighted IKEA in its list of top 100 companies to work for (Fortune, 2015). Also, IKEA was given the 2^ndrand in a list of best employers made by Forbes Magazine (Smith, 2015). The company was also named the best employer in a survey done by Home Goods Online. Thus, it can be seen that the company’s HRM practices have been highly effective and have received positive reception. Feedback from employees as well as surveys, studies, etc. reveal that the HRM practices of this company are innovative and unique. This is what makes it such a good employer. In this paper, the different aspects of the HRM of IKEA have been critically evaluated to find out the extent of their innovation and effectiveness. The paper has also recommended strategies which can further improve the HRM scenario of the company.

Limitation:

A limitation of the report is that it relies only on secondary data, that is, data collected from already published or available literary or online sources.

Thesis statement:

The thesis statement of the report is: “Critical analysis of the HRM practices of IKEA to identify the extent of innovation and effectiveness.”

Overview about the company:

IKEA is one of the most reputed and leading furniture companies in the world. It prioritizes consumer convenience, and hence, its products can be assembled very easily by buyers. The products are stylish and cater to a wide variety of aesthetic senses. At present, IKEA functions in 48 countries through 384 stores. It was founded in 1943 in Sweden by Ingvar Kamprad. In 2015, its revenue was 32 billion USD (Bays, 2015). The company has strong online presence too and e-commerce generates a significant share of its revenue. The company is the biggest consumer of wood in the retail sector globally. The company’s HR strategy is closely integrated with the organizational objectives. This can be seen in the equation shared between the executive leaders and the employees of the company. The relationship is symbiotic and there is constant and open two way communication. There are regular meetings and the opinions and recommendations of employees are taken seriously. The hierarchies in the organization are not highlighted and the work atmosphere is friendly and warm. The leaders set very positive examples. IKEA’s founder and owner, Ingvar Kamprad, leads a very humble lifestyle and does not have a high handed approach. He uses a very simple car and travels economy class. This brings him closer to employees and enhances the bond of employees with the organization. The company provides growth options and support to employees through leadership development programs, paid parental leaves, internal succession options, etc. (Kats, 2015).

Critical evaluation of the performance appraisal system of IKEA:

Performance appraisal is a system or set of processes used to evaluate the performances of human resources in an organization (Elwood, 2013). The aim is to assess the extent to which an employee is effective in realizing the organizational goals. IKEA’s performance appraisal system stems from its organizational culture. The culture is highly supportive of employees and prioritizes their needs. The company believes that if employees are happy and satisfied, customers will be so too. The company focuses on engaging employees strongly. Engagement is achieved through effective management of performance and talent which is closely connected with the strategic management of the company. The company assesses performances and provides constructive feedback to employees. Even if an employee’s performance is poor, he or she is criticized constructively and motivated to do better, rather than reprimanding the employee or being negative (Fortune, 2015). The performance appraisal tool used by IKEA is the 360 degree feedback system. This provides an all-round detailed picture of an employee’s performance (Jonathan, 2014). IKEA’s appraisal involves reflection based self-evaluation done by employee’s themselves, feedback from customers, feedback from juniors, colleagues and senior management officials. This strategy ensures that employees know where they stand. The tool is unbiased as multiple perspectives are involved. Employees can directly see their impact on juniors, seniors, colleagues, customers, etc. They can identify their strengths, weaknesses, mistakes, etc. easily and can take steps to improve, under the guidance of the company. The best part of this appraisal strategy is that employees feel empowered. In this system, it is not just the seniors or managers who evaluate employees, but, the juniors and employees evaluate managers too (Maugans, 2015). This gives employees the voice to express their feedback strongly and prevents abuse of authority or any form of unfair treatment. The 360 degree tool helps managers see the extent of effectiveness of their leadership and management styles and respective actions or decisions. They can reflect and make changes to improve their effectiveness as managers accordingly (Smith, 2015).

As per Smith (2015), IKEA focuses on generating high return on investments by using training and development options to manage poor performances. Poor performers work closely with the Human Resource Managers to identify their weaknesses and the underlying factors. Then, the HRM guides and supports them and provides the necessary training needed to overcome the weaknesses and improve performance. IKEA has a paternalistic leadership style and this is reflected in the ways in which the company deals with employees and their needs. This style is highly supportive of employees and empowers them. The seniors guide employees and push them to improve themselves like father figures. It must be noted that initially, IKEA has a set of highly standardized HR policies which were uniform for all employees. However, things changed in the late 90s, when Spiers-Lopez took the position of the HR head in the North American domain of IKEA. She understood that IKEA was failing to derive maximum productivity and efficiency from employees through uniform policies. The policies were restricted in the fact that they did not focus on individual needs and preferences of human resources. Spiers-Lopez added a personal touch to HRM and performance appraisal became more individualistic, with strong focus on distinct characteristics and needs of different employees. The policies were made more flexible too in order to increase the convenience of employees. The focus on individuality and acknowledging and respecting each employee as a unique individual, revolutionized HRM and performance appraisal at IKEA. This made growth and development of employees much easier (Chopra, 2015).

According to Bays (2015), an integral aspect of the performance appraisal system of IKEA is its working schedule restructuration. The performance appraisal system focuses on identifying preferred work schedules of employees and managers. Work schedules are restructured accordingly in order to increase efficiency and productivity of human resources. As per the company’s management, a manager must not just be a doer, rather, he or she must be able to coordinate teams effectively. The company uses a tool called Index coordination skills to assess managers. This is an open tool that allows managers to see their defects and issues. This system is a part of the Anglo-Saxon Team Management System and involves a survey with 66 questions (Wright, 2014). These questions focus on assessing managers with respect to 11 skills that are necessary for being an effective manager. The evaluations are completely anonymous, ensuring validity and reliability of data. The 11 skills that IKEA focuses on include listening, communicating, dispute resolution, team development, dividing labor and confidence (Kats, 2015). Managers must also have the ability to delegate work and set positive examples for subordinates to follow. Managers also need to set appropriate objectives effectively and coordinate with the different teams. Managers must participate in the problem solving procedures of different teams so that the team members feel that the managers are connected to them. It can be understood that the performance appraisal system of IKEA is effective and ensures growth and development of employees. It also manages poor performances efficiently.

Critical evaluation of rewards system of IKEA:

As per Singh (2015), IKEA’s rewards system is focused upon meeting individual needs and preferences of employees. It is not a standardized policy and has a personal and individual appeal. The managers play a direct role in the incentive system. Based on the appraisals, the managers decide which rewards will be given to which employees. As the rewards are personalized and employee specific, they have high impact in motivating employees. Also, the rewards system varies from market to market and has local contexts. IKEA is present in 48 countries, and its rewards involve local cultural elements. In each market, the rewards are such that they have appeal to the employees with respect to the local culture. Apart from appraisal based rewards, the company also provides a lot of other rewards options. For example, in 2013, it paid thousands of employees a bonus of £500 bonus in their pension funds in order to thank them for their services (Collins, 2015). This step made IKEA a pioneer as it is one of the first organizations to reward employees through retirement policies. The company also uses rewards to improve motivation and employee engagement. The company often rewards employees by distributing the entire sales amount of a day among them. In 2015, this led to each full time employee of the company spread across the globe getting a bonus of $ 1800 (Hawkes, 2015). Employees also get special discounts on IKEA’s products. It also offers a huge variety of internal training and development programs which are fully funded by the company. These programs enable employees to improve their existing skills as well as learn new skills. It also offers paid holidays and vacations. Good performances are rewarded with fast increments and promotions. The management is inclusive and employees are made to feel like they own the company. Employees know that working at IKEA is going to provide ample growth opportunities. The salaries are above the industry average and career development opportunities are fair and depend directly on employee performances, not on factors like hierarchy, seniority, age, etc. (Yousigma, 2014). Thus, it can be understood that the rewards system of IKEA is quite unique and focuses on meeting individual needs of employees. It has also started new trends, like its pension fund bonus program.

Recommendations to improve performance management and rewards system of IKEA:

In order to improve performance management, IKEA can use a revolutionary strategy by following the example of Accenture. In 2015 end, Accenture declared that from 2016 onward, it would suspend its annual performance appraisal and ranking system (Cunningham, 2016). It has replaced the old system with a fluid, warm, two way communication based approach in which managers will discuss performances with employees at a one to one level. IKEA can incorporate this system as this will remove the negativity of rankings and appraisals. As per Ensher (2012), rankings and performance evaluations have a type of stigma attached to them and employees with poor performances can feel labelled. Also, annual evaluations might ignore a lot of older positive performances of employees in light of more recent poor performances, in turn, making the overall performance seem poor. A more regular evaluation based on personal, one to one meetings and discussions with managers can be much more constructive and motivating (Scott, 2014). A strategy that can improve the rewards system is allowing the employees to directly choose their rewards. The rewards system can involve a one to one discussion with managers in which the preferences of employees will be highlighted and they will be given something that is of value or significance to them. For example, if an employee has been looking forward to taking a vacation in a specific place, giving this vacation to him as a reward can be meaningful and more inspiring as compared to a cash reward or some other form of gift. Another reward can be the opportunity for higher education. Employees with good performances can be given access to completely funded support for higher education, like management studies (Chon, 2014). This can not only make employees more motivated but also improve the quality of skilled human resources within the organization.

Conclusions:

It can be concluded that the policies of IKEA focus on individuality and acknowledging and respecting each employee as a unique individual. This makes growth and development of employees much easier. The performance appraisal tool used by IKEA is the 360 degree feedback system. This provides an all-round detailed picture of an employee’s performance. The company uses a tool called Index coordination skills to assess managers. This is an open tool that allows managers to see their defects and issues. IKEA’s rewards system is focused upon meeting individual needs and preferences of employees. It is not a standardized policy and has a personal and individual appeal. The managers play a direct role in the incentive system. Employees know that working at IKEA is going to provide ample growth opportunities. The salaries are above the industry average and career development opportunities are fair and depend directly on employee performances, not on factors like hierarchy, seniority, age, etc. Thus, it can be understood that the performance appraisal system and rewards system of IKEA are quite unique and focuses on meeting individual needs of employees. The company has started new trends too, like its pension fund bonus program. IKEA can improve its performance appraisal system by introducing a fluid, warm, two way communication based approach in which managers will discuss performances with employees at a one to one level. A strategy that can improve the rewards system is allowing the employees to directly choose their rewards.