Human Resource Management and Business Objectives (VCE SSCE Business Management): Revision Notes

Human Resource Management and Business Objectives

Introduction

Understanding how businesses manage their employees is crucial for achieving organisational success. This note explores the vital connection between human resource management practices and the achievement of business objectives. When employees are managed effectively and aligned with business goals, organisations can maximise productivity, reduce costs, and create competitive advantage.

Business objectives and the role of employees

What are business objectives?

Business objectives are specific, measurable targets that organisations set to achieve their broader business goals. These objectives guide planning, strategy development, and day-to-day operations. To be effective, business objectives must consider the needs and interests of various stakeholder groups.

Employees as vital stakeholders

Among all stakeholder groups, employees hold a particularly critical position in business success. They represent:

• The most valuable asset – their skills, knowledge and effort drive business outcomes
• The biggest cost – wages and salaries typically form the largest expense category
• Essential inputs – necessary for both manufacturing products and delivering services

Businesses typically establish objectives related to:

• Survival and profitability
• Market share growth
• Meeting market and social needs
• Satisfying shareholder expectations

Success in achieving these objectives depends significantly on how well a business manages its workforce. When employees understand and support business objectives, they become powerful contributors to organisational success rather than merely a cost to be minimised.

Balancing business and employee objectives

Effective human resource management involves balancing what the business needs with what employees seek from their work. This balance creates the foundation for positive employment relationships that drive business growth.

Human resource management across business sizes

The approach to managing employees varies significantly depending on business size and complexity.

Micro and small businesses

In micro and small businesses, the owner typically handles all employee-related decisions. Many small business owners face a difficult choice when considering whether to employ staff.

However, as small businesses grow, employing staff becomes necessary. When this happens, hiring the 'right' person becomes critical to maintaining business momentum and culture.

Medium and large businesses

As businesses grow, they typically develop more formal and structured approaches to employee management. This includes:

• Establishing dedicated human resource management departments
• Creating formal policies and procedures
• Implementing systematic processes for recruitment, training, development, and performance management

The role of human resource managers

In larger organisations, human resource managers fulfil two distinct but complementary roles:

Staff management capacity: HR managers provide advice and support to functional managers (such as marketing, operations, or finance managers) on employee-related matters. In this advisory role, they have no direct authority over work in other departments.

Line management capacity: Within their own HR department, HR managers hold direct responsibility and accountability for achieving departmental objectives. They manage their own team and make decisions about the work their department performs.

Linking employee objectives to business objectives

The importance of goal alignment

Studies consistently demonstrate that when businesses connect individual employee goals directly to organisational objectives, both individual and business performance improve significantly. This alignment ensures that every employee understands how their daily work contributes to broader business success.

Using SMART objectives

Employee objectives should be established using the SMART principle:

• Specific – clearly defined and unambiguous
• Measurable – with concrete criteria for tracking progress
• Achievable – realistic given available resources and constraints
• Relevant – aligned with broader business objectives
• Time-bound – with clear deadlines or timeframes

Individual employee objectives should cascade upwards, linking to:

1. Team objectives
2. Department objectives
3. Overall business objectives

This creates a clear line of sight from individual daily tasks to organisational success.

Management by Objectives (MBO)

Management by Objectives (MBO) is a systematic approach to goal-setting developed by management theorist Peter Drucker in 1954. Under MBO, managers and employees at every organisational level collaboratively set objectives relevant to their areas of responsibility. Performance is then measured against these agreed objectives.

Key features of MBO include:

• Collaborative goal-setting between managers and subordinates
• Regular review meetings to track progress and provide feedback
• Performance measurement against agreed objectives
• Alignment of individual, team, and organisational goals

Employee engagement and business performance

Understanding employee engagement

Employee engagement refers to the commitment employees feel toward their organisation based on identifying with its values, vision, and objectives, and understanding how the business operates.

Engaged employees demonstrate:

• Emotional connection to the organisation
• Understanding of business vision and objectives
• Recognition of how their work contributes to success
• Willingness to invest discretionary effort
• Lower likelihood of leaving the organisation

Creating employee engagement

Businesses can foster engagement through several key approaches:

Clear communication:

• Sharing information about business performance and direction
• Explaining how decisions are made
• Seeking employee opinions and input
• Making employees feel trusted and respected

Meaningful work:

• Designing jobs that utilise employee skills and abilities
• Providing challenging and interesting tasks
• Ensuring work has clear purpose and impact

Career development:

• Offering opportunities for skill development
• Creating pathways for advancement
• Supporting professional growth

Goal clarity:

• Ensuring employees understand individual objectives
• Showing how individual goals connect to business objectives
• Providing regular feedback on progress

Impact on business performance

Engaged employees deliver measurable business benefits across multiple dimensions:

Increased productivity: When employees feel ownership of business objectives, they proactively seek ways to improve processes and outcomes. This often leads to productivity gains as employees identify and implement efficiency improvements.

Reduced absenteeism: Employees who are satisfied with their jobs and workplace are less likely to take unexplained absences. Lower absenteeism rates reduce costs and maintain operational continuity.

Enhanced performance: Engaged workers consistently perform at higher levels because they understand what success looks like and are motivated to achieve it.

Better suggestions and innovation: Employees who feel connected to the business are more likely to contribute ideas for improvement and innovation.

Easier performance management: When objectives are clear and employees are engaged, it becomes simpler to implement performance-related pay systems that reward both individual and team achievements.

The manager's role in motivation

Creating and maintaining employee motivation represents one of the most significant challenges managers face. Effective managers:

• Establish a climate that encourages employees to perform their best work
• Design jobs that are inherently motivating
• Provide clear objectives and regular feedback
• Recognise and reward good performance
• Remove obstacles to success
• Support employee development

Well-designed jobs that offer meaningful work naturally act as a motivating force, increasing job satisfaction and ultimately driving higher productivity.