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Human Resource
Management
A collective term for all formal systems to manage employees and
other stakeholders within a company

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Written by CFI Team

What is Human Resource

Management?
Human Resource Management (HRM) is a collective term for all the
formal systems created to help in managing employees and other
stakeholders within a company. Human resource management is
tasked with three main functions, namely, the recruitment and
compensation of employees, and designating work.

Ideally, the role of HRM is to !nd the best way to increase the
productivity of an organization through its employees. Despite the
ever-increasing rate of change in the corporate world, the HRM role is
not likely to change in a signi!cant way.

Until recently, a company’s HR department was categorized in the

lower rungs. This is surprising considering the crucial role that this
department plays in replenishing and nourishing an organization’s
resources.

Principles of Human Resource Management

The HR department has transformed signi!cantly from the task-
oriented nature of administration it used to be in the 1980s. It is now
viewed as a strategy-focused extension of every !rm. The HR
department thrives on speci!c principles, as highlighted below:

1. Commitment

One aspect that the HR department tries to deal with is job security.
To guarantee job security, many employees know that they need to
show commitment to the company and their job duties. The HR
management comes in to put measures in place that ensure that
sta"ng levels correspond to the company’s needs and that, in the
process, assure employees of their long-term positions within the
organization. The !rm demonstrates its long-term commitment to the
workers by providing regular training, performance evaluations, and
goal-setting activities.

2. Competence

Competence is one of the core principles that supports a company’s

growth and development. It is also an aspect that a#ects employees’
job satisfaction and how the company bene!ts society. The success of
a !rm depends on the competency of its employees. The HRM
department tries to sustain workforce competency by providing
training opportunities. It also schedules orientation programs, which
provide avenues to enlighten new employees on a company’s mission
and objectives.

Training and orientation are essential in improving employees’ skills,

knowledge, and competency. The bene!t of having a competent
workforce is that it leads to the production of safe and reliable
products and services that consumers can rely on. In the absence of a
high level of competence, a company will be susceptible to lawsuits
and legal claims resulting from the products and services that it
renders.

Main Functions of Human Resource

Management
1. Employee Recruitment

Recruitment is the process of identifying talent gaps in a company

and !nding the right people to !ll the roles. There are four stages in
the employee recruitment process:

Job analysis – This involves de!ning the various aspects of a job

through job description and speci!cation. Through job
description, the HRM department identi!es the tasks required for
a speci!c job while the latter de!nes the requirements an
individual needs to ful!ll that job.

Sourcing – This encompasses the di#erent techniques a company

employs to attract potential candidates to !ll a given position. This
can be achieved through internal and external advertisements.

Screening and selection – This is the process of evaluating the

candidates who apply for the job. The evaluation is performed to
determine the skills, quali!cations, competency, and job-related
experience that potential candidates bring to the table.

Selection of the right candidates – Once the best candidate has

been selected, the next process that follows is onboarding. This is
simply helping the new recruits become productive members of
the company.

2. Employee Orientation

Another core function of human resource management is employee

orientation. Also known as onboarding, it is the process of teaching
new recruits the necessary skills, knowledge, and behaviors so that
they can transition to the new company e#ectively.

Employee orientation is a broad process conducted by the HR

department, and it’s done through di#erent methods, including
lectures, meetings, videos, mentoring, and team-building exercises.
The main objective of the orientation is to provide new recruits with
adequate information regarding the company’s targets, rules, policies,
and activities.

3. Employee Development

Employee development refers to all the e#orts for improving

personal, team, and organizational e#ectiveness. One aspect the
human resource department tackles is talent development. This
involves aligning the employees’ skills with the company’s needs. In
addition to hiring, training, and orienting employees, HRM should also
improve their career opportunities.

Essentially, it is more economical to improve a company’s current

workforce than to hire new employees in the future. So, employee
development is a trade-o# through which human resource
management saves money by avoiding the potential costs of hiring
new employees.

Summary
Human resource management refers to the process of recruiting and
developing a company’s workforce. The HR department is concerned
with identifying talent gaps in a company, advertising for positions,
evaluating potential candidates, and hiring top talent.

Human resource management does not just handle the recruitment

of new employees; it also oversees redundancy for companies that
want to downsize. HR management also oversees orientation
programs to introduce new employees to the company’s goals,
objectives, and policies. Overall, human resource management
guarantees the smooth running of employees within a company.

Related Readings
CFI is the o"cial provider of the global Financial Modeling & Valuation
Analyst (FMVA)™ certi!cation program, designed to help anyone
become a world-class !nancial analyst. To keep learning and
advancing your career, the additional CFI resources below will be
useful:

Employee Morale

Employee Turnover Rate

Sense of Purpose at Work

Signs of a Bad Employer

See all management & strategy resources

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