Benefits of ratio analysis?
- Allows a business to calculate and compare trends over time
- Shows greater insight than financial accounts
- Information can be used against benchmark data - such as an industry average
- Can be used to assess the performance of other functional areas of the business - operations and Human Resources
Drawbacks of ratio analysis?
- Does not take into account qualitative issues such as brand image or customer service performance
- Does not take into account impact of long-term decisions, such as investments today that may lower profitability in the short term but boost it is the long-term
- Economic climate - ratios do not take into account economic conditions or the performance of other businesses
Issues with labour productivity calculation/ using labour productivity to analyse performance?
:( - Does not take into account wage rates - a key factor in employees’ performance
:( - Does not take into account technology used in the production process
:( - May be affected by other factors - internal disruptions to production, nature of the task or product being produced - which will also influence this calculation
Interpretation of labour turnover/retention?
- Labour turnover means increased costs of recruitment and training
- Higher turnover or low retention figure could indicate that employees are not happy with their jobs
- This might be used as a key performance indicator as businesses try to retain the most talented workers within their company (having the best employees can be a competitive advantage)
- Some industries will expect higher rates of labour turnover e.g. holiday companies as contracts are usually seasonal
- High rates of labour turnover may be encouraged as a business goes through a period of change
Interpretation of absenteeism?
- A high level of absenteeism increases business costs as productivity falls and costs to cover employees rise
- High levels of absenteeism may also be an indicator of demotivating or tensions in the workforce
- A business may also compare it’s health and safety records with absenteeism data
What financial rewards be used in Human Resources?
Rewards linked to output - organisations may link remuneration to level of output through performance-related pay, bonuses and commission systems. Increasing these can boost output and labour productivity.
Loyalty bonus - financial rewards linked to length of time employees have been with the company. Other bonuses such as holidays may also tie into this
Attendance bonuses - Employers may link bonuses to attendance, for example a £500 bonus linked to 100% attendance over a 6 month period
What is employee share ownership?
- Way to remunerate employees
- Employees buy into sharesave scheme that allows them to purchase company shares at a fixed price
- Can make capital gains on shares as price increases over time
- However, if share prices fall, employees get their investment back in cash
- Encourages long-term service and is a low-risk investment opportunity for employees
What do consultation strategies involve?
A company may use a range of consultative strategies and working groups to delegate responsibility and ownership to the workforce.
Can resolve negative working practices or issues that could eventually lead to labour turnover/absenteeism
What is involved in empowerment strategies?
- Extra training
- Feedback - let employees know how they are doing and give them rewards
- Communication - highlight direction of company and rationale for decisions - more likely to feel secure in their roles
- Offer flexible working practices; part-time, home-working etc
- Delegate authority; job enlargement/empowerment
- Ensure employees are well resourced
