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Slide 1: 11TH EDITION ARMSTRONG’S HANDBOOK OF HUMAN RESOURCE MANAGEMENT PRACTICE Michael Armstrong
Slide 2: i ARMSTRONG’S HANDBOOK OF HUMAN RESOURCE MANAGEMENT PRACTICE
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Slide 4: iii ARMSTRONG’S HANDBOOK OF HUMAN RESOURCE MANAGEMENT PRACTICE 11 EDITION 11TH Michael Armstrong London and Philadelphia
Slide 5: iv Publisher’s note Every possible effort has been made to ensure that the information contained in this book is accurate at the time of going to press, and the publisher and authors cannot accept responsibility for any errors or omissions, however caused. No responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result of the material in this publication can be accepted by the editor, the publisher or any of the authors. First edition published in 1977 as A Handbook of Personnel Management Practice by Kogan Page Limited Seventh edition published in 1999 as A Handbook of Human Resource Management Practice Eleventh edition published in 2009 as Armstrong’s Handbook of Human Resource Management Practice Apart from any fair dealing for the purposes of research or private study, or criticism or review, as permitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced, stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers, or in the case of reprographic reproduction in accordance with the terms and licences issued by the CLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned addresses: 120 Pentonville Road London N1 9JN United Kingdom www.koganpage.com 525 South 4th Street, #241 Philadelphia PA 19147 USA © Michael Armstrong, 1977, 1984, 1988, 1991, 1995, 1996, 1999, 2001, 2003, 2006, 2009 The right of Michael Armstrong to be identified as the author of this work has been asserted by him in accordance with the Copyright, Designs and Patents Act 1988. ISBN 978 0 7494 5242 1 British Library Cataloguing-in-Publication Data A CIP record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Armstrong, Michael, 1928– Armstrong’s handbook of human resource management practice / Michael Armstrong. -- Eleventh ed. p. cm. Rev. ed. of: A handbook of human resource management practice. 10th ed. 2006. Includes bibliographical references and index. ISBN 978-0-7494-5242-1 1. Personnel management --Handbooks, manuals, etc. I. Armstrong, Michael, 1928– Handbook of human resource management practice. II. Title. III. Title: Handbook of human resource management practice. HF5549.17.A76 2009 658.3--dc22 2008053904 Typeset by Saxon Graphics Ltd, Derby Printed and bound in India by Replika Press Pvt Ltd
Slide 6: v Contents in Brief Preface Part I 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Part II 11. 12. 13. Part III 14. 15. 16. Part IV 17. 18. Human Resource Management The Practice of Human Resource Management Strategic Human Resource Management HR Strategies Human Capital Management The Role and Organization of the HR Function The Role of the HR Practitioner The Impact of HRM on Performance International HRM Corporate Social Responsibility Human Resource Management Research Methods Human Resource Management Processes Competency-based HRM Knowledge Management High-performance Work Systems Work and Employment Work The Employment Relationship The Psychological Contract Organizational Behaviour The Essence of Organizational Behaviour Characteristics of People xxv 1 3 25 47 65 81 104 135 150 165 174 199 201 218 230 249 251 260 276 289 291 299
Slide 7: vi Brief Contents 19. 20. 21. 22. Part V 23. 24. 25. 26. 27. Part VI 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. Motivation Engagement and Commitment How Organizations Function Organizational Culture Organization Design and Development Organization Design Organization Development Change Management Job, Role, Competency and Skills Analysis Job and Role Design and Development People Resourcing People Resourcing Strategy Human Resource Planning People Resourcing Practice Recruitment and Selection Selection Interviewing Selection Tests Talent Management Career Management Introduction to the Organization Release from the Organization 316 335 357 383 401 403 415 423 443 466 477 479 485 495 514 540 567 579 590 602 609 615 617 643 651 653 663 683 700 713 720 Part VII Performance Management 38. The Process of Performance Management 39. 360-degree Feedback Part VIII 40. 41. 42. 43. 44. 45. Learning and Development Learning and Development Strategy The Process of Learning and Development Learning and Development Programmes and Events How People Learn Organizational Learning Management Development
Slide 8: Brief Contents vii Part IX 46. 47. 48. 49. 50. 51. 52. 53. Part X 54. 55. 56. 57. Part XI 58. 59. Part XII 60. 61. 62. Rewarding People Reward Management Job Evaluation Market Rate Analysis Grade and Pay Structures Contingent Pay Rewarding Special Groups Employee Benefits, Pensions and Allowances Managing Reward Systems Employee Relations The Employee Relations Framework Employee Relations Processes Employee Voice Employee Communications Health, Safety and Employee Well-being Health and Safety Employee Well-being HR Policies, Procedures and Systems HR Policies HR Procedures HR Information Systems 733 735 755 783 795 815 839 849 859 875 877 905 935 949 957 959 975 985 987 1000 1010 1017 1019 1020 1021 1022 1031 1034 1057 Appendices A. Example of Employee Engagement and Commitment Survey B. Example of Performance Management Survey C. Example of Reward Survey D. Learning and Development Activities and Methods Useful Website Addresses Subject Index Author Index
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Slide 10: ix Contents Supporting resources for instructors and students List of figures List of tables Preface Part I 1. Human Resource Management The Practice of Human Resource Management Introduction 4; Human resource management defined 4; The objectives of HRM 5; Theories of HRM 6; Characteristics of HRM 7; The development of the concept of HRM 13; Reservations about HRM 14; The context of HRM 17; The ethical dimension 19 Strategic Human Resource Management Introduction 26; The conceptual basis of strategic HRM 26; Strategic HRM defined 29; The resource-based view of strategic HRM 30; Strategic fit 32; Perspectives on strategic HRM 32; The best practice approach 33; The best fit approach 35; Bundling 37; The reality of strategic HRM 39; Practical implications of strategic HRM theory 40 HR Strategies Introduction 48; What are HR strategies? 48; General HR strategies 49; Specific HR strategies 52; Criteria for an effective HR strategy 53; How should HR strategies be formulated? 54; Issues in developing HR strategies 55; Implementing HR strategies 59 Human Capital Management Introduction 66; Human capital management defined 66; The concept of human capital 66; The constituents of human capital 68; Human capital measurement 69; Human capital internal reporting 75; Human capital external reporting 76; Introducing HCM 77 xix xxi xxiii xxv 1 3 2. 25 3. 48 4. 65
Slide 11: x Full Contents 5. 6. 7. 8. 9. 10. The Role and Organization of the HR Function Introduction 82; The role of the HR function 82; The organization of the HR function 84; Evaluating the HR function 87; HR shared service centres 92; Outsourcing HR work 93; Offshoring 94; Using management consultants 94; Marketing the HR function 95; HR budgeting 96; The HR role of front line managers 97 The Role of the HR Practitioner Introduction 105; The basic role 105; The business partner role 106; The strategic role of HR specialists 108; The change agent role 111; The internal consultancy role 112; The service delivery role 112; The guardian of values role 113; Models of HR roles 113; Gaining support and commitment 117; Ethical considerations 120; Professionalism in human resource management 121; Ambiguities in the role of HR practitioners 122; Conflict in the HR contribution 124; The qualities required by HR professionals 125; Continuous professional development 129 The Impact of HRM on Performance Introduction 136; The impact made by HRM 136; How HRM strategies make an impact 141; How HRM practices make an impact 144 International HRM Introduction 151; International HRM defined 151; Issues in international HRM 151; Global HR policies and practices 156; Managing expatriates 156 Corporate Social Responsibility Introduction 166; Strategic CSR defined 166; CSR activities 167; The rationale for CSR 168; Developing a CSR strategy 170 Human Resource Management Research Methods Introduction 175; The nature of research 175; Research philosophy 176; Planning and conducting research programmes 178; Literature reviews 180; Quantitative and qualitative methods of research 181; Methods of collecting data 182; Processes involved in research 187; Statistical analysis 191 Human Resource Management Processes Competency-based HRM Introduction 202; Types of competencies 202; Competency frameworks 204; Coverage of competencies 209; Applications of competency-based HRM 210; Developing a competency framework 212; Competencies and emotional intelligence 214 81 104 135 150 165 174 Part II 11. 199 201
Slide 12: Full Contents xi 12. 13. Knowledge Management 218 Introduction 219; Knowledge management defined 219; The concept of knowledge 220; The purpose and significance of knowledge management 221; Knowledge management strategies 222; Knowledge management systems 223; Knowledge management issues 223; The contribution of HR to knowledge management 225 High-performance Work Systems 230 Introduction 231; High-performance culture 231; High-performance work system defined 232; Characteristics of a high-performance work system 234; Components of an HPWS 235; Impact of highperformance work systems 238; Reservations about the impact of an HPWS 240; Developing a high-performance work system 241 Work and Employment Work Introduction 252; The nature of work 252; Organizational factors affecting work 255; Changes in the pattern of employment 256; The future of work 257 The Employment Relationship Introduction 261; The employment relationship defined 261; The basis of the employment relationship 262; Employment relationship contracts 263; What is happening to the employment relationship 265; Managing the employment relationship 266; Developing a high trust organization 267; Theories explaining the employment relationship 270 The Psychological Contract Introduction 277; The psychological contract defined 277; The psychological contract and the employment relationship 279; The significance of the psychological contract 280; Changes to the psychological contract 282; State of the psychological contract 2004 283; How psychological contracts develop 284; Developing and maintaining a positive psychological contract 285 249 251 Part III 14. 15. 260 16. 276 Part IV 17. Organizational Behaviour 289 The Essence of Organizational Behaviour 291 Introduction 292; Organizational behaviour defined 292; Characteristics of organizational behaviour 292; Organizational behaviour and the social and behavioural sciences 293; Explaining organizational behaviour 294; Factors affecting organizational behaviour 294; The sources and applications of organization behaviour theory 295; The significance of organizational behaviour theory 296
Slide 13: xii Full Contents 18. 19. 20. 21. 22. Characteristics of People Introduction 300; Individual differences 300; Personal characteristics 302; Types of behaviour 307; Implications for HR specialists 311 Motivation Introduction 317; Motivation defined 317; Types of motivation 318; Motivation theories 319; Motivation and money 329; Motivation strategies 330 Engagement and Commitment Introduction 336; The concepts of engagement and commitment compared 336; Employee engagement 337; Organizational commitment 345; The contribution of HR to developing commitment 351 How Organizations Function Introduction 358; Organization theory 359; Organization structure 365; Types of organization 366; Organizational processes 369 Organizational Culture Introduction 384; Organizational culture defined 384; Organizational climate defined 385; How organizational culture develops 386; The diversity of culture 387; The components of culture 387; Classifying organizational culture 390; Assessing organizational culture 391; Measuring organizational climate 392; Appropriate cultures 394; Supporting and changing cultures 394 Organization Design and Development Organization Design Introduction 404; The process of organizing 404; Aims of organization design 405; Conducting organization reviews 406; Who does the work? 412 Organization Development Introduction 416; Organization development defined 416; Organization development programmes 417; Assumptions and values of organization development 417; Organization development activities 418 Change Management Introduction 424; Types of change 424; The change process 426; Change models 426; Resistance to change 430; Implementing change 432; Guidelines for change management 433; Organizational transformation 434; The role of HR in managing change 437 299 316 335 357 383 Part V 23. 401 403 24. 415 25. 423
Slide 14: Full Contents xiii 26. 27. Job, Role, Competency and Skills Analysis Introduction 444; Definitions 444; Job analysis 446; Job descriptions 449; Role analysis and role profiles 451; Generic role profiles 453; Behavioural competency modelling 454; Analysing technical competencies 461; Skills analysis 461 Job and Role Design and Development Introduction 467; Job design 467; Role development 473 People Resourcing People Resourcing Strategy Introduction 480; The objective of people resourcing strategy 480; The strategic HRM approach to resourcing 480; Integrating business and resourcing strategies 481; The components of people resourcing strategy 482; Bundling resourcing strategies and activities 482 Human Resource Planning Introduction 486; Human resource planning defined 486; Aims of human resource planning 487; Use of human resource planning 488; Approaches to human resource planning 488 People Resourcing Practice Introduction 496; Employee value proposition 496; Employer brand 497; Employee turnover 497; Retention planning 503; Absence management 506; Flexibility planning 509 Recruitment and Selection Introduction 515; The recruitment and selection process 515; Defining requirements 515; Recruitment planning 518; Attracting candidates 519; Processing applications 527; Selection methods 529; Dealing with recruitment problems 533; References and offers 534 Selection Interviewing Introduction 541; Purpose 541; The basis of an interview – the person specification 541; The nature of an interview – obtaining the information 542; Advantages and disadvantages of interviews 544; Interviewing arrangements 545; Preparation 546; Planning an interview 547; Types of interviews 548; Interview techniques – starting and finishing 552; Interviewing techniques – asking questions 552; Selection interviewing skills 560; Coming to a conclusion 562 Selection Tests Introduction 568; Psychological tests 568; Aptitude tests 571; Characteristics of a good test 572; Interpreting test results 573; Choosing tests 574; The use of tests in a selection procedure 574; Good practice in psychological testing 575 443 466 Part VI 28. 477 479 29. 485 30. 495 31. 514 32. 540 33. 567
Slide 15: xiv Full Contents 34. 35. 36. 37. Talent Management Introduction 580; The meaning of talent management 580; The process of talent management 582; Developing a talent management strategy 584; Management succession planning 586 Career Management Introduction 591; Career management defined 591; Aims 591; Career stages 592; Career development strategy 593; Career management activities 593; The process of career management 594; Self-managed careers 598 Introduction to the Organization Introduction 603; Induction: what it is and why it is important 603; Reception 604; Documentation 604; Company induction – initial briefing 605; Introduction to the workplace 605; Formal induction courses 606; On-the-job induction training 607 Release from the Organization Introduction 610; Redundancy 610; Dismissal 611; Retirement 612 579 590 602 609 Part VII Performance Management 38. The Process of Performance Management Introduction 618; Performance management defined 618; Objectives of performance management 619; Characteristics of performance management 619; Underpinning theories 620; The performance management cycle 621; Conducting a performance review meeting 627; Assessing performance 629; Dealing with underperformers 634; Introducing performance management 636; Line managers and performance management 638 39. 360-degree Feedback Introduction 644; Use of 360-degree feedback 644; 360-degree feedback – methodology 644; 360-degree feedback – advantages and disadvantages 646; Development and implementation 647 Part VIII Learning and Development 40. Learning and Development Strategy Introduction 654; Features of a learning and development strategy 654; Learning culture 656; The learning organization 657; The contribution of learning and development to organizational performance 658 41. The Process of Learning and Development Introduction 664; Learning and development defined 664; Elements of learning and development 665; Approaches to learning and 615 617 643 651 653 663
Slide 16: Full Contents xv 42. 43. 44. 45. development 666; Informal and formal learning 666; E-learning 670; Blended learning 673; Self-directed learning 673; Development 674; Training 675 Learning and Development Programmes and Events Introduction 684; The business case for learning and development 684; Planning and delivering learning programmes and events 685; Responsibility for the implementation of learning 689; Identifying learning needs 690; Evaluation of learning 693 How People Learn Introduction 701; Learning defined 701; The learning process 701; Learning theory 702; Learning styles 704; Learning to learn 706; The learning curve 706; The motivation to learn 708; The implications of learning theory and concepts 709 Organizational Learning Introduction 714; Organizational learning defined 714; The process of organizational learning 715; Outcomes of organizational learning 717; Evaluative enquiry 717; Organizational learning and the learning organization 718 Management Development Introduction 721; Management development policy 721; Management development strategy 722; Approaches to management development 723; The integrated approach to management development 726; Responsibility for management development 727; Criteria for management development 730 Rewarding People Reward Management Introduction 736; Reward management defined 736; The philosophy of reward management 737; The reward system 739; Total reward 741; Reward strategy 746; Reward management and line management capability 751 Job Evaluation Introduction 756; Job evaluation defined 756; Approaches 757; Analytical job evaluation schemes 758; Non-analytical schemes 761; Market pricing 764; Computer-aided job evaluation 765; Choice of approach 766; Designing an analytical point-factor job evaluation scheme 769; Designing an analytical matching job evaluation scheme 776; Equal pay considerations 777; Conclusions 779 Market Rate Analysis Introduction 784; The concept of a market rate 784; Job matching 785; Use of benchmark jobs 786; Sources of market data 787; Interpreting and presenting market rate data 792; Using survey data 792 683 700 713 720 Part IX 46. 733 735 47. 755 48. 783
Slide 17: xvi Full Contents 49. 50. 51. 52. 53. Grade and Pay Structures Introduction 796; Definitions 796; Types of grade and pay structure 798; Designing grade and pay structures 807 Contingent Pay Introduction 816; Contingent pay as a motivator 816; Arguments for and against contingent pay 817; Alternatives to contingent pay 819; Criteria for success 820; Performance-related pay 821; Competencyrelated pay 822; Contribution-related pay 823; Skill-based pay 825; Readiness for individual contingent pay 827; Developing and implementing individual contingent pay 827; Service-related pay 828; Summary of individual contingent pay schemes 829; Bonus schemes 829; Team-based pay 832; Organization-wide bonus schemes 833; Choice of approach to contingent pay 834 Rewarding Special Groups Reward management for directors and executives 840; Reward management for sales representatives 842; Paying manual workers 844 Employee Benefits, Pensions and Allowances Employee benefits 850; Pensions 852; Communicating pensions policies 855; Total reward statements 856; Allowances 856 Managing Reward Systems Introduction 860; Controlling reward 860; Monitoring and evaluating reward policies and practices 861; Conducting pay reviews 862; Reward procedures 867; Managing the development of reward systems 868; Devolution to line managers of responsibility for reward 868; Communicating to employees 871 795 815 839 849 859 Part X 54. 55. Employee Relations 875 The Employee Relations Framework 877 Introduction 878; The basis of employee relations 878; Industrial relations as a system of rules 880; Regulations and rules in industrial relations 881; Collective bargaining 882; The unitary and pluralist views 884; The concept of social partnership 886; Individualism and collectivism 886; Voluntarism and its decline 887; The HRM approach to employee relations 887; The context of industrial relations 889; Developments in industrial relations 890; The parties to employee relations 893 905 Employee Relations Processes Introduction 906; Employee relations policies 906; Employee relations strategies 909; Employee relations climate 910; Union recognition 912; Collective bargaining arrangements 913; Collective bargaining outcomes 915; Informal employee relations processes 920; Other
Slide 18: Full Contents xvii 56. 57. features of the industrial relations scene 921; Negotiating and bargaining 923; Managing with unions 927; Managing without trade unions 929; The state of employment relations 930; Handling employment issues 931 Employee Voice 935 Introduction 936; The meaning of employee voice 936; The forms of employee voice 937; The framework for employee voice 938; Expression of employee voice 939; Joint consultation 941; Attitude surveys 942; Suggestion schemes 944; Effectiveness of employee involvement and participation 945; Planning for voice 945; EU Directives affecting employee voice procedures 945 Employee Communications 949 Introduction 950; The importance of employee communications 950; What should be communicated? 950; Approach to communication 951; Communication methods 951; Employee communication strategy 953 Health, Safety and Employee Well-being Health and Safety Introduction 960; Managing health and safety at work 960; Health and safety policies 961; Conducting risk assessments 962; Health and safety audits 965; Health and safety inspections 967; Accident prevention 967; Occupational health programmes 968; Measuring health and safety performance 969; Communicating the need for better health and safety practices 970; Health and safety training 971; Organizing health and safety 971 Employee Well-being Introduction 976; Improving of the work environment 976; Services for individuals 981; Group employee services 982 957 959 Part XI 58. 59. 975 Part XII HR Policies, Procedures and Systems 60. HR Policies Introduction 988; Why have HR policies? 988; Overall HR policy 988; Specific HR policies 990; Formulating HR policies 997; Implementing HR policies 998 61. HR Procedures What are HR procedures? 1001; Capability procedure 1001; Disciplinary procedure 1003; Grievance procedure 1005; Redundancy procedure 1006 62. HR Information Systems Introduction 1011; Reasons for introducing an HRIS 1011; The functions of an HRIS 1011; Features of an HRIS 1013; Introducing an HRIS 1014 985 987 1000 1010
Slide 19: xviii Full Contents Appendices A. Example of Employee Engagement and Commitment Survey B. Example of Performance Management Survey C. Example of Reward Survey D. Learning and Development Activities and Methods Useful Web Addresses Subject Index Author Index 1017 1019 1020 1021 1022 1031 1034 1057
Slide 20: xix Supporting Resources for Instructors and Students As a reader of Armstrong’s Handbook of Human Resource Management Practice, you have automatic access to a range of additional resources designed to enhance your experience and use of the book. Full details are provided below. For lecturers and instructors Resources include: • • • • • • • Session outlines for each of the 62 chapters. Glossaries of key concepts and terms for 60 chapters. Questions for each chapter. A selection of multiple choice questions. Bibliographies for 59 chapters. Fifty case studies. Two hundred and thirty-seven PowerPoint slides. The lecturer resources are contained within the Free Resources section of the Kogan Page website – www.koganpage.com/resources. Using the left-hand menu, go to the Academic Resources section, click on Lecturer Resources and follow the instructions online. For students Resources include: • • Student learning notes – with key learning points for each chapter. A glossary of key concepts and terms.
Slide 21: xx Supporting Resources • • • Multiple choice questions. Case studies. A guide to taking CIPD exams, including an analysis of question papers from May 2005 to May 2008. The student resources are contained within the Free Resources section of the Kogan Page website – www.koganpage.com/resources. Using the left-hand menu, go to the Academic Resources section, click on Student Resources and follow the instructions online.
Slide 22: xxi List of Figures Figure 0.1 Figure 1.1 Figure 2.1 Figure 6.1 Figure 6.2 Figure 7.1 Figure 10.1 Figure 10.2 Figure 15.1 Figure 16.1 Figure 17.1 Figure 19.1 Figure 19.2 Figure 20.1 Figure 21.1 Figure 26.1 Figure 26.2 Figure 26.3 Figure 29.1 Figure 30.1 Figure 31.1 Figure 31.2 Figure 32.1 Figure 33.1 Figure 34.1 Figure 34.2 Figure 35.1 Figure 35.2 Figure 35.3 Armstrong’s Handbook of Human Resource Management Practice route map The HRM system Strategic HRM model The John Storey model of personnel management The Peter Reilly model of HR Impact of HRM on organizational performance Examples of charts A scattergram with regression (trend) line Dimensions of the employment relationship A model of the psychological contract The sources and applications of organization behaviour theory The process of motivation Motivation model (Porter and Lawler) Combinations of the impact of engagement and organizational commitment Channels of communication within groups Example of job description Example of a role profile Example of a generic role profile Human resource planning flow chart A survival curve Competency-based person specification for a recruitment specialist Example of application form (compressed) Example of an interview rating form A normal curve The elements of talent management Management succession schedule Career progression curves The process of career management Competency band career progression system xxvi 12 40 115 115 143 192 194 262 280 295 323 326 337 371 451 453 454 490 499 518 530 563 569 582 587 593 595 597
Slide 23: xxii List of Figures Figure 35.4 Figure 38.1 Figure 38.2 Figure 39.1 Figure 41.1 Figure 41.2 Figure 42.1 Figure 42.2 Figure 42.3 Figure 43.1 Figure 43.2 Figure 43.3 Figure 43.4 Figure 44.1 Figure 46.1 Figure 46.2 Figure 46.3 Figure 46.4 Figure 47.1 Figure 47.2 Figure 47.3 Figure 49.1 Figure 49.2 Figure 49.3 Figure 49.4 Figure 49.5 Figure 49.6 Figure 49.7 Figure 49.8 Figure 49.9 Figure 50.1 Figure 50.2 Figure 50.3 Figure 50.4 Figure 50.5 Figure 50.6 Figure 50.7 Figure 53.1 Figure 56.1 Figure 56.2 Figure 62.1 Career paths in a career family structure The performance management cycle Performance matrix 360-degree feedback profile Elements of learning and development Systematic training model The learning gap Learning needs analysis – areas and methods A learning specification The Kolb learning cycle A standard learning curve Different rates of learning A stepped learning curve Single- and double-loop learning The reward management system: elements and interrelationships The components of total reward Model of total reward A model of the reward strategy development process A typical job evaluation programme Point-factor job evaluation scheme design sequence Analytical matching job evaluation scheme design sequence A multi-graded structure A broad-graded structure Narrow- and broad-banded structures A broad-banded structure with zones A job family structure A career family structure A pay spine Incidence of grade and pay structures Flow chart: design of a new grade and pay structure Line of sight model Performance-related pay Competency-related pay Contribution pay model (1) Contribution pay model (2) Contribution-related pay Contribution-related pay model Development of reward system A framework for employee voice Levels of employee voice Introducing an HRIS 598 621 633 645 666 677 690 691 692 704 707 707 708 716 742 743 745 750 771 772 776 799 799 800 801 802 803 803 807 812 821 821 822 824 824 825 825 869 938 940 1015
Slide 24: xxiii List of Tables Table 2.1 Table 3.1 Table 4.1 Table 4.2 Table 5.1 Table 5.2 Table 6.1 Table 6.2 Table 7.1 Table 7.2 Table 10.1 Table 10.2 Table 11.1 Table 11.2 Table 13.1 Table 13.2 Table 14.1 Table 16.1 Table 16.2 Table 19.1 Table 19.2 Table 26.1 Table 30.1 Table 30.2 Table 31.1 Table 32.1 Table 32.2 Table 41.1 Table 43.1 Table 46.1 Role behaviours appropriate for different strategies, Schuler and Jackson (1987) Achieving vertical fit between HR and business strategies A summary of human capital measures and their possible uses Framework for external reporting Issues facing HR departments Measures of HR effectiveness and their use Competency framework for HR professionals Key competency areas Research on the link between HRM and firm performance The HR practices that impact on performance Alternative research philosphies Contrasts between quantitative and qualitative research (Bryman and Bell, 2007) Incidence of different competency headings Reasons for using competencies Lists of HR practices in high-performance work systems Examples of high-performance working ingredients Feelings at work (WERS, 2004) Changes in the psychological contract Job satisfaction (WERS, 2004) Summary of motivation theories Factors affecting motivation strategies and the HR contribution Criteria for a rigorous competency definition A survival rate analysis Leavers’ length of service analysis Person specification classification schemes Advantages and disadvantages of interviews Dos and don’ts of selection interviewing Characteristics of formal and informal learning The implications of learning theory and concepts Economic theories explaining pay levels 36 56 73 76 83 89 126 127 136 144 177 181 205 208 236 242 254 282 283 319 330 455 500 501 517 544 563 669 709 738
Slide 25: xxiv List of Tables Table 47.1 Table 47.2 Table 47.3 Table 48.1 Table 49.1 Table 50.1 Table 51.1 Table 51.2 Table 53.1 Table 55.1 A factor plan A paired comparison Comparison of different job evaluation methods Analysis of market rate data sources Summary analysis of different grade and pay structures Summary of contingent pay and service-related pay schemes Summary of payment and incentive arrangements for sales staff Comparison of shop floor payment-by-result schemes A pay matrix Industrial relations negotiations/commercial negotiations 759 763 767 790 805 830 842 845 865 923
Slide 26: xxv Preface This eleventh edition of Armstrong’s Handbook of Human Resource Management Practice contains many additions and revisions. It covers major developments in the theory and practice of human resource management in the last three years. There are new chapters on the impact of HRM, corporate social responsibility, high performance work systems, employee engagement, change management, resourcing strategy and practice and employee well-being. Significant changes and improvements have been made to most of the other chapters. The plan of the book is illustrated in the ‘route map’ in Figure 0.1. The design of the book has been radically updated, with the aim of providing a text that encourages and facilitates better learning. Chapters contain key concepts and terms, learning outcomes, key learning points, questions and further reading; allowing students to recap, reflect and test their learning. The companion website provides further resources for both students and lecturers. Students can expand on their learning and are provided with help and advice on taking examinations. Lecturers are provided with a range of resources, including PowerPoint slides and support notes for teaching.
Slide 27: xxvi Preface I Human resource management 1. Practice of HRM 2. Strategic HRM 3. HR strategies 4. Human capital management 5. Role of HR function 6. Role of HR practitioner 7. Impact of HRM 8. International HRM 9. Corporate social responsibility 10. HRM research methods II HRM processes 11. Competency-based HRM 12. Knowledge management 13. High performance work systems III Work and employment 14. Work 15. Employment relationship 16. Psychological contract IV Organizational behaviour 17. Essence of organizational behaviour 18. Characteristics of people 19. Motivation 20. Engagement and commitment 21. How organizations function 22. Organizational culture V Organization design and development 23. Organization design 24. Organization development 25. Change management 26. Job and role analysis 27. Job and role design VI People resourcing 28. Resourcing strategy 29. Human resource planning 30. Resourcing practice 31. Recruitment and selection 32. Selection interviewing 33. Selection tests 34. Talent management 35. Career management 36. Introduction to the organization 37. Release from the organization VII Performance management 38. The process of performance management 39. 360-degree feedback VIII Learning and development 40. Learning and development strategy 41. The process of learning and development 42. Learning and development programmes 43. How people learn 44. Organizational learning 45. Management development IX Rewarding people 46. Reward management 47. Job evaluation 48. Market rate analysis 49. Grade and pay structures 50. Contingent pay 51. Rewarding special groups 52. Employee benefits and pensions 53. Managing reward systems X Employee relations 54. The employee relations framework 55. Employee relations processes 56. Employee voice 57. Employee communications XI Health, safety and employee well-being 58. Health and safety 59. Employee well-being XII HR processes and systems 60. HR policies 61. HR procedures 62. HR information systems Figure 0.1 Armstrong’s Handbook of Human Resource Management Practice route map
Slide 28: 1 Part I Human Resource Management This part describes the basic features and characteristics of human resource management, strategic human resource management and HR strategies (Chapters 1, 2 and 3). This provides the framework within which the detailed descriptions of HRM strategies, policies, processes and practices that occupy most of this book take place. The roles of the HR function and the HR practitioner are examined in Chapters 4 and 5, and Chapter 6 deals with the impact of HRM. Chapter 7 covers human capital management and the part ends with an analysis of international HRM, corporate social responsibility and HRM research methods. Part I contents 1. The practice of human resource management 2. Strategic human resource management 3. HR strategies 4. Human capital management 5. The role and organization of the HR function 6. The role of the HR practitioner 7. The impact of HRM on performance 8. International HRM 9. Corporate social responsibility 10. Human resource management research methods 3 25 47 65 81 104 135 150 165 174
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Slide 30: 3 1 The Practice of Human Resource Management Key concepts and terms • • • • • • • AMO theory Commitment Contingency theory The hard version of HRM The Harvard framework HRM systems Human resource management (HRM) • • • • • • The matching model of HRM Mutuality Pluralistic employee relations The resource-based view The soft version of HRM Strategic integration Learning outcomes On completing this chapter you should be able to define these key concepts. You should also be able to: • • • • Define the objectives of HRM Describe the characteristics of HRM Appreciate the reservations expressed about HRM Appreciate the ethical dimensions of HRM • • • Define the policy goals of HRM Understand how HRM developed as a concept Understand the context in which HRM operates
Slide 31: 4 Human Resource Management Introduction The practice of human resource management (HRM) is concerned with all aspects of how people are employed and managed in organizations. It covers activities such as strategic HRM, human capital management, corporate social responsibility, knowledge management, organization development, resourcing (human resource planning, recruitment and selection, and talent management), performance management, learning and development, reward management, employee relations, employee well-being and health and safety and the provision of employee services. HRM practice has a strong conceptual basis drawn from the behavioural sciences and from strategic management, human capital and industrial relations theories. This foundation has been built with the help of a multitude of research projects. The aim of this chapter is to provide a general introduction to the practice and underpinning concepts of HRM. It covers the definition of HRM, the objectives of HRM, HRM theory, the characteristics of HRM, the components of HRM systems, the development of HRM as an approach to managing people, the views expressed about HRM by key commentators, the context within which HRM functions, and the ethical dimensions that affect HR policy and practice. Human resource management defined Human resource management (HRM) is a strategic, integrated and coherent approach to the employment, development and well-being of the people working in organizations. Other definitions of HRM Human resource management involves all management decisions and action that affect the nature of the relationship between the organization and its employees – its human resources. (Beer et al, 1984) HRM comprises a set of policies designed to maximize organizational integration, employee commitment, flexibility and quality of work. (Guest, 1987) HRM consists of the following propositions: That human resource policies should be integrated with strategic business planning and used to reinforce an appropriate (or change an inappropriate)
Slide 32: The Practice of Human Resource Management 5 organizational culture, that human resources are valuable and a source of competitive advantage, that they may be tapped most effectively by mutually consistent policies that promote commitment and which, as a consequence, foster a willingness in employees to act flexibly in the interests of the ‘adaptive organization’s’ pursuit of excellence. (Legge, 1989) Human resource management is a distinctive approach to employment management which seeks to achieve competitive advantage through the strategic deployment of a highly committed and capable workforce, using an integrated array of cultural, structural and personnel techniques. (Storey, 1995) HRM is: ‘The management of work and people towards desired ends.’ (Boxall et al, 2007) HRM is concerned with how organizations manage their workforce (Grimshaw and Rubery, 2007) The objectives of HRM The overall purpose of human resource management is to ensure that the organization is able to achieve success through people. HRM aims to increase organizational effectiveness and capability – the capacity of an organization to achieve its goals by making the best use of the resources available to it. Ulrich and Lake (1990) remarked that: ‘HRM systems can be the source of organizational capabilities that allow firms to learn and capitalize on new opportunities.’ But HRM has an ethical dimension which means that it must also be concerned with the rights and needs of people in organizations through the exercise of social responsibility. Dyer and Holder (1998) analysed management’s HR goals under the headings of contribution (what kind of employee behaviour is expected?), composition (what headcount, staffing ratio and skill mix?), competence (what general level of ability is desired?) and commitment (what level of employee attachment and identification?).
Slide 33: 6 Human Resource Management SOURCE REVIEW SOURCE REVIEW HRM policy goals, David Guest (1987, 1989a, 1989b, 1991) 1. Strategic integration: the ability of the organization to integrate HRM issues into its strategic plans, ensure that the various aspects of HRM cohere, and provide for line managers to incorporate an HRM perspective into their decision making. 2. High commitment: behavioural commitment to pursue agreed goals, and attitudinal commitment reflected in a strong identification with the enterprise. 3. High quality: this refers to all aspects of managerial behaviour that bear directly on the quality of goods and services provided, including the management of employees and investment in high quality employees. 4. Flexibility: functional flexibility and the existence of an adaptable organization structure with the capacity to manage innovation. The policy goals for HRM identified by Caldwell (2004) included managing people as assets that are fundamental to the competitive advantage of the organization, aligning HRM policies with business policies and corporate strategy, and developing a close fit of HR policies, procedures and systems with one another. Theories of HRM The practice of HRM is underpinned by a number of theories. The categories of HRM theory listed by Guest (1997) and Boselie et al (2005) are listed below. Theories of HRM, David Guest (1997) 1. Strategic theories – in the UK the implicit but untested hypothesis is that good fit (between HR practice and the internal and external context) will be associated with superior performance. In the United States the focus has been more on classifying types of HR strategy. The hypothesis is that firms that have a fit between business strategy, structure and HRM policy will have superior performance. 2. Descriptive theories – these either list areas of HR policy and outcomes (Beer et al, 1984) or adopt a systems approach, describing the relationships between levels (Kochan et al, 1986). They are largely non-prescriptive. 3. Normative theories – these are normative in the sense that they establish a norm or standard pattern in the form of prescribed best practice. These take a considerable risk in implying ‘one best way’.
Slide 34: The Practice of Human Resource Management 7 Theories of HRM, Boselie et al (2005) 1. Contingency theory – HRM is influenced by the organization’s environment and circumstances (Legge, 1978). 2. The resource-based view – HRM delivers added value through the strategic development of the organization’s rare, hard to imitate and hard to substitute human resources (Barney, 1991, 1995). 3. AMO theory – the formula Performance = Ability + Motivation + Opportunity to Participate provides the basis for developing HR systems that attend to employees’ interests, namely their skill requirements, motivations and the quality of their job (Appelbaum et al, 2000; Bailey et al, 2001; Boxall and Purcell, 2003). Characteristics of HRM HRM was regarded by Storey (1989) as a ‘set of interrelated policies with an ideological and philosophical underpinning’. He listed four aspects that constitute the meaningful version of HRM: 1. a particular constellation of beliefs and assumptions; 2. a strategic thrust informing decisions about people management; 3. the central involvement of line managers; and 4. reliance upon a set of ‘levers’ to shape the employment relationship. As Boselie et al (2005) explained, HRM: responds accurately and effectively to the organization’s environment and complements other organizational systems (cf contingency theory) and delivers ‘added value’ through the strategic development of the organization’s rare, inimitable and non-substitutable resources, embodied – literally – in its staff (cf the resource-based view). The characteristics of HRM are that it is diverse, strategic and commitment-oriented, adopts a unitary rather than pluralist viewpoint, is founded on the belief that people should be treated as assets and is a management-driven activity. HRM tends to focus on business values although there is a growing body of opinion (eg Guest, 2002) that it has also to be concerned with employee-centred outcomes. In its fully developed form, HRM functions as a system. As Schuler (1992) indicated, HRM links, integrates and coheres.
Slide 35: 8 Human Resource Management The diversity of HRM There are no universal characteristics of HRM. Many models exist, and practices within different organizations are diverse, often only corresponding to the conceptual version of HRM in a few respects. Boxall et al (2007) remarked that: ‘Human resource management covers a vast array of activities and shows a huge range of variations across occupations, organizational levels, business units, firms, industries and societies.’ A distinction was made by Storey (1989) between the ‘hard’ and ‘soft’ versions of HRM. The hard version emphasizes that people are important resources through which organizations achieve competitive advantage. These resources have therefore to be acquired, developed and deployed in ways that will benefit the organization. The focus is on the quantitative, calculative and business-strategic aspects of managing human resources in as ‘rational’ a way as for any other economic factor. The soft version of HRM has its roots in humanism – an approach devoted to human interests that views people as responsible and progressive beings. It also traces its origins to the human relations school founded by Elton Mayo (1933), which believed that productivity was directly related to job satisfaction and that the output of people will be high if they like their co-workers and are given pleasant supervision. But this is a fairly remote connection. The soft version of HRM as described by Storey (1989) involves ‘treating employees as valued assets, a source of competitive advantage through their commitment, adaptability and high quality (of skills, performance and so on)’. It therefore views employees, in the words of Guest (1999b), as means rather than objects, but it does not go as far as following Kant’s (1781) advice: ‘Treat people as ends unto themselves rather than as means to an end.’ The soft approach to HRM stresses the need to gain the commitment (the ‘hearts and minds’) of employees through involvement, communication, leadership and other methods of developing a high-commitment, high-trust organization. Attention is also drawn to the key role of organizational culture. In 1998, Karen Legge defined the ‘hard’ model of HRM as a process emphasizing ‘the close integration of human resource policies with business strategy which regards employees as a resource to be managed in the same rational way as any other resource being exploited for maximum return’. In contrast, the soft version of HRM sees employees as ‘valued assets and as a source of competitive advantage through their commitment, adaptability and high level of skills and performance’. It has, however, been observed by Truss (1999) that ‘even if the rhetoric of HRM is soft, the reality is often hard, with the interests of the organization prevailing over those of the individual’. Research carried out by Gratton et al (1999) found that in the eight organizations they studied, a mixture of hard and soft HRM approaches was identified. This suggested to the researchers that the distinction between hard and soft HRM was not as precise as some commentators have implied. But as Dyer and Holder (1998) emphasized: ‘HRM goals vary according to competitive choices, technologies or service tangibles, characteristics of their employees (eg could be different for
Slide 36: The Practice of Human Resource Management 9 managers), the state of the labour market and the societal regulations and national culture.’ And Boxall et al (2007) noted that: ‘The general motives of HRM are multiple.’ The strategic nature of HRM Perhaps the most significant feature of HRM is the importance attached to strategic integration. Legge (1989) argued that one of the common themes of the typical definitions of HRM is that human resource policies should be integrated with strategic business planning. Keith Sisson (1990) suggested that a feature increasingly associated with HRM is the emphasis on the integration of HR policies both with one another and with business planning more generally. John Storey (1989) believes that: ‘The concept locates HRM policy formulation firmly at the strategic level and insists that a characteristic of HRM is its internally coherent approach.’ The commitment-oriented nature of HRM One of the aims of HRM is to promote commitment – the strength of an individual’s identification with, and involvement in, a particular organization. It was noted by Karen Legge (1995) that human resources ‘may be tapped most effectively by mutually consistent policies that promote commitment and which, as a consequence, foster a willingness in employees to act flexibly in the interests of the “adaptive organization’s” pursuit of excellence’. However, this emphasis on commitment has been criticized from the earliest days of HRM. Guest (1987) asked: ‘commitment to what?’ and Fowler (1987) has stated: At the heart of the concept is the complete identification of employees with the aims and values of the business – employee involvement but on the company’s terms. Power in the HRM system, remains very firmly in the hands of the employer. Is it really possible to claim full mutuality when at the end of the day the employer can decide unilaterally to close the company or sell it to someone else? Focus on mutuality The importance of mutuality (the belief that management and employees share the same concerns and it is therefore in both their interests to work together) was emphasized by Walton (1985a) as follows: The new HRM model is composed of policies that promote mutuality – mutual goals, mutual influence, mutual respect, mutual rewards, mutual responsibility. The theory is that policies of mutuality will elicit commitment which in turn will yield both better economic performance and greater human development.
Slide 37: 10 Human Resource Management The concept of mutuality is based on the notion of unitary employee relations, described below. Unitary and pluralist employee relations HRM is characterized by a unitarist rather than a pluralist view of employee relations with the emphasis on individual contracts, not collective agreements. A unitarist view expresses the belief that people in organizations share the same goals and work as members of one team. The pluralist view recognizes that the interests of employees will not necessarily coincide with their employers and suggests that the unitary view is naïve, unrealistic and against the interest of employees. Treating people as assets or human capital The notion that people should be regarded as assets rather than variable costs, in other words, treated as human capital, was originally advanced by Beer et al (1984). HRM philosophy, as mentioned by Legge (1995), holds that ‘human resources are valuable and a source of competitive advantage’. Armstrong and Baron (2002) stated that: People and their collective skills, abilities and experience, coupled with their ability to deploy these in the interests of the employing organization, are now recognized as making a significant contribution to organizational success and as constituting a major source of competitive advantage. Focus on business values The concept of hard HRM is based on a management- and business-oriented philosophy. It is concerned with the total interests of the organization – the interests of the members of the organization are recognized but subordinated to those of the enterprise. Hence the importance attached to strategic integration and strong cultures, which flow from top management’s vision and leadership, and which require people who will be committed to the strategy, who will be adaptable to change and who fit the culture. In 1995 Legge noted that HRM policies are adapted to drive business values and are modified in the light of changing business objectives and conditions. She suggested that evidence indicated more support for the hard versions of HRM than the soft version. Organization- versus employee-centred outcomes In line with labour process theory, Thompson and Harley (2007) asserted that; ‘What is happening is a process of “capitalizing on humanity” rather than investing in human capital.’ The emphasis may have been on the business orientation of HRM but there is a growing body of
Slide 38: The Practice of Human Resource Management 11 opinion that there is more to HRM than that. This is the employee-centred and ethical dimension of HRM, discussed at the end of the chapter. Grant and Shields (2002) argued that the emphasis typically placed on the business case for HRM suggests a one-sided focus on organizational outcomes at the expense of employees. It was noted by Paauwe (2004) that: Added value represents the harsh world of economic rationality, but HRM is also about moral values… The yardstick of human resource outcomes is not just economic rationality – a stakeholder perspective is required, ie develop and maintain sustainable relationships with all the relevant stakeholders, not just customers and shareholders. Kochan (2007) contended that: The HR profession has always had a special professional responsibility to balance the needs of the firm with the needs, aspirations and interests of the workforce and the values and standards society expects to be upheld at work… A regime which provides human beings no deep reason to care about one another cannot long preserve its legitimacy. Ulrich and Brockbank (2005a) believe that ‘caring and listening to employees remains a centre piece of HR work’. HRM as a system An open systems view of HRM has been developed by Wright and Snell (1998). An open system is dependent on the environment for inputs, which are transformed during throughput to produce outputs that are exchanged in the environment. Wright and Snell defined an open HRM system as a competence model of organizations. Skills and abilities are treated as inputs from the environment; employee behaviours are treated as throughput; and employee satisfaction and performance are treated as outputs. In its traditional form, HRM, as pointed out by Boselie et al (2005), can be viewed as ‘a collection of multiple discrete practices with no explicit or discernible link between them’. In contrast ‘the more strategically minded systems approach views HRM as an integrated and coherent bundle of mutually reinforcing practices’. As Kepes and Delery (2007) comment, a defining characteristic of HRM is that HRM systems and not individual HRM practices are the source of competitive advantage. ‘Coherent and internally aligned systems form powerful connections that create positive synergistic effects on organizational outcomes.’ As illustrated in Figure 1.1 an HRM system brings together HR philosophies that describe the overarching values and guiding principles adopted in managing people, HR strategies that
Slide 39: 12 Human Resource Management define the direction in which HRM intends to go, HR policies that provide guidelines defining how these values, principles and the strategies should be applied and implemented in specific areas of HRM, HR processes that comprise the formal procedures and methods used to put HR strategic plans and policies into effect, linked HR practices that consist of the approaches used in managing people, and HR programmes that enable HR strategies, policies and practices to be implemented according to plan. Becker and Gerhart (1996) have classified these components into three levels: the system architecture (guiding principles), policy alternatives, and processes and practices. HUMAN RESOURCE MANAGEMENT HR philosophies Human capital management HR strategies, policies, processes, practices and programmes Corporate social responsibility Organization Resourcing Learning and development Reward managment Employee relations Design Human resource planning Organizational learning Job evaluation/ market surveys Industrial relations Development Recruitment & selection Individual learning Grade and pay structures Employee voice Job/role design Talent management Management development Contingent pay Communications Health and safety Employee wellbeing Performance management Knowledge management Employee benefits HR services Figure 1.1 The HRM system
Slide 40: The Practice of Human Resource Management 13 The development of the concept of HRM The terms ‘human resource management’ (HRM) and ‘human resources’ (HR) have virtually replaced the term ‘personnel management’ as a description of the processes involved in managing people in organizations, although what is now described as HRM is in practice often synonymous with what used to be described as personnel management. In the early days of HRM it was suggested by Armstrong (1987) that: HRM is regarded by some personnel managers as just a set of initials or old wine in new bottles. It could indeed be no more and no less than another name for personnel management, but as usually perceived, at least it has the virtue of emphasizing the virtue of treating people as a key resource, the management of which is the direct concern of top management as part of the strategic planning processes of the enterprise. Although there is nothing new in the idea, insufficient attention has been paid to it in many organizations. However, commentators such as Guest (1987) and Storey (1995) regard HRM as a substantially different model built on unitarism (employees share the same interests as employers), individualism, high commitment and strategic alignment (integrating HR strategy with the business strategy). It is claimed that HRM is more holistic than traditional personnel management. HRM has also emphasized the notion that people should be regarded as assets rather than variable costs. Origins of the concept of HRM The concept of HRM was first defined by Bakke (1966) who wrote that: The general type of activity in any function of management… is to use resources effectively for an organizational objective… The function which is related to the understanding, maintenance, development, effective employment, and integration of the potential in the resource of ‘people’ I shall call simply the human resources function. However, HRM did not emerge in a fully fledged form until the 1980s in the ‘matching model’ and the Harvard framework, described below. The matching model of HRM One of the first detailed statements of the HRM concept was made by the Michigan school (Fombrun et al, 1984). They held that HR systems and the organization structure should be managed in a way that is congruent with organizational strategy (hence the name ‘matching
Slide 41: 14 Human Resource Management model’). They further explained that there is a human resource cycle that consists of four generic processes or functions that are performed in all organizations: selection, appraisal, rewards and development. The Harvard framework The other pioneers of HRM in the 1980s were the Harvard school of Beer et al (1984) who developed what Boxall (1992) calls the ‘Harvard framework’. This framework is based on their belief that the problems of historical personnel management can only be solved: when general managers develop a viewpoint of how they wish to see employees involved in and developed by the enterprise, and of what HRM policies and practices may achieve those goals. Without either a central philosophy or a strategic vision – which can be provided only by general managers – HRM is likely to remain a set of independent activities, each guided by its own practice tradition. Beer and his Harvard colleagues believed that ‘Today, many pressures are demanding a broader, more comprehensive and more strategic perspective with regard to the organization’s human resources.’ These pressures have created a need for: ‘A longer-term perspective in managing people and consideration of people as potential assets rather than merely a variable cost.’ They were the first to underline the HRM tenet that it belongs to line managers. The Harvard school suggested that HRM had two characteristic features: 1) line managers accept more responsibility for ensuring the alignment of competitive strategy and HR policies, and 2) HR has the mission of setting policies that govern how HR activities are developed and implemented in ways that make them more mutually reinforcing. Reservations about HRM For some time HRM was a controversial topic, especially in academic circles. The main reservations have been that HRM promises more than it delivers and that its morality is suspect. HRM promises more than it can deliver Noon (1992) has commented that HRM has serious deficiencies as a theory: ‘It is built with concepts and propositions, but the associated variables and hypotheses are not made explicit. It is too comprehensive… If HRM is labelled a “theory” it raises expectations about its ability to describe and predict.’ Guest (1991) believed that HRM is an ‘optimistic but ambiguous concept’; it is all hype and hope. Mabey et al (1998) followed this up by asserting that ‘the heralded outcomes (of HRM)
Slide 42: The Practice of Human Resource Management 15 are almost without exception unrealistically high’. To put the concept of HRM into practice involves strategic integration, developing a coherent and consistent set of employment policies, and gaining commitment. This requires high levels of determination and competence at all levels of management and a strong and effective HR function staffed by business-oriented people. It may be difficult to meet these criteria, especially when the proposed HRM culture conflicts with the established corporate culture and traditional managerial attitudes and behaviour. Gratton et al (1999) were convinced on the basis of their research that there was ‘a disjunction between rhetoric and reality in the area of human resource management between HRM theory and HRM practice, between what the HR function says it is doing and that practice as perceived by employers, and between what senior management believes to be the role of the HR function, and the role it actually plays’. In their conclusions they refer to the ‘hyperbole and rhetoric of human resource management’. Caldwell (2004) believed that HRM ‘is an unfinished project informed by a self-fulfilling vision of what it should be’. The above comments were based on the assumption that there is a single monolithic form of HRM. This is not the case. HRM comes in all sorts of shapes and sizes. Sometimes, as Armstrong (1987) commented, it is just new wine in old bottles – personnel management under another name. It has to be conceded that many organizations that think they are practising HRM as described earlier are not doing so, at least to the full extent. It is difficult, and it is best not to expect too much. For example, most of the managements who hurriedly adopted performance-related pay as an HRM device that would act as a lever for change have been sorely disappointed. However, the research conducted by Guest and Conway (1997) covering a stratified random sample of 1,000 workers established that a notably high level of HRM was found to be in place. This contradicts the view that management has tended to ‘talk up’ the adoption of HRM practices. The HRM characteristics covered by the survey included the opportunity to express grievances and raise personal concerns on such matters as opportunities for training and development, communication about business issues, single status, effective systems for dealing with bullying and harassment at work, making jobs interesting and varied, promotion from within, involvement programmes, no compulsory redundancies, performance-related pay, profit sharing and the use of attitude surveys. The morality of HRM HRM is accused by many academics of being manipulative if not positively immoral. Willmott (1993) remarked that HRM operates as a form of insidious ‘control by compliance’ when it emphasizes the need for employees to be committed to do what the organization wants them to do. It preaches mutuality but the reality is that behind the rhetoric it exploits workers. It is,
Slide 43: 16 Human Resource Management as Keenoy (1990) asserted, a wolf in sheep’s clothing. Scott (1994) thought that HRM was a form of deceit, ‘using subtle approaches to incorporate workers in an organizational way of thinking and in effect brainwashing them to become willing slaves’. Legge (1998) pointed out that: Sadly, in a world of intensified competition and scarce resources, it seems inevitable that, as employees are used as means to an end, there will be some who will lose out. They may even be in the majority. For these people, the soft version of HRM may be an irrelevancy, while the hard version is likely to be an uncomfortable experience. The accusation that HRM treats employees as means to an end is often made. However, it could be argued that if organizations exist to achieve ends, which they obviously do, and if those ends can only be achieved through people, which is clearly the case, the concern of management for commitment and performance from those people is not unnatural and is not attributable to the concept of HRM – it existed in the good old days of personnel management before HRM was invented. What matters is how management treat people as ends and what management provide in return. Much of the hostility to HRM expressed by a number of academics is based on the belief that it is against the interests of workers, ie, that it is managerialist. However, the Guest and Conway (1997) research established that the reports of workers on outcomes showed that a higher number of HR practices were associated with higher ratings of fairness, trust and management’s delivery of their promises. Those experiencing more HR activities also felt more secure in and more satisfied with their jobs. Motivation was significantly higher for those working in organizations where more HR practices were in place. In summary, as commented by Guest (1999b), it appears that workers like their experience of HRM. These findings appear to contradict the ‘radical critique’ view produced by academics such as Mabey et al (1998) and the others quoted above that HRM has been ineffectual, pernicious (ie managerialist) or both. Some of those who adopt this stance tend to dismiss favourable reports from workers about HRM on the grounds that they have been brainwashed by management. But there is no evidence to support this view. Moreover, as Armstrong (2000) pointed out: HRM cannot be blamed or given credit for changes that were taking place anyway. For example, it is often alleged to have inspired a move from pluralism to unitarism in industrial relations. But newspaper production was moved from Fleet Street to Wapping by Murdoch, not because he had read a book about HRM but as a means of breaking the print unions’ control.
Slide 44: The Practice of Human Resource Management 17 Contradictions in the reservations about HRM Guest (1999b) has suggested that there are two contradictory concerns about HRM. The first as formulated by Legge (1995, 1998) is that while management rhetoric may express concern for workers, the reality is harsher. And Keenoy (1997) complained that: ‘The real puzzle about HRMism is how, in the face of such apparently overwhelming critical refutation, it has secured such influence and institutional presence.’ Other writers, however, simply observe that HRM does not work. Scott (1994), for example, stated that both management and workers were captives of their history and found it very difficult to let go of their traditional adversarial orientations. But these contentions are contradictory. Guest (1999b) remarked that; ‘It is difficult to treat HRM as a major threat (though what it is a threat to is not always made explicit) deserving of serious critical analysis while at the same time claiming that it is not practiced or is ineffective.’ The context of HRM HRM processes take place within the context of the internal and external environment of the organization. HR practitioners will gain credibility and make a greater strategic contribution if they can analyse the impact of external events on company policies and practices. They need to be aware of the fact that what the organization does and what they need to do will depend to a large extent on its external and internal environments. They need to understand contingency theory. Contingency theory Contingency theory tells us that definitions of HR aims, policies and strategies, lists of activities and analyses of the role of the HR department are valid only if they are related to the situation of the organization. Legge (1978) in her influential book, Power, Innovation and Problem Solving in Personnel Management was the first commentator to insist that a contingent approach should be adopted to personnel management, ie, ‘the design and implementation of policy that matches, or is contingent upon specified organizational requirements and circumstances’. As Paauwe (2004) explained: Contingency theory states that the relationship between the relevant independent variables (eg HRM policies and practices) and the dependent variable (performance) will vary according to the influences such as company size, age and technology, capital intensity, degree of unionization, industry/sector ownership and location.
Slide 45: 18 Human Resource Management Contingency theory is associated with the concept of fit – the need to achieve congruence between an organization’s HR strategies, policies and practices and its business strategies within the context of its external and internal environment. Contextual factors The contextual factors that influence HR policies and practices are the external and internal environments of the organization. The external environment The external environment consists of social, political, legal and economic developments and competitive pressures. Global competition in mature production and service sectors is increasing. This is assisted by easily transferable technology and reductions in international trade barriers. Customers are demanding more as new standards are reached through international competition. Organizations are reacting to this competition by becoming ‘customer-focused’, speeding up response times, emphasizing quality and continuous improvement, accelerating the introduction of new technology, operating more flexibly and ‘losing cost’. The pressure has been for businesses to become ‘lean and mean’, downsizing and cutting out layers of management and supervision. They are reducing permanent staff to a core of essential workers, increasing the use of peripheral workers (sub-contractors, temporary staff) and ‘outsourcing’ work to external service providers. The internal environment The following aspects of the internal environment will affect HR policy and practice: • • • • • • the type of business or organization – private, public or voluntary sector; manufacturing or service; the size of the organization; the age or maturity of the organization; the technology or key activities of the business will determine how work is organized, managed and carried out; the type of people employed, eg professional staff, knowledge workers, technicians, administrators, production workers, sales and customer service staff; the organization’s culture – the established pattern of values, norms, beliefs, attitudes and assumptions that shape the ways in which people behave and things get done.
Slide 46: The Practice of Human Resource Management 19 The ethical dimension As Boxall et al (2007) point out: ‘While HRM does need to support commercial outcomes (often called “the business case”), it also exists to serve organizational needs for social legitimacy.’ This means exercising social responsibility, ie being concerned for the interests (wellbeing) of employees and acting ethically with regard to the needs of people in the organization and the community. Within the organization the requirement is to: • • treat people equally in terms of the opportunities for employment, learning and development provided for them; treat people according to the principle of procedural justice (Adams, 1965 and Leventhal, 1980), ie the ways in which people are managed are fair, consistent, transparent and properly consider the views and needs of employees; treat people according to the principles of distributive justice (Adams, 1965 and Leventhal, 1980), ie rewards are distributed to them according to their contribution and they receive what was promised to them; treat people according to the principles of natural justice, ie individuals should know the standards they are expected to achieve and the rules to which they are expected to conform, they should be given a clear indication of where they are failing or what rules have been broken and, except in cases of gross misconduct, they should be given a chance to improve before disciplinary action is taken; avoid treating people as mere factors of production; be concerned with the well-being of employees as well as the pursuit of commercial gain; offer as much security of employment as possible; provide a working environment that protects the health and safety of employees and minimizes stress; act in the interests of providing a reasonable balance for employees between their life and their work; protect employees against harmful practices at work, eg bullying, harassment and discrimination. • • • • • • • •
Slide 47: 20 Human Resource Management The practice of HRM – key learning points The objectives of HRM • To ensure that the organization is able to achieve success through people. To increase organizational effectiveness and capability. To be concerned with the rights and needs of people in organizations through the exercise of social responsibility. • • focus on business values; organization-centred orientation. How HRM developed as a concept Emerged in the 1980s in the form of the Harvard framework and the matching model. Reservations expressed about HRM • • • promises more than it can deliver; manipulative – ‘control by compliance’ (Willmott); managerialist. • • The policy goals of HRM (Guest) • • • • • • • • • • strategic integration; high commitment; high quality; flexibility. diverse (hard and soft); strategic; commercial orientation; focus on mutuality; unitary view; people treated as assets or human capital; The context in which HRM operates HRM practice contingent on the circumstances in which the organization operates, ie its internal and external environment. Appreciate the ethical dimensions of HRM HRM must exercise social responsibility – it must be concerned with the interests (wellbeing) of employees and act ethically with regard to the needs of people in the organization and the community. The characteristics of HRM
Slide 48: The Practice of Human Resource Management 21 Questions 1. You are head of human resources in a medium-sized manufacturing company. Your new chief executive mentions to you that in her last firm they had a personnel manager and asks you to explain the difference, if any. At a meeting of trustees the chief executive of a medium-sized charity proposed that a director of human resources should be appointed. Two trustees protested that the term ‘human resources’ implied that employees would just be treated as factors of production not as people. How would you respond? John Storey wrote in 1995 that: ‘Human resource management is a distinctive approach to employment management which seeks to achieve competitive advantage through the strategic deployment of a highly committed and capable workforce, using an integrated array of cultural, structural and personnel techniques.’ Examine the approach to HRM in your own organization or any other organization known to you and analyse the extent to which Storey’s description of HRM applies. Your local branch of the CIPD has asked you either to propose or oppose (your choice) a motion to the effect that ‘This house agrees with the statement of Keenoy and Anthony in 1992 that HRM is no more than a rhetoric masking the intensification and commodification of labour.’ Prepare the case either for or against the motion. Harley and Hardy (2004) wrote that ‘Managers can use the language of HRM to establish the legitimacy of their practices, even if the latter bear little resemblance to the former.’ What is the meaning and significance of this statement? 2. 3. 4. 5. References Adams, J S (1965) Injustice in social exchange, in (ed) L Berkowitz, Advances in Experimental Psychology, Academic Press, New York Appelbaum, E, Bailey, T, Berg, P and Kalleberg, A L (2000) Manufacturing Advantage: Why high performance work systems pay off, ILR Press, Ithaca, NY Armstrong, M (1987) Human resource management: a case of the emperor’s new clothes, Personnel Management, August, pp 30–35 Armstrong, M (2000) The name has changed but has the game remained the same?, Employee Relations, 22 (6), pp 576–89 Armstrong, M and Baron, A (2002) Strategic HRM: The route to improved business performance, CIPD, London Bailey, T, Berg, P and Sandy, C (2001) The effect of high performance work practices on employee earnings in the steel, apparel and medical electronics and imaging industries, Industrial and Labor Relations Review, 54 (2A), pp 525–43
Slide 49: 22 Human Resource Management Bakke, E W (1966) Bonds of Organization: An appraisal of corporate human relations, Archon, Hamden Barney, J B (1991) Firm resources and sustained competitive advantage, Journal of Management Studies, 17 (1), pp 99–120 Barney, J B (1995) Looking inside for competitive advantage, Academy of Management Executive, 9 (4), pp 49–61 Becker, B E and Gerhart, S (1996) The impact of human resource management on organizational performance: progress and prospects, Academy of Management Journal, 39 (4), pp 779–801 Beer, M, Spector, B, Lawrence, P, Quinn Mills, D and Walton, R (1984) Managing Human Assets, The Free Press, New York Boselie, P, Dietz, G and Boon, C (2005) Commonalities and contradictions in HRM and performance research, Human Resource Management Journal, 15 (3), pp 67–94 Boxall, P F (1992) Strategic HRM: a beginning, a new theoretical direction, Human Resource Management Journal, 2 (3) pp 61–79 Boxall, P F and Purcell, J (2003) Strategy and Human Resource Management, Palgrave Macmillan, Basingstoke Boxall, P F, Purcell J and Wright P (2007) The goals of HRM, in (eds) P Boxall, J Purcell and P Wright, Oxford Handbook of Human Resource Management, Oxford University Press, Oxford Caldwell, R (2004) Rhetoric, facts and self-fulfilling prophesies: exploring practitioners’ perceptions of progress in implementing HRM, Industrial Relations Journal, 35 (3), pp 196–215 Dyer, L and Holder, G W (1998) Strategic human resource management and planning, in (ed) L Dyer, Human Resource Management: Evolving roles and responsibilities, Bureau of National Affairs, Washington DC Fowler, A (1987) When chief executives discover HRM, Personnel Management, January, p 3 Fombrun, C J, Tichy, N M and Devanna, M A (1984) Strategic Human Resource Management, Wiley, New York Grant, D and Shields, J (2002) In search of the subject: researching employee reactions to human resource management, Journal of Industrial Relations, 44 (3), pp 178–93 Gratton, L A, Hailey, V H, Stiles, P and Truss, C (1999) Strategic Human Resource Management, Oxford University Press, Oxford Grimshaw, D and Rubery, J (2007) Economics and HRM, in (eds) P Boxall, J Purcell and P Wright, Oxford Handbook of Human Resource Management, Oxford University Press, Oxford Guest, D E (1987) Human resource management and industrial relations, Journal of Management Studies, 14 (5), pp 503–21 Guest, D E (1989a) Human resource management: its implications for industrial relations’, in (ed) J Storey, New Perspectives in Human Resource Management, Routledge, London Guest, D E (1989b) Personnel and HRM: can you tell the difference? Personnel Management, January, pp 48–51 Guest, D E (1991) Personnel management: the end of orthodoxy, British Journal of Industrial Relations, 29 (2), pp 149–76 Guest, D E (1997) Human resource management and performance; a review of the research agenda, The International Journal of Human Resource Management, 8 (3), 263–76 Guest, D E (1999b) Human resource management: the workers’ verdict, Human Resource Management Journal, 9 (2), pp 5–25 Guest, D E (2002) Human resource management, corporate performance and employee well-being: building the worker into HRM, Journal of Industrial Relations, 44 (3), pp 335–58
Slide 50: The Practice of Human Resource Management 23 Guest, D E and Conway, N (1997) Employee Motivation and the Psychological Contract, IPD, London Harley B and Hardy, C (2004) Firing blanks? An analysis of discursive struggle in HRM, Journal of Management Studies, 41 (3), pp 377–400 Kant, I (1781) Critique of Pure Reason, Dover Publications (2003), Mineola, NY Keenoy, T (1990) HRM: a case of the wolf in sheep’s clothing, Personnel Review, 19 (2), pp 3–9 Keenoy, T (1997) HRMism and the images of re-presentation, Journal of Management Studies, 34 (5), pp 825–41 Keenoy, T and Anthony, P (1992) HRM: metaphor, meaning and morality, in (eds) P Blyton and P Turnbull, Reassessing Human Resource Management, Sage Publications, London Kepes, S and Delery, J E (2007) HRM systems and the problem of internal fit, in (eds) P Boxall, J Purcell and P Wright, Oxford Handbook of Human Resource Management, Oxford University Press, Oxford Kochan, T A (2007) Social legitimacy of the HR profession, in (eds) P Boxall, J Purcell and P Wright, Oxford Handbook of Human Resource Management, Oxford University Press, Oxford Kochan, T A, Katz, H and McKersie, R (1986) The Transformation of American Industrial Relations, Basic Books, New York Legge, K (1978) Power, Innovation and Problem Solving in Personnel Management, McGraw-Hill, Maidenhead Legge, K (1989) Human resource management: a critical analysis, in (ed) J Storey, New Perspectives in Human Resource Management, Routledge, London Legge, K (1995) Human Resource Management: Rhetorics and realities, Macmillan, London Legge, K (1998) The morality of HRM, in (eds) C Mabey, D Skinner and T Clark, Experiencing Human Resource Management, Sage, London Leventhal, G S (1980) What should be done with equity theory? in (eds) G K Gergen, M S Greenberg and R H Willis, Social Exchange: Advances in Theory and Research, Plenum, New York Mabey, C, Skinner, D and Clark, T (1998) Experiencing Human Resource Management, Sage, London Mayo, E (1933) Human Problems of an Industrial Civilisation, Macmillan, London Noon, M (1992) HRM: a map, model or theory?, in (eds) P Blyton and P Turnbull, Reassessing Human Resource Management, Sage Publications, London Paauwe, J (2004) HRM and performance: Achieving long term viability, Oxford University Press, Oxford Schuler, R S (1992) Strategic human resource management: linking people with the strategic needs of the business, Organizational Dynamics, 21 (1), pp 18–32 Scott, A (1994) Willing Slaves: British workers under human resource management, Cambridge University Press, Cambridge Sisson, K (1990) Introducing the Human Resource Management Journal, Human Resource Management Journal, 1 (1), pp 1–11 Storey, J (1989) From personnel management to human resource management, in (ed) J Storey, New Perspectives on Human Resource Management, Routledge, London Storey, J (ed) (1995) Human Resource Management: A critical text, Routledge, London Thompson, P and Harley, B (2007) HRM and the worker: labour process perspectives, in (eds) P Boxall, J Purcell and P Wright, Oxford Handbook of Human Resource Management, Oxford University Press, Oxford Truss, C (1999) Soft and hard models of HRM, in (eds) L Gratton, V H Hailey, P Stiles, and C Truss, Strategic Human Resource Management, Oxford University Press, Oxford Ulrich, D and Brockbank, W (2005a) The HR Value Proposition, Harvard Press, Cambridge, MA
Slide 51: 24 Human Resource Management Ulrich, D and Lake, D (1990) Organizational Capability: Competing from the inside out, Wiley, New York Walton, R E (1985a) From control to commitment in the workplace, Harvard Business Review, March– April, pp 77–84 Willmott, H (1993) Strength is ignorance, slavery is freedom: Managing culture in modern organizations, Journal of Management Studies, 30 (4), pp 515–52 Wright, P M and Snell, S A (1998) Towards a unifying framework for exploring fit and flexibility in strategic human resource management, Academy of Management Review, 23 (4), pp 756–72
Slide 52: 25 2 Strategic Human Resource Management Key concepts and terms • • • • • • • Best fit Best practice Bundling Competitive advantage Configuration Human resource advantage Lifecycle model • • • • • • Resource-based view Strategic configuration Strategic fit Strategic HRM Strategic management Strategy Learning outcomes On completing this chapter you should be able to define these key concepts. You should also understand: • • • • • The conceptual basis of strategic HRM How strategy is formulated The resource-based view and its implications The significance of the concepts of ‘best practice’ and ‘best fit’ The practical implications of strategic HRM theory • • • • The fundamental characteristics of strategy The aims of strategic HRM The three HRM ‘perspectives’ of Delery and Doty The significance of bundling
Slide 53: 26 Human Resource Management Introduction As Baird and Meshoulam (1988) remarked: ‘Business objectives are accomplished when human resource practices, procedures and systems are developed and implemented based on organizational needs, that is, when a strategic perspective to human resource management is adopted.’ The aim of this chapter is to explore what this involves. It starts with an introduction to the basis of strategic human resource management (strategic HRM) provided by the concepts of human resource management and strategic management. It then covers a definition of strategic human resource management (strategic HRM) and its aims; an analysis of its underpinning concepts – the resource-based view and strategic fit; and a description of how strategic HRM works, namely the universalistic, contingency and configurational perspectives defined by Delery and Doty (1996) and the three approaches associated with those perspectives – best practice, best fit and bundling. The chapter ends with discussions on the reality of strategic HRM and the practical implications of the theories reviewed earlier. The conceptual basis of strategic HRM Boxall (1996) explained that strategic HRM ‘is the interface between HRM and strategic management’. It takes the notion of HRM as a strategic, integrated and coherent approach and develops that in line with the concept of strategic management. This is an approach to management that involves taking a broad and long-term view of where the business or part of the business is going and managing activities in ways that ensure this strategic thrust is maintained. As defined by Pearce and Robinson (1988): ‘Strategic management is the set of decisions and actions resulting in the formulation and implementation of strategies designed to achieve the objectives of an organization.’ According to Kanter (1984) its purpose is to: ‘elicit the present actions for the future’ and become ‘an action vehicle – integrating and institutionalizing mechanisms for change’. The concept of strategic management is built on the concept of strategy, as considered below. The concept of strategy Strategy is the approach selected to achieve defined goals in the future. According to Chandler (1962) it is: ‘The determination of the long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out those goals.’ Strategy has three fundamental characteristics. First, it is forward looking. It is about deciding where you want to go and how you mean to get there. It is concerned with both ends and
Slide 54: Strategic Human Resource Management 27 means. In this sense a strategy is a declaration of intent: ‘This is what we want to do and this is how we intend to do it.’ Strategies define longer-term goals but they also cover how those goals will be attained. They guide purposeful action to deliver the required result. A good strategy is one that works, one that in Abell’s (1993) phrase enables organizations to adapt by ‘mastering the present and pre-empting the future’. As Boxall (1996) explained: ‘Strategy should be understood as a framework of critical ends and means.’ The second characteristic of strategy is that the organizational capability of a firm (its capacity to function effectively) depends on its resource capability (the quality and quantity of its resources and their potential to deliver results). This is the resource-based view, based on the ideas of Penrose (1959) who wrote that: the firm is ‘an administrative organization and a collection of productive resources’. It was expanded by Wernerfelt (1984) who explained that strategy ‘is a balance between the exploitation of existing resources and the development of new ones’. Resource-based strategy theorists such as Barney (1991, 1995) argued that sustained competitive advantage stemmed from the acquisition and effective use of bundles of distinctive resources that competitors cannot imitate. The resource-based view is a major element in strategic HRM, as discussed later in this chapter. The third characteristic of strategy is strategic fit – the need when developing HR strategies to achieve congruence between them and the organization’s business strategies within the context of its external and internal environment. The focus is upon the organization and the world around it. To maximize competitive advantage a firm must match its capabilities and resources to the opportunities available in its environment. The concept of fit or integration is also a major feature of strategic HRM. The formulation of strategy The formulation of corporate strategy is best described as a process for developing a sense of direction, making the best use of resources and ensuring strategic fit. It has often been described as a logical, step-by-step affair, the outcome of which is a formal written statement that provides a definitive guide to the organization’s intentions. Many people still believe and act as if this were the case, but it is a misrepresentation of reality. In practice the formulation of strategy can never be as rational and linear a process as some writers describe it or as some managers attempt to make it. The difficulty is that strategies are often based on the questionable assumption that the future will resemble the past. Some years ago, Heller (1972) had a go at the cult of long-range planning: ‘What goes wrong’ he wrote, ‘is that sensible anticipation gets converted into foolish numbers: and their validity always hinges on large loose assumptions.’ Strategy formulation is not necessarily a deterministic, rational and continuous process, as was pointed out by Mintzberg (1987). He believe that, rather than being consciously and systematically developed, strategy reorientation happens in what he calls brief ‘quantum loops’. A
Slide 55: 28 Human Resource Management strategy, according to Mintzberg, can be deliberate – it can realize the intentions of senior management, for example to attack and conquer a new market. But this is not always the case. In theory, he says, strategy is a systematic process: first we think, then we act; we formulate, then we implement. But we also ‘act in order to think’. In practice, ‘a realized strategy can emerge in response to an evolving situation’ and the strategic planner is often ‘a pattern organizer, a learner if you like, who manages a process in which strategies and visions can emerge as well as be deliberately conceived’. This concept of ‘emergent strategy’ conveys the essence of how in practice organizations develop their business and HR strategies. Mintzberg was even more scathing about the weaknesses of strategic planning in his 1994 article in the Harvard Business Review on ‘The rise and fall of strategic planning’. He contends that ‘the failure of systematic planning is the failure of systems to do better than, or nearly as well as, human beings’. He went on to say that: Far from providing strategies, planning could not proceed without their prior existence… real strategists get their hands dirty digging for ideas, and real strategies are built from the nuggets they discover… sometimes strategies must be left as broad visions, not precisely articulated, to adapt to a changing environment. He emphasized that strategic management is a learning process as managers of firms find out what works well in practice for them. SOURCE REVIEW A realistic view of strategy Tyson (1997) pointed out that, realistically, strategy: • • • • has always been emergent and flexible – it is always ‘about to be’, it never exists at the present time; is not only realized by formal statements but also comes about by actions and reactions; is a description of a future-oriented action that is always directed towards change; is conditioned by the management process itself. The process of strategic HRM as defined below has to take account of these features of strategy.
Slide 56: Strategic Human Resource Management 29 Strategic HRM defined Strategic HRM is an approach that defines how the organization’s goals will be achieved through people by means of HR strategies and integrated HR policies and practices. Strategic HRM can be regarded as a mind set underpinned by certain concepts rather than a set of techniques. It provides the foundation for strategic reviews in which analyses of the organizational context and existing HR practices lead to choices on strategic plans for the development of overall or specific HR strategies (see Chapter 3). Strategic HRM involves the exercise of strategic choice (which is always there) and the establishment of strategic priorities But strategic HRM is not just about strategic planning. It is also concerned with the implementation of strategy and the strategic behaviour of HR specialists working with their line management colleagues on an everyday basis to ensure that the business goals of the organization are achieved and its values are put into practice. The strategic role of HR practitioners is examined in Chapter 5. Aims of strategic HRM The fundamental aim of strategic HRM is to generate organizational capability by ensuring that the organization has the skilled, engaged, committed and well-motivated employees it needs to achieve sustained competitive advantage. It has two main objectives: first to achieve integration – the vertical alignment of HR strategies with business strategies and the horizontal integration of HR strategies. The second objective is to provide a sense of direction in an often turbulent environment so that the business needs of the organization and the individual and collective needs of its employees can be met by the development and implementation of coherent and practical HR policies and programmes. In accordance with the resource-based view, the strategic goal will be to ‘create firms which are more intelligent and flexible than their competitors’ (Boxall, 1996) by hiring and developing more talented staff and by extending their skills base. Schuler (1992) stated that: Strategic human resource management is largely about integration and adaptation. Its concern is to ensure that: 1) human resources (HR) management is fully integrated with the strategy and strategic needs of the firm; 2) HR policies cohere both across policy areas and across hierarchies; and 3) HR practices are adjusted, accepted and used by line managers and employees as part of their everyday work. As Dyer and Holder (1988) remarked, strategic HRM provides ‘unifying frameworks which are at once broad, contingency based and integrative’. The rationale for strategic HRM is the
Slide 57: 30 Human Resource Management perceived advantage of having an agreed and understood basis for developing and implementing approaches to people management that take into account the changing context in which the firm operates and its longer-term requirements. Strategic HRM is based on two key concepts, namely, the resource-based view and strategic fit. The resource-based view of strategic HRM To a very large extent, the philosophy and approaches to strategic HRM are underpinned by the resource-based view. This states that it is the range of resources in an organization, including its human resources, that produces its unique character and creates competitive advantage. Barney (1991, 1995) stated that competitive advantage arises first when firms within an industry are heterogeneous with respect to the strategic resources they control and second, when these resources are not perfectly mobile across firms and thus heterogeneity can be long lasting. Creating sustained competitive advantage therefore depends on the unique resources and capabilities that a firm brings to competition in its environment. These resources include all the experience, knowledge, judgement, risk-taking propensity and wisdom of individuals associated with a firm. For a firm resource to have the potential for creating sustained competitive advantage it should have four attributes: it must be valuable, rare, imperfectly imitable and non-substitutable. To discover these resources and capabilities, managers must look inside their firm for valuable, rare and costly-to-imitate resources, and then exploit these resources through their organization. The significant link between the resources and capabilities of a firm and its strategies was summarized by Grant (1991) as follows. SOURCE REVIEW The significance of the resource-base view, Grant (1991) The resources and capabilities of a firm are the central considerations in formulating its strategy: they are the primary constants upon which a firm can establish its identity and frame its strategy, and they are the primary sources of the firm’s profitability. The key to a resource-based approach to strategy formulation is understanding the relationships between resources, capabilities, competitive advantage, and profitability – in particular, an understanding of the mechanisms through which competitive advantage can be sustained over time. This requires the design of strategies which exploit to maximum effect each firm’s unique characteristics.
Slide 58: Strategic Human Resource Management 31 Wright et al (2001) noted that there are three important components of HRM that constitute a resource for the firm and are influenced by HR practices or the HR system: 1. The human capital pool comprised of the stock of employee knowledge, skills, motivation and behaviours. 2. The flow of human capital through the firm – the movement of people and of knowledge. 3. The dynamic processes through which organizations change and/or renew themselves. They suggested that HR practices are the primary levers through which the firm can change the pool of human capital as well as attempt to change the employee behaviours that lead to organizational success. Resource-based strategic HRM can produce what Boxall and Purcell (2003) referred to as human resource advantage. The aim is to develop strategic capability. This means strategic fit between resources and opportunities, obtaining added value from the effective deployment of resources, and developing people who can think and plan strategically in the sense that they understand the key strategic issues and ensure that what they do supports the achievement of the business’s strategic goals. In line with human capital theory, the resource-based view emphasizes that investment in people increases their value to the firm. The strategic goal emerging from the resource-based view will be to ‘create firms which are more intelligent and flexible than their competitors’ (Boxall, 1996) by hiring and developing more talented staff and by extending their skills base. Resource-based strategy is therefore concerned with the enhancement of the human or intellectual capital of the firm. As Ulrich (1998) commented: ‘Knowledge has become a direct competitive advantage for companies selling ideas and relationships. The challenge to organizations is to ensure that they have the capability to find, assimilate, compensate and retain the talented individuals they need.’ The significance of the resource-based view of the firm is that it highlights the importance of a human capital management approach to HRM and provides the justification for investing in people through resourcing, talent management and learning and development programmes as a means of enhancing organizational capability. However, it should be remembered that the original resource-based view as expressed by Barney (1991, 1995) referred to all the strategic resources associated with a firm, not just human resources. This is pointed out by Mueller (1996) in a challenging comment, as follows.
Slide 59: 32 Human Resource Management SOURCE REVIEW The resources covered by the resource-based view, Mueller (1996) Empirical analyses conducted within a resource-based view framework have shown that in fact most companies value their company and product reputation – even though obviously sustained by employees – as their most important asset, followed in third place by employee know-how. It is difficult to see, for example, what could be more important for Glaxo than its patents, or for British Airways its landing spots at London Heathrow Airport. Often people alone cannot sustain the success of the ‘super star’ of corporate performance… It is more fruitful to look at how different strategic assets sustain each other, rather than engage in a sterile debate about which are analytically prior or more important. Human resources have to be seen within the context of the firm’s broad array of resources: employees are central for a firm to retain its valued product reputation, but also vice versa; a highly reputable company will find it easier to attract highly qualified employees. Strategic fit As explained by Wright and McMahan (1992) strategic fit refers to the two dimensions that distinguish strategic HRM: First, vertically, it entails the linking of human resource management practices with the strategic management processes of the organization. Second, horizontally, it emphasizes the coordination or congruence among the various human resource management practices. Perspectives on strategic HRM Taking into account the concepts of the resource-based view and strategic fit, Delery and Doty (1996) contended that ‘organizations adopting a particular strategy require HR practices that are different from those required by organizations adopting different strategies’ and that organizations with ‘greater congruence between their HR strategies and their (business) strategies should enjoy superior performance’. They identified the three HRM perspectives set out below.
Slide 60: Strategic Human Resource Management 33 SOURCE REVIEW Perspectives on HRM, Delery and Doty (1996) 1. The universalistic perspective – some HR practices are better than others and all organizations should adopt these best practices. There is a universal relationship between individual ‘best’ practices and firm performance. 2. The contingency perspective – in order to be effective, an organization’s HR policies must be consistent with other aspects of the organization. The primary contingency factor is the organization’s strategy. This can be described as ‘vertical fit’. 3. The configurational perspective – this is an holistic approach that emphasizes the importance of the pattern of HR practices and is concerned with how this pattern of independent variables is related to the dependent variable of organizational performance. In its general sense, configuration has been defined by Huczynski and Buchanan (2007) as: ‘The structures, processes, relationships and boundaries through which an organization operates.’ This typology provided the basis for what has become the most commonly used classification of approaches as advocated by Richardson and Thompson (1999), which was to adopt the terms ‘best practice’ and ‘best fit’ for the universalistic and contingency perspectives, and ‘bundling’ as the third approach. This followed the classification made by Guest (1997) of fit as an ideal set of practices, fit as contingency and fit as bundles. The best practice approach This approach is based on the assumption that there is a set of best HRM practices that are universal in the sense that they are best in any situation, and that adopting them will lead to superior organizational performance. A number of lists of ‘best practices’ have been produced, the best known of which was produced by Pfeffer (1998a), namely: 1. employment security; 2. selective hiring; 3. self-managed teams; 4. high compensation contingent on performance; 5. training to provide a skilled and motivated workforce;
Slide 61: 34 Human Resource Management 6. reduction of status differentials; 7. sharing information. The following list was drawn up by Guest (1999): 1. Selection and the careful use of selection tests to identify those with potential to make a contribution. 2. Training, and in particular a recognition that training is an ongoing activity. 3. Job design to ensure flexibility, commitment and motivation, including steps to ensure that employees have the responsibility and autonomy fully to use their knowledge and skills. 4. Communication to ensure that a two-way process keeps everyone fully informed. 5. Employee share ownership programmes to increase employees’ awareness of the implications of their actions on the financial performance of the firm. Delery and Doty (1996) identified seven strategic HR practices, ie ones that are related to overall organizational performance: the use of internal career ladders, formal training systems, results-oriented appraisal, performance-based compensation, employment security, employee voice and broadly defined jobs. High-performance work systems as described in Chapter 12 can incorporate best practice characteristics, eg the US Department of Labor (1993), Appelbaum et al (2000), Sung and Ashton (2005) and Thompson and Heron (2005). Another list for high commitment practices was produced by Wood and Albanese (1995). Problems with the best practice model The ‘best practice’ rubric has been attacked by a number of commentators. Cappelli and Crocker-Hefter (1996) comment that the notion of a single set of best practices has been overstated: ‘There are examples in virtually every industry of firms that have very distinctive management practices… Distinctive human resource practices shape the core competencies that determine how firms compete.’ Purcell (1999) has also criticized the best practice or universalist view by pointing out the inconsistency between a belief in best practice and the resource-based view that focuses on the intangible assets, including HR, that allow the firm to do better than its competitors. He asks how can ‘the universalism of best practice be squared with the view that only some resources and routines are important and valuable by being rare and imperfectly imitable?’ In accordance with contingency theory, which emphasizes the importance of interactions between organizations and their environments so that what organizations do is dependent on
Slide 62: Strategic Human Resource Management 35 the context in which they operate, it is difficult to accept that there is any such thing as universal best practice. What works well in one organization will not necessarily work well in another because it may not fit its strategy, culture, management style, technology or working practices. However, a knowledge of what is assumed to be best practice can be used to inform decisions on what practices are most likely to fit the needs of the organization, as long as it is understood why a particular practice should be regarded as a best practice and what needs to be done to ensure that it will work in the context of the organization. Becker and Gerhart (1996) argue that the idea of best practice might be more appropriate for identifying the principles underlying the choice of practices, as opposed to the practices themselves. Perhaps it is best to think of ‘good practice’ rather than ‘best practice’. The best fit approach The best fit approach is in line with contingency theory. It emphasizes that HR strategies should be congruent with the context and circumstances of the organization. ‘Best fit’ can be perceived in terms of vertical integration or alignment between the organization’s business and HR strategies. There are three models, namely: lifecycle, competitive strategy, and strategic configuration. The lifecycle best fit model The lifecycle model is based on the theory that the development of a firm takes place in four stages: start-up, growth, maturity and decline. This is in line with product lifecycle theory. The basic premise of this model was expressed by Baird and Meshoulam (1988) as follows: Human resource management’s effectiveness depends on its fit with the organization’s stage of development. As the organization grows and develops, human resource management programmes, practices and procedures must change to meet its needs. Consistent with growth and development models it can be suggested that human resource management develops through a series of stages as the organization becomes more complex. Best fit and competitive strategies Three strategies aimed at achieving competitive advantage have been identified by Porter (1985): 1. Innovation – being the unique producer. 2. Quality – delivering high quality goods and services to customers. 3. Cost leadership – the planned result of policies aimed at ‘managing away expense’.
Slide 63: 36 Human Resource Management It was contended by Schuler and Jackson (1987) that to achieve the maximum effect it is necessary to match the role characteristics of people in an organization with the preferred strategy. Accordingly, they produced the descriptions of appropriate role behaviours set out in Table 2.1. Table 2.1 Role behaviours appropriate for different strategies, Schuler and Jackson (1987) Innovative • High degree of creative behaviour • A longer-term focus • A relatively high level of cooperation and interdependent behaviour • A moderate degree of concern for quantity • An equal degree of concern for process and results • A greater degree of risk taking • A high tolerance of ambiguity and unpredictability Quality • Relatively repetitive and predictable behaviours • A more long-term or intermediate focus • A modest amount of cooperative, interdependent behaviour • A high concern for quality • A modest concern for quantity of output • High concern for process (how the goods or services are made or delivered) • Low risk-taking activity • Commitment to the goals of the organization Cost-leadership strategy • Relatively repetitive and predictable behaviours • A rather short-term focus • Primarily autonomous or individual activity • Modest concern for quality • High concern for quantity of output • Primary concern for results • Low risk-taking activity • A relatively high degree of comfort with stability Strategic configuration Another approach to best fit is the proposition that organizations will be more effective if they adopt a policy of strategic configuration (Delery and Doty, 1996) by matching their strategy to one of the ideal types defined by theories such as those produced by Miles and Snow (1978). This increased effectiveness is attributed to the internal consistency or fit between the patterns of relevant contextual, structural and strategic factors. Miles and Snow (1978) identified four types of organizations, classifying the first three types as ‘ideal’ organizations: 1. Prospectors, which operate in an environment characterized by rapid and unpredictable changes. Prospectors have low levels of formalization and specialization and high levels of
Slide 64: Strategic Human Resource Management 37 decentralization. They have relatively few hierarchical levels. 2. Defenders, which operate in a more stable and predictable environment than prospectors and engage in more long-term planning. They have more mechanistic or bureaucratic structures than prospectors and obtain coordination through formalization, centralization, specialization and vertical differentiation. 3. Analysers, which are a combination of the prospector and defender types. They operate in stable environments like defenders and also in markets where new products are constantly required, like prospectors. They are usually not the initiators of change like prospectors but they follow the changes more rapidly than defenders. 4. Reactors, which are unstable organizations existing in what they believe to be an unpredictable environment. They lack consistent well-articulated strategies and do not undertake long-range planning. Comments on the concept of best fit The best fit model seems to be more realistic than the best practice model. As Dyer and Holder (1988) pointed out: ‘The inescapable conclusion is that what is best depends’. It can therefore be claimed that best fit is more important than best practice. But there are limitations to the concept. Paawue (2004) emphasized that: ‘It is necessary to avoid falling into the trap of “contingent determinism” (ie claiming that the context absolutely determines the strategy). There is, or should be, room for making strategic choices.’ There is a danger of mechanistically matching HR policies and practices with strategy. It is not credible to claim that there are single contextual factors that determine HR strategy, and internal fit cannot therefore be complete. As Boxall et al (2007) assert: ‘It is clearly impossible to make all HR policies reflective of a chosen competitive or economic mission; they may have to fit with social legitimacy goals’. And Purcell (1999) commented that: ‘The search for a contingency or matching model of HRM is also limited by the impossibility of modelling all the contingent variables, the difficulty of showing their interconnection, and the way in which changes in one variable have an impact on others’. Best fit models tend to be static and don’t take account of the processes of change. They neglect the fact that institutional forces shape HRM – it cannot be assumed that employers are free agents able to make independent decisions. Bundling As Richardson and Thompson (1999) comment: ‘A strategy’s success turns on combining vertical or external fit and horizontal or internal fit.’ They conclude that a firm with bundles of
Slide 65: 38 Human Resource Management associated HR practices should have a higher level of performance, provided it also achieves high levels of fit with its competitive strategy. ‘Bundling’ is the development and implementation of several HR practices together so that they are inter-related and therefore complement and reinforce each other. This is the process of horizontal integration, which is also referred to as the use of ‘complementarities’ (MacDuffie, 1995) who explained the concept of bundling as follows: Implicit in the notion of a ‘bundle’ is the idea that practices within bundles are interrelated and internally consistent, and that ‘more is better’ with respect to the impact on performance, because of the overlapping and mutually reinforcing effect of multiple practices. Dyer and Reeves (1995) note that: ‘The logic in favour of bundling is straightforward… Since employee performance is a function of both ability and motivation, it makes sense to have practices aimed at enhancing both.’ Thus there are several ways in which employees can acquire needed skills (such as careful selection and training) and multiple incentives to enhance motivation (different forms of financial and non-financial rewards). Their study of various models listing HR practices that create a link between HRM and business performance found that the activities appearing in most of the models were involvement, careful selection, extensive training and contingent compensation. On the basis of his research in flexible production manufacturing plants in the United States, MacDuffie (1995) noted that employees will exercise discretionary effort only if they ‘believe that their individual interests are aligned with those of the company, and that the company will make a reciprocal investment in their well-being’. This means that flexible production techniques have to be supported by bundles of high-commitment human resource practices such as employment security, pay that is partly contingent on performance, a reduction of status barriers between managers and workers, and investment in building worker skills. The research indicated that plants using flexible production systems that bundle human resource practices into a system that is integrated with production/business strategy, outperform plants using more traditional mass production systems in both productivity and quality. Following research in 43 automobile processing plants in the United States, Pil and MacDuffie (1996) established that when a high-involvement work practice is introduced in the presence of complementary HR practices, not only does the new work practice produce an incremental improvement in performance but so do the complementary practices. The aim of bundling is to achieve high performance through coherence, which is one of the four ‘meanings’ of strategic HRM defined by Hendry and Pettigrew (1986). Coherence exists when a mutually reinforcing set of HR policies and practices have been developed that jointly contribute to the attainment of the organization’s strategies for matching resources to organizational needs, improving performance and quality and, in commercial enterprises, achieving competitive advantage.
Slide 66: Strategic Human Resource Management 39 The process of bundling HR strategies is an important aspect of the concept of strategic HRM. In a sense, strategic HRM is holistic; it is concerned with the organization as a total system or entity and addresses what needs to be done across the organization as a whole. It is not interested in isolated programmes and techniques, or in the ad hoc development of HR practices. Bundling can take place in a number of ways. For example, competency frameworks can be devised that are used in assessment and development centres and to specify recruitment standards, identify learning and development needs, indicate the standards of behaviour or performance required and serve as the basis for human resource planning. They could also be incorporated into performance management processes in which the aims are primarily developmental and competencies are used as criteria for reviewing behaviour and assessing learning and development needs. Job evaluation could be based on levels of competency, and competency-based pay systems could be introduced. Grade structures can define career ladders in terms of competency requirements (career family structures) and thus provide the basis for learning and development programmes. They can serve the dual purpose of defining career paths and pay progression opportunities. The development of high-performance, high-commitment or high-involvement systems (see Chapters 3 and 12) is in effect bundling because it groups a number of HR practices together to produce synergy and thus makes a greater impact. The problem with the bundling approach is that of deciding what is the best way to relate different practices together. There is no evidence that one bundle is generally better than another. The reality of strategic HRM Strategic HRM, as this chapter has shown, has been a happy hunting ground for academics over many years. But what does all this conceptualizing mean in real life? What can practitioners learn from it as they go about their business? Before answering these questions it is worth recalling the rationale for strategic HRM, which is that it is the basis for developing and implementing approaches to people management that take into account the changing context in which the firm operates and its longer-term requirements. It should also be borne in mind that strategic HRM is a mindset that only becomes real when it produces actions and reactions that can be regarded as strategic, either in the form of overall or specific HR strategies or strategic behaviour on the part of HR professionals working alongside line managers. As modelled in Figure 2.1, strategic HRM is about both HR strategies and the strategic management role of HR professionals. There is always choice about those strategies and the strategic role of HR.
Slide 67: 40 Human Resource Management Strategic HRM HR strategies – overall/specific Strategic management – strategic role of HR Strategic choice Strategic analysis Figure 2.1 Strategic HRM model Practical implications of strategic HRM theory It was famously remarked by McGregor (1960) that there is nothing as practical as a good theory, ie one that has been based on rigorous field research and, probably, tested by further research. This is certainly the case with strategic HR theory, which is based on thorough research and testing and, once the jargon has been discarded, has a strong common sense appeal. The theory 1) addresses major people issues which affect or are affected by the strategic plans of the organization, 2) provides an agreed and understood basis for developing and implementing approaches to people management that take into account the changing context in which the firm operates and its longer-term requirements, 3) ensures that business and HR strategy and functional HR strategies are aligned with one another, and 4) is the rationale for HR practitioners acting as strategic partners. The significant features of strategic HRM are set out below. The significant features of strategic HRM • • Creating sustained competitive advantage depends on the unique resources and capabilities that a firm brings to competition in its environment (Baron, 2001). Competitive advantage is achieved by ensuring that the firm has higher quality people than its competitors (Purcell et al, 2003).
Slide 68: Strategic Human Resource Management 41 • • The competitive advantage based on the effective management of people is hard to imitate (Barney, 1991, 1995). The challenge is to achieve organizational capability, ensuring that businesses are able to find, assimilate, reward and retain the talented individuals they need (Ulrich, 1998). It is unwise to pursue so-called ‘best practice’ (the ‘universalistic’ perspective of Delery and Doty, 1996) without being certain that what happens elsewhere would work in the context of the organization. ‘Best fit’ (the ‘contingency’ perspective of Delery and Doty, 1996) is preferable to ‘best practice’ as long as the organization avoids falling into the trap of ‘contingent determinism’ by allowing the context to determine the strategy (Paawue, 2004). The search for best fit is limited by the impossibility of modelling all the contingent variables, the difficulty of showing their interconnection, and the way in which changes in one variable have an impact on others (Purcell, 1999). Best fit can be pursued in a number of ways, namely by fitting the HR strategy to its position in its lifecycle of start-up, growth, maturity or decline (Baird and Meshoulam, 1988), or the competitive strategy of innovation, quality or cost leadership (Porter, 1985), or to the organization’s ‘strategic configuration’ (Delery and Doty, 1996), eg the typology of organizations as prospectors, defenders and analysers defined by Miles and Snow (1978). Improved performance can be achieved by ‘bundling’, ie the development and implementation of several HR practices together so that they are inter-related and therefore complement and reinforce each other (MacDuffie, 1995). • • • • • Strategic HRM – key learning points The conceptual basis of strategic HRM Strategic HRM is the interface between HRM and strategic management. It takes the notion of HRM as a strategic, integrated and coherent approach and develops that in line with the concept of strategic management (Boxall, 1996). The fundamental characteristics of strategy • • forward looking; the organizational capability of a firm depends on its resource capability;
Slide 69: 42 Human Resource Management Strategic HRM – key learning points (continued) • strategic fit – the need when developing HR strategies to achieve congruence between them and the organization’s business strategies within the context of its external and internal environment. 3. Configurational – relating HRM to the ‘configuration’ of the organization in terms of its structures and processes. The concepts of ‘best practice’ and ‘best fit’ • The concept of best practice is based on the assumption that there is a set of best HRM practices which are universal in the sense that they are best in any situation, and that adopting them will lead to superior organizational performance. This concept of universality is criticized because it takes no account of the local context. The concept of best fit emphasizes that HR strategies should be congruent with the context and circumstances of the organization. ‘Best fit’ can be perceived in terms of vertical integration or alignment between the organization’s business and HR strategies. It is generally accepted that best fit is more important than best practice. How strategy is formulated An emergent and flexible process of developing a sense of direction, making the best use of resources and ensuring strategic fit. The aim of strategic HRM To generate organizational capability by ensuring that the organization has the skilled, engaged, committed and well-motivated employees it needs to achieve sustained competitive advantage. Implications of the resource-based view The creation of firms which are ‘more intelligent and flexible than their competitors’ (Boxall, 1996) by hiring and developing more talented staff and by extending the skills base. The three HRM ‘perspectives’ of Delery and Doty (1996) 1. Universalistic perspective – some HR practices are better than others and all organizations should adopt these best practices. 2. Contingency – in order to be effective, an organization’s HR policies must be consistent with other aspects of the organization. • • The significance of bundling The process of bundling HR strategies is an important aspect of the concept of strategic HRM which is concerned with the organization as a total system or entity and addresses what needs to be done across the organization as a whole.
Slide 70: Strategic Human Resource Management 43 Strategic HRM – key learning points (continued) The practical implications of strategic HRM theory The theory addresses major people issues which affect or are affected by the strategic plans of the organization. It provides the rationale for HR practitioners acting as strategic partners on an everyday basis. Questions 1. A junior colleague in your HR department has sent you an e-mail to the effect that: ‘During the course of my studies I have come across the phrase “best fit is more important than best practice”. What does this mean exactly and what is its significance to us?’ Produce a reply. Your chief executive has sent you the following e-mail: ‘I have just returned from a one-day management conference in which an academic kept on referring to “the resource based view” and its significance. What is it and how relevant is it, if at all, to what we are doing here?’ Produce a reply. You are the recently appointed HR director of a medium-sized distribution company based in Dartford with a staff of 350 including 130 drivers. After three months you have decided that the crucial HR issues facing the company are the high rate of turnover of drivers (35 per cent last year), an unacceptable level of road accidents, and an unsatisfactory climate of employee relations (there is a recognized union for drivers which is militant and hostile and no formal procedures for employee communications or consultation). In spite of this the company is doing reasonably well although it is felt by the board that is should do better and there are plans for opening a new distribution centre in Essex. You have received an e-mail from the finance director who is preparing the company’s business plan and asks for your proposals on what needs to be done in HR to support it. 2. 3.
Slide 71: 44 Human Resource Management References Abell, D F (1993) Managing with Dual Strategies: Mastering the present, pre-empting the future, Free Press, New York Appelbaum, E, Bailey, T, Berg, P and Kalleberg, A L (2000) Manufacturing Advantage: Why high performance work systems pay off, ILR Press, Ithaca, NY Baird, L and Meshoulam, I (1988) Managing two fits of strategic human resource management, Academy of Management Review, 13 (1), pp116–28 Barney, J B (1991) Firm resources and sustained competitive advantage, Journal of Management Studies, 17 (1), pp 99–120 Barney, J B (1995) Looking inside for competitive advantage, Academy of Management Executive, 9 (4), pp 49–61 Baron, D (2001) Private policies, corporate policies and integrated strategy, Journal of Economics and Management Strategy, 10 (7), pp 7–45 Becker, B E and Gerhart, S (1996) The impact of human resource management on organizational performance: progress and prospects, Academy of Management Journal, 39 (4), pp 779–801 Boxall, P F (1996) The strategic HRM debate and the resource-based view of the firm, Human Resource Management Journal, 6 (3), pp 59–75 Boxall, P F and Purcell, J (2003) Strategy and Human Resource Management, Palgrave Macmillan, Basingstoke Boxall, P F, Purcell J and Wright P (2007) The goals of HRM, in (eds) P Boxall, J Purcell and P Wright, Oxford Handbook of Human Resource Management, Oxford University Press, Oxford Cappelli, P and Crocker-Hefter, A (1996) Distinctive human resources are firms’ core competencies, Organizational Dynamics, Winter, pp 7–22 Chandler, A D (1962) Strategy and Structure, MIT Press, Boston, MA Delery, J E and Doty, H D (1996) Modes of theorizing in strategic human resource management: tests of universality, contingency and configurational performance predictions, Academy of Management Journal, 39 (4), pp 802–35 Dyer, L and Holder, G W (1998) Strategic human resource management and planning, in (ed) L Dyer, Human Resource Management: Evolving roles and responsibilities, Bureau of National Affairs, Washington DC Dyer, L and Reeves, T (1995) Human resource strategies and firm performance: what do we know and where do we need to go? The International Journal of Human Resource Management, 6 (3), pp 656–70 Grant, R M (1991) The resource-based theory of competitive advantage: implications for strategy formation, California Management Review, 33 (3), pp 14–35 Guest, D E (1997) Human resource management and performance; a review of the research agenda, The International Journal of Human Resource Management, 8 (3), 263–76 Guest, D E (1999) The role of the psychological contract, in (eds) S J Perkins and St John Sandringham, Trust, Motivation and Commitment, Strategic Remuneration Centre, Faringdon Heller, R (1972) The Naked Manager, Barrie & Jenkins, London Hendry, C and Pettigrew, A (1986) The practice of strategic human resource management, Personnel Review, 15, pp 2–8 Huczynski, A A and Buchanan, D A (2007) Organizational Behaviour, 6th edn, FT Prentice Hall, Harlow Kanter, R M (1984) The Change Masters, Allen & Unwin, London
Slide 72: Strategic Human Resource Management 45 MacDuffie, J P (1995) Human resource bundles and manufacturing performance, Industrial Relations Review, 48 (2), pp 199–221 McGregor, D (1960) The Human Side of Enterprise, McGraw-Hill, New York Miles, R E and Snow, C C (1978) Organizational Strategy: Structure and process, McGraw Hill, New York Mintzberg, H (1987) Crafting strategy, Harvard Business Review, July–August, pp 66–74 Mintzberg, H (1994) The rise and fall of strategic planning, Harvard Business Review, January–February, pp 107–14 Mueller, F (1996) Human resources as strategic assets: an evolutionary resource-based approach, Journal of Management Studies, 33 (6), pp 757–85 Paauwe, J (2004) HRM and performance: Achieving long term viability, Oxford University Press, Oxford Pearce, J A and Robinson, R B (1988) Strategic Management: Strategy Formulation and Implementation, Irwin, Georgetown, Ontario Penrose, E (1959) The Theory of the Growth of the Firm, Blackwell, Oxford Pfeffer, J (1998a) The Human Equation, Harvard Business School Press, Boston, MA Pil, F K and MacDuffie, J P (1996) The adoption of high-involvement work practices, Industrial Relations, 35 (3), pp 423–55 Porter, M E (1985) Competitive Advantage: Creating and sustaining superior performance, New York, The Free Press Purcell, J (1999) Best practice or best fit: chimera or cul-de-sac, Human Resource Management Journal, 9 (3), pp 26–41 Purcell, J, Kinnie, K, Hutchinson, Rayton, B and Swart, J (2003) People and Performance: How people management impacts on organisational performance, CIPD, London Richardson, R and Thompson, M (1999) The Impact of People Management Practices on Business Performance: A literature review, Institute of Personnel and Development, London Schuler, R S (1992) Strategic human resource management: linking people with the strategic needs of the business, Organizational Dynamics, 21 (1), pp 18–32 Schuler, R S and Jackson, S E (1987) Linking competitive strategies with human resource management practices, Academy of Management Executive, 9 (3), pp 207–19 Sung, J and Ashton, D (2005) High Performance Work Practices: Linking strategy and skills to performance outcomes, DTI in association with CIPD, available at http://www.cipd.co.uk/subjects/corpstrtgy/ Thompson, M and Heron, P (2005) Management capability and high performance work organization, The International Journal of Human Resource Management, 16 (6), pp 1029–48 Tyson, S (1997) Human resource strategy: a process for managing the contribution of HRM to organizational performance, The International Journal of Human Resource Management, 8 (3), pp 277–90 Ulrich, D (1998) A new mandate for human resources, Harvard Business Review, January–February, pp 124–34 US Department of Labor (1993) High Performance Work Practices and Work Performance, US Government Printing Office, Washington DC Wernerfelt, B (1984) A resource-based view of the firm, Strategic Management Journal, 5 (2), pp 171–80 Wood, S and Albanese, M (1995) Can we speak of a high commitment management on the shop floor? Journal of Management Studies, 32 (2), pp 215–47 Wright, P M and McMahan, G C (1992) Theoretical perspectives for SHRM, Journal of Management, 18 (2), pp 295–320
Slide 73: 46 Human Resource Management Wright, P M, Dunford, B B and Snell, SA (2001) Human resources and the resource-based view of the firm, Journal of Management, 27 (6), pp 701–21
Slide 74: 47 3 HR Strategies Key concepts and terms • • • High commitment management High performance management HR strategy • • • High involvement management Horizontal fit Vertical fit Learning outcomes On completing this chapter you should be able to define these key concepts. You should also understand: • The purpose of HR strategy • • • Specific HR strategy areas How HR strategy is formulated How the vertical integration of business and HR strategies is achieved How HR strategies can be set out General HR strategy areas • • • • The criteria for a successful HR strategy The fundamental questions on the development of HR strategy How horizontal fit (bundling) is achieved How HR strategies can be implemented • •
Slide 75: 48 Human Resource Management Introduction As described in Chapter 2, strategic HRM is a mindset that leads to strategic actions and reactions, either in the form of overall or specific HR strategies or strategic behaviour on the part of HR professionals. This chapter focuses on HR strategies and answers the following questions: What are HR strategies? What are the main types of overall HR strategies? What are the main areas in which specific HR strategies are developed? What are the criteria for an effective HR strategy? How should HR strategies be developed? How should HR strategies be implemented? What are HR strategies? HR strategies set out what the organization intends to do about its human resource management policies and practices and how they should be integrated with the business strategy and each other. They are described by Dyer and Reeves (1995) as ‘internally consistent bundles of human resource practices’. Richardson and Thompson (1999) suggest that: A strategy, whether it is an HR strategy or any other kind of management strategy must have two key elements: there must be strategic objectives (ie things the strategy is supposed to achieve), and there must be a plan of action (ie the means by which it is proposed that the objectives will be met). The purpose of HR strategies is to articulate what an organization intends to do about its human resource management policies and practices now and in the longer term, bearing in mind the dictum of Fombrun et al (1984) that business and managers should perform well in the present to succeed in the future. HR strategies aim to meet both business and human needs in the organization. HR strategies may set out intentions and provide a sense of purpose and direction, but they are not just long-term plans. As Gratton (2000) commented: ‘There is no great strategy, only great execution.’ Because all organizations are different, all HR strategies are different. There is no such thing as a standard strategy and research into HR strategy conducted by Armstrong and Long (1994) and Armstrong and Baron (2002) revealed many variations. Some strategies are simply very general declarations of intent. Others go into much more detail. But two basic types of HR strategies can be identified; these are: 1) general strategies such as high-performance working, and 2) specific strategies relating to the different aspects of human resource management such as learning and development and reward.
Slide 76: HR Strategies 49 General HR strategies General strategies describe the overall system or bundle of complementary HR practices that the organization proposes to adopt or puts into effect in order to improve organizational performance. The three main approaches are summarized below. 1. High-performance management High-performance management or high-performance working aims to make an impact on the performance of the organization in such areas as productivity, quality, levels of customer service, growth and profits. High-performance management practices include rigorous recruitment and selection procedures, extensive and relevant training and management development activities, incentive pay systems and performance management processes. These practices are often called ‘high-performance work systems’ (HPWS) which, as defined by Appelbaum et al (2000), comprise practices that can facilitate employee involvement, skill enhancement and motivation. Thompson and Heron (2005) refer to them as ‘high-performance work organization practices’ which, they say, ‘consist of work practices that invest in the skills and abilities of employees, design work in ways that enable employee collaboration in problem solving and provide incentives to motivate workers to use their discretionary effort’. This term is more frequently used than either high-commitment management or high-involvement management, although there is a degree of overlap between these approaches and an HPWS and the terms ‘high performance’ and ‘high commitment’ are sometimes used interchangeably. 2. High-commitment management One of the defining characteristics of HRM is its emphasis on the importance of enhancing mutual commitment (Walton, 1985b). High-commitment management has been described by Wood (1996) as: ‘A form of management which is aimed at eliciting a commitment so that behaviour is primarily self-regulated rather than controlled by sanctions and pressures external to the individual, and relations within the organization are based on high levels of trust.’ The following definitions expand these statements.
Slide 77: 50 Human Resource Management SOURCE REVIEW • • • • High commitment management defined, Wood (1999) High-commitment management is generally characterized as entailing, a) a particular orientation on the part of employers to their employees, based on an underlying conception of them as assets to be developed rather than as disposable factors of production, and b) the combined use of certain personnel practices, such as job redesign, job flexibility, problem-solving groups, team working and minimal status differences. Approaches to achieving high commitment, Beer et al (1984) and Walton (1985b) • The development of career ladders and emphasis on trainability and commitment as highly valued characteristics of employees at all levels in the organization. A high level of functional flexibility with the abandonment of potentially rigid job descriptions. The reduction of hierarchies and the ending of status differentials. A heavy reliance on team structure for disseminating information (team briefing), structuring work (team working) and problem solving (quality circles). • • • Wood and Albanese (1995) added to this list: job design as something management consciously does in order to provide jobs that have a considerable level of intrinsic satisfaction; a policy of no compulsory lay-offs or redundancies and permanent employment guarantees with the possible use of temporary workers to cushion fluctuations in the demand for labour; new forms of assessment and payment systems and, more specifically, merit pay and profit sharing; a high involvement of employees in the management of quality. As defined above, there are many similarities between high-performance and high-commitment management. In fact, there is much common ground between the practices included in all of these approaches as Sung and Ashton (2005) comment.
Slide 78: HR Strategies 51 SOURCE REVIEW Comparison of approaches, Sung and Ashton (2005) In some cases high performance work practices are called ‘high commitment practices’ (Walton, 1985a) or ‘high involvement management’ (Lawler, 1986). More recently they have been termed ‘high performance organizations’ (Lawler et al, 1998) or ‘high-involvement’ work practices (Wood et al, 2001). Whilst these studies are referring to the same general phenomena the use of different ‘labels’ has undoubtedly added to the confusion. However, a study of the literature shows that the most frequently used term is ‘high-performance management’, which is why in this book it is given more detailed consideration in Chapter 12. 3. High-involvement management As defined by Benson et al (2006): ‘High-involvement work practices are a specific set of human resource practices that focus on employee decision making, power, access to information, training and incentives.’ The term ‘high involvement’ was used by Lawler (1986) to describe management systems based on commitment and involvement, as opposed to the old bureaucratic model based on control. The underlying hypothesis is that employees will increase their involvement with the company if they are given the opportunity to control and understand their work. He claimed that high-involvement practices worked well because they acted as a synergy and had a multiplicative effect. This approach involves treating employees as partners in the enterprise whose interests are respected and who have a voice on matters that concern them. It is concerned with communication and involvement. The aim is to create a climate in which a continuing dialogue between managers and the members of their teams takes place in order to define expectations and share information on the organization’s mission, values and objectives. This establishes mutual understanding of what is to be achieved and a framework for managing and developing people to ensure that it will be achieved. The practices included in a high-involvement system have sometimes expanded beyond this original concept and included high-performance practices. For example, as noted above, highperformance practices usually include relevant training and incentive pay systems. Sung and Ashton (2005) include high-involvement practices as one of the three broad areas of a highperformance work system (the other two being human resource practices and reward and commitment practices).
Slide 79: 52 Human Resource Management Examples of general HR strategies A local authority As expressed by the chief executive of this borough council, their HR strategy is about: having a very strong focus on the overall effectiveness of the organization, its direction and how it’s performing; there is commitment to, and belief in, and respect for individuals, and I think that these are very important factors. A public utility The only HR strategy you really need is the tangible expression of values and the implementation of values… unless you get the human resource values right you can forget all the rest. (Managing Director) A manufacturing company The HR strategy is to stimulate changes on a broad front aimed ultimately at achieving competitive advantage through the efforts of our people. In an industry of fast followers, those who learn quickest will be the winners. (HR Director) A retail stores group The biggest challenge will be to maintain (our) competitive advantage and to do that we need to maintain and continue to attract very high calibre people. The key differentiator on anything any company does is fundamentally the people, and I think that people tend to forget that they are the most important asset. Money is easy to get hold of, good people are not. All we do in terms of training and manpower planning is directly linked to business improvement. (Managing Director) Specific HR strategies Specific HR strategies set out what the organization intends to do in areas such as: • Human capital management – obtaining, analysing and reporting on data that inform the direction of value-adding people management, strategic, investment and operational decisions. Corporate social responsibility – a commitment to managing the business ethically in order to make a positive impact on society and the environment. •
Slide 80: HR Strategies 53 • Organization development – the planning and implementation of programmes designed to enhance the effectiveness with which an organization functions and responds to change. Engagement – the development and implementation of policies designed to increase the level of employees’ engagement with their work and the organization. Knowledge management – creating, acquiring, capturing, sharing and using knowledge to enhance learning and performance. Resourcing – attracting and retaining high quality people. Talent management – how the organization ensures that it has the talented people it needs to achieve success. Learning and development – providing an environment in which employees are encouraged to learn and develop. Reward – defining what the organization wants to do in the longer term to develop and implement reward policies, practices and processes that will further the achievement of its business goals and meet the needs of its stakeholders. Employee relations – defining the intentions of the organization about what needs to be done and what needs to be changed in the ways in which the organization manages its relationships with employees and their trade unions. Employee well-being – meeting the needs of employees for a healthy, safe and supportive work environment. • • • • • • • • Criteria for an effective HR strategy An effective HR strategy is one that works in the sense that it achieves what it sets out to achieve. Its particular requirements are set out below. Criteria for an effective HR strategy • • • • It will satisfy business needs. It is founded on detailed analysis and study, not just wishful thinking. It can be turned into actionable programmes that anticipate implementation requirements and problems. It is coherent and integrated, being composed of components that fit with and support each other.
Slide 81: 54 Human Resource Management • It takes account of the needs of line managers and employees generally as well as those of the organization and its other stakeholders. As Boxall and Purcell (2003) emphasize: ‘HR planning should aim to meet the needs of the key stakeholder groups involved in people management in the firm.’ How should HR strategies be formulated? SOURCE REVIEW Propositions about the formulation of HR strategy, Boxall (1993) • The strategy formation process is complex, and excessively rationalistic models that advocate formalistic linkages between strategic planning and HR planning are not particularly helpful to our understanding of it. Business strategy may be an important influence on HR strategy but it is only one of several factors. Implicit (if not explicit) in the mix of factors that influence the shape of HR strategies is a set of historical compromises and trade-offs from stakeholders. • • Strategic options and choices The process of formulating HR strategies involves generating strategic HRM options and then making appropriate strategic choices. It has been noted by Cappelli (1999) that: ‘The choice of practices that an employer pursues is heavily contingent on a number of factors at the organizational level, including their own business and production strategies, support of HR policies, and cooperative labour relations.’ The process of developing HR strategies involves the adoption of a contingent approach in generating strategic HRM options and then making appropriate strategic choices. There is seldom if ever one right way forward. ‘Inside-out’ and ‘outside-in’ approaches to formulating HR strategies Research conducted by Wright et al (2004) identified two approaches that can be adopted by HR to strategy formulation: the inside-out approach and the outside-in approach. They made the following observations about the HR-strategy linkage:
Slide 82: HR Strategies 55 At the extreme, the ‘inside-out’ approach begins with the status quo HR function (in terms of skills, processes, technologies, etc) and then attempts (with varying degrees of success) to identify linkages to the business (usually through focusing on ‘people issues’), making minor adjustments to HR activities along the way… On the other hand, a few firms have made a paradynamic shift to build their HR strategies from the starting point of the business. Within these ‘outside-in’ HR functions, the starting point is the business, including the customer, competitor and business issues they face. The HR strategy then derives directly from these challenges to create real solutions and add real value. They suggested that ‘the most advanced linkage was the “integrative” linkage in which the senior HR executive was part of the top management team, and was able to sit at the table and contribute during development of the business strategy’. In reality HR strategies are more likely to flow from business strategies, which will be dominated by product/market and financial considerations. But there is still room for HR to make a useful, even essential contribution at the stage when business strategies are conceived, for example, by focusing on resource issues. This contribution may be more significant if strategy formulation is an emergent or evolutionary process – HR strategic issues will then be dealt with as they arise during the course of formulating and implementing the corporate strategy. Issues in developing HR strategies Five fundamental questions that need to be asked in developing HR strategies have been posed by Becker and Huselid (1998): 1. What are the firm’s strategic objectives? 2. How are these translated into unit objectives? 3. What do unit managers consider are the ‘performance drivers’ of those objectives? 4. How do the skills, motivation and structure of the firm’s workforce influence these performance drivers? 5. How does the HR system influence the skills, motivation and structure of the workforce? But many different routes may be followed when formulating HR strategies – there is no one right way. On the basis of their research in 30 well-known companies, Tyson and Witcher (1994) commented that: ‘The different approaches to strategy formation reflect different ways to manage change and different ways to bring the people part of the business into line with business goals.’ In developing HR strategies, process may be as important as content. Tyson and Witcher (1994) also noted from their research that: ‘The process of formulating HR strategy was often as
Slide 83: 56 Human Resource Management important as the content of the strategy ultimately agreed. It was argued that by working through strategic issues and highlighting points of tension, new ideas emerged and a consensus over goals was found.’ There are two key issues to be addressed in developing HR strategies: achieving vertical fit or integration and achieving horizontal fit or integration (bundling). 1. Achieving vertical fit – integrating business and HR strategies Wright and Snell (1998) suggest that seeking fit requires knowledge of the business strategy, knowledge of the skills and behaviour necessary to implement the strategy, knowledge of the HRM practices necessary to elicit those skills and behaviours, and the ability quickly to develop and implement the desired system of HRM practices. When considering how to integrate business and HR strategies it should be remembered that business and HR issues influence each other and in turn influence corporate and business unit strategies. It is also necessary to note that in establishing these links, account must be taken of the fact that strategies for change have also to be integrated with changes in the external and internal environments. Fit may exist at a point in time but circumstances will change and fit no longer exists. An excessive pursuit of ‘fit’ with the status quo will inhibit the flexibility of approach that is essential in turbulent conditions. An illustration of how HR strategies could fit vertically with one or other of the competitive strategies listed by Porter (1985) is given in Table 3.1. Table 3.1 Achieving vertical fit between HR and business strategies HR strategy Achieve competitive advantage through innovation Resourcing Recruit and retain high quality people with innovative skills and a good track record in innovation Competitive strategy Achieve competitive advantage through quality Use sophisticated selection procedures to recruit people who are likely to deliver quality and high levels of customer service Achieve competitive advantage through cost-leadership Develop core/ periphery employment structures; recruit people who are likely to add value; if unavoidable, plan and manage downsizing humanely
Slide 84: HR Strategies 57 Table 3.1 continued HR strategy Achieve competitive advantage through innovation Learning and development Develop strategic capability and provide encouragement and facilities for enhancing innovative skills and enhancing the intellectual capital of the organization Competitive strategy Achieve competitive advantage through quality Encourage the development of a learning organization, develop and implement knowledge management processes, support total quality and customer care initiatives with focused training Link rewards to quality performance and the achievement of high standards of customer service Achieve competitive advantage through cost-leadership Provide training designed to improve productivity; inaugurate just-in-time training which is closely linked to immediate business needs and can generate measurable improvements in costeffectiveness Review all reward practices to ensure that they provide value for money and do not lead to unnecessary expenditure Reward Provide financial incentives and rewards and recognition for successful innovations The factors that can make the achievement of good vertical fit difficult are: • The business strategy may not be clearly defined – it could be in an emergent or evolutionary state, which would mean that there would be little or nothing with which to fit the HR strategy. Even if the business strategy is clear, it may be difficult to determine precisely how HR strategies could help in specific ways to support the achievement of particular business objectives – a good business case can only be made if it can be demonstrated that there will be a measurable link between the HR strategy and business performance in the area concerned. Even if there is a link, HR specialists do not always have the strategic capability to make the connection – they need to be able to see the big picture, understand the business drivers and appreciate how HR policies and practices can impact on them. • •
Slide 85: 58 Human Resource Management • Barriers exist between top management and HR – the former may not be receptive because they don’t believe this is necessary and HR is not capable of persuading them that they should listen, or HR lacks access to top management on strategic issues, or HR lacks credibility with top management as a function that knows anything about the business or should even have anything to do with the business. It is up to HR practitioners in their strategic role to overcome these problems by getting to know what the business is aiming to do and what drives it (this should be possible even when strategies are ‘emergent’), understanding just how HR practices make an impact, and achieving access to strategic business decision making by demonstrating their credibility as an integral part of the management of the business. 2. Achieving horizontal fit (bundling) Horizontal fit or integration is achieved when the various HR strategies cohere and are mutually supporting. This can be attained by the process of ‘bundling’, which is carried out by first identifying appropriate HR practices; second, assessing how the items in the bundle can be linked together so that they become mutually reinforcing; and finally drawing up programmes for the development of these practices, paying particular attention to the links between them. The use of high-performance, high-involvement or high-commitment systems as described earlier in this chapter is an integrating process. The essence of these systems is that they each consist of a set of complementary work practices that are developed and maintained as a whole. Other integrating activities or processes are talent management, performance management and the use of competencies. The factors that inhibit the achievement of horizontal fit are difficulties in: • • • • deciding which bundles are likely to be best; actually linking practices together – it is always easier to deal with one practice at a time; managing the interdependencies between different parts of a bundle; convincing top management and line managers that bundling will benefit the organization and them. These can be overcome by dedicated HR professionals, but it is hard work. Setting out the strategy There is no standard model of how an HR strategy should be set out; it all depends on the circumstances of the organization. But the typical areas that may be covered in a written strategy are set out below.
Slide 86: HR Strategies 59 Typical areas that may be covered in a written HR strategy • Basic considerations – business needs in terms of the key elements of the business strategy; environmental factors and analysis (SWOT/PESTLE) and cultural factors – possible helps or hindrances to implementation. Content – details of the proposed HR strategy. Rationale – the business case for the strategy against the background of business needs and environmental/cultural factors. Implementation plan – an action programme, definitions of responsibilities and resource requirements and arrangements for communication, consultation, involvement and training. Costs and benefits analysis – an assessment of the resource implications of the plan (costs, people and facilities) and the benefits that will accrue, for the organization as a whole, for line managers and for individual employees. (So far as possible these benefits should be quantified in terms of added value or return on investment.) • • • • Implementing HR strategies All too often, 80 per cent of the time spent on strategic management is devoted to designing strategies and only 20 per cent is spent on planning their implementation. It should be the other way round. It is necessary to plan with implementation in mind. Because strategies tend to be expressed as abstractions, they must be translated into programmes with clearly stated objectives and deliverables. It is necessary to avoid saying, in effect: ‘We need to get from here to there but we don’t care how.’ Getting strategies into action is not easy. Too often, strategists act like Mr Pecksmith who was compared by Dickens (1843) to ‘a direction-post which is always telling the way to a place and never goes there’. The term ‘strategic HRM’ has been devalued in some quarters; sometimes to mean no more than a few generalized ideas about HR policies, at other times to describe a shortterm plan, for example, to increase the retention rate of graduates. It must be emphasized that HR strategies are not just programmes, policies, or plans concerning HR issues that the HR department happens to feel are important. Piecemeal initiatives do not constitute strategy. The problem with strategic HRM as noted by Gratton et al (1999) is that too often there is a gap between what the strategy states will be achieved and what actually happens to it. The
Slide 87: 60 Human Resource Management factors they identified as contributing to creating this say/do gap between the strategy as designed and the strategy as implemented include: • • • • • • • • • • • the tendency of employees in diverse organizations only to accept initiatives they perceive to be relevant to their own areas; the tendency of long-serving employees to cling to the status quo; complex or ambiguous initiatives may not be understood by employees or will be perceived differently by them, especially in large, diverse organizations; it is more difficult to gain acceptance of non-routine initiatives; employees will be hostile to initiatives if they are believed to be in conflict with the organization’s identity, eg downsizing in a culture of ‘job-for-life’; the initiative is seen as a threat; inconsistencies between corporate strategies and values; the extent to which senior management is trusted; the perceived fairness of the initiative; the extent to which existing processes could help to embed the initiative; a bureaucratic culture, which leads to inertia. Barriers to the implementation of HR strategies Each of the factors listed by Gratton et al (1999) can create barriers to the successful implementation of HR strategies. Other major barriers include failure to understand the strategic needs of the business, inadequate assessment of the environmental and cultural factors that affect the content of the strategies, and the development of ill-conceived and irrelevant initiatives, possibly because they are current fads or because there has been an ill-digested analysis of best practice that does not fit the organization’s requirements. These problems are compounded when insufficient attention is paid to practical implementation problems, the important role of line managers in implementing strategies, and the need to have established supporting processes for the initiative (eg, performance management to support performance pay). Approaches to implementation An implementation programme that overcomes these barriers needs to be based on: • a rigorous preliminary analysis of the strategic needs of the business and how the strategy will help to meet them;
Slide 88: HR Strategies 61 • • • • a communication programme that spells out what the strategy is, what it is expected to achieve and how it is to be introduced; the involvement of those who will be concerned with the strategy, eg line managers, in identifying implementation problems and how they should be dealt with; the preparation of action plans that indicate who does what and when; project managing the implementation in a way that ensures that the action plans are achieved. HR strategies – key learning points Purpose of HR strategy To articulate what an organization intends to do about its human resource management policies and practices now and in the longer term. General HR strategy areas High-performance management, commitment management and involvement management Specific HR strategy areas Human capital management, corporate social responsibility, organization development, engagement, knowledge management, employee resourcing, talent management, learning and development, reward, employee relations, and employee well-being. Criteria for an effective HR strategy • • • satisfies business needs; founded on detailed analysis and study; can be turned into actionable programmes; • highhigh• • is coherent and integrated; takes account of the needs of line managers and employees generally as well as those of the organization and its other stakeholders. Fundamental questions on the development of HR strategy • What are the firm’s strategic objectives and how are these translated into unit objectives? What are the ‘performance drivers’ of those objectives and how do the skills, motivation and structure of the firm’s workforce influence these performance drivers? How does the HR system influence the skills, motivation and structure of the workforce? • How the vertical integration of business and HR strategies is achieved Understand what the business is aiming to do and what drives it, and how HR practices make an impact on these drivers.
Slide 89: 62 Human Resource Management HR strategies – key learning points (continued) How horizontal fit (bundling) is achieved Identify appropriate HR practices, assess how these items can be bundled together so that they become mutually reinforcing, and draw up programmes for the development of these practices, paying particular attention to the links between them. How HR strategies can be set out The format will vary but may typically be set out under the following headings: • • • • Basic considerations. Content. Rationale. Implementation plan. • Costs and benefits analysis. How HR strategies can be implemented • • Analyse business needs and how the HR strategy will help to meet them. Communicate full information on the strategy and what it is expected to achieve. Involve those concerned in identifying implementation problems and how they should be dealt with. Prepare action plans. Plan and execute a programme of project management that ensures that the action plans are achieved. • • • Questions 1. Critically evaluate the following statement by Lester Digman (1990): ‘Since most strategic decisions are event-driven rather than programmed they are unplanned. Accordingly they should be seen in terms of preferences, choices and matches rather than exercises in applied logic.’ You have been asked to write an article for your CIPD branch newsletter on ‘What are the main characteristics of an HR strategy?’ You have also been asked to include examples from your own organization or a published article or book. Draft an outline of the article. A colleague says to you: ‘It’s all very well talking about integrated HR strategy but what does it mean for us?’ Reply. 2. 3.
Slide 90: HR Strategies 63 Questions (continued) 4. 5. Prepare a presentation for your fellow students on ‘What makes a good HR strategy?’ Illustrate with examples. You have received an e-mail from your boss, the HR director, with the message: ‘We hear a lot about integrating the HR strategy with the business strategy but what does this mean? What are the problems in doing it? How do we overcome these problems?’ Reply. Thompson and Harley (2007) wrote that the move has not been to abandon control in favour of commitment (cf Walton, 1985a) but towards the introduction of softer controls, ie ‘towards practices intended to generate commitment through a combination of culture-led changes and delegation of authority’. Soft controls are presented as a package of high-commitment practices. To what extent is this picture of high-commitment practices as manipulative true? 6. References Appelbaum, E, Bailey, T, Berg, P and Kalleberg, A L (2000) Manufacturing Advantage: Why high performance work systems pay off, ILR Press, Ithaca, NY Armstrong, M and Baron, A (2002) Strategic HRM: The route to improved business performance, CIPD, London Armstrong, M and Baron, A (2004) Managing Performance: Performance management in action, CIPD, London Armstrong, M and Long, P (1994) The Reality of Strategic HRM, IPD, London Becker, B E and Huselid, M A (1998) High performance work systems and firm performance: a synthesis of research and managerial implications, Research on Personnel and Human Resource Management, 16, pp 53–101, JAI Press, Stamford, CT Beer, M, Spector, B, Lawrence, P, Quinn Mills, D and Walton, R (1984) Managing Human Assets, The Free Press, New York Benson, G S, Young, S M and Lawler, E E (2006) High involvement work practices and analysts’ forecasts of corporate performance, Human Resource Management, 45 (4), pp 519–27 Boxall, P F (1993) The significance of human resource management: a reconsideration of the evidence, The International Journal of Human Resource Management, 4 (3), pp 645–65 Boxall, P F and Purcell, J (2003) Strategy and Human Resource Management, Palgrave Macmillan, Basingstoke Cappelli, P (1999) Employment Practices and Business Strategy, Oxford University Press, New York Dickens, C (1843) Martin Chuzzlewit , Chapman & Hall, London Digman, L A (1990) Strategic management – Concepts, decisions, cases, Irwin, Homewood, IL Dyer, L and Reeves, T (1995) Human resource strategies and firm performance: what do we know and where do we need to go?, The International Journal of Human Resource Management, 6 (3), pp 656–70
Slide 91: 64 Human Resource Management Fombrun, C J, Tichy, N M and Devanna, M A (1984) Strategic Human Resource Management, Wiley, New York Gratton, L A (2000) Real step change, People Management, 16 March, pp 27–30 Gratton, L A, Hailey, V H, Stiles, P and Truss, C (1999) Strategic Human Resource Management, Oxford University Press, Oxford Lawler, E E (1986) High Involvement Management, Jossey-Bass, San Francisco, CA Lawler, E E, Mohrman, S and Ledford, G (1998) Strategies for High Performance Organizations: Employee involvement, TQM, and re-engineering programs in Fortune 1000, Jossey-Bass, San Francisco, CA Porter, M E (1985) Competitive Advantage: Creating and sustaining superior performance, New York, The Free Press Richardson, R and Thompson, M (1999) The Impact of People Management Practices on Business Performance: A literature review, IPD, London Sung, J and Ashton, D (2005) High Performance Work Practices: Linking strategy and skills to performance outcomes, DTI in association with CIPD, available at http://www.cipd.co.uk/subjects/corpstrtgy/ Thompson, P and Harley, B (2007) HRM and the worker: labour process perspectives, in (eds) P Boxall, J Purcell and P Wright, Oxford Handbook of Human Resource Management, Oxford University Press, Oxford Thompson, M and Heron, P (2005) Management capability and high performance work organization, The International Journal of Human Resource Management, 16 (6), pp 1029–48 Tyson, S and Witcher, M (1994) Human resource strategy emerging from the recession, Personnel Management, August, pp 20–23 Walton, R E (1985a) From control to commitment in the workplace, Harvard Business Review, March– April, pp 77–84 Walton, R E (1985b) Towards a strategy of eliciting employee commitment based on principles of mutuality, in (eds) R E Walton and P R Lawrence, HRM Trends and Challenges, Harvard Business School Press, Boston, MA Wood, S (1996) High commitment management and organization in the UK, The International Journal of Human Resource Management, 7 (1), pp 41–58 Wood, S (1999) Human resource management and performance, International Journal of Management Reviews, 1 (4), pp 397–413 Wood, S and Albanese, M (1995) Can we speak of a high commitment management on the shop floor? Journal of Management Studies, 32 (2), pp 215–47 Wood, S, de Menezes, L M and Lasaosa, A (2001) High involvement management and performance, Paper delivered at the Centre for Labour Market Studies, University of Leicester, May Wright, P M and Snell, S A (1998) Towards a unifying framework for exploring fit and flexibility in strategic human resource management, Academy of Management Review, 23 (4), pp 756–72 Wright, P M, Snell, S A and Jacobsen, H H (2004) Current approaches to HR strategies: inside-out versus outside-in, Human Resource Planning, 27 (4), pp 36–46
Slide 92: 65 4 Human Capital Management Key concepts and terms • • • • • • • Human capital Human capital advantage Human process advantage Human capital monitor (Andrew Mayo) Intangible resources Organizational capital Social capital • • • • • • Human capital management Human capital index (Watson Wyatt) Human capital measurement Intellectual capital Metrics Organizational performance model (Mercer HR Consulting) Learning outcomes • • • • • The concept of human capital Constituents of human capital Importance of human capital measurement (HCM) Approaches to measurement Factors affecting choice of measurement • • • • • Characteristics of human capital Significance of human capital theory Reasons for interest in HCM Measurement elements Criteria for HCM data for managers
Slide 93: 66 Human Resource Management Introduction The concept ‘human capital management’ (HCM) is based on the concept of human capital as explained in the first part of this chapter. The next three sections describe the processes of human capital management – measurement, internal and external reporting. The chapter concludes with a note on introducing HCM. Human capital management defined HCM is concerned with obtaining, analysing and reporting on data that inform the direction of value-adding people management, strategic, investment and operational decisions at corporate level and at the level of front line management. It is, as emphasized by Kearns (2005), ultimately about value. HCM is concerned with purposeful measurement, not just measurement. The defining characteristic of HCM is the use of metrics to guide an approach to managing people that regards them as assets and emphasizes that competitive advantage is achieved by strategic investments in those assets through employee engagement and retention, talent management and learning and development programmes. HCM provides a bridge between HR and business strategy. The concept of human capital Individuals generate, retain and use knowledge and skill (human capital) and create intellectual capital. Their knowledge is enhanced by the interactions between them (social capital) and generates the institutionalized knowledge possessed by an organization (organizational capital). These concepts of human, intellectual, social and organizational capital are explained below. Human capital Human capital consists of the knowledge, skills and abilities of the people employed in an organization. The term was originated by Schultz (1961) who elaborated his concept in 1981 as follows: ‘Consider all human abilities to be either innate or acquired. Attributes… which are valuable and can be augmented by appropriate investment will be human capital.’ A more detailed definition was put forward by Bontis et al (1999), as follows.
Slide 94: Human Capital Management 67 SOURCE REVIEW Human capital defined, Bontis et al (1999) Human capital represents the human factor in the organization; the combined intelligence, skills and expertise that gives the organization its distinctive character. The human elements of the organization are those that are capable of learning, changing, innovating and providing the creative thrust which if properly motivated can ensure the long-term survival of the organization. Scarborough and Elias (2002) believe that: ‘The concept of human capital is most usefully viewed as a bridging concept – that is, it defines the link between HR practices and business performance in terms of assets rather than business processes.’ They point out that human capital is to a large extent ‘non-standardized, tacit, dynamic, context dependent and embodied in people’. These characteristics make it difficult to evaluate human capital bearing in mind that the ‘features of human capital that are so crucial to firm performance are the flexibility and creativity of individuals, their ability to develop skills over time and to respond in a motivated way to different contexts’. It is indeed the knowledge, skills and abilities of individuals that create value, which is why the focus has to be on means of attracting, retaining, developing and maintaining the human capital they represent. Davenport (1999) comments that: People possess innate abilities, behaviours and personal energy and these elements make up the human capital they bring to their work. And it is they, not their employers, who own this capital and decide when, how and where they will contribute it. In other words, they can make choices. Work is a two-way exchange of value, not a one-way exploitation of an asset by its owner. The choices they make include how much discretionary behaviour they are prepared to exercise in carrying out their role (discretionary behaviour refers to the discretion people at work can exercise about the way they do their job and the amount of effort, care, innovation and productive behaviour they display). They can also choose whether or not to remain with the organization.
Slide 95: 68 Human Resource Management The constituents of human capital Human capital consists of intellectual, social and organizational capital. Intellectual capital The concept of human capital is associated with the overarching concept of intellectual capital, which is defined as the stocks and flows of knowledge available to an organization. These can be regarded as the intangible resources associated with people which, together with tangible resources (money and physical assets), comprise the market or total value of a business. Bontis (1998) defines intangible resources as the factors other than financial and physical assets that contribute to the value-generating processes of a firm and are under its control. Social capital Social capital is another element of intellectual capital. It consists of the knowledge derived from networks of relationships within and outside the organization. The concept of social capital has been defined by Putnam (1996) as ‘the features of social life – networks, norms and trust – that enable participants to act together more effectively to pursue shared objectives’. It is important to take into account social capital considerations, that is the ways in which knowledge is developed through interaction between people. Bontis et al (1999) point out that it is flows as well as stocks that matter. Intellectual capital develops and changes over time and a significant part is played in these processes by people acting together. Organizational capital Organizational capital is the institutionalized knowledge possessed by an organization that is stored in databases, manuals, etc (Youndt, 2000). It is often called ‘structural capital’ (Edvinson and Malone, 1997), but the term ‘organizational capital’ is preferred by Youndt because, he argues, it conveys more clearly that this is the knowledge that the organization actually owns. The significance of human capital theory The added value that people can contribute to an organization is emphasized by human capital theory. It regards people as assets and stresses that investment by organizations in people will generate worthwhile returns. Human capital theory is associated with the resource-based view of the firm as developed by Barney (1991). This proposes that sustainable competitive advantage is attained when the firm has a human resource pool that cannot be imitated or substituted by its rivals. Boxall (1996) refers to this situation as one that confers ‘human capital advantage’. But he also notes (1996, 1999) that a distinction should be made between ‘human
Slide 96: Human Capital Management 69 capital advantage’ and ‘human process advantage’. The former results from employing people with competitively valuable knowledge and skills, much of it tacit. The latter, however, follows from the establishment of difficult to imitate, highly evolved processes within the firm, such as cross-departmental cooperation and executive development. Accordingly, ‘human resource advantage’, the superiority of one firm’s labour management over another’s, can be thought of as the product of its human capital and human process advantages. An approach to people management based on human capital theory involves obtaining answers to the questions set out below. Questions on people management raised by human capital theory • • • • • What are the key performance drivers that create value? What skills do we have? What skills do we need now and in the future to meet our strategic aims? How are we going to attract, develop and retain these skills? How can we develop a culture and environment in which organizational and individual learning takes place that meets both our needs and the needs of our employees? How can we provide for both the explicit and tacit knowledge created in our organization to be captured, recorded and used effectively? • Human capital theory helps to: • • • • determine the impact of people on the business and their contribution to shareholder value; demonstrate that HR practices produce value for money in terms, for example, of return on investment; provide guidance on future HR and business strategies; provide data that will inform strategies and practices designed to improve the effectiveness of people management in the organization. Human capital measurement Human capital measurement has been defined by IDS (2004) as being ‘about finding links, correlations and, ideally, causation, between different sets of (HR) data, using statistical techniques’. As Becker et al (2001) emphasize:
Slide 97: 70 Human Resource Management The most potent action HR managers can take to ensure their strategic contribution is to develop a measurement system that convincingly showcases HR’s impact on business performance. [They must] understand how the firm creates value and how to measure the value creation process. The primary aim of HCM is to assess the impact of human resource management practices and the contribution made by people to organizational performance. Methods of measuring impact and contribution based upon human capital data have therefore to be developed. The need for human capital measurement There is an overwhelming case for evolving methods of valuing human capital as an aid to people management decision making. This may mean identifying the key people management drivers and modelling the effect of varying them. The need is to develop a framework within which reliable information can be collected and analysed such as added value per employee, productivity and measures of employee behaviour (attrition and absenteeism rates, the frequency/severity rate of accidents, and cost savings resulting from suggestion schemes). Becker et al (2001) refer to the need to develop a ‘high-performance perspective’ in which HR and other executives view HR as a system embedded within the larger system of the firm’s strategy implementation. They state that: ‘The firm manages and measures the relationship between these two systems and firm performance.’ Reasons for the interest in measurement The recognized importance of achieving human capital advantage has led to an interest in the development of methods of measuring the value and impact of that capital, as indicated below. Reasons for the interest in measuring the value and impact of human capital • Human capital constitutes a key element of the market worth of a company. A research study conducted in 2003 (CFO Research Studies) estimated that the value of human capital represented over 36 per cent of total revenue in a typical organization. People in organizations add value and there is a case for assessing this value to provide a basis for HR planning and for monitoring the effectiveness and impact of HR policies and practices. •
Slide 98: Human Capital Management 71 • The process of identifying measures and collecting and analysing information relating to them will focus the attention of the organization on what needs to be done to find, keep, develop and make the best use of its human capital. Measurements can be used to monitor progress in achieving strategic HR goals and generally to evaluate the effectiveness of HR practices. You cannot manage unless you measure. • • However, three voices have advised caution about measurement. Leadbeater (2000) observed that measuring can ‘result in cumbersome inventories which allow managers to manipulate perceptions of intangible values to the detriment of investors. The fact is that too few of these measures are focused on the way companies create value and make money’. The Institute of Employment Studies (Hartley, 2005) emphasized that reporting on human capital is not simply about measurement. Measures on their own such as those resulting from benchmarking are not enough; they must be clearly linked to business performance. Research carried out by Professor Harry Scarborough and Juanita Elias of Warwick University (Scarborough and Elias, 2002) found that it is not what organizations decide to measure that is important but the process of measurement itself. As they noted: In short, measures are less important that the activity of measuring – of continuously developing and refining our understanding of the productive role of human capital within particular settings, by embedding such activities in management practices, and linking them to the business strategy of the firm. This sentiment is echoed by Donkin (2005), when he says, ‘It is not the measuring itself that is the key to successful human capital management but the intentions behind the measuring and the resulting practices that emerge.’ Approaches to measurement Three approaches to measurement are described below. 1. The human capital index – Watson Wyatt On the basis of a survey of companies that have linked together HR management practices and market value, Watson Wyatt (2002) identified four major categories of HR practice that could be linked to increases in shareholder value creation. These are:
Slide 99: 72 Human Resource Management total rewards and accountability collegial, flexible workforce recruiting and retention excellence communication integrity 16.5 per cent 9.0 per cent 7.9 per cent 7.1 per cent 2. The organizational performance model – Mercer HR Consulting As described by Nalbantian et al (2004) the organizational performance model developed by Mercer HR Consulting is based on the following elements: people, work processes, management structure, information and knowledge, decision making and rewards, each of which plays out differently within the context of the organization, creating a unique DNA. If these elements have been developed piecemeal, as often happens, the potential for misalignment is strong and it is likely that human capital is not being optimized, creating opportunities for substantial improvement in returns. Identifying these opportunities requires disciplined measurement of the organization’s human capital assets and the management practices that affect their performance. The statistical tool, ‘Internal Labour Market Analysis’ used by Mercer draws on the running record of employee and labour market data to analyse the actual experience of employees rather than stated HR programmes and policies. Thus gaps can be identified between what is required in the workforce to support business goals and what is actually being delivered. 3. The human capital monitor – Andrew Mayo Andrew Mayo (2001) has developed the ‘human capital monitor’ to identify the human value of the enterprise or ‘human asset worth’, which is equal to ‘employment cost × individual asset multiplier’. The latter is a weighted average assessment of capability, potential to grow, personal performance (contribution) and alignment to the organization’s values set in the context of the workforce environment (ie how leadership, culture, motivation and learning are driving success). The absolute figure is not important. What does matter is that the process of measurement leads you to consider whether human capital is sufficient, increasing, or decreasing, and highlights issues to address. Mayo advises against using too many measures and instead, to concentrate on a few organization-wide measures that are critical in creating shareholder value or achieving current and future organizational goals. A number of other areas for measurement and methods of doing so have been identified by Mayo (1999, 2001). He believes that value added per person is a good measure of the effectiveness of human capital, especially for making inter-firm comparisons. But he considers that the most critical indicator for the value of human capital is the level of expertise possessed by an organization. He suggests that this could be analysed under the headings of identified organizational core competencies. The other criteria he mentions are measures of satisfaction derived from employee opinion surveys and levels of attrition and absenteeism.
Slide 100: Human Capital Management 73 Measurement data Main HCM data used for measurement • • Basic workforce data – demographic data (numbers by job category, sex, race, age, disability, working arrangements, absence and sickness, turnover and pay). People development and performance data – learning and development programmes, performance management/potential assessments, skills and qualifications. Perceptual data – attitude/opinion surveys, focus groups, exit interviews. Performance data – financial, operational and customer. • • A summary of human capital measures and their possible uses is given in Table 4.1. Table 4.1 A summary of human capital measures and their possible uses Measures Work-force composition – sex, race, age, full-time, part-time Possible use – analysis leading to action Analyse the extent of diversity Assess the implications of a preponderance of employees in different age groups, eg extent of loses through retirement Assess the extent to which the organization is relying on part-time staff Indicate level of success in retaining employees Indicate preponderance of long or shortserving employees Enable analyses of performance of more experienced employees to be assessed Assess skill levels against requirements Indicate where steps have to be taken to deal with shortfalls Indicate areas where steps have to be taken to increase retention rates Provide a basis for assessing levels of commitment Length of service distribution Skills analysis/assessment – graduates, professionally/technically qualified, skilled workers Attrition – employee turnover rates for different categories of management and employees
Slide 101: 74 Human Resource Management Table 4.1 continued Measures Attrition – cost of Absenteeism/sickness rates Average number of vacancies as a percentage of total workforce Total pay roll costs (pay and benefits) Compa-ratio – actual rates of pay as a percentage of policy rates Possible use – analysis leading to action Support business case for taking steps to reduce attrition Identify problems and need for more effective attendance management policies Identify potential shortfall problem areas Provide data for productivity analysis Enable control to be exercised over management of pay structure Percentage of employees in different Demonstrate the extent to which the categories of contingent pay or payment-by- organization believes that pay should be result schemes related to contribution Total pay review increases for different categories of employees as a percentage of pay Average bonuses or contingent pay awards as a % of base pay for different categories of managers and employees Outcome of equal pay reviews Personal development plans completed as a percentage of employees Training hours per employee Compare actual with budgeted payroll increase costs Benchmark pay increases Analyse cost of contingent pay Compare actual and budgeted increases Benchmark increases Reveal pay gap between male and female employees Indicate level of learning and development activity Indicate actual amount of training activity (note that this does not reveal the quality of training achieved or its impact) Indicate level of learning and development activity Indicate extent to which talent management programmes are successful Indicate extent to which talent management programmes are successful Indicate level of performance management activity Percentage of managers taking part in formal management development programmes Internal promotion rate (% of promotions filled from within) Succession planning coverage (% of managerial jobs for which successors have been identified) Percentage of employees taking part in formal performance reviews
Slide 102: Human Capital Management 75 Table 4.1 continued Measures Distribution of performance ratings by category of staff and department Accident severity and frequency rates Cost savings/revenue increases resulting from employee suggestion schemes Possible use – analysis leading to action Indicate inconsistencies, questionable distributions and trends in assessments Assess health and safety programmes Measure the value created by employees Human capital internal reporting Analysing and reporting human capital data to top management and line managers will lead to better informed decision making about what kind of actions or practices will improve business results, increased ability to recognize problems and take rapid action to deal with them, and the scope to demonstrate the effectiveness of HR solutions and thus support the business case for greater investment in HR practices. The process of reporting the data internally and the inferences obtained from them is therefore a vital part of HCM. It is necessary to be clear about what data is required and how it will be communicated and used. The factors affecting the choice of what should be reported in the form of metrics are: • • • the type of organization – measures are context dependent; the business goals of the organization; the business drivers of the organization, ie the factors that contribute to the achievement of business goals, such as increases in revenue, control of costs, customer service, quality, innovation, expansion through mergers and acquisitions, product development and market development; the existing key performance indicators (KPIs) used in the organization; the use of a balanced scorecard which enables a comprehensive view of performance to be taken by reference to four perspectives: financial, customer, innovation and learning and internal processes; the availability of data; the use of data – measures should only be selected that can be put to good use in guiding strategy and reporting on performance; • • • •
Slide 103: 76 Human Resource Management • the manageability of data – there may be a wide choice of metrics and it is essential to be selective in the light of the above analysis so that the burden of collecting, analysing and evaluating the data is not too great and people do not suffer from information overload; remember that the cost of perfection is prohibitive, the cost of sensible approximation is less. Human capital information is usually reported internally in the form of management reports providing information for managers, often through the intranet and on dashboards. However, this information will not be valued by managers unless: • • • • it is credible, accurate and trustworthy; they understand what it means for them personally and how it will help them to manage their team; it is accompanied by guidance as to what action can be taken; they have the skills and abilities to understand and act upon it. It is not enough simply to give managers and other stakeholders information on human capital. It must be accompanied by effective analysis and explanation if they are going to understand and act upon it in the interests of maximizing organizational performance. Human capital external reporting The EC Accounts Modernization Directive requires companies to prepare a business review. This has to disclose information that is necessary for the understanding of the development, performance or position of the business of the company including the analysis of key financial and other performance indicators, and information relating to environmental and employee matters, social and community issues, and any policies of the company in relation to these matters and their effectiveness. A framework (Table 4.2) for external reporting has been produced by the CIPD (2003). Table 4.2 Framework for external reporting Principle Add value to the decision making undertaken by stakeholder groups in respect of human capital, with value added exceeding the costs of information gathered Features of framework Information should be relevant to the identification of human capital and should be available in both narrative form and as quantitative indicators The information-gathering requirement should be clearly defined and should not be too costly
Slide 104: Human Capital Management 77 Table 4.2 continued Principle Balance the advantages of comparability with other organizations with the need for flexibility to reflect particular contexts Provide information on possible institutional barriers to the effective development and utilization of human capital within firms Reflect the dynamic and context-dependent nature of human capital Features of framework There should be a distinction between primary and secondary indicators Indicators to highlight possible barriers to the under-utilization of human capital based on sex, age or race There should be multiple categories of indicators to reflect the acquisition, development, management and performance of human capital The framework should incorporate information on both the near-term and the long-term, highlighting both investments in and depreciation of human capital. It should provide information not only on human capital stocks but also on the management and utilization of the flow of human capital Be future-oriented to highlight the contribution of human capital to future performance Introducing HCM As Baron and Armstrong (2007) point out, it is important to emphasize the notion of HCM as a journey. It is not an all or nothing affair. It does not have to depend on a state-of-the-art HR database or the possession of advanced expertise in statistical analysis. It is not all that difficult to record and report on basic data and, although some degree of analytical ability is required, it is to be hoped, nay expected, that any self-respecting HR professional will have that skill. At the beginning of the journey an organization may do no more than collect basic HR data on, for instance, employee turnover and absence. But anyone who goes a little bit further, and analyses that data to draw conclusions on trends and causation leading to proposals on the action required that are supported by that analysis, is into HCM. Not in a big way perhaps, but it is a beginning. At the other end of the scale there are the highly sophisticated approaches to HCM operated by such organizations as Nationwide and the Royal Bank of Scotland. This might be the ultimate destination of HCM but it can be approached on a step-by-step basis.
Slide 105: 78 Human Resource Management Human capital management – key learning points The concept of human capital Individuals generate, retain and use knowledge and skill (human capital) and create intellectual capital. Human capital ‘defines the link between HR practices and business performance in terms of assets rather than business processes’ (Scarborough and Elias, 2002). Characteristics of human capital Human capital is non-standardized, tacit, dynamic, context dependent and embodied in people (Scarborough and Elias, 2002). Constituents of human capital Human capital consists of intellectual capital, social capital and organizational capital. Significance of human capital Human capital theory regards people as assets and stresses that investment by organizations in people will generate worthwhile returns. Importance of human capital measurement Measuring and valuing human capital is an aid to people management decision making. Reasons for interest in human capital measurement • • • Human capital constitutes a key element of the market worth of a company. People in organizations add value. Focus attention on what needs to be done to make the best use of human capital. Monitor progress in achieving strategic HR goals and evaluate HR practices. • • • • You cannot manage unless you measure. Approaches to measurement • • • The human capital index, Watson Wyatt. The organizational performance model, Mercer HR Consulting. The human capital monitor, Andrew Mayo. Measurement elements Workforce data, people development data, perceptual data and performance data. Factors affecting choice of measurement • • • • Type of organization; its business goals and drivers. The existing key performance indicators (KPIs). Use of a balanced score card. The availability, use and manageability of data. Criteria for HCM data as a guide to managers Data will only be useful for managers if: • the data are credible, accurate and trustworthy; they understand what it means for them; they are accompanied by guidance as to what action can be taken; they have the skills and abilities to understand and act upon them. •
Slide 106: Human Capital Management 79 Questions 1. Your finance director has asked you: ‘What is the difference between human resource management and human capital management? And whether or not they are different, why should we bother with the latter?’ What is social capital and why is it significant? You have given a presentation on human capital management at a local conference. At question time a member of the audience gets up and says: ‘This is all very well, but it sounds as if we will have to do an awful lot of work in getting a full programme of HCM off the ground (eg collecting, analysing and reporting on performance statistics) and I don’t think that we have the resources to do it and even if we had, that it would be a costeffective use of our time’. Respond. 2. 3. References Barney, J B (1991) Firm resources and sustained competitive advantage, Journal of Management Studies, 17 (1), pp 99–120 Baron, A and Armstrong, M (2007) Human Capital Management: Achieving added value through people, Kogan Page, London Becker, B E, Huselid, M A and Ulrich, D (2001) The HR Score card: Linking people, strategy, and performance, Harvard Business School Press, Boston, MA Bontis, N (1998) Intellectual capital: an exploratory study that develops measures and models, Management Decision, 36 (2), pp 63–76 Bontis, N, Dragonetti, N C, Jacobsen, K and Roos, G (1999) The knowledge toolbox: a review of the tools available to measure and manage intangible resources, European Management Journal, 17 (4), pp 391–402 Boxall, P F (1996) The strategic HRM debate and the resource-based view of the firm, Human Resource Management Journal, 6 (3), pp 59–75 Boxall, P (1999) Human resource strategy and competitive advantage: a longitudinal study of engineering consultancies, Journal of Management Studies, 36 (4), pp 443–63 CFO Research Services (2003) Human Capital Management: The CFO’s perspective, CFO Publishing, Boston, MA CIPD (2003) Human Capital: External reporting framework, CIPD, London Davenport, T O (1999) Human Capital, Jossey-Bass, San Francisco, CA Donkin, R (2005) Human Capital Management: A management report, Croner, London Edvinson, L and Malone, M S (1997) Intellectual Capital: Realizing your company’s true value by finding its hidden brainpower, Harper Business, New York Hartley, V (2005) Open for Business: HR and human capital reporting, IIES, Brighton IDS (2004) Searching for the magic bullet, HR Study 783, IDS London Kearns, P (2005) Evaluating the ROI from Learning, CIPD, London
Slide 107: 80 Human Resource Management Leadbeater, C (2000) Living on Thin Air: The new economy, Viking, London Mayo, A (1999) Making human capital meaningful, Knowledge Management Review, January/February, pp 26–29 Mayo, A (2001) The Human Value of the Enterprise: Valuing people as assets, Nicholas Brealey, London Nalbantian, R, Guzzo, R A, Kieffer, D and Doherty, J (2004), Play to Your Strengths: Managing your internal labour markets for lasting competitive advantage, McGraw-Hill, New York Putnam, R (1996) Who killed civic America?, Prospect, March, pp 66–72 Scarborough, H and Elias, J (2002) Evaluating Human Capital, CIPD, London Schultz, T W (1961) Investment in human capital, American Economic Review, 51, March, pp 1–17 Schultz, T W (1981) Investing in People: The economics of population quality, University of California Press, CA Watson Wyatt Worldwide (2002) Human Capital Index: Human capital as a lead indicator of shareholder value, Watson Wyatt Worldwide, Washington DC Youndt, M A (2000) Human resource considerations and value creation: the mediating role of intellectual capital, Paper delivered at National Conference of US Academy of Management, Toronto, August
Slide 108: 81 5 The Role and Organization of the HR Function Key concepts and terms • • • • • • • Benchmarking Boundary management Business partner Centre of expertise Offshoring Output criteria Outsourcing • • • • • • • Process criteria Service level agreement Shared service centre Transactional activities Transformational activities The Ulrich three-legged stool model Utility analysis Learning outcomes On completing this chapter you should be able to define these key concepts. You should also understand: • • • • • • • • The role of the HR function The diversity of the HR function Guidelines on organizing the function Quantitative criteria for evaluating the HR function Key points for measuring HR performance The HR scorecard Using management consultants HR budgeting • • • • • • • • The activities of the HR function The Ulrich three-legged stool model The dimensions of HR effectiveness How HR people can demonstrate their effectiveness Methods of measuring HR effectiveness Outsourcing Marketing the HR function The HR role of line managers
Slide 109: 82 Human Resource Management Introduction This chapter describes the role of the HR function as a key part of the process of managing organizations. It dwells on the role of the function to provide advice, guidance and HR services. Emphasis is given to the strategic role of the function, which is to provide continuing support to the achievement of the strategic objectives of the organization, to advise on business strategies as affected by HR considerations and to ensure that HR strategies are integrated with business strategies. The chapter starts with an analysis of the role of the HR function and then deals with its organization and how its effectiveness can be evaluated. Next it covers various aspects of the work of the function, namely the use of shared service centres, outsourcing and management consultants. Consideration is also given to marketing HR and HR budgeting. Bearing in mind the comment by Boxall et al (2007) that ‘HRM is not just what HR departments do’, the chapter ends with an examination of the HR role of line managers. The role of the HR function The role of the HR function is to take initiatives and provide guidance, support and services on all matters relating to the organization’s employees. Essentially, the HR function is in the delivery business – providing the advice and services that enable organizations to get things done through people. The function ensures that HR strategies, policies and practices are introduced and maintained that cater for everything concerning the employment, development and well-being of people and the relationships that exist between management and the workforce. It plays a major part in the creation of an environment that enables people to make the best use of their capacities, to realize their potential to the benefit of both the organization and themselves and, by improving the quality of working life, to achieve satisfaction through their work Increasingly the role of the HR function is seen to be business-oriented – contributing to the achievement of sustained competitive advantage. But one of the issues explored by Francis and Keegan (2006) is the tendency for a focus on business performance outcomes to obscure the importance of employee well-being in its own right. They quote the view of Ulrich and Brockbank (2005b) that ‘caring, listening to, and responding to employees remains a centrepiece of HR work’. The HR function and its members have to be aware of the ethical dimensions of their work, as described at the end of Chapter 1.
Slide 110: The Role and Organization of the HR Function 83 The activities of the HR function The activities carried out within an HR function can be divided into two broad categories: 1) strategic (transformational), which is largely concerned with the alignment and implementation of HR and business strategies, and 2) transactional, which covers the main HR service delivery activities of resourcing, learning and development, reward and employee relations. The HR function is involved in devising HR strategies, policies and practices that meet the needs of the organization and its members and support the attainment of sustained competitive advantage. But as Hope-Hailey et al (2005) emphasize, competitive advantage lies in employees themselves, not in HRM practices. They point out that: ‘The HR department needs to go beyond designing effective HRM policies and practices to ensure that these practices are implemented appropriately and are accepted by employees in order to achieve the intended results.’ The 2006 survey by IRS of the work of the HR function (Crail, 2006) asked respondents to state what were the most time consuming and most important issues facing their HR departments. The replies are summarized in Table 5.1. Table 5.1 Issues facing HR departments HR Issue Recruitment/resourcing Administration Absence Pay and benefits Employee relations Training and development Strategic activities Most time-consuming (%) 27.3 16.4 12.7 12.7 9.1 4.2 0.0 Most important (%) 16.8 1.9 7.7 19.4 10.3 10.3 10.3 As might be expected, recruitment was the most time-consuming, although not the most important issue. Training and development was not very time-consuming but quite important. Strategic activities were believed to be important but were not mentioned at all as being time-consuming. The emphasis is on transactional activities. Variations in the role The role of the HR function and the practice of human resource management vary immensely in different organizations. As Sisson (1995) has commented, HR management is not a single
Slide 111: 84 Human Resource Management homogeneous occupation – it involves a variety of roles and activities that differ from one organization to another and from one level to another in the same organization. And Tyson (1987) has claimed that the HR function is often ‘balkanized’ – not only is there a variety of roles and activities but these tend to be relatively self-centred, with little passage between them. Hope-Hailey et al (1998) believe that HR could be regarded as a ‘chameleon function’ in the sense that the diversity of practice established by their research suggests that ‘contextual variables dictate different roles for the function and different practices of people management’. The organization of the HR function The organization and staffing of the HR function clearly depends on the size of the business, the extent to which operations are decentralized, the type of work carried out, the kind of people employed and the role assigned to the HR function. The amount of diversity was noted by Crail (2006) on the basis of an IRS survey. The IRS 2008 survey of HR roles and responsibilities (Crail, 2008) found that the median HR specialist to employee ratio was 108 employees to each practitioner. But it varies considerably. At the upper quartile the ratio was 1:150 and at the lower quartile it was 1:63. Broadly, the larger the organization, the higher the ratio of employees to practitioners. Guidelines on organizing HR There are no absolute rules for organizing the function but the following are commonly assumed guidelines. Guidelines on organizing the HR function • • The head of the function should report directly to the chief executive and be a member of the top management team involved in the formulation of business strategy. In a decentralized organization, operational units should be responsible for their own HR management affairs within the framework of broad strategic and policy guidelines from the centre. The professional members of the function should have ‘strategic capability’ in the sense of understanding the strategic imperatives of the organization and having the skills required to contribute to the formulation and achievement of strategic goals and ‘act as catalysts for change, anticipating problems and making things happen’ (Hutchinson and Wood, 1995). Increased responsibility for HR matters should be devolved to line managers where appropriate. • •
Slide 112: The Role and Organization of the HR Function 85 A development in the direction of establishing a model for the organization of the HR function which has excited much interest in recent years is the Ulrich ‘three-legged stool’ as described by Robinson (2006) and discussed below. But many HR departments are still run on traditional lines and what this involves is also discussed later. The Ulrich three-legged stool model The three-legged stool model for the organization of the HR function emerged from Dave Ulrich’s work in the 1990s (Ulrich 1995, 1997a, 1997b, 1998). It divides the function into the following three parts. 1. Centres of expertise These specialize in the provision of high level advice and services on key HR activities. The CIPD survey on the changing HR function (CIPD, 2007a) found that they existed in 28 per cent of respondents’ organizations. The most common expertise areas were training and development (79 per cent), recruitment (67 per cent), reward (60 per cent) and employee relations (55 per cent). 2. Strategic business partners These work with line managers to help them reach their goals through effective strategy formulation and execution (Ulrich and Brockbank, 2005b). They are often ‘embedded’ in business units or departments. The concept of business partnering is considered in more detail in Chapter 5. 3. Shared service centres These handle all the routine ‘transactional’ services across the business. These include such activities as recruitment, absence monitoring and advice on dealing with employee issues such as discipline and absenteeism. Shared service centres are dealt with in more detail later in this chapter. Although this Ulrich model has attracted a great deal of attention, the CIPD 2007 survey found that only 18 per cent of respondents had implemented all three legs, although 47 per cent had implemented one or two elements with business partners being the most common (29 per cent). As Reilly (2007) commented, respondents to the survey mentioned problems in introducing the new model. These included difficulties in defining roles and accountabilities, especially those of business partners, who risk being ‘hung, drawn and quartered by all sides’, according to one HR director. At the same time, the segmented nature of the structure gives rise to ‘boundary management’ difficulties, for example when it comes to separating out
Slide 113: 86 Human Resource Management transactional tasks from the work of centres of expertise. The model can also hamper communication between those engaged in different HR activities. Other impediments were technological failure, inadequate resources in HR and skills gaps. But some benefits were reported by survey respondents. Centres of expertise provide higher quality advice. Business partners exercise better business focus, line managers are more engaged, and the profile of HR is raised, while the introduction of shared services results in improved customer service and allows other parts of HR to spend more time on value-adding activities. Hope-Hailey et al (2005) raised questions about the Ulrich model on the basis of their research in a bank. Their conclusions are given below. SOURCE REVIEW Conclusions by Hope-Hailey et al (2005) on the Ulrich model The conflict of simultaneously balancing both a process-oriented and a people-oriented role resulted in the HR department siding with management, and largely neglecting relations with employees by making this the responsibility of line management. The identification of this fundamental conflict raises serious questions about the role of the HR function. Is it possible for the function to meet both employee and business needs by operating simultaneously in all four segments within Ulrich’s model? Or is Ulrich’s model at best based on a unitarist perspective and at worst overly naïve about the nature of organizational life as lived by the people researched in this case? Standard approaches to organizing the HR function There is no such thing as a typical HR department but Crail (2006) used the responses from 179 organizations to an IRS survey of the HR function to produce a model of a ‘standard’ HR department. He suggested that this: might consist of a team of 12 people serving a workforce of around 1,200 (on average, there was one HR practitioner or assistant for every 102 employees). The team would have a director, three managers, one supervisor, three HR officers and four assistants. Such a team would typically include a number of professionally qualified practitioners, particularly at senior level, and would enjoy good access to the company’s most senior executives. Although having ambitions to being more proactive, both as a business partner and strategic contributor to organizational decision making, our ‘standard’ HR department would still consider that it spends too much time on administration. Some attempts to
Slide 114: The Role and Organization of the HR Function 87 deal with this would have been made by shifting people management responsibilities to line managers – not always with entirely positive results. Despite this, our HR department’s own perception is that it has won greater respect and enjoyed greater influence over the way the organization is run in recent years – partially because the environment has changed and HR is seen as the source of knowledge on legal and regulatory requirements, but largely thanks to its own efforts. Evaluating the HR function It is necessary to evaluate the contribution of the HR function in order to ensure that it is effective at both the strategic level and in terms of service delivery and support. The prime criteria for evaluating the work of the function are its ability to operate strategically and its capacity to deliver the levels of services required. Research conducted by the Institute of Employment Studies (Hirsh, 2008) discovered that the factors that correlated most strongly with line managers’ and employees’ satisfaction with HR were: • • • • being well supported in times of change; HR giving good advice to employees; being well supported when dealing with difficult people or situations; HR getting the basics right. However, the results showed that HR could do better in each of these areas. The conclusions reached were that HR must find out what its customers need and what their experiences of HR services are. HR has to be responsive – clear about what it is there for and what services it offers, and easy to contact. In evaluation it is useful to remember the distinction made by Tsui and Gomez-Mejia (1988) between process criteria – how well things are done, and output criteria – the effectiveness of the end-result. A ‘utility analysis’ approach as described by Boudreau (1988) can be used. This focuses on the impact of HR activities measured wherever possible in financial terms (quantity), improvements in the quality of those activities, and cost/benefit (the cost of the activities in relation to the benefits they provide). The dimensions of HR effectiveness have been defined by Huselid et al (1997) as follows.
Slide 115: 88 Human Resource Management SOURCE REVIEW • • • The dimensions of HR effectiveness, Huselid et al (1997) • • Strategic HRM – the delivery of services in a way that supports the implementation of the firm’s strategy. Technical HRM – the delivery of HR basics such as recruitment, compensation and benefits. The methods that can be used to evaluate these dimensions are described below. Quantitative criteria These consist of: Organizational: added value per employee, profit per employee, sales value per employee, costs per employee and added value per £ of employment costs. Employee behaviour: retention and turnover rates, absenteeism, sickness, accident rates, grievances, disputes, references to employment tribunals, successful suggestion scheme outcomes. HR service levels and outcomes: time to fill vacancies, time to respond to applicants, ratio of acceptances to offers made, cost of replies to advertisements, training days per employee, time to respond to and settle grievances, measurable improvements in organizational performance as a result of HR practices, ratio of HR costs to total costs, ratio of HR staff to employees, the achievement of specified goals. A summary of measures and their possible uses is given in Table 5.2.
Slide 116: The Role and Organization of the HR Function 89 Table 5.2 Measures of HR effectiveness and their use Measures Possible use – analysis leading to action Identify strengths and weaknesses and areas for development or improvement Achievement of agreed service delivery levels: time to fill vacancies response rates to requests for services or advice provision of required information provision of required training provision of advice on employment law issues handling grievances and employee concerns handling industrial relations issues Outcomes of employee opinion surveys Attrition levels Absenteeism Grievances Ratio of HR costs to total costs Cost of recruitment Cost of outsourcing Cost of using consultants Assess impact of HR policies and practices on motivation, engagement and commitment Assess effectiveness of HR’s recruitment, induction and reward policies and processes Assess effectiveness of HR’s absence management policies Assess effectiveness of HR’s grievance handling processes Assess cost-effectiveness of HR Exercise control over HR costs Ratio of HR staff to total number of Exercise control over HR staffing levels employees Benchmark with other comparable organizations User reactions The internal customers of HR (the users of HR services) can provide important feedback on HR effectiveness. Users can be asked formally to assess the extent to which the members of the HR function demonstrate their abilities in the following ways.
Slide 117: 90 Human Resource Management How members of the HR function can demonstrate their effectiveness • • • • • • Understand the business strategy and act in ways that support its achievement. Anticipate business needs and produce realistic proposals on how HR can help to meet them. Show that they are capable of meeting performance standards and deadlines for the delivery of HR initiatives and projects. Provide relevant, clear, convincing and practical advice. Provide efficient and effective services with regard to response, delivery times and quality. Generally reveal their understanding and expertise. Service level agreements A service level agreement (SLA) is an agreement between the provider of HR services and the customers who use the service on the level of service that should be provided. It sets out the nature of the service provided, the volume and quality to be achieved by the service and the response times the provider must attain after receiving requests for help. The agreement provides the basis for monitoring and evaluating the level of service. Employee satisfaction measures The degree to which employees are satisfied with HR policies and practices can be measured by attitude surveys. These can obtain opinions on such matters as their work, their pay, how they are treated, their views about the company and their managers, how well they are kept informed, the opportunities for learning and career development and their working environment and facilities. Benchmarking In addition to internal data it desirable to benchmark HR services. This means comparing what the HR function is doing with what is happening in similar organizations. This may involve making direct comparisons using quantified performance data or exchanging information on ‘good practice’ that can be used to indicate where changes are required to existing HR practices or to provide guidance on HR innovations. Organizations such as Saratoga provide benchmarking data under standardized and therefore comparable headings for their clients.
Slide 118: The Role and Organization of the HR Function 91 SOURCE REVIEW Key points for measuring HR performance, Likierman (2005) • • • • • Agree objectives against budget assumptions; this will ensure HR’s role reflects changes in strategy implementation. Use more sophisticated measures – get underneath the data and look not only at the figures but at the reasons behind them. Use comparisons imaginatively, including internal and external benchmarking. Improve feedback through face-to-face discussion rather than relying on questionnaires. Be realistic about what performance measures can deliver – many measurement problems can be mitigated, not solved. The HR scorecard The HR scorecard developed by Beatty et al (2003) follows the same principle as the balanced scorecard, ie it emphasizes the need for a balanced presentation and analysis of data. The four headings of the HR scorecard are: 1. HR competencies – administrative expertise, employee advocacy, strategy execution and change agency. 2. HR practices – communication, work design, selection, development, measurement and rewards. 3. HR systems – alignment, integration and differentiation. 4. HR deliverables – workforce mindset, technical knowledge, and workforce behaviour. These are all influenced by the factors that determine the strategic success of the organization, ie operational excellence, product leadership and customer intimacy. Preferred approach to evaluation There is much to be said for the systematic HR scorecard approach although some organizations may have to develop their own headings as a basis for evaluation. There are plenty of typical measures but no standard set exists. Perhaps, as Guest and Peccei (1994) suggest: The most sensible and important indicator of HRM effectiveness will be the judgements of key stakeholders… The political, stakeholder, perspective on organizations
Slide 119: 92 Human Resource Management acknowledges that it is the interpretation placed on effectiveness in organizations and the attributions of credit and blame that are derived from them that matter most in judging effectiveness. In other words, at the end of the day, it is always the qualitative interpretation by those in positions of power that matters most. But they recognized ‘the desirability of also developing clearly specified goals and quantitative indicators, together with financial criteria’. Finally, in evaluating the HR function it is well worth bearing in mind the following wise words of Ulrich and Brockbank (2005a). SOURCE REVIEW Valuing HR, Ulrich and Brockbank (2005a) Value is defined by the receivers of HR work – the investors, customers, line managers and employees – more than by the givers. HR is successful if and when its stakeholders perceive that it produces value. Delivering what matters most to stakeholders focuses on the deliverables (outcomes of HR) rather than on the doables (activities of HR). HR shared service centres An HR shared service centre is an HR unit or an outsourced facility that provides HR services that are available to a number of parties in the organization. The customer or user defines the level of the service and decides which services to take up. Thus, ‘the user is the chooser’ (Ulrich, 1995). A basic HR shared service centre carries out various routine administrative activities such as recruitment administration, pensions and benefits administration, payroll changes and absence monitoring. This can be extended to cover advice on employment matters such as the handling of disciplinary issues and grievances. A centre may use call-centre technology and/or provide self-service facilities for line managers and employees though an intranet system. The organizations covered by the research conducted by Reilly (2000) on behalf of the Institute of Employment Studies identified one or more of the following reasons for providing shared services:
Slide 120: The Role and Organization of the HR Function 93 • • HR will be consumer driven, more accessible, more professional; the quality of HR services will be improved in terms of using better processes, delivery to specification, time and budget, incorporation of good practice, the achievement of greater consistency and accuracy; the process can help to achieve organizational flexibility – a common service will support customers during business change; it can support the repositioning of HR so that it moves from a purely operational to a more strategic role. • • The advantages of shared services include lower costs, better quality, more efficient resourcing and better customer service. But there are disadvantages, which include loss of face-to-face contact, deskilling administrative jobs and, potentially, remoteness from the users. Outsourcing HR work Increasingly, HR services that would previously have been regarded as a business’s own responsibility to manage are now routinely being purchased from external suppliers. Managements are facing Tom Peters’ (1988) challenge: ‘prove it can’t be subcontracted’. The formal policy of a major global corporation reads: ‘Manufacture only those items – and internally source only those support services – that directly contribute to, or help to maintain, our competitive advantage.’ The HR function is well positioned to outsource some of its activities to agencies or firms that act as service providers in such fields as training, recruitment, executive search, occupational health and safety services, employee welfare and counselling activities, childcare, payroll administration and legal advisory services. HR functions that have been given responsibility for other miscellaneous activities such as catering, car fleet management, facilities management and security (because there is nowhere else to put them) may gladly outsource them to specialist firms. The criteria used in selecting outsourcing providers include having a justifiable reason for employing consultants, examining their previous work, making sure they can deliver what they say they will, ensuring assignment objectives are specified, and ensuring implementation, The benefits of outsourcing include reduced cost, access to expertise not available within HR, increased flexibility and speed of response, and freeing-up HR to focus on more value-adding activities. But there can be problems. Some firms unthinkingly outsource core activities on an ad hoc basis to gain short-term advantage while others find that they are being leveraged by their suppliers to pay higher rates. Firms may focus on a definition of the core activities and those that can be outsourced, which may be justified at the time but did not take account of
Slide 121: 94 Human Resource Management the future. Additionally, a seemingly random policy of outsourcing can lead to lower employee morale and to a ‘who next’ atmosphere. To minimize problems careful consideration should be given to the case for outsourcing. It is necessary to assess each potential area with great care in order to determine whether it can and should be outsourced and exactly what such outsourcing is intended to achieve. The questions to be answered include: is the activity a core one or peripheral? How efficiently is it run at present? What contribution does it make to the qualitative and financial well-being of the organization? This is an opportunity to re-engineer the HR function, subjecting each activity to critical examination to establish whether the services can be provided from within or outside the organization, if at all. Outsourcing may well be worthwhile if it is certain that it can deliver a better service at a lower cost. The approach to using and selecting outsourcing providers should include having a justifiable reason for employing them, examining their previous work, making sure they can deliver what they say they will, ensuring assignment objectives and service delivery standards are agreed, and specifying how they should communicate and the matters that need to be discussed and agreed during the period that assignments are carried out. Offshoring To save costs UK organizations can employ people overseas to carry out work on their behalf. Call centres are typical examples. Using management consultants Management consultants provide expertise and resources to assist in development and change. They may act as service providers in such fields as recruitment, executive search and training. They also provide outside help and guidance to their clients by advising on the introduction of new systems or procedures or by going through processes of analysis and diagnosis to produce recommendations or to assist generally in the improvement of organizational performance. Selecting and using consultants The steps required in selecting and using consultants effectively are: 1. Define the business need – what added value consultants will provide. 2. Justify their use in terms of their expertise, objectivity and ability to bring resources to bear that might otherwise be unavailable – if the need has been established in cost–benefit terms the use of external consultants rather than internal resources has to be justified.
Slide 122: The Role and Organization of the HR Function 95 3. Define clearly the objectives of the exercise in terms of the end-results and deliverables. 4. Invite three or four firms or independent consultants to submit proposals. 5. Select the preferred consultants on the basis of their proposal and an interview (a ‘beauty contest’). The criteria should be the degree to which the consultants understand the need, the relevance and acceptability of their proposed deliverables and programme of work, the capacity of the firm and the particular consultants to deliver, whether the consultants will be able to adapt to the culture and management style of the organization, the extent to which they are likely to be acceptable to the people with whom they will work, and the cost (but as for service providers, not the ultimate consideration). 6. Take up references before confirming the appointment. 7. Agree and sign a contract – this should always be in writing and should set out deliverables, timing and costs, methods of payment and arrangements for termination. 8. Agree a detailed project programme. 9. Monitor the progress of the assignment carefully without unduly interfering in the dayto-day work of the consultants, and evaluate the outcomes. Legal implications A consultancy assignment can be cancelled if either party has clearly failed to meet the terms of the contract (whether this is a formal contract or simply an exchange of letters). Clients can also sue consultants for professional negligence if they believe that their advice or actions have caused financial or some other form of measurable loss. Professional negligence is, however, not always easy to prove, especially in HR assignments. Consultants can always claim that their advice was perfectly good but that it has been used incorrectly by the client (this may also be difficult to prove). Suing consultants can be a messy business and should only be undertaken when it is felt that they (or their insurers) should pay for their mistakes and thus help to recoup the client’s losses. It should also be remembered that independent consultants and even some small firms may not have taken out professional liability insurance. If that is the case, all the aggrieved client who sues would do is to bankrupt them, which may give the client some satisfaction but could be a somewhat pointless exercise. The latter problem can be overcome if the client only selects consultants who are insured. Marketing the HR function Top management and line managers are the internal customers whose wants and needs the HR function must identify and meet. How can this be done?
Slide 123: 96 Human Resource Management First, it is necessary to understand the needs of the business and its critical success factors – where the business is going, how it intends to get there and what are the things that are going to make the difference between success and failure. These data need to be converted into what are in effect marketing plans for the development of products and services to meet ascertained needs – of the business and its managers and employees. The plan should establish the costs of introducing and maintaining these initiatives and the benefits that will be obtained from them. Every effort must be made to quantify these benefits in financial terms. The next step in the marketing process is to persuade management that this is a product or service the business needs. This means making out the business case – spelling out its benefits in terms of added value and the impact it will make on the performance of the business and indicating what financial and people resources will be required. This approach is akin to ‘branding’ in product planning, which identifies the product or service, spells out the benefits it provides and differentiates it from other services, thus bringing it to the attention of customers and enhancing its image. Presentation is important through logos and distinctive brochures. Some HR departments brand products with an immediately identifiable name such as ‘Genome’ or ‘Gemini’. Others ‘brand’ their intranet portal by means of a special design and use the same motif on other internal written communications. HR budgeting HR budgets are prepared like any other functional department budget in the stages set out below. Stages in the preparation of HR budgets 1. Define functional objectives and plans. 2. Forecast the activity levels required to achieve objectives and plans in the light of company budget guidelines and assumptions on future business activity levels and any targets for reducing overheads or for maintaining them at the same level. 3. Assess the resources (people and finance) required to enable the activity levels to be achieved. 4. Cost each activity area – the sum of these costs will be the total budget. Budgets need to be justified and protected. Justification means ensuring in advance that objectives and plans are generally agreed – there should be no surprises in a budget submitted to top management. A cast-iron business case should then be prepared to support the forecast levels
Slide 124: The Role and Organization of the HR Function 97 of activity in each area and, on a cost/benefit basis, to justify any special expenditure. Ideally, the benefit should be defined in terms of a return on investment expressed in financial terms. The best way to protect a budget it to provide in advance a rationale for each area of expenditure that proves that it is necessary and will justify the costs involved. The worst thing that can happen is to be forced onto the defensive. If service delivery standards (service level agreements) are agreed and achieved, these will provide a further basis for protecting the budget. The HR role of front line managers HR can initiate new policies and practices but it is the line that has the main responsibility for implementing them. In other words, ‘HR proposes but the line disposes.’ As Guest (1991) says, ‘HRM is too important to be left to personnel managers.’ If line managers are not inclined favourably towards what HR wants them to do they won’t do it, or if compelled to, they will be half-hearted about it. On the basis of their research, Guest and King (2004) noted that ‘better HR depended not so much on better procedures but better implementation and ownership of implementation by line managers’. As pointed out by Purcell et al (2003) high levels of organizational performance are not achieved simply by having a range of well-conceived HR policies and practices in place. What makes the difference is how these policies and practices are implemented. That is where the role of line managers in people management is crucial: ‘The way line managers implement and enact policies, show leadership in dealing with employees and in exercising control come through as a major issue’. Purcell et al noted that dealing with people is perhaps the aspect of their work in which line managers can exercise the greatest amount of discretion and they can use that discretion by not putting HR’s ideas into practice. As they point out, it is line managers who bring HR policies to life. A further factor affecting the role of line managers is their ability to do the HR tasks assigned to them. People-centred activities such as defining roles, interviewing, reviewing performance, providing feedback, coaching and identifying learning and development needs all require special skills. Some managers have them: many don’t. Performance-related pay schemes sometimes fail because of untrained line managers. Hutchinson and Purcell (2003) made the following recommendations on how to improve the quality of the contribution line managers make to people management.
Slide 125: 98 Human Resource Management SOURCE REVIEW • • • • • Improving the quality of line managers as people managers, Hutchinson and Purcell (2003) • • • • • Provide them with time to carry out their people management duties, which are often superseded by other management duties. Select them carefully with much more attention being paid to the behavioural competencies required. Support them with strong organizational values concerning leadership and people management. Encourage the development of a good working relationship with their own managers. Ensure they receive sufficient skills training to enable them to perform their people management activities such as performance management. To which can be added that better implementation and better ownership by line managers of HR practices is more likely to be achieved if: the practice demonstrably benefits them; they are involved in the development and, importantly, the testing of the practices; the practice is not too complicated, bureaucratic or time-consuming; their responsibilities are defined and communicated clearly; and they are provided with the guidance, support and training required to implement the practice. Role and organization of the HR function – key learning points The role of the HR function To take initiatives and provide guidance, support and services on all matters relating to the organization’s employees. The activities of the HR function • Strategic (transformational) activities concerned with the alignment • and implementation of HR and business strategies. Transactional – the main HR service delivery activities of resourcing, learning and development, reward and employee relations.
Slide 126: The Role and Organization of the HR Function 99 Role and organization of the HR function – key learning points (continued) The diversity of the HR function HR management involves a variety of roles and activities that differ from one organization to another and from one level to another in the same organization. Guidelines on organizing the function • The head of the function should report directly to the chief executive and be a member of the top management team involved in the formulation of business strategy. Operational units should be responsible for their own HR management affairs within the framework of broad strategic and policy guidelines from the centre. The professional members of the function should have ‘strategic capability’. Increased responsibility for HR matters should be devolved to line managers. Quantitative criteria for evaluating the HR function Organizational (added value per employee, etc), employee behaviour and levels of service delivery. How HR people can demonstrate their effectiveness • • Understand the business strategy. Anticipate business needs and propose realistically how HR can help to meet them. Show that they are capable of meeting performance standards. Provide relevant, clear, convincing and practical advice. Provide efficient services. and effective • • • • • • • Generally reveal their understanding and expertise. The criteria for evaluating the effectiveness of the HR function Its ability to operate strategically and its capacity to deliver the levels of services required. The dimensions of HR effectiveness • Strategic HRM – the delivery of services in a way that supports the implementation of the firm’s strategy. Technical HRM – the delivery of HR basics such as recruitment, compensation and benefits. Methods of measuring HR effectiveness User reaction, employee satisfaction measures, benchmarking. The HR scorecard (Beatty et al, 2003) The four headings are HR competencies, HR practices, HR systems and HR deliverables. Outsourcing Benefits include reduced cost, access to expertise not available within HR, increased •
Slide 127: 100 Human Resource Management Role and organization of the HR function – key learning points (continued) flexibility and speed of response, and freeing-up HR to focus on more value-adding activities. Problems include suppliers increasing charges, short-term decisions on what can be outsourced, lower employee morale. Use of management consultants Provide expertise and may act as service providers in recruitment, executive search and training. Marketing the HR function Persuade management that HR is a service to the business needs by making out the business case – spelling out its benefits in terms of added value and the impact it will make on performance. HR budgeting Budgets need to be justified and protected. Justification means ensuring in advance that objectives and plans are generally agreed. Protection means providing in • advance a rationale for each area of expenditure (a business case) that proves it is necessary and will justify the costs involved. The HR role of line managers HR can initiate new policies and practices but it is the line that has the main responsibility for implementing them. Better ownership by line managers of HR practices is more likely to be achieved if: • the practice demonstrably benefits them; they are involved in the development and the testing of the practices; the practice is not too complicated, bureaucratic or time-consuming; their responsibilities are defined and communicated clearly; and they are provided with the guidance, support and training required to implement the practice. • • • Questions 1. Some time ago (1987) Professor Shaun Tyson produced the following prediction: ‘Personnel work can be seen to be subject to conflicting and powerful pressures which are leading to the balkanization of the personnel role. The territory which could once have been delineated as personnel country, is being invaded, sold-off, subdivided and put under lease to consultants, sub-specialists and line managers, whose crosscutting alliances do not correspond to a coherent, separate function.’ To what extent has this happened since then? If not, what has happened?
Slide 128: The Role and Organization of the HR Function 101 Questions (continued) 2. Peter Reilly made these comments in 2006 on the three-legged Ulrich model: ‘The model has many advantages, not least that it aims to centralize activities where there are scale advantages and also keep close to customers where decentralization is necessary. But it’s not an easy structure to work with… Splitting the function into three distinct areas has created boundary disputes and sometimes left a hole at the very heart of HR operations… One consequence of this division of labour is that lines of accountability are not always clearly defined… The end result may be a remote service that does not attend to the areas where managers need most assistance.’ Drawing on research, what can be done to avoid these problems? As head of HR services you have received the following e-mail from your boss, the group head of HR: ‘I note that one of the findings of the CIPD 2007 report on the changing HR function was that: “Three-quarters of survey respondents would like to go further in the transfer of people management responsibilities to the line. It seems obstacles to progress appear to be line manager priorities, their skills, the time available to them for people management tasks and poor manager self service.” I believe that we have all these problems: line managers go through the motions as far as their people management responsibilities are concerned and are too busy anyhow to pay proper attention to them. Even if they are interested and have the time, they lack the skills, for example in interviewing and conducting performance reviews and we are woefully slow in extending our HR information system to provide for self-service. What should we do about these problems?’ Reply to this e-mail. 3.
Slide 129: 102 Human Resource Management References Beatty, R W, Huselid, M A and Schneier, C E (2003) Scoring on the business scorecard, Organizational Dynamics, 32 (2), pp 107–21 Boudreau, J W (1988) Utility analysis, in (ed) L Dyer, Human Resource Management: Evolving roles and responsibilities, Bureau of National Affairs, Washington, DC Boxall, P F, Purcell J and Wright P (2007) The goals of HRM, in (eds) P Boxall, J Purcell and P Wright, Oxford Handbook of Human Resource Management, Oxford University Press, Oxford CIPD (2007a) The Changing HR Function, CIPD, London Crail, M (2006) HR roles and responsibilities 2006: benchmarking the HR function, IRS Employment Review 839, 20 January, pp 9–15 Crail, M (2008) HR roles and responsibilities 2008: benchmarking the HR function, IRS Employment Review 888, 3 January, pp 1–8 Francis, H and Keegan A (2006) The changing face of HRM: in search of balance, Human Resource Management Journal, 16 (3), pp 231–49 Guest, D E (1991) Personnel management: the end of orthodoxy, British Journal of Industrial Relations, 29 (2), pp 149–76 Guest, D E and King, Z (2004) Power, innovation and problem solving: the personnel managers’ three steps to heaven?, Journal of Management Studies, 41 (3), pp 401–23 Guest, D E and Peccei, R (1994) The nature and causes of effective human resource management, British Journal of Industrial Relations, June, pp 219–42 Hirsh, W (2008) What do people want from you?, People Management, 18 September, pp 23–26 Hope-Hailey, V, Farndale, E and Truss, C (2005) The HR department’s role in organizational performance, Human Resource Management Journal, 15 (3), pp 49–66 Hope-Hailey, V, Gratton, L, McGovern, P, Stiles, P and Truss, C (1998) A chameleon function? HRM in the ‘90s, Human Resource Management Journal, 7 (3), pp 5–18 Huselid, M A, Jackson, S E and Schuler, R S (1997) Technical and strategic human resource management effectiveness as determinants of firm performance, Academy of Management Journal, 40 (1), pp 171–88 Hutchinson, S and Purcell, J (2003) Bringing Policies to Life: The vital role of front line managers in people management, CIPD, London Hutchinson, S and Wood, S (1995) Personnel and the Line: Developing the employment relationship, IPD, London Likierman, A (2005) How to measure the performance of HRM, People Management, 11 August, pp 44–45 Peters, T (1988) Thriving on Chaos, Macmillan, London Purcell, J, Kinnie, K, Hutchinson, S, Rayton, B and Swart, J (2003) People and Performance: How people management impacts on organisational performance, CIPD, London Reilly, P (2000) HR Shared Services and the Re-alignment of HR, Institute for Employment Studies, Brighton Reilly, P (2006) Falling between two stools, People Management, 23 November, p 36 Reilly, P (2007) Facing up to the facts, People Management, 20 September, pp 43–45 Robinson, V (2006) Three legs good?, People Management, 26 October, pp 63–64 Sisson, K (1995) Human resource management and the personnel function, in (ed) J Storey, Human Resource Management: A critical text, Routledge, London
Slide 130: The Role and Organization of the HR Function 103 Tsui, A S and Gomez-Mejia, L R (1988) Evaluating human resource effectiveness, in (ed) L Dyer, Human Resource Management: Evolving roles and responsibilities, Bureau of National Affairs, Washington DC Tyson, S (1987) The management of the personnel function, Journal of Management Studies, 24 (5), pp 523–32 Ulrich, D (1995) Shared services: from vogue to value, Human Resource Planning, 18 (3), pp 12–23 Ulrich, D (1997a) Human Resource Champions, Harvard Business School Press, Boston, Mass Ulrich, D (1997b) Measuring human resources: an overview of practice and a prescription for results, Human Resource Management, 36 (3), pp 303–20 Ulrich, D (1998) A new mandate for human resources, Harvard Business Review, January–February, pp 124–34 Ulrich, D and Brockbank, W (2005a) The HR Value Proposition, Harvard Press, Cambridge, MA Ulrich, D and Brockbank, W (2005b) Role call, People Management, 16 June, pp 24–28
Slide 131: 104 6 The Role of the HR Practitioner Key concepts and terms • • • • • • Business partner Continuous professional development Employee advocate Impression management Process consulting The HR thinking performer role • • • • • • Conformist innovators Deviant innovators Evidence-based management Organizational capability Strategic partner Value-added approach Learning outcomes On completing this chapter you should be able to define these key concepts. You should also know about: • • • • • • • • • The basic role of HR practitioners The strategic role The change agent role The service provision role Models of HR roles Gaining support from line managers Professionalism HR effectiveness Continuous professional development • • • • • • • • The business partner role The strategic activities of HR practitioners The internal consultancy role The guardian of values role Gaining buy-in from top management Ethical considerations Ambiguities and conflict in the role HR competencies
Slide 132: The Role of the HR Practitioner 105 Introduction This chapter is concerned with what HR professionals do and how they do it, bearing in mind the comment of Boxall and Purcell (2003) that ‘HRM does not belong to HR specialists’. HRM also belongs to the line managers who get results through people. This chapter starts with an analysis of the basic role of HR professionals (and then deals with the business partner role, the strategic role, the change agent role, the internal consultant role and the service delivery role). It continues with descriptions of the various models of the HR role. A number of issues that affect the role of HR people are then explored; these comprise gaining support and commitment, role ambiguity, role conflict, ethics, and professionalism. The chapter concludes with a discussion of the qualities and competencies required by HR practitioners. The basic role The roles of HR practitioners vary widely according to the extent to which they are generalist (eg, HR director, HR manager, business partner), or specialist (eg, head of learning and development, head of talent management, head of reward), the level at which they work (strategic, executive or administrative), the needs of the organization, the context within which they work and their own capabilities. Roles can be proactive, reactive or a mixture of both. At a strategic level, HR people take on a proactive role. Research conducted by Hoque and Noon (2001) established that: ‘The growing number of specialists using the HR title are well qualified, are more likely to be involved in strategic decision-making processes and are most likely to be found in workplaces within which sophisticated methods and techniques have been adopted.’ As such, they act as business partners, develop integrated HR strategies, intervene, innovate, operate as internal consultants and volunteer guidance on matters concerning upholding core values, ethical principles and the achievement of consistency. They focus on business issues and working with line managers to deliver performance targets. They contribute to improving organizational capability – the capacity of the organization to perform effectively and thus reach its goals. They act as change agents and internal consultants, as discussed later in this chapter. In some situations they play a mainly reactive role. They spend much of their time doing what they are told or asked to do, responding to requests for services or advice. They provide the administrative systems required by management. This is what Storey (1992a) refers to as the non-interventionary role, in which HR people merely provide a service to meet the demands of management and front line managers. But many HR practitioners are involved in service delivery and the importance of this aspect of their work should not be underestimated. Service delivery includes transactional activities such as recruitment, training and advisory services.
Slide 133: 106 Human Resource Management Finally, HR practitioners are, or should be, concerned with upholding the ethical values of their firm. These aspects of their role are also examined below. SOURCE REVIEW The four roles of HR professionals, Ulrich (1998) 1. Managing strategic human resources. 2. Managing employee contribution. 3. Managing transformation and change. 4. Managing HR infrastructures to support line managers. The extent to which HR specialists were carrying out these roles was researched by Guest and King (2004) who found that there was little emphasis on the first three. Instead, the focus appeared to be placed on managing infrastructures. The business partner role The concept of HR practitioners as business partners has become very popular. In essence, the concept is that, as business partners, HR specialists share responsibility with their line management colleagues for the success of the enterprise and get involved with them in implementing business strategy and running the business. They are often ‘embedded’ in business units or departments. This concept was first mooted in 1985 by Shaun Tyson. He used the term ‘business manager’ rather than ‘business partner’ but it is much the same. He stated that personnel specialists carrying out this role integrate their activities closely with management and ensure that they serve a long-term strategic purpose. They have the capacity to identify business opportunities, to see the broad picture and to understand how their role can help to achieve the company’s business objectives. They anticipate needs, act flexibly and are proactive. This is a clear case of a prophet not being honoured in their own country. In 1998, 13 years later, Dave Ulrich seized the HR community’s imagination with his similar concept of the HR executive as a ‘strategic partner’. In describing his strategic partner model, Ulrich maintained that as champions of competitiveness in creating value, HR executives can deliver excellence by becoming partners with
Slide 134: The Role of the HR Practitioner 107 senior and line managers in strategy execution, helping to improve planning from the conference room to the marketplace and impelling and guiding serious discussion of how the company should be organized to carry out its strategy. He suggested that HR should join forces with operating managers in systematically assessing the importance of any new initiatives they propose and obtaining answers to the following questions: Which ones are really aligned with strategy implementation? Which ones should receive immediate attention and which can wait? Which ones, in short, are truly linked to business results? As business partners HR practitioners work closely with their line management colleagues. They are aware of business strategies and the opportunities and threats facing the organization. They are capable of analysing organizational strengths and weaknesses and diagnosing the issues facing the enterprise and their human resource implications. They know about the critical success factors that will create competitive advantage and they adopt a ‘value added’ approach when making a convincing business case for innovations. The term ‘value added’ looms large in the concept of the HR business partner. In accounting language, where the phrase originated, added value is defined as the value added to the cost of raw materials and bought-in parts by the process of production and distribution. In HR speak, a value added approach means creating value through HR initiatives that make a significant contribution to organizational success. Strictly speaking, added value is measured by the extent to which the value of that contribution exceeds its cost or generates a return on investment. But the term is often used more generally to signify the business-oriented approach HR professionals are expected to adopt and how it contributes to the creation of value by the firm. Adding value is about improving performance and results – getting more out of an activity than was put into it. Francis and Keegan (2006) report the following comment from a recruitment consultant, which illustrates how the term has become popular: ‘Most HR professionals will now have “value added” stamped on their foreheads, because they are always being asked to think in terms of the business objectives and how what they do supports the business objectives and the business plan.’ However, it can be argued that too much has been made of the business partner model. Perhaps it is preferable to emphasize that the role of HR professionals is to be part of the business rather than merely being partners. Tim Miller, Group HR Director of Standard Chartered Bank, as reported by Smethurst (2005), dislikes the term: ‘Give me a break!’ he says. ‘It’s so demeaning. How many people in marketing or finance have to say they are a partner in the business? Why do we have to think that we’re not an intimate part of the business, just like sales, manufacturing and engineering? I detest and loathe the term and I won’t use it’. Another leading Group HR Director, Alex Wilson of BT as reported by Pickard (2005), is equally hostile. He says:
Slide 135: 108 Human Resource Management The term worries me to death. HR has to be an integral and fundamental part of developing the strategy of the business. I don’t even like the term ‘close to the business’ because, like ‘business partner’ it implies we are working alongside our line management colleagues but on a separate track, rather than people management being an integral part of the business. There is also the danger of over-emphasizing the glamorous albeit important role of business or strategic partner at the expense of the service delivery aspect of the HR specialist’s role. As an HR specialist commented to Caldwell (2004): ‘My credibility depends on running an extremely efficient and cost-effective administrative machine… If I don’t get that right, and consistently, then you can forget about any big ideas.’ Another person interviewed during Caldwell’s research referred to personnel people as ‘reactive pragmatists’, a view which in many organizations is in accord with reality. And Syrett (2006) commented that: ‘Whatever strategic aspirations senior HR practitioners have, they will amount to nothing if the function they represent cannot deliver the essential transactional services their internal line clients require.’ The problem of the over-emphasis on the business partner role has been influenced by the erroneous belief that Ulrich was simply focusing on HR executives as business partners. This has had the unfortunate effect of implying that it was their only worthwhile function. However, Ulrich cannot be blamed for this. In 1998 he gave equal emphasis to the need for HR people to be administrative experts, employee champions and change agents, and this was confirmed in a revised model (Ulrich and Brockbank, 2005a). The strategic role of HR specialists There may be some reservations about the focus on the business partner role but there is a universal chorus of approval for the notion that HR professionals need to be strategic, although not everyone is clear about what being strategic means. This is therefore defined below. The strategic role of HR specialists varies according to whether they are operating at strategic levels (as HR directors or heads of the HR function, heads of centres of expertise or key HR functions, and strategic business partners) or at a transactional level (as an HR officer, adviser or assistant delivering basic HR services such as recruitment or training, or working in an HR shared service centre). The strategic roles of HR specialists • To formulate and implement in conjunction with their management colleagues forward-looking HR strategies that are aligned to business objectives and integrated with one another.
Slide 136: The Role of the HR Practitioner 109 • To contribute to the development of business strategies. In doing so they adopt an ‘outside-in’ approach as described by Wright et al (2004) in which the starting point is the business, including the customer, competitor and business issues it faces. The HR strategy then derives directly from these challenges to create real solutions and add real value. They work alongside their line management colleagues to provide on an everyday basis continuous support to the implementation of the business or operational strategy of the organization, function or unit. • To carry out these roles, they need to: • • understand the strategic goals of the organization or unit and appreciate the business imperatives and performance drivers relative to these goals; comprehend how sustainable competitive advantage can be obtained through the human capital of the organization or unit and know how HR practices can contribute to the achievement of strategic goals; contribute to the development for the business of a clear vision and a set of integrated values; ensure that senior management understands the HR implications of its business strategy; be aware of the broader context (the competitive environment and the business, economic, social and legal factors that affect it) in which the organization operates; understand the kinds of employee behaviour required successfully to execute the business strategy; think in terms of the bigger and longer-term picture of where HR should go and how it should get there; be capable of making a powerful business case for any proposals on the development of HR strategies; act as a change agent in developing the organization and its culture and as an internal consultant in advising on what needs to be done and how to do it (these two aspects of the strategic role are considered at the end of this section); understand how the ethical dimensions of HR policy and practice fit into the present and future picture; believe in and practice evidence-based management (recommendations on strategy and its implementation are always backed up by hard data). • • • • • • • • •
Slide 137: 110 Human Resource Management The strategic contribution of HR advisers or assistants The role of HR advisers or assistants is primarily that of delivering effective HR services within their function or as a member of an HR service centre. While they will not be responsible for the formulation of HR strategies they may contribute to them within their own speciality. They will need to understand the business goals of the departments or managers for whom they provide services in order to ensure that these services support the achievement of those goals. Strategic activities Strategic activities consist of formulating HR strategies as described in Chapter 3 and providing continuous support to line managers in implementing their business or operational strategies. They involve being proactive in identifying issues that can be addressed through major or relatively minor HR initiatives. Examples of the sort of issues that may need to be dealt with are poor performance or productivity, low quality, inadequate levels of service to customers, recruitment and selection failures, skills shortages, poor retention rates (high levels of labour turnover), high levels of absenteeism, high levels of accidents, occupational health problems and too many disputes or grievances. In all these and many other problem areas a strategic approach involves: • • • • • • understanding the business or operational strategy and appreciating the performance drivers required to implement it; analysing how the issue is affecting those drivers; diagnosing the causes of any problems; identifying possible actions and reviewing them in conjunction with line management and employees to select the preferred option; preparing a proposal to deal with the issue, including a business case setting out the benefits against the costs; developing and implementing the new or revised policy or practice taking into account the following guidelines. Guidelines for HR innovations • • Be clear on what has to be achieved and why. Ensure that what you do fits the strategy, culture and circumstances of the organization.
Slide 138: The Role of the HR Practitioner 111 • • • • • • • Don’t follow fashion – do your own thing as long as it is relevant and fits the organization’s needs. Keep it simple – over-complexity is a common reason for failure. Don’t rush – it will take longer than you think. Don’t try to do too much at once – an incremental approach is generally best. Assess resource requirements and costs. Pay close attention to project planning and management. Remember that the success of the innovation rests as much on the effectiveness of the process of implementation (line manager buy-in and skills are crucial) as it does on the quality of the concept, if not more so. Pay close attention to change management approaches – communicate, involve and train. • The change agent role The implementation of strategy means that HR specialists have to act as change agents, facilitating change by providing advice and support on its introduction and management. Caldwell (2001) categorizes HR change agents in four dimensions. SOURCE REVIEW HR specialists as change agents – the four dimensions, Caldwell (2001) 1. Transformational change – a major change that has a dramatic effect on HR policy and practice across the whole organization. 2. Incremental change – gradual adjustments of HR policy and practices that affect single activities or multiple functions. 3. HR vision – a set of values and beliefs that affirm the legitimacy of the HR function as a strategic business partner. 4. HR expertise – the knowledge and skills that define the unique contribution the HR professional can make to effective people management. Change management processes and the role of HR in managing change and transformation are given more detailed consideration in Chapter 25.
Slide 139: 112 Human Resource Management The internal consultancy role As internal consultants, HR practitioners function like external management consultants, working alongside their colleagues – their clients – in analysing problems, diagnosing issues and proposing solutions. They will be involved in the development of HR processes or systems and in ‘process consulting’. The latter deals with process areas such as organization, team building and objective setting. The service delivery role The basic role of HR specialists is to deliver services to internal customers. These include management, line managers, team leaders and employees. The services may be general, covering all aspects of HRM or services may only be provided in one or two areas by specialists. The focus may be on the requirements of management (eg, resourcing), or it may extend to all employees (eg, health and safety). The aims are to provide effective services that meet the needs of the business, its management and its employees and to administer them efficiently. Guidance and advice The services delivered by HR people comprise both the transactional services such as recruitment and training, and the provision of guidance and advice to management. At the highest level, this will include recommendations on HR strategies that have been evidence-based, ie developed by processes of analysis of the facts followed by diagnosis to address strategic issues arising from business needs and human, organizational or environmental factors. They will also provide advice on issues concerning culture change and approaches to the improvement of process capability – the ability of the organization to get things done through people. The aim will be to achieve human resource process advantage (Boxall, 1996, 1999), which is the competitive advantage achieved by organizations when they have better HR processes and practices than their rivals. Guidance will be given to managers to ensure that consistent decisions are made on such matters as performance ratings, pay increases and disciplinary actions. At all levels, guidance may be provided on HR policies and procedures and the implications of employment legislation. In the latter area, HR practitioners are concerned with compliance – ensuring that legal requirements are met. A balance has to be struck between the amount of freedom that can be devolved to line managers and the need to be consistent and meet social and legal obligations.
Slide 140: The Role of the HR Practitioner 113 The guardian of values role HR practitioners may act as the guardians of the organization’s values and ethical standards concerning people. They point out when behaviour conflicts with those values or where proposed actions will be inconsistent with them. In a sense, their roles require them to act as the ‘conscience’ of management – a necessary role but not an easy one to play. Ulrich (1998) called this the ‘employee champion’ role. Models of HR roles A number of models classifying the types of roles played by HR specialists have been produced, as summarized below. These simplify the complex roles that HR professionals often have to play which, in different contexts or times, may change considerably or may mean adopting varied approaches to meet altering circumstances. They are therefore not universal but they do provide some insight into the different ways in which HR specialists operate. Karen Legge (1978) Two types of HR managers are described in this model. 1) Conformist innovators, who go along with their organization’s ends and adjust their means to achieve them. Their expertise is used as a source of professional power to improve the position of their departments. 2) Deviant innovators, who attempt to change this means/ends relationship by gaining acceptance for a different set of criteria for the evaluation of organizational success and their contribution to it. The Tyson and Fell (1986) model This is the classic model that describes three types of practitioner: 1. The clerk of works – all authority for action is vested in line managers. HR policies are formed or created after the actions that created the need. Policies are not integral to the business and are short term and ad hoc. Authority is vested in line managers and HR activities are largely routine – employment and day-to-day administration. 2. The contracts manager – policies are well established, often implicit, with a heavy industrial relations emphasis, possibly derived from an employer’s association. The HR department will use fairly sophisticated systems, especially in the field of employee relations. The HR manager is likely to be a professional or very experienced in industrial relations. He or she will not be on the board and, although having some authority to ‘police` the implementation of policies, acts mainly in an interpretative, not a creative or innovative, role.
Slide 141: 114 Human Resource Management 3. The architect – explicit HR policies exist as part of the corporate strategy. Human resource planning and development are important concepts and a long-term view is taken. Systems tend to be sophisticated. The head of the HR function is probably on the board and his or her power is derived from professionalism and perceived contribution to the business. Although relevant at the time this model does not express the complexities of the HR role as later ones do, and the emphasis on industrial relations in the contracts manager role no longer accords with the realities of industrial relations in the 21st century. Kathleen Monks (1992) The four types of practitioner identified by Kathleen Monks following research in 97 organizations in Ireland extended those developed by Tyson and Fell: 1. Traditional/administrative – in this model the personnel practitioners have mainly a support role with the focus on administrative matters, record keeping and adherence to rules and regulations. 2. Traditional/industrial relations – personnel practitioners concentrate on industrial relations, giving their other functions lower priority. 3. Innovative/professional – personnel specialists are professional and expert. They aim to remove traditional practices and replace them with improved human resource planning, recruitment, human resource development and reward policies and practices. 4. Innovative/sophisticated – personnel specialists are on the board, take part in integrating HR and business strategies, and are recognized as making an important contribution to organizational success. They develop and deliver sophisticated services in each of the main HR areas. John Storey (1992b) Storey’s model suggests a two-dimensional map: interventionary/non-interventionary and strategic/tactical, as illustrated in Figure 6.1. From this he identifies four roles: 1. Change makers (interventionary/strategic), which is close to the HRM model. 2. Advisers (non-interventionary/strategic) who act as internal consultants, leaving much of HR practice to line managers 3. Regulators (interventionary/tactical) who are ‘managers of discontent’ concerned with formulating and monitoring employment rules. 4. Handmaidens (non-interventionary/tactical) who merely provide a service to meet the demands of line managers.
Slide 142: The Role of the HR Practitioner 115 Strategic CHANGEMAKERS Interventionary REGULATORS ADVISERS Non-interventionary HANDMAIDENS Tactical Figure 6.1 The John Storey model of personnel management (Source: Storey, 1992b) Peter Reilly (2000) The different roles that practitioners can play as described by Reilly are illustrated in Figure 6.2. He suggests that it is the ‘strategist/integrator’ that is most likely to make the longest-term strategic contribution. The ‘administrator/controller’ is likely to make a largely tactical shortterm contribution, while the ‘adviser/consultant’ falls between the two. strategic strategist/integrator Contribution adviser/consultant administrator/controller tactical short Time orientation long Figure 6.2 The Peter Reilly model of HR (Source: Reilly, 2000) Dave Ulrich and Wayne Brockbank (2005a and 2005b) In 1998 Dave Ulrich produced his model in which he suggested that as champions of competitiveness in creating and delivering value, HR professionals carry out the roles of strategic partners, administrative experts, employee champions and change agents. The response to this
Slide 143: 116 Human Resource Management formulation concentrated on the business partner role. Ulrich in conjunction with Wayne Brockbank reformulated the 1998 model in 2005, listing the following roles: • • Employee advocate – focuses on the needs of today’s employees through listening, understanding and empathizing. Human capital developer – in the role of managing and developing human capital (individuals and teams), focuses on preparing employees to be successful in the future. Functional expert – concerned with the HR practices that are central to HR value, acting with insight on the basis of the body of knowledge they possess. Some are delivered through administrative efficiency (such as technology or process design), and others through policies, menus and interventions. Necessary to distinguish between the foundation HR practices – recruitment, learning and development, rewards, etc – and the emerging HR practices such as communication, work process and organization design, and executive leadership development. Strategic partner – consists of multiple dimensions: business expert, change agent, strategic HR planner, knowledge manager and consultant, combining them to align HR systems to help accomplish the organization’s vision and mission, helping managers to get things done, and disseminating learning across the organization. Leader – leading the HR function, collaborating with other functions and providing leadership to them, setting and enhancing the standards for strategic thinking and ensuring corporate governance. • • • Ulrich and Brockbank (2005b) explained that the revised formulation was in response to the changes in HR roles they have observed recently. They commented on the importance of the employee advocate role, noting that HR professionals spend on average about 19 per cent of their time on employee relations issues. They explained that as a profession, HR possesses a body of knowledge that allows HR people to act with insight. Functional expertise enables them to create menus of choice for their business and thus identify options that are consistent with business needs rather than merely those they are able to provide. The additional heading of ‘human capital developer’ was introduced because of the increased emphasis on viewing people as critical assets and to recognize the significance of HR’s role in developing the workforce. The concept of strategic partner remains broadly the same as before but the additional heading of ‘HR leader’ was introduced to highlight the importance of leadership by HR specialists of their own function – ‘before they can develop other leaders, HR professionals must exhibit the leadership skills they expect in others’.
Slide 144: The Role of the HR Practitioner 117 Gaining support and commitment HR practitioners mainly get results by persuasion based on credibility and expertise. Management and employees can create blockages and barriers and their support and commitment needs to be gained, which is not always easy. As Guest and Hoque (1994) note: ‘By exerting influence, HR managers help to shape the framework of HR policy and practice.’ Line managers may make the day-to-day decisions, therefore influencing skills are necessary for HR specialists. But there is a constant danger of HR professionals being so overcome by the beauty and truth of their bright ideas that they expect everyone else – management and employees alike – to fall for them immediately. Sometimes, as pointed out by Marchington (1995), HR people may go in for ‘impression management’ – aiming to make an impact on senior managers and colleagues through publicizing high profile innovations. HR specialists who aim to draw attention to themselves simply by promoting the latest flavour of the month, irrespective of its relevance or practicality, are falling into the trap that Peter Drucker, anticipating Marchington, described as follows. SOURCE REVIEW What personnel administrators worry about, Drucker (1995) The constant worry of all personnel administrators is their inability to prove that they are making a contribution to the enterprise. Their preoccupation is with the search for a ‘gimmick’ which will impress their management colleagues. Blockages and barriers within management Managers will block or erect barriers to what the HR function believes to be progress if they are not persuaded that it will benefit both the organization and themselves at an acceptable cost (money and their time and trouble).
Slide 145: 118 Human Resource Management Blockages and barriers from employees Employees will block or set up barriers to ‘progress’ or innovations if they feel they conflict with their own interests. They are likely, with reason, to be cynical about protestations that what is good for the organization will always be good for them. Getting buy-in from top management Buy-in from top management is achievable by processes of marketing the HR function and persuasion. Boards and senior managers, like anyone else, are more likely to be persuaded to take a course of action if their support is gained in the ways described below. Gaining support from top management • • Demonstrate that the proposal will meet both the needs of the organization and their own personal needs. Base the proposal on a compelling and realistic business case that spells out the benefits and the costs and, as far as possible, is justified either in added value terms (ie the income generated by the proposal will significantly exceed the cost of implementing it), and/or on the basis of a return on investment (ie the cost of the investment, say in training, is justified by the financial returns in such terms as increased productivity). Prove that the innovation has already worked well within the organization (perhaps as a pilot scheme) or represents ‘good practice’ (it has worked well elsewhere), which is likely to be transferable to the organization. Show that the proposal will increase the business’s competitive edge, for example enlarging the skill base or multi-skilling to ensure that it can achieve competitive advantage through innovation and/or reducing time-to-market. Specify how the proposal can be implemented without too much trouble, for example not taking up a lot of managers’ time, or not meeting with strong opposition from line managers, employees or trade unions (it is as well to check the likely reaction before launching a proposal). Indicate that the innovation will add to the reputation of the company by showing that it is a ‘world class’ organization, ie what it does is as good as, if not better than, the world leaders in the sector in which the business operates (a promise that publicity will be achieved through articles in professional journals, press releases and conference presentations will help). • • • •
Slide 146: The Role of the HR Practitioner 119 • • Emphasize that the innovation will enhance the ‘employer brand’ of the company by making it a ‘best place to work’. Ensure that the proposal is brief, to the point and well argued – it should take no more than five minutes to present orally and should be summarized in writing on the proverbial one side of one sheet of paper (supplementary details can be included in appendices). Gaining the support and commitment of line management This can sometimes be more difficult than gaining the support of top management. Line managers can be cynical or realistic about innovation – they have seen it all before and/or they believe it won’t work (sometimes with good reason). Innovations pushed down from the top can easily fail. Gaining line management support requires providing an answer to the question, ‘What’s in it for me?’ Managers need to be convinced that the innovation will help them to achieve better results without imposing unacceptable additional burdens on them. New or revised employment practices that take up precious time and involve paperwork will be treated with particular suspicion. Many line managers, often from bitter experience, resent the bureaucracy that can surround and, indeed, engulf the over-engineered systems favoured by some HR people, such as traditional performance appraisal schemes. Obtaining support requires market research and networking – getting around to talk to managers about their needs and testing new ideas to obtain reactions. The aim is to build up a body of information that will indicate approaches that are likely to be most acceptable, and therefore will most probably work, or at least to suggest areas where particular efforts will need to be made to persuade and educate line management. It is also useful to form ‘strategic alliances’ with influential managers who are enthusiastic about the innovation and will not only lend it vocal support but will also cooperate in pilot-testing it. On the principle that ‘nothing succeeds like success’, support for new HR practices can often be achieved by demonstrating that it has worked well elsewhere in the organization. Gaining commitment will be easier if managers know that they have been consulted and that their opinions have been listened to and acted upon. It is even better to involve them as members of project teams or task forces in developing the new process or system. This is the way to achieve ownership and therefore commitment.
Slide 147: 120 Human Resource Management Gaining the support and commitment of employees When it comes to new employment practices, employees often react in the same way as managers. They will tend to resist change, wanting to know ‘What’s in it for us?’ They also want to know the hidden agenda – ‘Why does the company really want to introduce a performance management process? Will it simply be used as a means of gaining evidence for disciplinary proceedings? Or is it even going to provide the information required to select people for redundancy?’ As far as possible this kind of question needs to be answered in advance. Employee commitment is also more likely if they are kept well-informed of what is proposed, why it has been proposed and how it will affect them. It will be further enhanced if they participate in the development of the new employment practice and if they know that their contributions have been welcomed and acted upon. Ethical considerations HR specialists are concerned with ethical standards in two ways: their conduct and values as professionals, and the ethical standards of their firms. Professional conduct The CIPD Code of Professional Conduct states that: In the public interest and in the pursuit of its objects, the Chartered Institute of Personnel and Development is committed to the highest possible standards of professional conduct and competency. To this end members: • are required to exercise integrity, honesty, diligence and appropriate behaviour in all their business, professional and related personal activities; • must act within the law and must not encourage, assist or act in collusion with employees, employers or others who may be engaged in unlawful conduct. Professional ethical standards As explained by Farnham (2008), professional ethics are the moral principles and values governing professional behaviour. The ethical principles of the HR profession imply that HR specialists need to take account of the dignity and rights of employees when taking employment decisions. These include having clear, fair terms and conditions of employment, healthy and safe working conditions, fair remuneration, promoting equal opportunities and employment diversity, encouraging employees to develop their skills, and not discriminating or harassing
Slide 148: The Role of the HR Practitioner 121 employees. The ethical frameworks for judging HR practices are basic rights, organizational justice, respecting individuals, and community of purpose. There are many instances where these principles conflict with organizational objectives. These include HR issues such as flexibility, work intensification, use of some sophisticated HR techniques such as performancerelated pay and socialization programmes, and activities promoting closer managerial monitoring of employee performance. HR professionals are part of management. But there will be occasions when in their professional capacity HR specialists should speak out against plans or actions that are not in accord with management’s ethical standards or values. And they should do their best to promote ethical standards and influence changes in core values where they feel they are necessary. They must not tolerate injustice or inequality of opportunity. If redundancies are inevitable as a result of business-led ‘slimming down’ or ‘taking costs out of the business’ processes, they should ensure that the organization takes whatever steps it can to mitigate detrimental effects by, for example, relying primarily on natural wastage and voluntary redundancy or, if people have to go involuntarily, doing whatever they can to help them find other jobs (outplacement). HR specialists may often find themselves in a hard-nosed, entrepreneurial environment. But this does not mean that they can remain unconcerned about developing and helping to uphold the core values of the organization in line with their own values on the ethical principles that govern how people should be managed. These may not always be reconcilable, and if this is strongly the case, the HR professional may have to make a choice on whether he or she can remain with the organization. Professionalism in human resource management If the term is used loosely, HR specialists are ‘professional’ when they display expertise in doing their work and act responsibly. A professional occupation such as medicine or law could, however, be defined as one that gives members of its association exclusive rights to practise their profession. A profession in this context is not so much an occupation as a means of controlling an occupation. Human resource management is obviously not in this category. The nature of professional work was defined by the Hayes Committee (1972) as follows.
Slide 149: 122 Human Resource Management SOURCE REVIEW • • • • • • • The nature of professional work, Hayes Committee (1972) Work done by the professional is usually distinguished by its reference to a framework of fundamental concepts linked with experience rather than by impromptu reaction to events or the application of laid down procedures. Such a high level of distinctive competence reflects the skilful application of specialized education, training and experience. This should be accompanied by a sense of responsibility and an acceptance of recognized standards. By these standards an institution such as the CIPD carries out all the functions of a professional body except that of giving its members the exclusive right to practice. A later analysis was produced by Fletcher (2004), who stated that a professional ethos is characterized by the following ingredients: the opportunity to display high levels of autonomy; the ability to apply some independence of judgement; self-discipline and adherence to some aspirational performance standards; the possession of specialized knowledge and skills; power and status based on expertise; operating, and being guided by, a code of ethics; allegiance to a professional body. Ambiguities in the role of HR practitioners The activities and roles of HR specialists and the demands made upon them as described above appear to be quite clear cut but, in Thurley’s (1981) words, HR practitioners can be ‘specialists in ambiguity’. There are a number of reasons for this, as discussed below, but as Watson (1977) emphasized, much management activity is typically messy and ambiguous. Three ambiguities in the role were highlighted by Legge (1978). First, there is an ambiguity in the overlap between personnel management as a set of activities for all managers, and as a specialist function. This may arise because the role of HR practitioners is ill-defined (they are unsure of where they stand), their status is not fully recognized, or top management and line
Slide 150: The Role of the HR Practitioner 123 managers have equivocal views about their value to the organization. Second, ambiguity occurs because it is often difficult to define success in personnel management, to determine who or what was responsible for success or failure and to identify the unique contributions of the personnel function. Third, personnel managers sit in an uncomfortable position where they are seen as part of management but also have a special relationship to, and responsibility for, the workers. The research conducted by Guest and King (2004), which involved interviews with 48 executives from 18 organizations, established that the first two ambiguities listed by Legge still existed, but the third one has become less of an issue because of the more clear-cut alignment of HR with management. Ambiguity in the role of HR people can result in confusion between ideals and reality. Tyson and Fell (1986) see a contrast between the ideologies and actual realities of organizational life to which HR managers, ‘as organization men or women’, have to conform. This ambiguity is reflected in the comments that have been made about the role of the HR function. For example, Mackay and Torrington (1986) suggested that: ‘Personnel management is never identified with management interests, as it becomes ineffective when not able to understand and articulate the aspirations of the work force.’ In complete contrast, Tyson and Fell (1986) believe that: Classical personnel management has not been granted a position in decision-making circles because it has frequently not earned one. It has not been concerned with the totality of the organization but often with issues which have not only been parochial but esoteric to boot. Ambiguity continues in the age of Ulrich. As Hope-Hailey et al (2005) point out: ‘Ulrich highlighted that HR professionals must be both strategic and operational, yet the potential role conflict this could engender was not addressed.’ Caldwell (2004) reached the following conclusions on the basis of his research. SOURCE REVIEW Summary of conclusions on the role of HR practitioners, Caldwell (2004) There is the issue of ‘powerlessness’ or the marginality of HR practitioners in management decision-making processes, especially at a strategic level. The HR function has an inward-looking tendency to identify professional expertise mainly with administrative concerns over who controls HR activities, rather than questions of HR practices or who has responsibility for implementing HR policy.