Essay Title - HRM People Management
Title: Assessment
Identify and critically analyse how HRM/People Management contribute to the overall performance of an organisation. Illustrate your answer with practical examples of HR/People Management gained from published research and where possible primary data/personal experience.
This paper sets out to critically assess the contribution of Human Resource Management to overall organizational performance, or what Bratton and Gold term ‘…the internal sources of competitive advantage…’. (Bratton and Gold 2003: p.6) It argues that any such assessment hinges on the interpretation of the term ‘performance’, and specifically, the question as to whether this is being evaluated purely in HRM terms, or within more conventional economic theories of the firm.
It is specifically proposed here that the fact of performance mediated through criteria of Continuing Professional Development, and the associated metrics, is far easier to establish than that of sustained competitive advantage in the marketplace. In other words, although most management structures would regard good HRM practice as both achievable and desirable as a positive economy of scale, its precise relationship with profitability is variable, and much more problematical to establish.
As Sonnetag observes, ‘There is relatively consistent empirical evidence for a positive relationship between specific aspects of individual well being and....performance.’ (Sonnetag, p.4110). Though few informed observers would dispute this as a general principle, the significance and shifting definition of the term ‘performance’ can only be made specific in the context of each organization. ‘There has been a long debate over whether HRM is no more than a re-labelling of personnel management…’ ( Redman and Wilkinson 2001: p.4) There are also key differences in the role of HRM when comparing public and private sector organizations.
The clearest evidence for this lays in the debates around target orientated, competence-based practice in the public sector, and the HRM/profitability nexus in private companies. As Davies observes, in the public sector his debate can be viewed in terms of opposites, ‘…between vocational and liberal education: between training and education; and between the teaching of technique and the development of critical and reflective capacity.’ (Davies, 2006: p.326). In the private sector meanwhile, the debate focuses on the relationship between HRM and the ubiquitous bottom line.
Gratton et al. open up discussion of this whole issue by asking ‘…What is the relationship between the business strategy of a company and its human resource strategy: is there a strong relationship or do strategies emerge? ‘ (Gratton et al. 1999: p.5). Arguably, the answer to this and related questions is likely to vary according to the perspective and position of the observer. Such views may be located along a continuum of objectivity, ranging from the developed HRM view of the firm, and the traditional model of commercial organizations. In the first instance, there is inevitably a huge disparity in the strategic relevance of HRM between public and private sector organizations.
When we come to focus purely on private sector companies, there is a relative contrast in practice depending on the strategic model adopted by particular organizations. As Palmer and Hardy observe, ‘…the link between talk and action is not well understood. Consequently, we have only an unclear idea of how linguistic constructions relate to specific individuals in specific organizations and so the practical lessons for managers are somewhat vague.’ (Palmer and Hardy, 2000: p.165).
As different companies strive for competitive advantage through coordination of purpose and function, so the relationship between HRM and performance is determined by the relevant business drivers, and individual company cultures. Analysis of the situation in particular firms initially becomes a matter of establishing which strategic model they are following, a matter further complicated by the various interpretative frameworks available from authorities such as Chaffee, Zen, Rouleau and Seguin, Whittington and Mintzberg. The latter alone provides a ten option model ranging from traditional power, entrepreneurial and positional structures, to more recent variants such as the cultural, learning, environmental and configuration models.
The important point is that the character of each strategic model will inevitably impact upon the HRM policy within the firm: the latter cannot function without taking into account the nature of power, authority, knowledge and influence in its context. The idea that the only sustainable sources of competitive advantage possessed by a company lays in its people is, arguably, a contentious one: at the very least, this is a hypothesis worth testing. From the perspective of Nonoka et al., that we can hold that ‘…the capability to create and utilize knowledge to be the most important source of a firm’s sustainable competitive advantage…’ (Nonoka et al., 2000: p.3.)
If we set out to illustrate the maintenance of competitive advantage through a synergy of HRM and knowledge management, we would expect to see a sustained distinction between the subject firm and its competitors, across varying trading conditions. Such examples are, however, difficult to find. Take, for example the case of Nokia, the Finnish telecommunications corporation. Nokia not only enjoys global pre-eminence in consumer mobile communications, but is among the top ten largest companies in the world by volume of turnover. This dominance has been underpinned by three developments: new technology, deregulation, and resulting marketing opportunities.
The first firm to recognize the convergence of these factors, Nokia accrued global dominance, arguably through alignment of its HRM and overall business strategy. A flat, lateral management structure and flexible knowledge management protocols allowed information gained first hand from customers to flow directly in business models. Implicitly reliant upon globalization for its growth, Nokia ensured uniformity of knowledge management and cultural approach by making English its central corporate language, and positioning bi-lingual staff in its territories.
Nokia policy ensures that their people train in a common language, whilst engaging in their indigenous languages with customers. Nokia also embedded end user needs studies, derived from deep penetration marketing research, in all of their market orientation. A practical manifestation of this, as Kienonen reports, lays in extended market research conducted in India, which allowed Nokia’s EMH (Emerging Market Handset) to consistently outperform rivals in extending new margins. (Keinonen et al. P.104).
The important point here is that Nokia apparently, at this point, achieved the ultimate example of what Hooley et al. term ‘interfunctional coordination’, i.e. a synergy between corporate structure, end user needs, and competitive advantage. ‘Well developed marketing resources (assets and capabilities), when deployed in the marketplace, can lead to superior market performance. Satisfied and well motivated staff (a prime marketing asset), for example, can make a significant contribution to creating satisfied and loyal customers...’ (Hooley et.al., 2004: p.21) However, to uphold this as an exemplar of the symbiosis between HRM and corporate performance, the same relationship would have to feature uniformly, in spite of other variables. Current evidence suggests little correlation to this model. Nokia continues to treat its people extremely well, illustrating the intended synergy between good HRM practice and company development as conceptualized by Armstrong. As the latter indicates, ‘…the philosophy of reward management also recognizes that it must be strategic in the sense that it addresses longer-term issues relating to how people should be valued for what they do and what they achieve.
Reward strategies and the processes that are required to implement them have to flow from the business strategy.’ (Armstrong 2002: p.4). However, whilst these internal factors have remained constant, the external variants have not. In fact it looks increasingly feasible to argue that Nokia’s period of unprecedented expansion was attributable to conventional economies of scale and external market drivers, rather than internal policy. Neither scale nor precedent are guarantors of extended tenure for CEO’s in today’s activist investor-dominated landscape. Monks and Minow argue that ‘...shareholders should attempt to maximise contestability in the corporate paradigm by seeking board members who will replace under-performing managers when necessary, and by replacing board members who will not accept this responsibility.’ (Monks and Minow 2004: p.516).
The implications of this for ill-defined business drivers such as HRM - or its champions – is arguably fairly clear. As Hernez-Broome and Hughes observe, ‘…the age of the imperial CEO is waning. In its place, a crop of new CEOs--humble, team building, highly communicative--are rising...’ (Hernez-Broome and Hughes, 2004: n.p.) This is a fair point, but it may equally be argued that CEO’s themselves now inhabit an increasingly complex and hazardous terrain where definitions of power can shift with alarming speed. Tenure of ‘commercial approver’ status, it may be argued, is one which may be ceded rapidly if the appropriate chain of stakeholder groups are in alignment.
A key issue here is that of employee involvement, and the proliferating models of participation which are the legacy of co-determination. The associated literature provides some of the most concrete empirical evidence on the precise relationship between employee performance, involvement and profitability. As Addison et al. point out, ‘… our result indicate that mandated employee involvement reduces the profit share.
Whether this is tolerable depends upon the extent of rent in the system.’ (Addison et al. p. 41) In other words, organizations with healthy margins and practicable liquidity can absorb the extra costs implicit in workforce participation. Such considerations can also be industry specific and culture dependant, with the latter in particular influencing how company and employee interests converge. As Hyman and Mason observe, ‘Not surprisingly, with their high union density figures, managers in the Scandinavian countries felt especially prone to use collective channels for upward communication, which were present in around 90 per cent of organizations in Finland, Norway and Sweden: in France, Germany, Holland and Spain the figure was around 80 per cent; whilst in Ireland, Turkey, and the UK, the figure was approximately 70 per cent.’ (Hyam and Mason, 1995: p.121).
If the level of formal interaction is mediated through specific cultural expectations, then so, increasingly, are the less tangible aspects of the workplace relationship. As Williams reminds us, ‘..this interpersonal aspect to fairness reminds us that there is a social basis to the exchange relationship between employer and employee and we might expect this to be part of the psychological contract.’ (Williams, 1998: p.183). Furthermore, ‘power distance’ – the extent to which authority is delegated across employee structures – is also subject to differentiated expectations, depending on cultural context. Analytical frameworks such Hofestede’s cultural dimensions index demonstrate how even highly defined HRM policies need to be varied to reflect parallel interpretations of fairness. (Leopold et al. 2005: p.307)
The whole issue of objectivity in HRM and performance is inextricably linked to line management structures and how particular organizations deal with the matter of appraisal and assessment. Much depends on whether - in the parlance of McGregor, Herzberg and Maslow – a ‘Theory X’ or autocratic system of motivation is adopted, or eschewed in favour of the more interactive ‘Theory Y’ model, as explained by Fincham and Rhodes.‘Theory Y has at its centre complex man, possessing a bundle of social and self-actualizing needs, who, given the appropriate conditions at work, can show high levels of responsibility and self-direction.’ (Fincham and Rhodes, 2005: p.202) The precise relationship between HRM and strategy is interpreted differently, dependent on the perspective. Beardwell and Holden argue that ‘…strategic integration is defined as the ability of organizations to integrate HRM issues into their strategic plans, to ensure that the various aspects of HRM cohere and for line managers to incorporate an HRM perspective into their decision making.’ (Beardwell and Holden 2004: p.9) At present it may be argued that this is a ‘best practice’ model, rather than a typical feature of organizational strategy.
In conclusion, it may be argued that the precise relationship between HRM and organizational performance still awaits a precise and universally agreed system of metrics within which to assess its relative value. At present, opinions vary as to the degree to which HRM is now fully integrated into the central strategy of organizations. For example, Bach and Sissons observe that ‘…establishing a link with strategic management has helped to bring personnel in from the cold.’ The reorientation toward internal processes, he maintains, has offered personnel professionals with the opportunity ‘…to demonstrate how they contribute to the bottom line.’ (Bach and Sisson, 2000: p.5) This is by no means a settled principle however.
As Holbeche observes of the private sector in particular, ‘There are few main boards with a director solely responsible for human resources. Even where this is the case, the actual influence of the HR director can be limited.’ (Holbeche, 2001: p.4). Commercial conditions in particular have dictated an increasingly varied and flexible approach to HRM issues, as the generic enterprise adapts itself to the realities of long term globalization trends and short term recession. ‘These patterns are many and varied, but four stand out: the ongoing shift from manufacturing to services; the shrinking size of workplaces: the polarization of the occupational structure; and the feminisation of the workforce.’ (Bach and Sisson, 2000: p.5) Corporate Social Responsibility obviously incorporates key aspects of agreed HRM best practice, but it is arguably debatable whether this reflects the new, strategic approach, or older protocols concerning employee involvement and participation.
Brown writes that, ‘....of course line managers actually manage their staff. But the fact that the McKinsey/LSE international comparative research showed UK companies were, on average, the worst managed and least productive in the study, demonstrates that quite a few will need the expert strategic input, skills, support and advice of HR professionals for some time to come, if we are ever to close the productivity gap.’ ( Brown, 20.4.06) Other perspectives would of course counter such thinking by highlighting concerns over the reduced flexibility which may accompany heavily formalised HRM structures.
Many authorities, such as Mintzberg, have argued that the classic ‘listening’ or HRM orientated strategic models often favour the latter at the expense of flexibility. (Mintzberg 1998: p.264) The legislative framework and transformed workplace cultures have undoubtedly raised the stakes in terms of employee expectation of companies and organizations, with increased emphasis on the social aspects of CPD. However, as Murphy and Riggio indicate, ‘…complexity provides the resources (cognitive, social, behavioral) for generating numerous possible responses to a given situation. Individuals as well as organizations are healthy and thrive when they are capable of many responses to a given situation, and become brittle and vulnerable to changing conditions when they are uniform and specialized.’ ( Murphy and Riggio 2003: p.13).
The stark fact is that, in the private sector particularly, the strategic development of HRM as a source of competitive advantage currently runs parallel to other, more traditional business drivers. Boardrooms and CEO’s - monitored by their shareholders - do not have the luxury of waiting for complex HR strategies to bear financial fruit. This is especially true in a context where activist investors, informed by increasingly sensitive market communications and predatory fund management.
As one commentator observes – and senior management will be only to aware - ‘Activism to a large extent is trying to truncate risk by eliminating the misallocation of capital, which is less likely when those responsible truly act as if they're spending their own money….’ (Tilson 2007: n.p.). Few within large, complex organisations would deny the desirability or necessity of a sophisticated and strategically deployed HRM system or approach. However, the contribution of the latter to overall organisational performance will inevitable be mediated through the purpose, strategy and context of the individual enterprise. The cross fertilisation of professional HRM methods between the private and public sectors illustrates in many respects the cultural which divides the two spheres.
As Roberts points out, ‘While private sector boardrooms are under pressure to do more with less, many government departments are giving a masterclass in how to do less with more… Given that some parts of the country rely almost entirely on the public sector for economic growth, the problem is too large for anyone to ignore.’ (Roberts, 2008, n.p.). The problem for the private sector is that of maintaining ethical treatment of employee whilst ensuring maximum return on their CPD investment for stakeholders, including the ever vigilant shareholders.
It seems fair to assume that the workforce will have to respond to ever increasing demands for flexibility, embodied in concepts such as the ‘boundaryless career’, flexible working, and outsourcing. As Davies reports, ‘…the conventional wisdom…is that you should not outsource anything that is a fundamental part of your value proposition. Anything that doesn’t give you competitive advantage not only can be outsourced but should be outsourced.’ (Davies 2006: p.22). If this holds true, then strategically important HR resources will remain in their indigenous contexts. The drive for improved performance may, however, prove the opposite to be true in many instances.
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