Handbook of human resource management practice

Based on the latest HRM theory, A Handbook of Human Resource Management Practice considers the HR function in relation to the needs of the business as a whole.Thoroughly updated in the l

Michael Armstrong

th edition

10

HUMAN RESOURCE MANAGEMENT PRACT ICE

A Handbook of

Now in its tenth edition, this internationally best-selling text has been fully updated to

incorporate new developments in human resource management policy and research.

Based on the latest HRM theory, A Handbook of Human Resource Management Practice

considers the HR function in relation to the needs of the business as a whole.Thoroughly

updated in the light of current best practice and drawing on new research, the handbook

presents in-depth coverage of:

• managing people; • performance management;

• HRM processes; • human resource development;

• work and employment; • rewarding people;

• organizational behaviour; • employee relations;

• organization, design and development; • health, safety and welfare;

• people resourcing; • employment and HRM services.

The book also now includes sections on human capital management, the role of the front-line

manager, developing and implementing HR strategies, and learning and development.

Recognizing HRM as a strategic process, Michael Armstrong provides practical advice on how

companies can maximize the effectiveness of the HRM function and ensure that it makes a

major contribution to organizational success.This comprehensive handbook is also essential

reading for HRM students at both undergraduate and postgraduate levels.

FREE CD ROM FOR LECTURERS

Michael Armstrong has created a unique CD ROM containing over 400 lecture presentation slides.

This CD is available from the publisher on request.

Michael Armstrong is a Companion and former Chief Examiner of the Chartered

Institute of Personnel and Development (CIPD), joint managing partner of e-reward and an

independent management consultant He is the author of several best-selling HR titles

including Performance Management, Strategic Human Resource Management, A Handbook of

Management and Leadership (with Tina Stephens), Job Evaluation and Reward Management (with

Helen Murlis), all published by Kogan Page.

10TH EDITION

A Handbook of

RESOURCE MANAGEMENT PRACTICE

London and PhiladelphiaMichael Armstrong

by the CLA Enquiries concerning reproduction outside these terms should be sent to the publishers at the undermentioned addresses:

120 Pentonville Road 525 South 4th Street, #241

British Library Cataloguing in Publication Data

A CIP record for this book is available from the British Library.

Printed and bound in Great Britain by Cambridge University Press

List of figures xvii

Human resource management defined 3; Human resource system 4;

Models of HRM 5; Aims of HRM 8; Policy goals of HRM 10;

Characteristics of HRM 11; Reservations about HRM 15; HRM and

personnel management 18; How HR impacts on organizational

performance 20; HRM in context 24

Human capital management defined 29; Human capital management

and human resource management 30; The concept of human capital 33;

Human capital management: practice and strategy 36; Human capital

measurement 37; Human capital reporting 47

3 Role of the HR function 53

The overall role of the HR function 54; The role of HR in facilitating and

managing change 54; Variations in the practice of HR 56; Organizing the

HR function 57; Marketing the HR function 59; Preparing, justifying and

protecting the HR budget 60; Outsourcing HR work 61; Shared HR

services 63; Using management consultants 64; Evaluating the HR

function 66

The basic roles 71; Models of the practitioners of HR 76; Gaining support

and commitment 81; Ethical considerations 84; Professionalism in HRM

85; Ambiguities in the role of HR practitioners 87; Conflict in the HR

contribution 88; The competencies required by HR professionals 89

The basic role 93; The line manager and people management 94; The

respective roles of HR and line management 95; The line manager’s role

in implementing HR policies 97; How to improve front-line managers as

people managers 98

International HRM defined 99; Issues in international HRM 99;

International organizational models 100; Convergence and

divergence 101; Cultural diversity 102; Think globally and act

locally 104; International HR policies 104; Managing expatriates 104

The concept of strategy 113; Strategic HRM defined 115; Aims of

strategic HRM 116; Approaches to strategic HRM 117; Implementing

strategic HRM 121

HR strategies defined 123; Purpose 124; The distinction between

strategic HRM and HR strategies 124; Types of HR strategies 124;

Criteria for an effective HR strategy 129

9 Developing and implementing HR strategies 131

Propositions about the development process 132; Levels of strategic

decision-making 132; Strategic options and choices 133; Approaches

to HR strategy development 134; Methodology for strategy

development 140; Conducting a strategic review 141; Setting out the

strategy 143; Implementing HR strategies 143

What human resource policies are 147; Why have HR policies 147; Do

policies need to be formalized? 148; HR policy areas 148; Formulating

HR policies 156; Implementing HR policies 157

Types of competencies 160; Competency frameworks 161; Reasons for

using competencies 163; Coverage of competencies 164; Use of

competencies 165; Developing a competency framework 167; Defining

technical competencies 169; Keys to success in using competencies 169;

Emotional intelligence 170

Knowledge management defined 174; The concept of knowledge 175;

The purpose and significance of knowledge management 176;

Approaches to knowledge management 176; Knowledge management

systems 178; Knowledge management issues 178; The contribution of

HR to knowledge management 180

Role analysis 187; Competency analysis 193; Skills analysis 198

What is work? 205; Theories about work 206; Organizational factors

affecting work 208; Changing patterns of work 210; Unemployment 212;

Attitudes to work 212; Job-related well-being 212

15 The employment relationship 215

The employment relationship defined 215; Nature of the employment

relationship 215; Basis of the employment relationship 217; Defining the

employment relationship 217; Significance of the employment

relationship concept 218; Changes in the employment relationship 218;

Managing the employment relationship 218; Trust and the employment

relationship 220

The psychological contract defined 225; The significance of the

psychological contract 227; The nature of the psychological contract 228;

How psychological contracts develop 229; The changing nature of the

psychological contract 231; The state of the psychological contract 233;

Developing and maintaining a positive psychological contract 234; The

state of the psychological contract 2004 235

Individual differences 239; Attitudes 244; Influences on behaviour

at work 244; Attribution theory – how we make judgements about

people 245; Orientation to work 246; Roles 247; Implications for HR

specialists 248

The process of motivation 252; Types of motivation 253; Motivation

theory 254; Instrumentality theory 254; Content (needs) theory 255;

Process theory 258; Herzberg’s two-factor model 262; The relationship

between motivation, job satisfaction and money 263; Job satisfaction 264;

Motivation and money 267; Motivation strategies 268

The concepts of commitment and engagement 271; Organizational

commitment 273; Influences on commitment and employee

satisfaction 279; Engagement 281

20 How organizations function 283

Basic considerations 283; Organization theories 283; Organization

structure 288; Types of organization 289; Organizational processes 292

Definitions 303; The significance of culture 305; How organizational

culture develops 306; The diversity of culture 306; The components of

culture 307; Classifying organizational culture 309; Assessing

organizational culture 311; Measuring organizational climate 312;

Appropriate cultures 313; Supporting and changing cultures 314

The process of organizing 319; Aim 320; Conducting organization

reviews 321; Organization analysis 321; Organization diagnosis 322;

Organization planning 324; Responsibility for organization design 325

Jobs and roles 327; Factors affecting job design 328; Job design 330; Job

enrichment 332; Self-managing teams 333; High-performance work

design 334; Role development 334

What is organizational development? 337; Organization

development 338; Change management 343; Organizational

transformation 352; Development and change processes 355

People resourcing defined 359; People resourcing and HRM 359;

Plan 361

The role of human resource planning 363; Aims of human resource

planning 368; The process of human resource planning 368; Resourcing

strategy 371; Scenario planning 372; Estimating future human resource

requirements 373; Labour turnover 375; Action planning 382; The

contribution of HR to human resource planning 388

26 Talent management 389

Talent management defined 390; The elements of talent

management 390; Creating a great place to work 394; Attraction

strategies 395; Retention strategies 397; Career management 399;

Talent management for knowledge workers 407; Talent management

in practice 407

The recruitment and selection process 409; Defining requirements 409;

Attracting candidates 414; Advertising 416; E-recruitment 420;

Outsourcing recruitment 423; Educational and training

establishments 424; Application forms 425; Sifting applications 425;

Selection methods 429; Types of interviews 430; Assessment centres 430;

Graphology 431; Choice of selection methods 432; Improving the

effectiveness of recruitment and selection 432; References,

qualifications and offers 434; Final stages 436

Purpose 439; Advantages and disadvantages of interviews 440;

The nature of an interview 441; Interviewing arrangements 442;

Preparation 443; Timing 444; Planning and structuring interviews 444;

Interviewing approaches 445; Interview techniques – starting and

finishing 450; Interviewing techniques – asking questions 450; Selection

interviewing skills 457; Coming to a conclusion 458; Dos and don’ts of

selection interviewing 459

Psychological tests: definition 461; Purpose of psychological tests 461;

Characteristics of a good test 462; Types of test 463; Interpreting test

results 467; Choosing tests 468; The use of tests in a selection

procedure 468

Induction defined 471; Why taking care about induction is important 472;Reception 473; Documentation 474; Company induction – initial

briefing 475; Introduction to the workplace 475; Formal induction

courses 476; On-the-job induction training 477

31 Release from the organization 479

General considerations 479; Redundancy 482; Outplacement 485;

Dismissal 487; Voluntary leavers 490; Retirement 490

Performance management defined 495; Aims of performance

management 496; Characteristics of performance management 496;

Understanding performance management 497; Guiding principles of

performance management 499; Performance appraisal and performance

management 500; Views on performance management 500

Performance management as a process 503; Performance management as

a cycle 503; Performance agreements 504; Managing performance

throughout the year 508; Reviewing performance 509; Rating

performance 512; Dealing with under-performers 515; Introducing

performance management 517

360-degree feedback defined 521; Use of 360-degree feedback 522;

Rationale for 360-degree feedback 523; 360-degree feedback –

methodology 524; Development and implementation 526; 360-degree

feedback – advantages and disadvantages 527; 360-degree feedback –

criteria for success 528

Strategic HRD defined 533; Strategic HRD aims 534; Components of

HRD 534; HRD and HRM 535; The process of learning and

development 535; Strategies for HRD 536; Human resource development

philosophy 537

Organizational learning 540; The learning organization 543

37 How people learn 549

Learning defined 549; The learning process 550; Learning theory 550;

Learning styles 552; Learning to learn 554; The learning curve 554; The

motivation to learn 555; The implications of learning theory and

concepts 556

Learning 559; Development 570; Training 575

What is e-learning? 583; Aim of e-learning 584; The technology of

e-learning 584; The e-learning process 585; The business case for

e-learning 586; Developing e-learning processes 588

Aims of management development 592; Management development:

needs and priorities 592; The requirements, nature and elements of

management development 593; Management development activities 594;

Approaches to management development 596; Emotional intelligence

and leadership qualities 602; Responsibility for management

development 603

41 Formulating and implementing learning and development strategies 607

Making the business case 607; Developing a learning culture 609;

Identifying learning needs 610; Planning and implementing learning and

development programmes 612; Evaluation of learning 615

Reward management defined 623; The aims of reward management 624;

The philosophy of reward management 624; The elements of reward

management 625; Total reward 629; Reward management for directors

and executives 634; Reward management for sales staff 636; Paying

manual workers 636

43 Strategic reward 643

Reward strategy defined 643; Why have a reward strategy? 644; The

structure of reward strategy 644; The content of reward strategy 645;

Guiding principles 649; Developing reward strategy 649; Components of

an effective reward strategy 651; Reward strategy priorities 652;

Examples of reward strategies 653; Implementing reward strategy 656;

Reward strategy and line management capability 657

Job evaluation defined 660; Analytical job evaluation 660; Non-analytical

job evaluation 664; The incidence of job evaluation 666;

Computer-assisted job evaluation 667; Criteria for choice 668; The case for and

against job evaluation 671; Designing a point-factor job evaluation

scheme 672; Conclusions 679

Purpose 681; The concept of the market rate 681; The information

required 682; Job matching 682; Presentation of data 683; Sources of

information 683

Grade structure defined 689; Pay structure defined 690; Guiding

principles for grade and pay structures 690; Types of grade and pay

structure 691; Designing grade and pay structures 698

Contingent pay defined 708; The incidence of contingent pay 708; The

nature of individual contingent pay 709; Individual contingent pay as a

motivator 709; Arguments for and against individual contingent pay 710;

Alternatives to individual contingent pay 712; Criteria for success 713;

Performance-related pay 713; Competence-related pay 714;

Contribution-related pay 716; Skill-based pay 718; Service-related

pay 720; Choice of approach 721; Readiness for individual contingent

pay 721; Developing and implementing individual contingent pay 724;

Team-based pay 724; Organization-wide schemes 725

48 Employee benefits, pensions and allowances 729

Employee benefits 729; Occupational pension schemes 731; Allowances

and other payments to employees 734

Reward budgets and forecasts 737; Evaluating the reward system 739;

Conducting pay reviews 740; Control 744; Reward procedures 745;

Responsibility for reward 746; Communicating to employees 748

Employee relations defined 751; Plan 752

The elements of employee relations 754; Industrial relations as

a system of rules 754; Types of regulations and rules 755; Collective

bargaining 756; The unitary and pluralist views 758; The reconciliation of

interests 759; Individualism and collectivism 759; Voluntarism and its

decline 759; The HRM approach to employee relations 761; The context

of industrial relations 762; Developments in industrial relations 763; The

parties to industrial relations 766; Role of the HR function in employee

relations 771

Employee relations policies 774; Employee relations strategies 778;

Employee relations climate 779; Union recognition and

de-recognition 781; Collective bargaining arrangements 783; Informal

employee relations processes 788; Other features of the industrial

relations scene 789; Managing with trade unions 791; Managing

without trade unions 792

The nature of negotiating and bargaining 795; Negotiating 796;

Negotiating and bargaining skills 803

53 Employee voice 807

The concept of employee voice 807; Involvement and participation 808;

Purposes of employee voice 808; The framework for employee voice 808;

Expression of employee voice 809; Factors affecting choice 810; Forms of

employee voice 810; Joint consultation 811; Attitude surveys 812;

Suggestion schemes 814; Planning for voice 815

Communication areas and objectives 819; Communications strategy 819;

Communication systems 821

Managing health and safety at work 830; The importance of health

and safety in the workplace 830; Benefits of workplace health

and safety 831; Health and safety policies 832; Conducting risk

assessments 833; Health and safety audits 836; Safety inspections 838;

Occupational health programmes 838; Managing stress 839; Accident

prevention 841; Measuring health and safety performance 841;

Communicating the need for better health and safety practices 842;

Health and safety training 843; Organizing health and safety 843

Why provide welfare services? 845; What sort of welfare services? 847;

Individual services 848; Group welfare services 851; Provision of

employee welfare services 851; Internal counselling services 852;

Employee assistance programmes 852

Terms and conditions and contracts of employment 858; Mobility

clauses 860; Transfer practices 860; Promotion practices 861; Flexible

working 862; Attendance management 863; Equal opportunity 866;

Ethnic monitoring 867; Managing diversity 868; The Data

Protection Act 869; Sexual harassment 870; Smoking 872; Substance

abuse at work 873; Bullying 873; AIDS 874; E-mails 874; Work-life

balance 875

58 HRM procedures 879

Grievance procedure 880; Disciplinary procedure 881; Capability

procedure 883; Redundancy procedure 885

Benefits of a computerized human resource information system 890;

HR information strategy 890; The functions of a computerized HR

system 891; The technical infrastructure 892; Rating of system

features 892; An effective system 893; Problems and how to deal with

them 894; Developing a computerized HR information system 895;

Applications 899; Auditing the system 906

0.1 Route map xxvi0.2 Relationship between aspects of people management 21.1 HRM activities 51.2 The Human Resource Cycle 61.3 The Harvard Framework for Human Resource Management 71.4 Model of the link between HRM and performance 232.1 The Sears Roebuck Model: Employee-Customer-Profit chain 412.2 The balanced scorecard 432.3 The EFQM model 442.4 Human capital external reporting framework 492.5 Human capital reporting dashboard for area managers: Nationwide 514.1 Types of personnel management 784.2 The changing role of the HR practitioner 799.1 Strategic review sequence 14213.1 Example of a role profile 19215.1 Dimensions of the employment relationship 21616.1 A model of the psychological contract 23018.1 The process of motivation 25318.2 Motivation model 26020.1 Channels of communication within groups 29425.1 The process of human resource planning 370

25.2 A survival curve 37826.1 The elements of talent management 39126.2 Career progression curves 40126.3 The process of career management 40126.4 Management succession schedule 40426.5 Competence band career progression system 40526.6 Career paths in a career family structure 40626.7 Talent acquisition and development at Centrica 40827.1 Person specification for an HR officer 41227.2 Example of an application form (compressed) 42627.3 Accuracy of some methods of selection 43328.1 Part of a critical-incident interview for sales people 44828.2 Behavioural-based interview set 44929.1 A normal curve 46733.1 The performance management cycle 50434.1 360-degree feedback model 52234.2 360-degree feedback profile 52535.1 Components of human resource development 53436.1 Single- and double-loop learning 54136.2 Managing learning to add value; the learning cycle 54237.1 The Kolb learning cycle 55237.2 A standard learning curve 55537.3 Different rates of learning 55537.4 A stepped learning curve 55638.1 Stages in preparing and implementing a personal development plan 57238.2 Impact of development 57538.3 Systematic training model 57739.1 A blended learning programme 58741.1 Learning needs analysis – areas and methods 61141.2 A learning specification 61342.1 Reward management: elements and interrelationships 63042.2 The components of total reward 63142.3 Model of total reward 63343.1 A reward gap analysis 64643.2 Reward philosophy and guiding principles at B&Q 65043.3 A model of the reward strategy development process 65143.4 Reward strategy priorities 65243.5 The Norwich Union Insurance Progression, Performance & Pay 654

framework

43.6 Integrated reward model – Kwik-fit 65544.1 A paired comparison 66544.2 A typical job evaluation programme 67544.3 Design sequence 67646.1 A narrow, multi-graded structure 69246.2 A broad-graded structure 69346.3 Narrow and broad-banded structures 69446.4 A broad-banded structure with zones 69446.5 A job family structure 69446.6 A career family structure 69646.7 A pay spine 69746.8 Type of grade and pay structure 70146.9 Flow chart: design of a new grade and pay structure 70547.1 Incidence of contingent pay schemes 70847.2 Line of sight model 71347.3 Performance-related pay 71347.4 Competence-related pay 71447.5 Contribution pay model (1) 71647.6 Contribution pay model (2) 71647.7 Contribution-related pay 71747.8 Contribution-related pay model (Shaw Trust) 71850.1 Employee relations: reconciliation of interests 76052.1 Negotiating range within a settlement range 79952.2 Negotiating range with a negotiating gap 80052.3 Stages of a negotiation 80153.1 A framework for employee voice 809

1.1 Similarities and differences between HRM and personnel management 191.2 Outcomes of research on the link between HR and organizational

4.1 Competency framework for HR professionals 904.2 Key competency areas 919.1 Linking HR and competitive strategies 1369.2 HRM best practices 13711.1 Incidence of different competency headings 16214.1 Feelings at work 21316.1 Job satisfaction 23518.1 Summary of motivation theories 25618.2 Motivation strategies 26919.1 The Hay Group model of engaged performance 28225.1 Survival rate analysis 37825.2 Leavers by length of service 38032.1 Performance appraisal compared with performance management 50137.1 The implications of learning theory and concepts 55738.1 Characteristics of formal and informal learning 56541.1 Use of learning activities 61541.2 Use of evaluation tools 619

42.1 Economic theories explaining pay levels 62642.2 Summary of payment and incentive arrangements for sales staff 63742.3 Comparison of shopfloor payment-by-result schemes 63943.1 Examples of reward strategies and their derivation 65644.1 Comparison of approaches to job evaluation 66945.1 Summary of sources of market data 68646.1 Summary analysis of different grade and pay structures 69947.1 Comparison of individual contingent pay schemes 72250.1 Contrasting dimensions of industrial relations and HRM 76154.1 Communication areas and objectives 82059.1 Computer system problems and solutions 894

Michael Armstrong is an honours graduate in economics from the London School ofEconomics, a Companion of the Chartered Institute of Personnel and Developmentand a Fellow of the Institute of Management Consultancy

This book is largely based on Michael Armstrong’s hands-on experience as apersonnel practitioner, initially in the engineering industry, specializing in industrialrelations, and then in the engineering and food industries as an employee develop-ment specialist

For 12 years he was an executive director with responsibility for HR in a largepublishing firm and for three years of that period also acted as general manager for

an operating division For a further 10 years he headed up the HR consultancy sion of Coopers & Lybrand He is Managing Partner of e-reward.uk and also practises

divi-as an independent consultant This experience hdivi-as been supplemented recently by anumber of research projects carried out on behalf of the Chartered Institute ofPersonnel and Development These covered the personnel function’s contribution tothe bottom line, strategic HRM, incentive pay, job evaluation, team rewards, broad-banded pay structures, and performance management He was Chief ExaminerEmployee Reward for the CIPD from 1997–2001

His publications for Kogan Page include Reward Management, Performance

Manage-ment, How to Be an Even Better Manager, A Handbook of Management Techniques and A Handbook of Employee Reward, Management and Leadership.

This tenth edition of A Handbook of Human Resource Management Practice contains

many additions and revisions It refers to major developments in HR practice in thelast two to three years such as the development of the theory and practice of humancapital management, talent management and approaches to learning and develop-ment, all covered in new or substantially revised chapters Reference is also made to anumber of significant research projects including those conducted by the CIPD, IESand e-reward Chapters on the following subjects have been either wholly replaced orextensively revised in the light of new concepts of good practice, the experience of theauthor as a practitioner and the outcomes of research:

● human resource management;

● role of the HR function;

● role of the HR practitioner;

● strategic human resource management;

● competency-based HRM;

● the delivery of learning and training;

● performance management;

● reward management fundamentals;

● grade and pay structures

The plan of the handbook is illustrated in the ‘route map’ shown in Figure 0.1

26 Talent management

27 Recruitment and selection

28 Selection tests

29 Introduction to the organization

30 Release from the organization

VII Performance management

32 Basis of performance management

33 Performance management processes

34 360-degree feedback

VIII Human resource development

35 Strategic HRD

36 Organizational learning

37 How people learn

38 Learning and development

39 E-learning

40 Management development

41 Learning and development strategies

50 Framework of employee relations

51 Employee relations processes

52 Negotiating and bargaining

53 Employee voice

54 Communications

XI Health, safety and welfare

55 Health and safety

56 Welfare services

XII Employment and HRM services

57 Employment practices

58 HRM procedures

59 Computerised

HR information systems

Factors affecting HRM strategy policy and practice

III Work and employment

14 The nature of work

15 The employment relationship

16 The psychological contract

IV Organizational behaviour

17 Characteristics of people

18 Motivation

19 Commitment and engagement

20 How organizations function

21 Organizational culture

I People management

1 Human resource management

2 Human capital management

HRM strategy, policy and practice

6 International HRM

Figure 0.1 Route map

Managing people

This part underpins the rest of the Handbook It deals with the approaches and philosophies that affect how people are managed in organizations, the roles of the HR function and its members, and the special considerations that affect international people management The term ‘people management’ embraces the two related concepts of human resource management (HRM) and human capital management (HCM), which are defined and explained in the first two chapters These have virtually replaced the term ‘personnel management’, although the philosophies and practices of personnel management still provide the foundations for the philosophy and practices of HRM and HCM The relationships between these aspects of people management are modelled in Figure 0.2.

People management

The policies and practices which govern how people are managed and developed

in organizations.

Human resource management

‘A strategic and coherent approach to the

management of an organization’s most

valued assets – the people working there

who individually and collectively contribute

to the achievement of its objectives.’

Human capital management

‘An approach to obtaining, analysing and reporting on data which informs the direc- tion of value-adding people management strategic investment and operational deci- sions at corporate level and at the level of front line management.’

Personnel management

‘Personnel management is concerned with obtaining, organizing and motivating the human resources required by the enter- prise.’

(Armstrong, 1977)

Figure 0.2 Relationship between aspects of people management

Human resource management

The terms ‘human resource management’ (HRM) and ‘human resources’ (HR) havelargely replaced the term ‘personnel management’ as a description of the processesinvolved in managing people in organizations The concept of HRM underpins all theactivities described in this book, and the aim of this chapter is to provide a frameworkfor what follows by defining the concepts of HRM and an HR system, describing thevarious models of HRM and discussing its aims and characteristics The chaptercontinues with a review of reservations about HRM and the relationship betweenHRM and personnel management and concludes with a discussion of the impactHRM can make on organizational performance

HUMAN RESOURCE MANAGEMENT DEFINED

Human resource management is defined as a strategic and coherent approach to themanagement of an organization’s most valued assets – the people working there whoindividually and collectively contribute to the achievement of its objectives

Storey (1989) believes that HRM can be regarded as a ‘set of interrelated policieswith an ideological and philosophical underpinning’ He suggests 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

HUMAN RESOURCE SYSTEM

Human resource management operates through human resource systems that bringtogether in a coherent way:

● HR philosophies describing the overarching values and guiding principles adopted

in managing people

● HR strategies defining the direction in which HRM intends to go.

● HR policies, which are the guidelines defining how these values, principles and

the strategies should be applied and implemented in specific areas of HRM

● HR processes consisting of the formal procedures and methods used to put HR

strategic plans and policies into effect

● HR practices comprising the informal approaches used in managing people.

● HR programmes, which enable HR strategies, policies and practices to be

imple-mented according to plan

Becker and Gerhart (1996) have classified these components into three levels: thesystem architecture (guiding principles), policy alternatives and processes and prac-tices

See Figure 1.1

MODELS OF HRM

The matching model of HRM

One of the first explicit statements of the HRM concept was made by the Michigan

School (Fombrun et al, 1984) They held that HR systems and the organization

struc-ture should be managed in a way that is congruent with organizational strategy(hence the name ‘matching model’) They further explained that there is a humanresource cycle (an adaptation of which is illustrated in Figure 1.2), which consists offour generic processes or functions that are performed in all organizations These are:

1 selection – matching available human resources to jobs;

2 appraisal – performance management;

3 rewards – ‘the reward system is one of the most under-utilized and mishandled

managerial tools for driving organizational performance’; it must reward short

as well as long-term achievements, bearing in mind that ‘business must perform

in the present to succeed in the future’;

4 development – developing high quality employees.

Organization Resourcing

Human resource planning

Recruitment and selection

Talent management

HR services

HR development

Reward management

Employee relations

Performance management

Employee benefits

Health/safety

and welfare

Knowledge management

Human capital

management

HUMAN RESOURCE MANAGEMENT

Figure 1.1 HRM activities

The Harvard framework

The other founding fathers of HRM were the Harvard School of Beer et al (1984) who

developed what Boxall (1992) calls the ‘Harvard framework’ This framework isbased on the belief that the problems of historical personnel management can only besolved:

when general managers develop a viewpoint of how they wish to see employeesinvolved in and developed by the enterprise, and of what HRM policies and practicesmay 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 colleagues believed that ‘Today, many pressures are demanding abroader, more comprehensive and more strategic perspective with regard to the orga-nization’s human resources.’ These pressures have created a need for: ‘A longer-termperspective in managing people and consideration of people as potential assets ratherthan merely a variable cost.’ They were the first to underline the HRM tenet that itbelongs to line managers They also stated that: ‘Human resource managementinvolves all management decisions and action that affect the nature of the relation-ship between the organization and its employees – its human resources.’

The Harvard school suggested that HRM had two characteristic features: 1) linemanagers accept more responsibility for ensuring the alignment of competitivestrategy and personnel policies; 2) personnel has the mission of setting policies thatgovern how personnel activities are developed and implemented in ways that make

them more mutually reinforcing The Harvard framework as modelled by Beer et al is

shown in Figure 1.3

According to Boxall (1992) the advantages of this model are that it:

● incorporates recognition of a range of stakeholder interests;

● recognizes the importance of ‘trade-offs’, either explicitly or implicitly, betweenthe interests of owners and those of employees as well as between various interestgroups;

● widens the context of HRM to include ‘employee influence’, the organization ofwork and the associated question of supervisory style;

Long-term consequences

● individual being

well-● organizational effectiveness

● societal being

well-HRM policy choices:

● employee influence

● human resource flow

● reward systems

● work systems

Figure 1.3 The Harvard Framework for Human Resource Management (Source: Beer et al, 1984)

● acknowledges a broad range of contextual influences on management’s choice ofstrategy, suggesting a meshing of both product-market and socio-cultural logics;

● emphasizes strategic choice – it is not driven by situational or environmentaldeterminism

The Harvard model has exerted considerable influence over the theory and practice

of HRM, particularly in its emphasis on the fact that HRM is the concern of ment in general rather than the personnel function in particular

Organizational effectiveness

‘Distinctive human resource practices shape the core competencies that determinehow firms compete’ (Cappelli and Crocker-Hefter, 1996) Extensive research hasshown that such practices can make a significant impact on firm performance HRMstrategies aim to support programmes for improving organizational effectiveness bydeveloping policies in such areas as knowledge management, talent managementand generally creating ‘a great place to work’ This is the ‘big idea’ as described by

Purcell et al (2003), which consists of a ‘clear vision and a set of integrated values’.

More specifically, HR strategies can be concerned with the development of uous improvement and customer relations policies

contin-Human capital management

The human capital of an organization consists of the people who work there and onwhom the success of the business depends Human capital has been defined by

Bontis et al (1999) as follows:

Human capital represents the human factor in the organization; the combined gence, skills and expertise that give the organization its distinctive character The humanelements of the organization are those that are capable of learning, changing, innovatingand providing the creative thrust which if properly motivated can ensure the long-termsurvival of the organization

intelli-Human capital can be regarded as the prime asset of an organization and businessesneed to invest in that asset to ensure their survival and growth HRM aims to ensurethat the organization obtains and retains the skilled, committed and well-motivatedworkforce it needs This means taking steps to assess and satisfy future people needsand to enhance and develop the inherent capacities of people – their contributions,potential and employability – by providing learning and continuous developmentopportunities It involves the operation of ‘rigorous recruitment and selection proce-dures, performance-contingent incentive compensation systems, and management

development and training activities linked to the needs of the business’ (Becker et al,

1997) It also means engaging in talent management – the process of acquiring andnurturing talent, wherever it is and wherever it is needed, by using a number of inter-dependent HRM policies and practices in the fields of resourcing, learning and devel-opment, performance management and succession planning

The process of human capital management (HCM) as described in the nextchapter is closely associated with human resource management However, thefocus of HCM is more on the use of metrics (measurements of HR and people perfor-mance) as a means of providing guidance on people management strategy andpractice

Knowledge management

Knowledge management is ‘any process or practice of creating, acquiring, capturing,sharing and using knowledge, wherever it resides, to enhance learning and perfor-

mance in organizations’ (Scarborough et al, 1999) HRM aims to support the

develop-ment of firm-specific knowledge and skills that are the result of organizationallearning processes

The aim is to create a climate in which productive and harmonious relationships can

be maintained through partnerships between management and employees and theirtrade unions

Meeting diverse needs

HRM aims to develop and implement policies that balance and adapt to the needs ofits stakeholders and provide for the management of a diverse workforce, taking intoaccount individual and group differences in employment, personal needs, work styleand aspirations and the provision of equal opportunities for all

Bridging the gap between rhetoric and reality

The research conducted by Gratton et al (1999) found that there was generally a wide

gap between the sort of rhetoric expressed above and reality Managements may startwith good intentions to do some or all of these things but the realization of them –

‘theory in use’ – is often very difficult This arises because of contextual and processproblems: other business priorities, short-termism, limited support from linemanagers, an inadequate infrastructure of supporting processes, lack of resources,resistance to change and lack of trust An overarching aim of HRM is to bridge thisgap by making every attempt to ensure that aspirations are translated into sustainedand effective action To do this, members of the HR function have to remember that it

is relatively easy to come up with new and innovatory policies and practice Thechallenge is to get them to work They must appreciate, in the phrase used by Purcell

et al (2003) that it is the front line managers who bring HR policies to life, and act

2 Aligning HRM policies with business policies and corporate strategy

3 Developing a close fit of HR policies, procedures and systems with one another

4 Creating a flatter and more flexible organization capable of responding morequickly to change

5 Encouraging team working and co-operation across internal organizationalboundaries

6 Creating a strong customer-first philosophy throughout the organization

7 Empowering employees to manage their own self-development and learning

8 Developing reward strategies designed to support a performance-drivenculture.

9 Improving employee involvement through better internal communication

10 Building greater employee commitment to the organization

11 Increasing line management responsibility for HR policies

12 Developing the facilitating role of managers as enablers

● based on the belief that people should be treated as assets (human capital);

● unitarist rather than pluralist, individualistic rather than collective in its approach

Hendry and Pettigrew (1990) play down the prescriptive element of the HRMmodel and extend the analytical elements As pointed out by Boxall (1992), such anapproach rightly avoids labelling HRM as a single form and advances more slowly

by proceeding more analytically It is argued by Hendry and Pettigrew that ‘betterdescriptions of structures and strategy-making in complex organizations, and offrameworks for understanding them, are an essential underpinning for HRM’

A distinction was made by Storey (1989) between the ‘hard’ and ‘soft’ versions ofHRM The hard version of HRM emphasizes that people are important resourcesthrough which organizations achieve competitive advantage These resources havetherefore to be acquired, developed and deployed in ways that will benefit the orga-nization 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 AsGuest (1999a) comments:

The drive to adopt HRM is based on the business case of a need to respond to anexternal threat from increasing competition It is a philosophy that appeals to manage-ments who are striving to increase competitive advantage and appreciate that to do thisthey must invest in human resources as well as new technology

He also commented that HRM ‘reflects a long-standing capitalist tradition in whichthe worker is regarded as a commodity’ The emphasis is therefore on the interests ofmanagement, integration with business strategy, obtaining added value from people

by the processes of human resource development and performance management andthe need for a strong corporate culture expressed in mission and value statementsand reinforced by communications, training and performance managementprocesses

The soft version of HRM traces its roots to the human-relations school; it sizes communication, motivation and leadership As described by Storey (1989) itinvolves ‘treating employees as valued assets, a source of competitive advantagethrough their commitment, adaptability and high quality (of skills, performance and

empha-so on)’ It therefore views employees, in the words of Guest (1999a), as means ratherthan objects, but it does not go as far as following Kant’s advice: ‘Treat people as endsunto themselves rather than as means to an end.’ The soft approach to HRM stressesthe need to gain the commitment – the ‘hearts and minds’ – of employees throughinvolvement, communications and other methods of developing a high-commitment,high-trust organization Attention is also drawn to the key role of organizationalculture

In 1998, Legge defined the ‘hard’ model of HRM as a process emphasizing ‘theclose integration of human resource policies with business strategy which regardsemployees as a resource to be managed in the same rational way as any otherresource being exploited for maximum return’ In contrast, the soft version of HRMsees employees as ‘valued assets and as a source of competitive advantage throughtheir commitment, adaptability and high level of skills and performance’

It has, however, been observed by Truss (1999) that ‘even if the rhetoric of HRM issoft, the reality is often hard, with the interests of the organization prevailing over

those of the individual’ And research carried out by Gratton et al (1999) found that in

the eight organizations they studied, a mixture of hard and soft HRM approaches wasidentified This suggested to the researchers that the distinction between hard andsoft HRM was not as precise as some commentators have implied

The strategic nature of HRM

Perhaps the most significant feature of HRM is the importance attached to strategicintegration, which flows from top management’s vision and leadership, and whichrequires the full commitment of people to it Guest (1987, 1989a, 1989b, 1991) believesthat this is a key policy goal for HRM, which is concerned with the ability of the orga-nization to integrate HRM issues into its strategic plans, to ensure that the variousaspects of HRM cohere, and to encourage line managers to incorporate an HRMperspective into their decision-making

Legge (1989) considers that one of the common themes of the typical definitions ofHRM is that human resource policies should be integrated with strategic businessplanning Sisson (1990) suggests that a feature increasingly associated with HRM is astress on the integration of HR policies both with one another and with business plan-ning more generally

Storey (1989) suggests that: ‘The concept locates HRM policy formulation firmly atthe strategic level and insists that a characteristic of HRM is its internally coherentapproach.’

The commitment-oriented nature of HRM

The importance of commitment and mutuality was emphasized by Walton (1985a) asfollows:

The new HRM model is composed of policies that promote mutuality – mutual goals,mutual influence, mutual respect, mutual rewards, and mutual responsibility The theory

is that policies of mutuality will elicit commitment, which in turn will yield both bettereconomic performance and greater human development

Guest (1987) wrote that one of the HRM policy goals was the achievement of highcommitment – ‘behavioural commitment to pursue agreed goals, and attitudinalcommitment reflected in a strong identification with the enterprise’

It was noted by Legge (1995) that human resources ‘may be tapped most effectively

by mutually consistent policies that promote commitment and which, as a quence, foster a willingness in employees to act flexibly in the interests of the “adap-tive organization’s” pursuit of excellence’

conse-But this emphasis on commitment has been criticized from the earliest days ofHRM 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 andvalues 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 toclaim full mutuality when at the end of the day the employer can decide unilaterally toclose the company or sell it to someone else?

People as ‘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 Karen Legge (1995), holds that ‘human resourcesare 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 todeploy these in the interests of the employing organization, are now recognized asmaking a significant contribution to organizational success and as constituting a signifi-cant source of competitive advantage

Unitary philosophy

The HRM approach to employee relations is basically unitary – it is believed thatemployees share the same interests as employers This contrasts with what could beregarded as the more realistic pluralist view, which says that all organizations contain

a number of interest groups and that the interests of employers and employees do notnecessarily coincide

Individualistic

HRM is individualistic in that it emphasizes the importance of maintaining linksbetween the organization and individual employees in preference to operatingthrough group and representative systems

HRM as a management-driven activity

HRM can be described as a central, senior management-driven strategic activity that

is developed, owned and delivered by management as a whole to promote the ests of the organization that they serve Purcell (1993) thinks that ‘the adoption ofHRM is both a product of and a cause of a significant concentration of power in thehands of management’, while the widespread use ‘of the language of HRM, if not itspractice, is a combination of its intuitive appeal to managers and, more importantly, aresponse to the turbulence of product and financial markets’ He asserts that HRM isabout the rediscovery of management prerogative He considers that HRM policies

inter-and practices, when applied within a firm as a break from the past, are often ated with words such as commitment, competence, empowerment, flexibility,culture, performance, assessment, reward, teamwork, involvement, cooperation,harmonization, quality and learning But ‘the danger of descriptions of HRM asmodern best-management practice is that they stereotype the past and idealize thefuture’.

associ-Sisson (1990) suggested that: ‘The locus of responsibility for personnel ment no longer resides with (or is “relegated to”) specialist managers.’ More recently,

manage-Purcell et al (2003) underlined the importance of line management commitment and

capability as the means by which HR policies are brought to life

Focus on business values

The concept of HRM is largely based on a management and business-oriented ophy It is concerned with the total interests of the organization – the interests of themembers of the organization are recognized but subordinated to those of the enter-prise Hence the importance attached to strategic integration and strong cultures,which flow from top management’s vision and leadership, and which require peoplewho will be committed to the strategy, who will be adaptable to change, and who willfit the culture By implication, as Guest (1991) says: ‘HRM is too important to be left topersonnel managers.’

philos-In 1995 Legge noted that HRM policies are adapted to drive business values andare modified in the light of changing business objectives and conditions Shedescribes this process as ‘thinking pragmatism’ and suggests that evidence indicatesmore support for the hard versions of HRM than the soft version

RESERVATIONS ABOUT HRM

For some time HRM was a controversial topic, especially in academic circles Themain reservations have been that HRM promises more than it delivers and that itsmorality 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 hypothesesare not made explicit It is too comprehensive… If HRM is labelled a ‘theory’ it raisesexpectations about its ability to describe and predict

Guest (1991) believes that HRM is an ‘optimistic but ambiguous concept’; it is allhype and hope.

Mabey et al (1998) follow this up by asserting that ‘the heralded outcomes (of HRM)

are almost without exception unrealistically high’ To put the concept of HRM intopractice involves strategic integration, developing a coherent and consistent set ofemployment policies, and gaining commitment This requires high levels of determi-nation and competence at all levels of management and a strong and effective HRfunction staffed by business-oriented people It may be difficult to meet these criteria,especially when the proposed HRM culture conflicts with the established corporateculture and traditional managerial attitudes and behaviour

Gratton et al (1999) are convinced on the basis of their research that there is:

a disjunction between rhetoric and reality in the area of human resource managementbetween HRM theory and HRM practice, between what the HR function says it is doingand that practice as perceived by employers, and between what senior managementbelieves 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 resourcemanagement’

Caldwell (2004) believes that HRM ‘is an unfinished project informed by a

self-fulfilling vision of what it should be’.

In response to the above comments it is agreed that many organizations that thinkthey are practising HRM are doing nothing of the kind It is difficult, and it is best not

to expect too much Most of the managements who hurriedly adopted related pay as an HRM device that would act as a lever for change have been sorelydisappointed

performance-But the research conducted by Guest and Conway (1997) covering a stratifiedrandom sample of 1,000 workers established that a notably high level of HRM wasfound to be in place This contradicts the view that management has tended to ‘talkup’ the adoption of HRM practices The HRM characteristics covered by the surveyincluded the opportunity to express grievances and raise personal concerns on suchmatters as opportunities for training and development, communications about busi-ness issues, single status, effective systems for dealing with bullying and harassment

at work, making jobs interesting and varied, promotion from within, involvementprogrammes, no compulsory redundancies, performance-related pay, profit sharingand the use of attitude surveys

The morality of HRM

HRM is accused by many academics of being manipulative if not positively immoral